2009 (9) TMI 692 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Section 41(1) regarding cessation of liability.
2. Consideration of arguments and evidence, specifically the Sales Tax Tribunal's order.
3. Nature of the payment made under the sales-tax deferral scheme.

Issue-wise Detailed Analysis:

1. Applicability of Section 41(1) regarding cessation of liability:
The primary issue was whether Section 41(1) of the Income Tax Act was applicable, which concerns the cessation or remission of a trading liability. The assessee argued that Section 41(1) was not attracted since there was no cessation of liability. The Tribunal found that the sales-tax liability was converted into an interest-free loan payable in five annual installments starting from April 2010. The Tribunal concluded that the conversion of sales-tax liability into a loan liability amounted to actual payment of the statutory liability under Section 43B of the Act. The Tribunal held that the settlement of such liabilities by a one-time payment of a lesser amount resulted in an income under Section 41(1) of the Act. The Tribunal reasoned that the sales-tax liability was a trading liability, and the difference between the settled amount and the total loan liabilities was the income of the assessee for the previous year.

2. Consideration of arguments and evidence, specifically the Sales Tax Tribunal's order:
The assessee contended that the Tribunal failed to consider the order of the Maharashtra Sales Tax Tribunal, which stated that the payments made to M/s. SICOM could not be deemed a discharge of its sales-tax liability due to procedural issues. The Tribunal acknowledged that the Sales Tax Tribunal had noted the payments were made under the scheme and had a nexus towards sales-tax payment. However, it was also noted that the proper documentation was required for these payments to be considered valid under the Bombay Sales Tax Act. The Tribunal concluded that whether the order of the Sales Tax Appellate Tribunal resulted in the continuation or revival of the liability was a debatable question, not amenable to rectification proceedings. The Tribunal held that the arguments and evidence were considered, and the conclusion reached was a possible view, thus not warranting rectification.

3. Nature of the payment made under the sales-tax deferral scheme:
The assessee argued that the payment made under the deferral scheme was the net present value of future installments and should not be considered as a benefit. The Tribunal noted that the sales-tax liability was initially a current liability, later converted into a long-term liability, and then discharged at a lesser amount. The Tribunal held that the payment of the net present value of future installments resulted in a benefit to the assessee. The Tribunal emphasized that the nature of the receipt as a trading receipt did not change, and the benefit arising from the settlement fell within the purview of Section 41(1) of the Act.

Conclusion:
The Tribunal dismissed the Miscellaneous Application filed by the assessee, holding that there was no mistake apparent from the record warranting rectification. The Tribunal concluded that the view taken in the original order was a possible view, and the arguments and evidence presented by the assessee were considered. The Tribunal emphasized that the assessee was effectively seeking a review of the order under the guise of a rectification proceeding, which was not permissible.