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Income Tax Appellate Tribunal, DELHI BENCH “A”, NEW DELHI
Before: SHRI N. K. SAINI & SHRI AMIT SHUKLA
The aforesaid appeals have been filed by the assessee against separate impugned order of even date, 3/2/2014, passed by the ld. CIT (Appeals)-IV, New Delhi for the quantum of assessment passed under section 143(3) of the Income Tax Act, 1961 for the assessment years 2008-09 and 2010-11.
2. Since the issues involved in both the appeals are common arising out of similar set of facts, therefore, same were heard together and are being disposed of by way of this consolidated order.
3. We will first take up the appeal for assessment year 2008-09, wherein the assessee has raised the following modified/ revised grounds:-
1. The Ld. CIT(A) erred in law and on the facts of the present case in confirming the addition of Rs.306,75,17,000 to the total income under section 41(1) of the Income Tax Act, 1961.
2. There was no cessation and remission of liability when the holding company had clearly informed the appellant that its writing off Rs.306,75,17,000 in the books of account was without prejudice to its right to recover the amount from the appellant in future. 3. When the amount was written off by the holding company in its books of accounts for the year ending on 31.03.2007, section 41(1) cannot be invoked against the appellant for the assessment year 2008-09. 4. Without establishing which particular loss, expenditure or trading liability the appellant was allowed an allowance or deduction of Rs.306,75,17,000 in an earlier assessment year, section 41(1) cannot be invoked against the appellant. 5. Without identifying the previous year in which the appellant benefitted by way of allowance or deduction of Rs.306,75,17,000 section 41(1) cannot be invoked. 6. Addition under section 41(1) cannot be sustained, when the holding company in its letter dated 14.03.2013 had informed the appellant that the amount written off has been written back in the books of accounts of the holding company for the year 2011-12.
In this case, in the first round of proceedings, the matter had travelled upto the stage of Tribunal, whereby the Tribunal vide order dated 10/1/2013 in DEL/ 2012 had restored the matter back to the file of the ld. CIT (Appeals) with the direction to decide the issue afresh after considering the judgments relied upon by the parties.
The facts in brief qua the issue involved are that the assessee-company is engaged in the business of airlines and air transportation services (also known as Alliance Air); and is 100% subsidiary of ‘Air India Limited’ (earlier known as NACIL and prior to that Indian Airlines). The Assessing Officer, on a perusal of the note given in the Auditors’ report, noted that NACIL had intimated vide letter dated 21/3/2008, that an amount of Rs.306.75 crores owing from the assessee as on 31/3/2007 had been written off in their books of that year, i.e., AY 2007-08. The relevant text of the report, as appearing in the Auditors’ report, reads as under:-
“NACIL Vide its letter dated 21" March, 2008 had intimated that an amount of Rs. 30675.17 lakhs owing from AASL as on 31st March, 2007 had been Written off in the books of that year of erstwhile Indian Airlines (now NACIL) as a conservative measure and the write off did not prejudice NACIL’s right to recover the same from Alliance Air in future. However as per the books of AASL, the amount payable to NACIL as on 31.03.2007 was Rs.30374.24 lakhs, which had been then correspondingly written back based on expert opinion. Same position is continued in the books of AASL as on 31.03.2008 also.”
The Assessing Officer, on the basis of the above note in Audit Report, observed that the assessee has not written back the said amount of Rs.3,06,75,17,000/- in the profit & loss account and has not offered such income for tax. In response to show cause notice by the AO, assessee submitted a detailed reply, which has been incorporated from pages 2 to 5 of the assessment order. The assessee’s main contention has been 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 ld. Assessing Officer held that the amount of Rs. 306.75 crores arose from the business dealings and, therefore, when write-off took place by NACIL, this amount no longer remain liability but they became part of the business income of the assessee and otherwise also benefit has been received by the assessee and hence, the said sum is taxable as income under section 28(iv), because such benefit has been obtained in the course of business. Thus, he added the sum under both the provision, i.e., sections 28(iv) and 41(1). While coming to this conclusion, he relied upon the following judgments:-
(i) CIT vs. T.V. Sundaram Iyengar and Sons Ltd. Reported in [1996] 222 ITR 344 (SC).
(ii) Solid Containers Ltd. vs. DCIT reported in [2009] 308 ITR 417 (Mumbai).
Before the ld. CIT (Appeals), assessee made very detailed submissions, which have been dealt and incorporated by the ld. CIT (A) from pages 5 to 10 of the appellate order. The sum and substance of the assessee’s contention has been that:-
Firstly, money was received as pure advance given by the holding company, Indian Airlines/ Air India to the assessee, which is a 100% subsidiary company and no allowance or deduction has been made in any year in respect of loss, expenditure or trading liability incurred by the assessee and, therefore, provisions of section 41(1) dot not apply.
