2018 (3) TMI 725 - AT - Income Tax

Tax tribunal allows carry forward of unabsorbed depreciation but denies business loss carry forward

The tribunal partly allowed both the Revenue's appeal and the assessee's Cross Objections. The assessee was permitted to carry forward and set off ... Difference in the income reported by the assessee as per its books of accounts and as reflected in AIR date base of the Revenue - Tax deducted u/s 194H - Held that:- Income of ₹ 6461/- was reflected in the AIR Data base of the Revenue i. e. in form no 26AS in the case of the assessee and tax of ₹ 646. 13 was reflected to have been deducted u/s 194H @10% on the said income on behalf of the assessee for which the learned CIT-A has issued necessary direction to AO to verify contention of the assessee as to factual aspect of the matter and to pass orders thereafter on merits. The assessee is free to raise all contentions on merits in the said de-novo proceedings before the AO including raising the contention that the said income was not earned by the assessee and the AO shall after making necessary verifications of the contentions of the assessee will pass such orders on merits in accordance with law . We fail to see what prejudice is caused to the assessee in undergoing such verifications process more-so the said income of ₹ 6461/- on which income-tax was shown to be deducted at source@10% u/s 194H is reflected in 26AS i. e. AIR data base of the Revenue to be pertaining to the assessee and hence we have no hesitation in confirming the appellate order of the learned CIT-A on this ground and hence the contention of the assessee stood rejected and the ground taken by the assessee in CO stood dismissed. Needless to say the AO shall grant proper and adequate opportunity of being heard to the assessee in the proceedings conducted by the AO. Carry forward and set off of brought forward losses - Held that:- Assessee will be entitled for carry forward and set off of unabsorbed depreciation for AY 2007-08 to 2012-13 and we hold that Section 79 of the 1961 Act has no applicability so far as carry forward and set off of unabsorbed depreciation is concerned. The assessee succeeds Coming to the provisions of Section 79 so far as carry forward and set off of business losses are concerned, which is applicable to a company in which change in shareholding has taken place in the previous year to a company which is not a company in which public are substantially interested, stipulates that no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless on the last day of previous year the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one percent of the voting power on the last date of the year or years in which the loss was incurred. There is no difficulty so far as previous year 2009-10 (AY 2010-11) is concerned as HDFC Limited only acquired 25.64% shares in the assessee company and the persons who held more than fifty-one shares in AY 2007-08 to AY 2009-10 namely Mr Anil Bohora and Mr Ajay Bohora continued to hold more than fifty-one percent shares in the assessee company as at the end of the previous year 2009-10(AY 2010-11) as their shareholding fell from 100% to 74.36% as on 31-03-2010. The difficulty arose in the previous year 2010-11(AY 2011-12) when the HDFC Limited were allotted new shares by the assessee company which took its shareholding to 62.28% and thus the persons namely Mr Anil Bohora and Mr Ajay Bohora who held 100% shares in the previous relevant to AY 2007-08 to 2009-10 and 74.36% in AY 2010-11 which were in any case more than 51% had their shareholding skid to 37.72% in previous year 2010-11(AY 2011-12) which led to falling of their equity below fifty-one percent thereby being hit by the bar created by provisions of Section 79 of the 1961 Act so far as carry forward of losses for AY 2007-08 to 2010-11 is concerned. This would lead to disallowance of the brought forward losses of the assessee from AY 2007-08 to 2010-11 in AY 2011-12 itself and no carry forward of losses for AY 2007-08 to 2010-11 shall be allowed. In AY 2012-13, there was no change in shareholding of the assessee company as the HDFC Limited continued to hold 62.28% shareholding in the assessee company and there will be no difficulty in allowing set off or carry forward further of losses for the AY 2011-12 to the succeeding years. Similarly, there is no difficulty in carry forward of the assessed losses for the AY 2012-13 to the succeeding years is concerned. Issues Involved:1. Condonation of delay in filing Cross Objections (CO).2. Addition of Rs. 6461 based on Form No. 26AS.3. Carry forward and set off of brought forward losses and unabsorbed depreciation.Detailed Analysis:1. Condonation of Delay in Filing Cross Objections (CO):The assessee's CO was delayed by 17 days. The assessee submitted an affidavit and an application for condonation of delay, citing bona fide reasons for the delay, including seeking proper advice from counsel and chartered accountants. The tribunal, considering the substantial interest of justice, condoned the delay, referencing the Supreme Court's decision in National Thermal Power Company Limited v. CIT (1998) 229 ITR 383 (SC). The tribunal emphasized that technicalities should not obstruct justice, citing the Supreme Court's decision in Collector, Land Acquisition v. Mst. Katiji 1987 taxman.com 1072 (SC).2. Addition of Rs. 6461 Based on Form No. 26AS:The AO added Rs. 6461 to the assessee's income based on an entry in Form No. 26AS, reflecting undisclosed TDS. The CIT(A) directed the AO to verify the assessee's contention that the income did not pertain to it. The tribunal upheld the CIT(A)'s order, directing the AO to verify the factual aspects and pass orders on merits, ensuring the assessee is granted an adequate opportunity to present its case.3. Carry Forward and Set Off of Brought Forward Losses and Unabsorbed Depreciation:The assessee claimed brought forward losses of Rs. 5,32,99,080 from AY 2007-08 to 2011-12. The AO disallowed these losses, citing a change in shareholding pattern in AY 2012-13, invoking Section 79 of the Income-tax Act, 1961. The CIT(A) allowed the carry forward of losses, holding that the assessee, being a subsidiary of HDFC Ltd., a public limited company, was not subject to Section 79. The tribunal examined the shareholding changes and the applicability of Section 79.Unabsorbed Depreciation:The tribunal held that Section 79 does not apply to unabsorbed depreciation, referencing the Supreme Court's decision in CIT v. Shri Subhulaxmi Mills Limited (2001) 249 ITR 795 (SC). Thus, the assessee was entitled to carry forward and set off unabsorbed depreciation from AY 2007-08 to 2012-13.Business Losses:The tribunal analyzed the shareholding changes:- Until AY 2009-10, Mr. Ajay Bohora and Mr. Anil Bohora held 100% shares.- In AY 2010-11, HDFC Ltd. acquired 25.64% shares, reducing the Bohoras' combined shareholding to 74.36%.- In AY 2011-12, HDFC Ltd.'s shareholding increased to 62.28%, reducing the Bohoras' shareholding to 37.72%.The tribunal concluded that the assessee was hit by Section 79 for AY 2007-08 to 2010-11 due to the change in shareholding, disallowing the carry forward of losses for these years. However, for AY 2011-12 and 2012-13, the tribunal allowed the carry forward of losses as there was no further change in shareholding.Conclusion:The tribunal partly allowed both the Revenue's appeal and the assessee's CO. The assessee was allowed to carry forward and set off unabsorbed depreciation but was restricted from carrying forward business losses for AY 2007-08 to 2010-11 due to the change in shareholding pattern.