2021 (4) TMI 1350 - AT - Income Tax

Expenditure debited to the profit and loss account allowable to the extent it reduces the profit to Rs.NIL - CIT-A upholding the AO s action invoking Section 40(a)(ia) disallowance with further directions to AO that the said expenses ought to be allowed only to the extent it reduces assessee s net profits to Zero only - HELD THAT - We find no reason to sustain the same.There is no provision in the Act and more particularly in Chapter IV-D from Section 28 to 44BB dealing with profit and gains of a business or a profession which can suggest that an expenditure claim s disallowance could be restricted to zero income therein resulting in loss figures as well. While holding so it would not be out of context altogether if we refer to hon ble apex court s larger bench decision in CIT Vs. Manmohan Das 1965 (11) TMI 33 - SUPREME COURT that an AO arriving at loss figure cannot restrict the same from being carried forward in earlier year since it is for the assessing authority of the subsequent year to deal with such an issue and if at all the former of them decides the same in such a manner it is not binding on the assessee in the said subsequent year. We adopt the very reasoning herein as well mindful of the fact that if the impugned expenditure claimed results the assessee s income computed in loss its expenditure claim which is otherwise allowable ought not to be accepted as not within the four corners of the fiscal statute. There is also no such restrictions clause in Chapter VI of the Act to this effect as well. Case law Commissioner of Customs Vs. Dilip Kumar Co. Others 2018 (7) TMI 1826 - SUPREME COURT has settled the law that a fiscal statute has to be strictly interpreted whether dealing with taxing or exemption provisions. DR fails to rebut the fact that the CIT(A) impugned directions have not quoted any statutory provision at all that such a disallowance subsists till it reaches NIL income only. We thus reverse the CIT(A) findings under challenge for this precise reason alone. The assessee s sole substantive ground succeeds.

Summary

Issues:
Appeals for the Assessment Years 2010-11 & 2011-12 arising from separate orders of the Commissioner of Income Tax (Appeals) under Section 143(3) of the Income Tax Act, 1961.

Analysis:
1. Grounds of Appeal:
The appellant raised several substantive grounds challenging the Commissioner of Income Tax (Appeals) orders. These grounds included contentions about the erroneous nature of the orders, the treatment of expenditure debited to the profit and loss account, and the determination of income without considering the actual loss incurred during the relevant years.

2. Contentions and Directions:
The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's action invoking Section 40(a)(ia) disallowance for the Assessment Year 2010-11. The direction was given that expenses should only be allowed to the extent that they reduce the assessee's net profits to zero. The reasoning provided was based on the principle that expenditure claims disallowance could be restricted to zero income, resulting in loss figures as well.

3. Judgment and Ruling:
Upon careful consideration of the arguments presented, the Appellate Tribunal found no provision in the Income Tax Act that supports restricting expenditure claims disallowance to zero income, leading to loss figures. Referring to a previous Supreme Court decision, it was clarified that an Assessing Officer determining a loss figure cannot prevent it from being carried forward to the next year. The Tribunal emphasized that expenditure claims resulting in the assessee's income computed as a loss should still be accepted as allowable expenses.

4. Decision and Conclusion:
The Tribunal reversed the Commissioner of Income Tax (Appeals) findings, emphasizing that there was no statutory provision supporting the limitation of disallowance to zero income. The Tribunal ruled in favor of the appellant, allowing the appeals for both Assessment Years 2010-11 and 2011-12. The orders were pronounced in open court on 22nd April 2021, with the direction to place a copy of the order in the respective files.