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TMI Blog2017 (4) TMI 961X X X X Extracts X X X X X X X X Extracts X X X X ..... areful consideration to the said contention raised by the ld. AR but we are unable to accept the same. Section 41(1) talks about allowances/deductions which has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. The said allowance/deduction u/s 41(1) has not been made subject to deduction under Chapter-VIA of the Act as claimed ld. AR. If the contention raised by the ld. AR is accepted, then it leads to the situation where no allowance or deduction will have be claimed by the assessee and further, in such circumstances, provisions of section 41(1) cannot be invoked where an assessee is eligible for deduction under Chapter-VI-A of the Act. In our view, the said contention of the ld AR will make section 41(1) infructous in such cases. The income that is eligible for deduction under section 80P has to be computed in accordance with the provisions of Act and which includes section 41(1) of the Act. Therefore, firstly the income has to be computed taking into consideration the provisions of section 41(1) of the Act and thereafter, the deduction under Section 80P has to be determined. It may so happen that the whole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80P(4) by Finance Act, 2006 w.e.f 1-4-07. The original assessment was completed u/s 143(3) at an income of ₹ 32,94,27,120/- making disallowance of ₹ 1,18,99,651/- on account of transfer to statutory Reserve out of carried forward account of provision for expenses treating the same as taxable u/s 41 of I.T.Act, 1961 and disallowance of ₹ 1,00,21,000/- out of contribution to PAC Managers salary. The assessee bank filed appeal against the said addition/disallowance and ld. CIT(A)-1, Jaipur vide order dated 16.8.2010 in appeal No. 587/09-10 deleted both addition/disallowance. The department filed appeal against the said appeal order before ITAT, Jaipur Bench which appeal was decided vide order dated 22-7-11 (ITA No. 1277/JP/2010). The Coordinate Bench confirmed the order of CIT(A) in respect to the deletion of disallowance of PAC Manager's salary but the issue in respect to transfer to statutory Reserve out of carried forward account of provision for expenses was restored back to the file of A.O. The relevant findings of the Coordinate Bench are contained at para 2.9 of its order which reads as under: 2.9 It is well settled law that entries in the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,00,000/- for the period ending on 31.03.2006) balance amount of ₹ 2,02,831/- pertains to the period prior to F.Y 2003-04. ₹ 6,96,819/- relates to provision for expenses like water, postage, telephone etc. included with expenses under respective head and debited to Profit and Loss Account for the F.Y. 200-06. iii The above amount of provisions for establishment expenses are included with the expenditure of salary and allowance and provident fund, for example, provision for establishment expenses ₹ 40,00,000/- is included with salary expenses total of ₹ 2,87,07,784.56/- and coupled with other expenses total ₹ 5,51,08,851.53/- is debited to profit and loss account for the period ending on 31.03.2006 under head 'salaries and allowances and provident fund'. iv Provisions for establishment expenses made in different years and provision for other expenses are debited to profit and loss account to the respective years. v. From the entries made in the books account relating to provisions for establishment expenses have been claimed as expenditure in the profit and loss account. vi. It is evident from the computation of income mentioned sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication only if:- (i) an allowance or deduction had been made, in the computation of profits and gains of a business or profession, in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and (ii) Subsequently during any previous year the assessee had 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. 3.1 It was submitted that the undisputed facts of the case are that assessee Bank has carried forward Reserves and provisions under various heads created from the profits of the earlier years, amongst them the assessee co-operative Bank as on 1-4-06 had brought forward statutory Reserve of ₹ 80,99,16,594 and brought forward provision under the head 'Provision for Establishment' (expenses) of ₹ 1,18,99,651/-. The assessee Bank on finding that the said brought forward provision under the head provision for expenses is no longer required and so it transferred the same to Statutory Reserve Fund in this year. 3.2 It was submitted that the entire income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udited and not filing of return of income. However the issue raised by ld. AO equally applies to ld. AO also who passed assessment order(s). The ld. AO is also duty bound to make assessment in conformity of law and when even on proper disclosure ld. AO. adopted the same way of computation of income as assessee followed and did not choose to do exercise of adding back the provisions which are clearly disallowance under I.T. Act, 1961, the fault cannot be found with assessee only. In these facts and circumstances of the case it is to be taken that the provisions for said expenses made in accounts were deemed to have been disallowed like it has been deemed by A.O. that depreciation has been allowed. On these facts of the case it cannot be concluded that assessee claimed provisions of expenses in P L A/c and the same were allowed in assessment. In view of this, the provisions of Section 41(1) cannot be applied to assessee when part of carried forward provision for expenses was written back in this year in accounts and transferred to Statutory Reserve Fund. 3.4 It was submitted that the scope of section 41(1) is to bring to tax any loss, expenditure or trading liability allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. 4. The ld. DR has vehemently argued the matter, supported the order of the lower authorities and has relied upon the following case laws: 1. Geotze (India) Ltd. Vs. CIT 157 Taxman 1 (SC) 2. Chief CIT Vs. Machine tool Corpn of India Ltd. 67 Taxman 363 (Kar) 3. Sarla Handicrafts (P) Ltd Vs. Addl. CIT 296 ITR 94 (P H) 5. We have heard the rival submissions and pursued the material available on record. The principle contention raised by the ld. AR is that the assessee's income from its banking business was wholly exempt u/s 80P(2) of the Act in the earlier years (prior A.Y 2007-08) and by way of a note to the computation of income filed with return of each of the prior assessment years, it has stated that as income from its banking business is wholly exempt u/s 80P(2) of the Income Tax Act, it has not been considered necessary to disturb and add back items of profit and loss account in conformity with the Income Tax Act/Income Tax Rules including appropriation of profit in reserve funds . It was submitted that the assessment for most of the prior years were completed u/s 143(3) wherein the return of income filed by the assessee was accepted including the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee 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 him or the value of benefit accruing to him, shall be deemed to be profits and gains of the business or profession and, accordingly, chargeable to income-tax as 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. The fiction is an indivisible one. It cannot be enlarged by importing another fiction, namely, that if the amount was obtainable or receivable during the previous year, it must be deemed to have been obtained or received during that year. 5.3 Applying the same analogy to the first limb of section 41(1) which talks about any allowance or deduction made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee , it means the actual deduction which has been claimed/made in the computation of income and thereafter upheld in the assessment order for the relevant assessment year. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 41(1) cannot be invoked where an assessee is eligible for deduction under Chapter-VI-A of the Act. In our view, the said contention of the ld AR will make section 41(1) infructous in such cases. 5.6 Now coming to chapter VI-A which contains Section 80P wherein the assessee's income was held eligible for deduction prior to the impunged assessment year. Section 80P(1) provides that wherein the case of the assessee being Co-operative Society, the gross total income includes any income referred in section (2), they shall be deducted, in accordance with and subject to provisions of this section, the sum specified in sub-section (2), in computing the total income of the assessee. The emphasis, therefore, is on the income which is included in gross total income of the assessee. In this regard, Section 80 AB of the Act provides necessary guidance which reads as under:- Where any deduction is required to be made or allowed under any section included in this Chapter under the heading C-Deductions in respect of certain incomes in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstand ..... X X X X Extracts X X X X X X X X Extracts X X X X
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