Case Law Details
Pr. CIT Vs Gujarat State Co-Op. Bank Ltd.(Gujarat High Court)
During the year under consideration, the assessee had returned back a sum of Rs. 10 crores towards the excess provision for liabilities. The Assessing Officer refused to accept such right back and added the said sum of Rs.10 crores to the income of the assessee. Assessee carried the matter in appeal. Commissioner of Income Tax (Appeals) confirmed the view of the Assessing Officer invoking the provision of section 41(1) of the Act. The assessee’s defense that the assessee had not claimed interest expenses in the earlier years and therefore, reversal of the unclaimed expenses cannot be taxable, was rejected on the ground that during earlier period, the assessee’s income from the banking business was exempt under section 80P of the Act and therefore, it was irrelevant whether the assessee had claimed such interest in the past or not.
The assessee carried the issue before the Tribunal. Tribunal reversed the view of the Revenue authorities making following observations:
“9. As regard the addition of Rs.10 Crores, on account of provision written back, we have noted that the learned CIT(A) has justified the same by observing that “considering these facts, reversal of interest expense is income under section 41(1) of Income Tax Act” but then section 41(1) comes into play only when “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.” In the case before us, the provision was never claimed as deduction as it was added back in the computation of income. Clearly, section 41(1) has no application in the matter. When provision was never claimed as deduction, there cannot be any occasion to bring to tax reversal of such a provision. The entire exercise of creating this provision, and reversing the same – partly or fully, is completely tax neutral. The fact that income was eligible for deduction under section 80P, even if that be so, is wholly irrelevant in this context. In view of these discussions, we uphold the grievance of the assessee.”
Section 41(1) of the Act in plain terms provides for adding back of an allowance or deduction which has been made by the assessee in any year in respect of loss expenditure or trading liability and subsequently during any previous year such liability ceases. The primary requirement of applicability of this provision therefore is where an allowance or reduction has been made in the assessment for any year in respect of such loss or expenditure or trading liability. When no such allowance or deduction was made, question of applicability of section 41(1) of the Act would not arise.
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