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Income Tax Appellate Tribunal, HYDERABAD ‘ A ‘ BENCH, HYDERABAD.
Before: SHRI S.S. GODARA & SHRI LAXMI PRASAD SAHU
O R D E R Per Shri S.S. Godara, J.M. : These assessee’s appeals for the Asst. Years 2010-11 & 2011-12 arise from the Commissioner of Income Tax (Appeals)-6, Hyderabad’s separate orders dt.12.04.2017 & 17.09.2015 passed in case Nos.0225/2015-16/CIT(A)-6/17-18 & 1378/2014-15/CIT(A)-6/15-16, in proceedings under Section 143(3) of Income Tax Act, 1961 (‘the Act’); respectively.
1337/Hyd/2015 Heard both the parties. Case files perused.
The assessee's sole identical substantive grounds pressed in the instant appeal read as follows :
Learned counsel invited our attention the CIT(A) identical detailed discussion upholding the Assessing Officer’s action invoking Section 40(a)(ia) disallowance in Assessment Year 2010-11 with further directions to the Assessing Officer that the said expenses ought to be allowed only to the extent it reduces assessee's net profits to “Zero” only as follows :
1337/Hyd/2015 “ 06.5 Ideally, the assessee should have earned some profit in its business but if it sub-contracted its work to its members on the so called 'back to back' basis, the maximum consideration that it could appropriately pay to its members was what it received from its principal, net of the expenditure it had to incur in its accounts. In other words, only so much of expenditure can be optimally allowed as that reduces its net profit to zero. In other words, the disallowance of Rs.63,08,598/- u/s. 40A(2) of the IT Act meets the ends of justice. As the same was reduced by the Assessing Officer to Rs.8,79,522/- vide his order u/s 143(3), the disallowance will be limited to Rs.(-) 8,79,522/- only. But, as it is not ascertained whether the assessee has gone in appeal against the addition made u/s 40(a)(ia) of Rs.54.29 lakhs in the order passed u/s. 143(3), the Assessing Officer while giving effect to this order is accordingly directed to compute the income at ‘Zero’ only.”
We have given our thoughtful consideration to rival pleadings against and in support of the CIT(A)’s aforesaid directions restricting the impugned disallowance(s) only to the extent they reduce to assessee's net profit to ‘zero’ only. We find no reason to sustain the same. We make it clear that there is no provision in the Act and more particularly in Chapter IV-D from Section 28 to 44BB dealing with profit and gains of a business or a profession which can suggest that an expenditure claim’s disallowance could be restricted to ‘zero’ income therein
1337/Hyd/2015 resulting in ‘loss’ figures as well. While holding so, it would not be out of context altogether if we refer to hon’ble apex court’s larger bench decision in CIT Vs. Manmohan Das (1966) 59 ITR 699 (SC) that an Assessing Officer arriving at loss figure cannot restrict the same from being carried forward in earlier year since it is for the assessing authority of the subsequent year to deal with such an issue and if at all the former of them decides the same in such a manner, it is not binding on the assessee in the said subsequent year. We adopt the very reasoning herein as well mindful of the fact that if the impugned expenditure claimed results the assessee's income computed in ‘loss’, its expenditure claim which is otherwise allowable ought not to be accepted as not within the four corners of the fiscal statute. There is also no such restrictions clause in Chapter VI of the Act to this effect as well. Case law Commissioner of Customs Vs. Dilip Kumar & Co. & Others (2018) 9 SCC 1(SC) has settled the law that a fiscal statute has to be strictly interpreted whether dealing with taxing or exemption provisions. Learned department representative fails to rebut the fact that the CIT(A) impugned directions have not quoted any statutory provision at all that such a disallowance subsists till it reaches ‘NIL’ income only. We thus reverse the CIT(A) findings under 1337/Hyd/2015 challenge for this precise reason alone. The assessee’s sole substantive ground in A.Y. 2010-11 involving in succeeds.
5. Same order to follow in assessee's latter appeal in for A.Y. 2011-12 aswell since raising the very issue qua sec. 40A(2) disallowance as per the CIT(A) directions in para 7.6 page 6 thereof under challenge.
These two assessee's appeals are allowed in above terms. A copy of this order is placed in the respective files.
Order pronounced in the open court on 22nd April, 2021.