ITAT Deletes Estimated Addition made by AO in Hypothetical Way by making Disallowance of Loss claimed by Assessee u/s 41 of Income Tax Act [Read Order]

The Kolkata Bench of Income Tax Appellate Tribunal (ITAT) has deleted the estimated addition made by the Assessing Officer (AO) in a hypothetical way by making disallowance of loss claimed by the assessee under Section 41 of the Income Tax Act 1961.

The assessee, Assam Tea Corporation Ltd company was an instrumentality of Assam State.

It was engaged in tea plantation and manufacturing of tea. It had filed its return of income electronically on 30.09.2012 declaring total loss. The case of the assessee was selected for scrutiny and a notice under Section 143(2) of the Income Tax Act was issued

and served upon the assessee.

During the course of assessment proceedings, the Assessing Officer found that

assessee had shown sundry creditors amounting to Rs. 141.38 Cr as on 31.03.2012. He perused the details of these and thereafter made the addition of the sundry creditors to the extent assessee has disclosed the losses.

Ramesh Goenka, on behalf of the assessee pointed out that these credits represented arrears of salary, ration dues, firewood compensation, medical reimbursement, leave travel concession etc. He contended that assessee had been making payment as and when it received donations. A substantial payment had been made out of the alleged amount which had been added for charging the income tax.

Arun Bhowmick, on the other hand, relied upon the orders of Revenue authorities.

The two-member Bench of Rajpal Yadav, (Vice President) and Girish Agrawal, (Accountant Member) observed that Section 41(1) of the Income Tax Act had been incorporated in the Act to cover a particular fact situation. This Section would apply where a trading liability was allowed as a deduction in earlier years in computing the business income of the assessee and the assessee had opted a benefit in respect of such trading liability in later year by way of remission or cessation of the liability.

The Bench allowed the appeal filed by the assessee holding that the principle behind the Section was that a provision intended to ensure that the assessee would not get away with a double benefit namely once by way of a deduction in an earlier assessment year and again by not being taxed on the benefit received by him in a later year with the reference to the

liability earlier allowed as a deduction.

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