IN THE INCOME TAX APPELLATE TRIBUNAL
"B" Bench, Mumbai
Before Shri D. Manmohan, Vice President
and Shri Rajendra, Accountant Member
ITA No. 5968/Mum/2011
(Assessment Year: 2008-09)
A C I T - 19(2) M/s. National Pharmaceuticals
Room No. 315, 3rd Floor Vs. Sona Mohar, Behind Municipal
Piramal Chambers, Lalbaug Market, Off Nehru Road
Parel, Mumbai 400012 Santacruz (E), Mumbai 400055
PAN - AAAFN3812F
Appellant Respondent
Appellant by: Shri B.P.K. Panda
Respondent by: Shri Rajan Vora
Date of Hearing: 19.11.2013
Date of Pronouncement: 19.11.2013
ORDER
Per D. Manmohan, V.P.
This appeal by the Revenue is directed against the order dated
22.06.2011 passed by the CIT(A)-35, Mumbai and it pertains to A.Y. 2008-09.
2. The following grounds were urged before us: -
"1. On the facts and in the circumstances of the case and in law, the
Leaned CIT(A) has erred in deleting the addition of Rs.28,85,000/-
u/s. 41(1) of the I.T. Act after holding that section 41(1) can be
applied only if deduction was allowed in earlier assessment year
while computing income under the head `Business'.
2. On the facts and in the circumstances of the case and in law, the
Learned CIT(A) has failed to appreciate the fact that section 41(1)
can also be applicable to the value of benefit accruing to the
assessee which deemed to be profit and gains of business or
profession and accordingly, can be brought to tax as income of the
previous year in respect of which such amount or benefit is
obtained."
3. Facts necessary for disposal of the appeal are stated in brief. The
assessee is a partnership firm engaged in the business of land development
and construction of buildings. For the year under consideration it declared
total income of `1,15,54,130/-. While completing the assessment under
2 ITA No. 5968/Mum/2011
M/s. National Pharmaceuticals
section 143(3) of the Act the AO sought to make an addition of `28,85,000/-
under section 41(1) of the Act on the ground that the assessee entered into
an agreement dated 20.08.1993 for sale of plot at Kalina for a total
consideration of `5.77 crores wherein it was liable to share the stamp duty
expenses and registration charges. However, the company, to whom it was
to be sold, did not come forward to execute the conveyance deed and,
therefore, the assessee continued to be the legal owner of the plot till the
financial year 2007-08. The assessee admitted capital gain on sale of land
for a consideration of `5.77 crores in which a sum of `30 lakhs was claimed
as deduction towards its share of stamp duty and registration charges.
Since no such payment was actually made conveyance deed was ultimately
not executed till the assessment year under consideration the AO was of
the opinion that there is remission of liability to the extent of `28,85,000/-
which deserves to be brought to tax under section 41(1) of the Act.
4. The plea of the assessee, on the other hand, was that remission of
liability, on capital account, is outside the purview of section 41(1) of the
Act. The AO rejected the contention of the assessee and thus the assessee
preferred an appeal before the first Appellate Authority.
5. The learned CIT(A) considered the issue in great detail while coming to
the conclusion that the impugned amount cannot be brought to tax under
section 41(1) of the Act. In this regard he observed as under: -
"The A.O. taxed Rs.28,85,000/- under the head business whereas
the claim of the appellant is that section 41(1) is not applicable to the
facts of the case. From the above, it is clear that the deduction of
Rs.28,85,000/- was allowed while computing the income under the
head capital gains for A.Y. 1995-96. Section 41(1) can be applied only if
deduction was allowed in the earlier assessment year while computing
the income under the head business. The income under each head is to
be computed as per separate provisions provided in the Act. If any
deduction had been allowed while computing capital gains and if such
liability ceased to exist, the same cannot be taxed as it represents
benefit in the capital field unless specific provisions are available in the
Act. As contended by the representative, the Hon'ble Calcutta High Court
in the case of CIT vs. Indian Automobiles Ltd. (cited above) held that the
remission of liability for municipal taxes allowed as deduction cannot be
charged under section 41(1) and subsequently amendments were made
to allow deduction of municipal taxes on payment basis. The A.O. has
referred to certain judicial pronouncements in the Assessment Order but
3 ITA No. 5968/Mum/2011
M/s. National Pharmaceuticals
in those cases the deduction was allowed while computing the income
under the head business whereas in the case of the appellant, the
deduction was granted while computing the income under the head
capital gains and, therefore, the above decisions are not applicable to
the facts of the case of the appellant. I accept the plea of the
representative that section 41(1) is not applicable in the case of the
appellant as the deduction was allowed under the head capital gains for
A.Y. 1995-96. In the circumstances, the A.O. is directed to delete the
addition of Rs.28,85,000/-".
6. Aggrieved, Revenue is in appeal before us. The learned D.R. strongly
relied upon the order passed by the AO. On the other hand, the learned
counsel for the assessee submitted that no deduction was claimed or
allowed in the revenue field whereas section 41(1) of the Act can be made
applicable only if the deduction was allowed in an earlier assessment year
while computing the income under the head `Business'. In other words, if
any deduction was allowed in respect of loss, expenditure or trade liability
while computing business income and if such liability ceased to exist in the
subsequent years, the same can be brought to tax by virtue of fiction created
under section 41(1) of the Act but it does not extend to any deduction
claimed in the capital account.
7. We have carefully considered the rival submissions and perused the
record. It is not the case of the Revenue that the impugned amount was
allowed as deduction in the revenue field in any of the preceding years. Such
being the case we do not find any infirmity in the order passed by the
learned CIT(A) Having regard to the detailed discussion made by the
learned CIT(A) wherein he has considered section 41(1) to hold that it is
not a case of remission of liability which was otherwise allowed in the
preceding years against business income. We, therefore, uphold the order of
the learned CIT(A) and dismiss the appeal filed by the Revenue.
Order pronounced in the open court on 19th November, 2013.
Sd/- Sd/-
(Rajendra) (D. Manmohan)
Accountant Member Vice President
Mumbai, Dated: 19th November, 2013
4 ITA No. 5968/Mum/2011
M/s. National Pharmaceuticals
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) 35, Mumbai
4. The CIT 19, Mumbai City
5. The DR, "B" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.
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