TaxTMI 
TaxTMI 
2017 (11) TMI 1068
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....the addition of Rs. 306,75,17,000 to the total income under section 41(1) of the Income Tax Act, 1961. 2. There was no cessation and remission of liability when the holding company had clearly informed the appellant that its writing off Rs. 306,75,17,000 in the books of account was without prejudice to its right to recover the amount from the appellant in future. 3. When the amount was written off by the holding company in its books of accounts for the year ending on 31.03.2007, section 41(1) cannot be invoked against the appellant for the assessment year 2008-09. 4. Without establishing which particular loss, expenditure or trading liability the appellant was allowed an allowance or deduction of Rs. 306,75,17,000 in an earlier assessment year, section 41(1) cannot be invoked against the appellant. 5. Without identifying the previous year in which the appellant benefitted by way of allowance or deduction of Rs. 306,75,17,000 section 41(1) cannot be invoked. 6. Addition under section 41(1) cannot be sustained, when the holding company in its letter dated 14.03.2013 had informed the appellant that the amount written off has been written ba....
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....d the same cannot be treated as taxable under section 41(1). However, the ld. Assessing Officer held that the amount of Rs. 306.75 crores arose from the business dealings and, therefore, when write-off took place by NACIL, this amount no longer remain liability but they became part of the business income of the assessee and otherwise also benefit has been received by the assessee and hence, the said sum is taxable as income under section 28(iv), because such benefit has been obtained in the course of business. Thus, he added the sum under both the provision, i.e., sections 28(iv) and 41(1). While coming to this conclusion, he relied upon the following judgments:- (i) CIT vs. T.V. Sundaram Iyengar and Sons Ltd. Reported in [1996] 222 ITR 344 (SC). (ii) Solid Containers Ltd. vs. DCIT reported in [2009] 308 ITR 417 (Mumbai). 7. Before the ld. CIT (Appeals), assessee made very detailed submissions, which have been dealt and incorporated by the ld. CIT (A) from pages 5 to 10 of the appellate order. The sum and substance of the assessee's contention has been that:- * Firstly, money was received as pure advance given by the holding company, Indian Airlines/ A....
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....on 41(1). * Secondly, he held that liability to be allowed has to be confirmed not only by way of entry in the debtor's book but also by corresponding entry in the creditor's books of account. In this case, neither corresponding entry of the amount is appearing in the creditor's book nor there is any confirmation by the creditor during the year under consideration that amount is owed by the assessee company. * Thirdly, with regard to letter dated 14/3/2013 written by NACIL that they have added back the amount in their accounts as on 31-03-2012, which was filed as an additional evidence before the ld. CIT (A), for which he had also called for the remand report from the AO; he held that the said letter from NACIL/Air India stating that liability has been written back, is clearly an afterthought and shows collusive arrangement between the holding and the subsidiary company. * Fourthly, after taking note of Explanation 1 to section 41(1), he held that unilateral write off by the debtor though is reckoned as remission or cession of liability for invoking the provisions of section 41(1), but this Explanation mainly enlarges the scope of the said section and now....
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....t can only be brought to tax in that previous year in the year in which such value or benefit has accrued to him. In support of his various contentions, the ld. counsel for the assessee has relied upon the following judgments:- 1. Commissioner of Income-tax, Delhi-ll vs. Jain Exports (P) Ltd., (2013) 35 taxmann.com 540 (Delhi) 2. Jagad Bandhu Chatterjee vs. Smt. Nilima rani, 1969 (3) SCC 445 3. Shashikala Devi vs. Central Bank of India, (2014) 16 SCC 260 4. Chief Commissioner of Income Tax vs. Kesaria Tea Co. Ltd., (2002) 122 Taxman 91 (SC) / (2002) 254 ITR 434 (SC) 5. Pr. Commissioner of Income-tax, Ahmedabad vs. Matruprasad C Pandey, (2015) 59 taxmann.com 428 (Gujarat) / (20150 377 ITR 363 (Guj.) 6. CIT vs. Shri Vardhman Overseas Ltd., (2012) 343 ITR 408 (Delhi) 10. The ld. CIT D.R., after referring and relying upon various observations made by the ld. CIT (Appeals), submitted that the assessee has not given any evidence that the said amount has ever been paid back to Air India even after lapse of such time. In support of her contentions, she too had relied upon the following judgments:- 1. CIT vs. T.V. Sundaram Iyengar & Sons Lt....
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....n business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. Explanation 1 For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts.]" 12. From a plain reading of the said provision, it is quite apparent that an amount to be taxed under this sub-section, it is imperative that any allowance or deduction has been made in the asses....
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....such finding or fact, provisions of section 41(1) cannot be triggered at all. The condition precedent for invoking the said section is that the amount should have been first allowed or deduction of such amount has been allowed in any of the earlier year and such an allowance or deduction should be in the nature of loss, expenditure or trading liability. Here in this case this pre-eminent condition is clearly lacking. Accordingly, we hold that on this ground alone, the said amount cannot be taxed under section 41(1). 14. Further, to be brought within the taxing ambit of section 41(1) it is imperative that concept of benefit to the assessee as envisaged in the said section has to be seen from the angle, whether the said benefit has arisen in respect of remission or cessation of trading liability or not and if it is otherwise, then it cannot be reckoned as benefit liable for taxation. In other words, if it is not on account of trading liability, it cannot be held that it amounts to benefit in terms of clause (a) of section 41(1). Here in this case as held earlier the no benefit has been derived by the assessee by way of remission or cessation of any trading liability, albeit the am....
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....tax under section 28(iv). It can be explained from another angle also, suppose if the said amount is brought to tax under section 28(iv) and then assessee in later year had to pay back its liability, then is there any provision under the Act to allow such liability, barring section 41(1) which envisages such situation. Answer would be negative. Section 28(iv) in our humble opinion in such situation cannot be made subjected to such a vagaries or subjectivity in its applicability. On the other hand, provisions of section 41(1) has been specifically incorporated in the Act to cover a particular fact or situation where a trading liability was allowed in earlier year in computing the business income of the assessee and assessee has obtained benefit in respect of such trading liability in later year by way of remission or cessation of the liability, then whatever benefit has arisen to the assessee in the later year by way of remission or cessation of the liability will be brought to tax in that year. The apprehension as intended by the Legislature by incorporating the said provision is to ensure that assessee does not get away with a double benefit, once by way of deduction in an earlier....