Secondly, the appellant had not obtained any benefit in respect of such advance by way of remission or cessation of trading liability, because it was unilateral act of NACIL and such a unilateral act of writing off of the amount has been subsequently reversed by the NACIL in their accounts in the financial year 2011-12, relevant to the AY 2012-13 and this fact was intimated to the assessee vide letter dated 14/3/2012, copy of which was filed by the assessee during the course of assessment proceedings for the assessment year 2010- 11 and the same was filed again before the ld. CIT(A) by way of additional evidence.
Thirdly, there is no cessation of liability as NACIL has now written back the entire amount on 31/03/2012 which was earlier written off by them; therefore, liability even in the books of NACIL still exists; and Lastly, writing off of the amount took place in financial year 2006-07 relevant to the assessment year 2007-08 and, therefore, no addition could have been made in assessment year 2008-09.
Besides this, various decisions were also relied upon, which has been dealt by the ld. CIT (Appeal) from pages 7 to 9 of the appellate order.
The ld. CIT (A), first of all, took note of the findings given by his predecessor CIT (A) in the earlier round of proceedings, which has been incorporated by him from pages 10 to 16 of his order. Based on similar lines and reasoning, he held that the Assessing Officer has rightly tax the said amount of Rs. 306.75 crores under the provisions of section 41(1). However, he has not given any finding on taxing of the amount u/s 28(iv), hence it is reckoned that he has confirmed the addition /s 41(1) only. In sum and substance his finding for taxing the amount /s 41(1) can be summarised in the following manner:-
Firstly, when intimation was received by the assessee from NACIL vide letter dated 21/3/2008 that an amount of Rs.306.75 crores has been written off in financial year 2006-07, then assessee should have offered the same for taxation in this year, as it amounts to remission/ cessation of a trade liability under section 41(1).
Secondly, he held that liability to be allowed has to be confirmed not only by way of entry in the debtor’s book but also by corresponding entry in the creditor’s books of account. In this case, neither corresponding entry of the amount is appearing in the creditor’s book nor there is any confirmation by the creditor during the year under consideration that amount is owed by the assessee company.
Thirdly, with regard to letter dated 14/3/2013 written by NACIL that they have added back the amount in their accounts as on 31-03-2012, which was filed as an additional evidence before the ld. CIT (A), for which he had also called for the remand report from the AO; he held that the said letter from NACIL/Air India stating that liability has been written back, is clearly an afterthought and shows collusive arrangement between the holding and the subsidiary company.
Fourthly, after taking note of Explanation 1 to section 41(1), he held that unilateral write off by the debtor though is reckoned as remission or cession of liability for invoking the provisions of section 41(1), but this Explanation mainly enlarges the scope of the said section and nowhere it prohibits write-off by the creditor for being considered as remission/cessation of liability under section 41(1).
Fifthly, ld. CIT(A) had also taken note of the fact that erstwhile Indian Airlines had claimed writing off of the said sum as normal business expenditure in the income tax return and the same was allowed notwithstanding that Air India has decided to write back the above amount in the books of account now. This fact he has noted from letter filed by the Assessing Officer dated, 3/2/2013, which was called upon during the appellate proceedings.
Lastly, on the issue that amount was written off by NACIL in assessment year 2007-08, therefore, could not have been taxed in this year in the hands of the assessee, ld. CIT(A) held that it does not hold a good ground because intimation of write off by NACIL/ Air India to the assessee, is vide letter dated 21/3/2008 which falls in assessment year 2008-09 and, therefore, the year of taxability under section 41(1) would be the year in which the said letter was received by the assessee.
Thereafter, he has tried to distinguish the judgments relied upon by the assessee.
