TMI Blog2014 (1) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... ment to enact sec. 41(1) creating fiction is not to put any extra burden of tax on the assessee but to take away the benefit which is enjoyed by the assessee by reducing the tax liability under the charging provisions of the Act – the AO directed to verify the record and reduce amount from addition made u/s 41(1) in the year – Decided partly in favour of Assessee. - ITA No.1308/Pn/2010 - - - Dated:- 31-5-2013 - G S Pannu And R S Padvekar, JJ. For the Appellant : Shri S N Doshi For the Respondent : Shri S K Singh ORDER:- PER : R S Padvekar The assessee has filed an application u/s 254(2) of the Income-tax Act, 1961 being M.A. No. 53/PN/2012 with a prayer to recall the order passed in ITA No. 1308/PN/2011 dated 6-3-2012 pointing out various mistakes. While disposing of the Miscellaneous Application, the Tribunal accepted the plea of the assessee that there was a non-consideration of an alternate submission made by the assessee while adjudicating Ground No. 4. In Ground No. 4, the assessee had contended that the Ld. CIT(A) erred in holding that there is a cession of liability to the extent of Rs. 541.80 crores in the A.Y. 2002-03 within the meaning of sec. 41(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff basis. Due to the disparity in the tariff the assessee started incurring huge losses. The representation was made before the Govt. of Maharashtra. Subsequently, the Govt. of Maharashtra accepted the representation made by the assessee society to the MSEB for determining viable tariff and a notification to that effect was issued in the Gazette on 21-5-1999 determining the viable tariff. In compliance to the Govt. notification MSEB vide letter dated 13-5-2001 informed the assessee that the tariff payable by the assessee to the MSEB was reviewed from April 1977 to April 2000. As a result of the said review, the arrears of MSEB were substantially reduced. The MSEB after recalculating the viable tariff vide letter dated 13-5-2001 has allowed rebate to the extent of Rs. 541.80 crores in the price payable by the assessee to the MSEB. The rebate allowed to the extent of Rs. 541.80 crores has been treated as cession of liability within the meaning of sec. 41(1) of the Act by the Assessing Officer as well as the Ld. CIT(A) and the same amount is added in the income of the assessee in the A.Y. 2002-03. 3. We are concerned with the limited issue so far as the alternate plea of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said loss for at least next eight subsequent years and set off the same u/s 72 of the Act. He submits that the fact of allowance or deduction is not restricted to the year in which it is made but it continued in view of sec. 72 to the extent of further eight years and if the business loss is set off as per sec. 72 then in true sense the assessee receives the benefit in excess of the loss. He further argues sec. 41(1) that being a deeming provision, the intention of Parliament is not to levy the tax burden on an assessee who has not received any tax benefit in respect of any allowance or deduction but to recover any tax benefits which the assessee had availed in any assessment year by way of set off of losses u/s 72 of the Act in the subsequent assessment year. He further pleaded that this is a case where no tax liability can be fastened on the assessee on the amount of aggregate loss of Rs. 140,46,06,586 and he pleaded for reducing the amount to that extent. He concludes his argument by submitting that to extent of Rs. 140,46,06,586/- crores sec. 41(1) of the Act is not applicable. 5. We also heard the Ld. DR who submits that we have to give literal interpretation to provision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argeable 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. Explanation 2 - For the purposes of this sub-section, "successor in business means (i) where there has been an amalgamation of a company with another company, the amalgamated company; (ii) where the first mentioned person is succeeded by any other person in that business or profession, the other person; (iii) where a firm carrying on a business or profession is succeeded by another firm, the other firm; (iv) where there has been a demerger, the resulting company, (2) ............" 7. In the case of Narayanan Chettiar Industries Vs. ITO (2005) 277 ITR 426 (Mad), the Hon'ble Madras High following the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fession" is a loss to the assessee not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of sec.71 so much of the loss as has not been so set off or where he has no income under any other head the whole loss shall, subject to the other provisions of this chapter, be carried forward to the following assessment year, and (i) It shall be set off against the profits and gain, if any of any business or profession carried on by him and assessable for that assessment year; (ii) If the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on; Provided that where the whole or any part of such loss is sustained in any such business as is referred to in section 33B which is discontinued in the circumstances specified in that section, and thereafter any time before the expiry of the period of three years referred to in that section, such business is re-established reconstructed or revived by the assessee so much of the loss as is attributable to such business shall be carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Loss Business Loss Depreciation (i + ii) (i) (ii) 1978-79 27,027,228.00 12,676,952.00 1,977,280.00 404,805.00 1,572,475.00 1979-80 27,970,011.00 17,678,546.00 14,436,956.00 10,626,477.00 3,810,479.00 1980-81 32,838,849.00 25,089,815.00 15,447,600.00 11,547,220.00 3,900,380.00 1981-82 47,048,917.00 29,174,377.00 21,626,000.00 21,207,605.00 418,395.00 1982-83 53,799,545.00 43,517,772.00 30,325,000.00 25,306,791.00 5,018,209.00 1983-84 67,479,868.00 45,625,795.00 80,026,613.00 29,427,461.00 50,599,152.00 1984-85 76,846,696.00 48,940,039.00 41,453,100.00 35,674,492.00 5,778,608.00 1985-86 171,408,895.00 137,798,717.00 87,780,030.00 81,312,454.00 6,467,576.00 1986-87 157,282,352.00 111,782,102.00 100,544,040.00 93,579,193.00 69,64,847.00 1987-88 234,750,926.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 72 of the Act, in such a situation, in our opinion, section 41(1) of the Act cannot be invoked. In this case the entire rebate is treated as cessation of liability to the extent of Rs. 541.80 crores and the addition is made in the A.Y. 2002-03. The assessee could get the benefit of the brought forward business losses from the A.Y. 1993-94 as well as depreciation allowance and the tax liability of the assessee is reduced. So far as these fifteen assessment years are concerned, even if the rebate relates to the tariff which is debited to the P L a/c in the respective assessment years but the fact remains that the losses which were worked out after debiting the said tariff had lapsed. Both the parties have not brought to our notice any direct decision on this crucial issue but to our conscious, considering the intention of the Parliament to enact sec. 41(1) creating fiction is not to put any extra burden of tax on the assessee but to take away the benefit which is enjoyed by the assessee by reducing the tax liability under the charging provisions of the Act. We therefore, hold that to the extent of Rs. 140,46,06,586/- sec. 41(1) cannot be applied and the said amount has to be re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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