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TMI Blog2023 (5) TMI 1011X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of accounts showing it as payable. One of the essential requirements of Section 41(1) of the Act is that there should be an allowance or deduction made in the assessment for any year in respect of loss or expenditure or trading liability. The AO has recorded a finding in para 3 of its order that the assessee has not filed the returns for the claim for the earlier years and thus no claim has been made by filing returns of income. As is right in his submission that Section 41(1) shall be applicable only when allowance is made in any assessment or reassessment for any year. In the present case, no assessment or reassessment has been made for any A.Ys. Therefore, no allowance or deductions are claimed for any A.Ys. It is not in disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he control of Liquidator. It had availed loans from various Co-operative banks and failed to pay interest accrued on the loans. The Government of Karnataka waived the interest payable by the assessee to the co-operative banks. 4. Assessee filed its return declaring Nil income for A.Y. [Assessment Year] 2013-14 and claimed that Rs 6,23,97,844/- as interest waiver from various banks on the ground that interest is not claimed as expenses in earlier years. The AO [Assessing Officer] passed an assessment order Dated 22.03.2016 under Section 143(3) of the Income Tax Act, 1961 [IT Act] , rejecting the claim holding that the expenses should be claimed in the year in which it accrues and the assessee cannot avail the benefits of carry forw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement of total income should be prepared for every year from the financial statements of the Appellant; the addition under Section 41(1) of the Act can be made only if Assessee had claimed the expenditure as deduction in the earlier years and obtained remission or benefit in respect of such expenditure in subsequent year; one of the conditions for the applicability of Section 41(1) of the Act is actual allowance of expense in assessment. There must have been actual allowance made for expenditure or trading liability in the Assessment of an assessee in an earlier year. It is necessary to record a finding that the amount had been allowed as deduction in earlier years, in absence of which such amount will not be assessable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity 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 succe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, with the return filed treated as non est in the eye of law, we hold that the expression where an allowance or deduction has been made in the assessment for any year has to be read as any allowance or deduction considered in the assessment for the purpose of invoking Section 41(1) of the Act. For the applicability of Section 41(1) of the Act, the prerequisite condition is that an allowance or deduction has been made in the assessment for any of the years in respect of an expenditure, loss or trading liability incurred by the assessee and subsequently during any previous year, the assessee has received remission or obtained refund of the said amount. Thus Section 41(1) creates a legal fiction and hence, has to be strictly complied ..... X X X X Extracts X X X X X X X X Extracts X X X X
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