Before us, the ld. counsel for the assessee, Shri P.K. Sahu, after explaining the entire facts, submitted that the said amount could not have been taxed under section 4(1) for the reason that, firstly, it was not in the nature of allowance or deduction that has been made in assessment year for any year in respect of loss or expenditure or trading liability incurred by the assessee, albeit it was advance received from Air India. Therefore, on the face of it, provisions of section 41(1) cannot be invoked. Secondly, 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. In support, he strongly relied upon the decision of the Hon'ble Bombay High Court in the case of J.K. Chemicals Limited vs. CIT reported in [1966] 62 ITR 34 (Bombay). Apart from that, lastly, he submitted that even if it is held that the amount written off by Air India should be treated as income of the assessee, then the same could not have been taxed in this year because the amount was written off in assessment year 2007- 08 by Air India, then how can it be brought to tax as income of the assessee in assessment year 2008-09, as it can only be brought to tax in that previous year in the year in which such value or benefit has accrued to him. In support of his various contentions, the ld. counsel for the assessee has relied upon the following judgments:-
Commissioner of Income-tax, Delhi-ll vs. Jain Exports (P) Ltd., (2013) 35 taxmann.com 540 (Delhi) 2. Jagad Bandhu Chatterjee vs. Smt. Nilima rani, 1969 (3) SCC 445 3. Shashikala Devi vs. Central Bank of India, (2014) 16 SCC 260 4. Chief Commissioner of Income Tax vs. Kesaria Tea Co. Ltd., (2002) 122 Taxman 91 (SC) / (2002) 254 ITR 434 (SC) 5. Pr. Commissioner of Income-tax, Ahmedabad vs. Matruprasad C Pandey, (2015) 59 taxmann.com 428 (Gujarat) / (20150 377 ITR 363 (Guj.) 6. CIT vs. Shri Vardhman Overseas Ltd., (2012) 343 ITR 408 (Delhi)
The ld. CIT D.R., after referring and relying upon various observations made by the ld. CIT (Appeals), submitted that the assessee has not given any evidence that the said amount has ever been paid back to Air India even after lapse of such time. In support of her contentions, she too had relied upon the following judgments:-
1. CIT vs. T.V. Sundaram Iyengar & Sons Ltd., 136 CTR 444 (SC)
CIT vs. Chipsoft Technology Pvt. Ltd., 210 Taxman 173 (Delhi)
Jai Engineering Works Ltd. Vs. CIT, 113 ITR 299 (Delhi)
4. Rollatainers Ltd. Vs. CIT, 203 taxman 31 (Delhi)
5. Aey Gee Bros. vs. ITO, 130 TTJ 54 (Mumbai)
We have heard the rival submissions, perused the relevant finding given in the impugned order as well as the material on record. The assessee is 100% subsidiary of Air India which is public sector under taking. The sole basis for taxing the amount of Rs.3,06,75,17,000/- by the Assessing Officer and confirmed by the Ld. CIT(A) under section 41(1) is that, NACIL (Now Air India and prior to that Indian Airlines) vide their letter dated 21/3/2008 had intimated to the assessee that the said amount of Rs.306.75 crores owing from the assessee as on 31/3/2007 had been written off in their books of account of that year, i.e., financial year 2006-07. However, in the said letter itself, it was also mentioned that write off did not prejudice the NACIL’s right to recover the same from the assessee in future. Since assessee had not written back the said amount and had still shown as advance received in its books, the Ld. AO and CIT (A) still held that it amounts to cessation/ remission of liability within the scope of section 41(1), therefore, the same has to be taxed. Before we deal with the issue involved here, it would be relevant to quote the relevant section 41(1), which reads as under:-
“Section 41(1) [(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,— (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. Explanation 1
For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts.]”
From a plain reading of the said provision, it is quite apparent that an amount to be taxed under this sub-section, it is imperative that any allowance or deduction has been made in the assessment for any year either in respect of loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, and in case such benefit is arrived, then value of benefit accrued to him is deemed to be the profits and gains of the business or profession, which is chargeable to income-tax as the income of that previous year, that is, in the year in which benefit such derived by the assessee. Explanation 1 provides that loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation shall be includible by a unilateral act by the first person who is assessee, i.e., debtor. There is no stipulation of such unilateral act by the creditor. Here in this case, Explanation 1 cannot be held to be attracted at all, since there was no writing-off of the liability by the assessee to pay to the creditors in the assessee’s account and the observation and the finding of the ld. CIT (A) that the scope of Explanation 1 should be enlarged to include unilateral writing-off by the creditor cannot be upheld as one cannot traverse beyond what has been contemplated in the statute. If the Explanation envisages a taxing of the trading liability by way of cessation or remission on account of unilateral writing off by the assessee, that is, debtor then it cannot be imported to mean to cover the writing-off by the creditor. Hence, we are unable to accept the reasoning of ld. CIT (A) that Explanation 1, will also cover the unilateral writing off by the creditor, here in this case NACIL.
Now we have to consider provisions of section 41(1) de- hors the Explanation 1 to section 41(1). First of all, we have to see, whether the assessee has obtained some benefits in respect of any trading liability which was earlier allowed as deduction as a loss or expenditure. Ostensibly, in this case, as submitted by the assessee, which has not been rebutted, that the money which was received by the assessee from Air India, was in the nature of pure advance from its holding company for which no allowance or deduction has been made or allowed in any year in respect of loss, expenditure or trading liability incurred by the assessee. Nowhere Assessing Officer or the ld. CIT (A) has brought out on record that such an advance has been allowed as deduction in the nature of loss, expenditure or trading liability. Without such finding or fact, provisions of section 41(1) cannot be triggered at all. The condition precedent for invoking the said section is that the amount should have been first allowed or deduction of such amount has been allowed in any of the earlier year and such an allowance or deduction should be in the nature of loss, expenditure or trading liability. Here in this case this pre-eminent condition is clearly lacking. Accordingly, we hold that on this ground alone, the said amount cannot be taxed under section 41(1).
