2020 (5) TMI 75 - AT - Income Tax

Tribunal allows set-off of business losses against dividend income under Section 115JB

The Tribunal upheld the CIT's order for factual verification by the AO in a case involving the computation of book profits U/s.115JB and adjustment of ... Revision u/s 263 - adjustment of business loss or unabsorbed depreciation as per books of account, while computing book profit u/s.115JB - HELD THAT:- We find that this is only a factual verification to be made by the Ld.AO from the records of the earlier years and decide the availability of business loss or unabsorbed depreciation for the purpose of reduction while computing book profit U/s.115JB - AO is directed to do so in accordance with law. Hence, the direction of the Ld.CIT in this regard is hereby upheld with all issues left open for the assessee to present with necessary evidences before the Ld.AO. AO is directed to decide this entire issue in accordance with law. Accordingly grounds raised by the assessee in respect of this issue are dismissed. Taxability of dividend income and other income in the hands of the assessee under the head ‘profits and gains of business and profession’ or ‘income from other sources’ and consequently set-off of brought forward business losses from earlier years against such income - It is incumbent on the part of the assessee that having promoted industries in the State and having undertaken to participate in the day to day affairs in the management of those undertakings by participating in crucial decision making process. The assessee had to maintain its 24% equity stake in those undertakings at every point in time, so as not to lose controlling interest over the respective undertakings. With regard to yet another observation made by the Ld.CIT in his order that in Schedule VII of the Balance sheet, the assessee company had shown ‘investments other than subsidiaries’ and had shown market value of investments thereon. We find that this disclosure requirement is made in accordance with Schedule VI of the Companies Act, 1956, which has got absolutely no relevance for the purpose of Income Tax Act. The assessee was all along getting returns only in the form of dividend and had never participated in any profit sharing with those public sector undertakings right from the inception of the assessee company. Hence, the case laws relied upon by the Ld.AR which were passed by this Tribunal and by the Hon’ble Jurisdictional High Court in the assessee’s own case for the earlier years would rule the field even for the year under consideration before us. Accordingly, the observations of the Ld.CIT in Pages 6 to 8 of his order are dismissed and the grounds raised by the assessee in this regard are allowed. Appeal of the assessee is partly allowed. Issues Involved:1. Validity of jurisdiction of revision proceeding U/s.263 of the Income Tax Act.2. Computation of book profits U/s.115JB of the Income Tax Act.3. Adjustment of business loss or unabsorbed depreciation while computing book profit U/s.115JB.4. Taxability of dividend income and other income under the head 'profits and gains of business and profession' or 'income from other sources' and set-off of brought forward business losses.Issue-wise Detailed Analysis:1. Validity of Jurisdiction of Revision Proceeding U/s.263:The assessee initially challenged the validity of the jurisdiction of revision proceeding U/s.263 of the Act. However, during the hearing, the assessee's representative did not press this issue and focused on the merits of the case.2. Computation of Book Profits U/s.115JB:The CIT observed discrepancies in the computation of book profits by the Assessing Officer (AO). Specifically, the AO assessed book profits at Rs. 73,88,189 but failed to account for Rs. 42,58,543 credited to the profit and loss account. The CIT noted that adjustments made by the assessee, including prior period income and provisions for gratuity and leave salary, were not in accordance with the law. The CIT directed the AO to verify these adjustments and re-compute the book profits. The assessee's representative conceded that this issue required factual verification by the AO and had no objection to the AO's verification. Consequently, the Tribunal upheld the CIT's order and directed the AO to decide the taxability of these issues in accordance with the law.3. Adjustment of Business Loss or Unabsorbed Depreciation:The CIT initiated revision proceedings regarding the adjustment of business loss or unabsorbed depreciation while computing book profit U/s.115JB. The Tribunal found that this issue required factual verification by the AO from the records of earlier years. The AO was directed to verify the availability of business loss or unabsorbed depreciation and decide the matter in accordance with the law. The Tribunal upheld the CIT's direction, leaving all issues open for the assessee to present necessary evidence before the AO.4. Taxability of Dividend Income and Set-off of Brought Forward Business Losses:The AO had computed the head-wise income and adjusted the brought forward business loss against the income. The CIT observed that the brought forward business loss could only be set-off against business income and since there was no business income, the AO's order was erroneous and prejudicial to the interest of the Revenue. The Tribunal noted that the assessee was engaged in promoting industries in Tamil Nadu by investing in shares and participating in the management of companies. The Tribunal referred to previous decisions, including those of the Supreme Court and the Hon’ble Jurisdictional High Court, which held that dividend income from such investments should be treated as business income. Consequently, the assessee was entitled to set-off brought forward business losses against the dividend income. The Tribunal dismissed the CIT's observations and allowed the grounds raised by the assessee.Conclusion:The Tribunal's judgment addressed the issues of computation of book profits U/s.115JB, adjustment of business loss or unabsorbed depreciation, and the taxability of dividend income. The Tribunal upheld the CIT's order for factual verification by the AO but allowed the assessee's appeal regarding the treatment of dividend income as business income, enabling the set-off of brought forward business losses. The appeal was partly allowed.