2020 (1) TMI 1614 - AT - Income Tax

Revenue's Appeal Dismissed on Loss Carry Forward Disallowance under Income Tax Act

DCIT Cir. 3 (2), Ahmedabad Versus M/s. The Janta Commercial Co. Op Bank Ltd.

The appeal filed by the Revenue challenging the disallowance of carry forward of losses due to unrealized advances under section 139(3) of the Income Tax ... Disallowance of carry forward of losses on account of unrealized amount of advances - Applicability of provisions of section 139(3) - case of the assessee before the CIT(A) that bank under liquidation shall not have any taxable income till the liability of DICGCI is fully paid off due to diversion of income at source - HELD THAT:- Board of Director of Bank was superseded and official liquidator being an official of cooperative department of Government of Gujarat was appointed to administer realization of assets and repayment of liabilities. Bank under liquidation was also authorized to approach Deposit Insurance and Credit Guarantee Corporation Ltd. (DICGCI) being subsidiary of Reserve Bank of India for the purposes of reimbursement of insurance claim of deposit with bank under liquidation within the limit of Rs. 1 Lakh or less and accordingly DICGCI has paid bank under liquidation which was utilized for the purpose of repayment of depositors to the extent of Rs.1 Lakh. According to DICGCI Act, bank was authorized to realize its assets and advances coercively and whatever proceeds are realized, bank could utilize such proceeds for repayment of liabilities of depositors and other liabilities. In view of the aforesaid mandate available by virtue of DICGCI Act, a deficit arose in the hands of the assessee in the process of recovery and repayment. It was the case of the assessee before the CIT(A) that bank under liquidation shall not have any taxable income till the liability of DICGCI is fully paid off due to diversion of income at source. CIT(A) has examined the issue threadbare and has recorded a finding in favour of the assessee for non-applicability of Section 139(3) as relying on Power Company Ltd. [1995 (11) TMI 5 - SUPREME COURT] therefore entire interest income and share dividend income is diverted at source and bank under liquidation has no discretion or authority to apply such funds as it wishes and hence such funds are not available to appellant as income and therefore such income is not taxable in the hands of appellant. In view of facts and ratio laid down in the case laws ground No.1 & 2 are allowed. As appellant has not made any submissions on capital nature of receipts subsequent to liquidation as per contention raised in ground No.3. In view of lack of factual submissions as regards capital nature of receipts in the event of liquidation, unable to deal with such ground, therefore, ground No.3 is hereby dismissed Issues:Disallowance of carry forward of losses due to unrealized advances under section 139(3) of the Income Tax Act, 1961.Analysis:The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) concerning the assessment order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 for the assessment year 2013-14. The Revenue's ground of appeal focused on the disallowance of carry forward of losses due to unrealized advances, amounting to a significant sum. The appeal proceeded ex parte as no one appeared for the assessee during the hearing. The Revenue relied on the assessment order, which was carefully examined by the Appellate Tribunal.Upon examination, it was revealed that the assessee, a cooperative bank, was under liquidation, and the official liquidator was appointed to administer the realization of assets and repayment of liabilities. The bank had received funds from DICGCI for repayment of depositors, leading to a deficit in the hands of the assessee. The assessee argued that the bank under liquidation should not have taxable income until the liabilities were fully paid off due to the diversion of income at the source. The CIT(A) analyzed the issue thoroughly and found in favor of the assessee, stating that the provisions of section 139(3) of the Act were not applicable in this scenario.The CIT(A) considered the bank's situation under liquidation, the utilization of funds received from DICGCI, and the diversion of income at the source. The CIT(A) referenced various legal precedents and upheld the assessee's claim for the setoff of losses against current year income. It was concluded that the assessee did not have the right to carry forward business losses under section 72(1) of the IT Act, 1961. The CIT(A) dismissed the Revenue's arguments regarding the disallowance under section 139(3) and the diversion of income at source. The Appellate Tribunal concurred with the CIT(A)'s findings based on the legal interpretations and precedents cited in the order.In light of the detailed analysis and legal reasoning provided by the CIT(A) and the Appellate Tribunal, the appeal filed by the Revenue was ultimately dismissed. The decision was based on the specific circumstances of the case, the legal provisions, and the interpretation of relevant laws and precedents. The order was pronounced in open court on 17/01/2020.