Further, to be brought within the taxing ambit of section 41(1) it is imperative that concept of benefit to the assessee as envisaged in the said section has to be seen from the angle, whether the said benefit has arisen in respect of remission or cessation of trading liability or not and if it is otherwise, then it cannot be reckoned as benefit liable for taxation. In other words, if it is not on account of trading liability, it cannot be held that it amounts to benefit in terms of clause (a) of section 41(1). Here in this case as held earlier the no benefit has been derived by the assessee by way of remission or cessation of any trading liability, albeit the amount received was in the nature of advance given by a holding company to its subsidiary and it still appears as advance in the books of the assessee.
There is merit in other contentions of the Ld. Counsel that addition under section 41(1) cannot be made because writing off of advance money was done in the financial year 2006-07 relevant to the assessment year 2007-08, therefore, the said remission or cessation, if at all, cannot be held to be taxable in the relevant assessment year, i.e., assessment year 2008-09. Once the amount has been written-off in the previous year relevant to the AY 2007-08 by Air India, then same cannot be taxed by the Assessing Officer in this year and simply because a letter was written by Air India to the assessee in this year, it cannot cannot lead to an inference that benefit of such remission or cessation has been derived in this year or will determine the year of taxability. In the judgment of Hon'ble Gujarat High Court in the case of Pr. Commissioner of Income- tax, Ahmedabad vs. Matruprasad C Pandey (supra), the Court held that addition under section 41(1) can be made only when it is found that there was a remission and/or cessation of the liability that too during the previous year relevant to the assessment year in question and once there is no remission or cessation of liability in this year, the same cannot be brought to tax.
One of the stand taken by the Assessing Officer, though is not the case of ld. CIT(A), is that the writing-off the amount by NACIL amounts to benefit in terms of section 28(iv) also. We are unable to appreciate such a contention, because the said section envisages that “the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable to income tax under the head profit and gains of business or profession”. Here said provision cannot be made applicable because section 28(iv) is a general provision which brings to assessment the value of any benefit or perquisite arising to the assessee from the business carried out by him. The benefit enjoyed by the assessee, if at all, by writing off an advance given to him will not fall within the scope of this section simply for the reason that certain time has lapsed or advance has been written off by the other party. Such a benefit is not mean to be brought to tax under section 28(iv). It can be explained from another angle also, suppose if the said amount is brought to tax under section 28(iv) and then assessee in later year had to pay back its liability, then is there any provision under the Act to allow such liability, barring section 41(1) which envisages such situation. Answer would be negative. Section 28(iv) in our humble opinion in such situation cannot be made subjected to such a vagaries or subjectivity in its applicability. On the other hand, 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. The apprehension as intended by the Legislature by incorporating the said provision is to ensure that assessee does not get away with a double benefit, once by way of deduction in an earlier assessment year and again by not being taxed on the benefit received by him in later year with a reference to the liability earlier allowed as deduction. The section does not envisage this situation when there is no allowance or deduction and that to be in the nature of loss, expenditure or trading liability. Here in this case we have already held that no such allowance or deduction of trading liability has been allowed in earlier year in the case of the assessee while computing the business income and such a writing off by Air India cannot be reckoned as any benefit to the assessee within the terms and scope of section 41(1), because there is no question of any double deduction or double benefit derived to the assessee. Thus, we hold that no amount can be taxed under section 41(1) and therefore, the amount of Rs. 3,06,75,17,000/- is directed to be deleted.
Similarly, in assessment year 2010-11 the facts are exactly same. The only difference is in the figures, i.e., here in this year also amount of Rs.235.54 crores was received by the assessee by way of advance from NACIL/Air India, which has been unilaterally written off by NACIL in their books in financial year 2008-09 relevant to the assessment year 2009-10. The year-wise breakup of liability written off by NACIL was as follows:-
1 F.Y 2006-07 Rs. 306.75 crores 2 F.Y. 2007-08 Rs. 107.32 crores 3 F.Y 2008-09 Rs. 121.48 crores Total Rs. 535.55 crores
Here in this year also, the amount of advance given in earlier years which was written-off of Rs.235.54 crores by NACIL has been later on written back the said amount in their books of account as on 31/3/2012. Now the position is that the entire amount which was written off by Air India in the earlier years has been added back in their accounts and hence the entire amount has again become recoverable from the assessee in their books as on 31/3/2012. Here in this year also exactly similar finding has been given by the ld. CIT (A). Accordingly, our finding given in the appeal for assessment year 2008-09 will apply mutatis-mutandis in this year also. Thus, in view our finding given therein, we hold that the amount which has been brought to tax for sums amounting to Rs.235.54 crores cannot be taxed u/s 4(1) and same is directed to be deleted.
In the result, both the appeals of the assessee are allowed.