TMI Blog1992 (7) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee formerly was having business at Veraval in cotton seed processing and an oil extraction plant. For the assessment year in question, the assessee had declared a loss of Rs. 31,452 as under : Rs. Interest provision made in the suspense account 49,500 Less : Receipt from sales of stores 18,048 ------------- 31,452 ------------- The Income-tax Officer, amongst other items with which we are not concerned, disallowed the aforesaid loss on the ground that it was not shown that the assessee, during the relevant assessment year in question, had actually run the business. According to the Income-tax Officer, it cannot be said that the assessee was engaged in any business in the year in question and, therefore, it had to be held that the business was closed. Consequently, the assessee's claim in respect of interest provision of Rs. 49,500 could not be allowed. So far as the receipt of Rs. 18,048 was concerned, the Income-tax Officer took the view that the assessee had not furnished any details as to how he sold the goods, disposed of them and how he, had purchased them. The assessee carried the matter in appeal. The Appellate Assistant Commissioner of Income-tax, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from their sale during the relevant assessment year would give rise to the aforesaid legal fiction. By raising such a legal fiction, the Tribunal reached the conclusion that, for the purpose of the present assessment year, the assessee's business can be treated to have been continued and hence loss can be deducted as suggested by the assessee. Mr. Shelat, for the Revenue, in support of this reference vehemently contended that the Tribunal had patently erred in law in raising the legal fiction about continuance of the assessee's business during the relevant assessment year by resorting to section 41(1) of the Act when the very condition precedent to the applicability of the said provision was not established on the facts of the present case. In order to appreciate this contention, we have to look at section 41(1) of the Act which reads as under : " Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of articles worth Rs. 18,048 which were sold in the year under appeal. Details of these articles are mentioned in the order of the learned Appellate Assistant Commissioner. Having regard to the articles it would appear that the assessee must have claimed deduction in respect Of expenditure incurred in connection with the purchase of these articles in the past. Therefore, the said amount of Rs. 18,048 would fall under section 41(i) of the Income-tax Act, 1961. " The aforesaid conclusion of the Tribunal for raising the legal fiction under section 41(1) proceeds on three assumptions : (i) that the entire amount of Rs. 18,048 realised from the sale of concerned listed five articles wholly comprised of articles which were required to be utilised in the course of the assessee's business during the earlier years; (ii) expenditure on these articles must have been claimed by the assessee as business expenditure during the relevant year when these articles were acquired for the purpose of the business and (iii) that such allowance or deduction was actually made in the relevant assessment years, meaning thereby, that even the Department would have permitted such deduction/allowance to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumed by the Tribunal. Reliance placed by the Tribunal on the decision of the Allahabad High Court in CIT v. Rampur Timber and Turnery Co. Ltd. [1973] 89 ITR 150, is also misplaced. The Allahabad High Court, in that matter, was not concerned with any anterior facts by way of pre-condition for raising the legal fiction under section 41(1). Such anterior facts by way of pre-condition were actually established on record and they were not in dispute. Once that happened, the legal fiction under section 41(1) operated and then all consequential posterior facts could be validly presumed as held by the Allahabad High Court. In the case before the Allahabad High Court, the assessee had claimed that though his business had come to end during the relevant previous year, he had received a refund of Rs. 6,982 from the electricity department out of the electricity charges already paid by the assessee in the earlier years when the assessee was carrying on the business which had been allowed to the assessee as an expenditure of the business in those assessments. During the assessment for the assessment year 1962-63, the Income-tax Officer included the aforesaid amount of Rs. 6,982 as business inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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