ASST CIT CIR 19(2), MUMBAI V. NATIONAL PHARMACEUTICALS, MUMBAI

ITA 5968/MUM/2011

• Counselvise Citation: 596819914 RSA 2011
• Duration Of Justice: 2 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 26-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B P K PANDA
• Keywords: Business income
• Section: 143(3); 2

Judgement Text

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 SONA MOHAR, BEHIND MUNICIPA L PIRAMAL CHAMBERS, LALBAUG VS. 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 O R D E R 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 P ERTAINS TO A.Y. 2008-09. 2. THE FOLLOWING GROUNDS WERE URGED BEFORE US: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE 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 SECTI ON 41(1) CAN BE APPLIED ONLY IF DEDUCTION WAS ALLOWED IN EARLIER AS SESSMENT YEAR WHILE COMPUTING INCOME UNDER THE HEAD BUSINESS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THE FACT TH AT SECTION 41(1) CAN ALSO BE APPLICABLE TO THE VALUE OF BENEFIT ACCR UING TO THE ASSESSEE WHICH DEEMED TO BE PROFIT AND GAINS OF BUS INESS OR PROFESSION AND ACCORDINGLY, CAN BE BROUGHT TO TAX A S INCOME OF THE PREVIOUS YEAR IN RESPECT OF WHICH SUCH AMOUNT OR BE NEFIT IS OBTAINED. 3. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE STAT ED IN BRIEF. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSIN ESS OF LAND DEVELOPMENT AND CONSTRUCTION OF BUILDINGS. FOR THE YEAR UNDER C ONSIDERATION IT DECLARED TOTAL INCOME OF ` 1,15,54,130/-. WHILE COMPLETING THE ASSESSMENT UNDE R ITA NO. 5968/MUM/2011 M/S. NATIONAL PHARMACEUTICALS 2 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 T HE ASSESSEE ENTERED INTO AN AGREEMENT DATED 20.08.1993 FOR SALE OF PLOT AT K ALINA FOR A TOTAL CONSIDERATION OF ` 5.77 CRORES WHEREIN IT WAS LIABLE TO SHARE THE STAM P DUTY EXPENSES AND REGISTRATION CHARGES. HOWEVER, THE COM PANY, TO WHOM IT WAS TO BE SOLD, DID NOT COME FORWARD TO EXECUTE THE CON VEYANCE DEED AND, THEREFORE, THE ASSESSEE CONTINUED TO BE THE LEGAL O WNER OF THE PLOT TILL THE FINANCIAL YEAR 2007-08. THE ASSESSEE ADMITTED CAPIT AL 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 RE GISTRATION CHARGES. SINCE NO SUCH PAYMENT WAS ACTUALLY MADE CONVEYANC E DEED WAS ULTIMATELY NOT EXECUTED TILL THE ASSESSMENT YEAR UNDER CONSIDE RATION 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 4 1(1) OF THE ACT. 4. THE PLEA OF THE ASSESSEE, ON THE OTHER HAND, WAS TH AT REMISSION OF LIABILITY, ON CAPITAL ACCOUNT, IS OUTSIDE THE PURVI EW 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 AUTH ORITY. 5. THE LEARNED CIT(A) CONSIDERED THE ISSUE IN GREAT DE TAIL WHILE COMING TO THE CONCLUSION THAT THE IMPUGNED AMOUNT CANNOT BE B ROUGHT TO TAX UNDER SECTION 41(1) OF THE ACT. IN THIS REGARD HE OBSERVE D AS UNDER: - THE A.O. TAXED RS.28,85,000/- UNDER THE HEAD BUSIN ESS 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 INCO ME 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 YEA R WHILE COMPUTING THE INCOME UNDER THE HEAD BUSINESS. THE INCOME UNDE R 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 PROVIS IONS ARE AVAILABLE IN THE ACT. AS CONTENDED BY THE REPRESENTATIVE, THE HON'BL E CALCUTTA HIGH COURT IN THE CASE OF CIT VS. INDIAN AUTOMOBILES LTD. (CIT ED ABOVE) HELD THAT THE REMISSION OF LIABILITY FOR MUNICIPAL TAXES ALLOWED AS DEDUCTION CANNOT BE CHARGED UNDER SECTION 41(1) AND SUBSEQUENTLY AMENDM ENTS WERE MADE TO ALLOW DEDUCTION OF MUNICIPAL TAXES ON PAYMENT BA SIS. THE A.O. HAS REFERRED TO CERTAIN JUDICIAL PRONOUNCEMENTS IN THE ASSESSMENT ORDER BUT ITA NO. 5968/MUM/2011 M/S. NATIONAL PHARMACEUTICALS 3 IN THOSE CASES THE DEDUCTION WAS ALLOWED WHILE COMP UTING THE INCOME UNDER THE HEAD BUSINESS WHEREAS IN THE CASE OF THE APPELLANT, THE DEDUCTION WAS GRANTED WHILE COMPUTING THE INCOME UN DER THE HEAD CAPITAL GAINS AND, THEREFORE, THE ABOVE DECISIONS A RE NOT APPLICABLE TO THE FACTS OF THE CASE OF THE APPELLANT. I ACCEPT TH E PLEA OF THE REPRESENTATIVE THAT SECTION 41(1) IS NOT APPLICABLE IN THE CASE OF THE APPELLANT AS THE DEDUCTION WAS ALLOWED UNDER THE HE AD CAPITAL GAINS FOR A.Y. 1995-96. IN THE CIRCUMSTANCES, THE A.O. IS DIR ECTED TO DELETE THE ADDITION OF RS.28,85,000/-. 6. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. THE LEA RNED D.R. STRONGLY RELIED UPON THE ORDER PASSED BY THE AO. ON THE OTHE R HAND, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT NO DEDUCTIO N 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, EXPEN DITURE OR TRADE LIABILITY WHILE COMPUTING BUSINESS INCOME AND IF SUCH LIABILI TY 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 EXTE ND 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 DIS CUSSION 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 OTHE RWISE ALLOWED IN THE PRECEDING YEARS AGAINST BUSINESS INCOME. WE, THEREF ORE, UPHOLD THE ORDER OF THE LEARNED CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH NOVEMBER, 2013. SD/- SD/- (RAJENDRA) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 19 TH NOVEMBER, 2013 ITA NO. 5968/MUM/2011 M/S. NATIONAL PHARMACEUTICALS 4 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.