The Income Tax Appellate Tribunal, Delhi bench last week held that in case of unilateral act of writing off of advance given to subsidiary company do not constitute trading liability for invoking the provisions of deemed profit under section 41(1) of the Income Tax Act, 1961.
The Division bench comprising of accountant member Shri. N. K. Saini and Judicial Member Shri.Amit Shukla allowed the petition of assesse-Airline Allied Services Ltd.
The assesse-company, Airline Allied Services Ltd, a 100% subsidiary of ‘Air India Limited’, is engaged in the business of airlines and air transportation services (also known as Alliance Air). The assessing officer noted from the auditor’s report that NACIL had disclosed an amount of Rs.306.75 crores owing from the assessee as on 31/3/2007 had been written off in their books for the AY 2007-2008.
On the basis of audit report, the assessee observed that the aforesaid amount has not written back in the profit & loss account and has not offered such income for tax. The assessee responded through a show course notice which he has submitted a detailed reply.
The assessee’s main contention was that mere writing-off of the amount due to NACIL in their books does not mean that the amount of Rs.306.75 crores is not due to them. Further, NACIL is still allowed to recover the same from Alliance Air who have confirmed that the liability to pay by Alliance Air still exists and the same cannot be treated as taxable under section 41(1).
However the assessing officer held that the amount arose from the business dealings, when write off took place, it’s no longer become the liability but can be treated as income or benefit under section 28(iv).
On first appeal, the CIT(A) upheld the order.
Before the tribunal the counsel of assessee submitted that the said amount could not have been taxed under section 4(1) for the reason that, it was not in the nature of deduction or allowance that has been made in the AY Instead was an advance received from Air India. Unilateral action by Air India does not mean that there is no debt or liability to pay or NACIL/Air India has given up its claim for said advance given to the assessee.
The counsel of respondent relied upon the decision of CIT (A) and questioned the evidence that the said amount has ever been paid back to Air India even after lapse of such time.
Finally the tribunal allowed both the appeals of assessee and declared that provisions of section 41(1) has been specifically incorporated in the Act to cover a particular fact or situation where a trading liability was allowed in earlier year in computing the business income of the assessee and assessee has obtained benefit in respect of such trading liability in later year by way of remission or cessation of the liability, then whatever benefit has arisen to the assessee in the later year by way of remission or cessation of the liability will be brought to tax in that year.
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