2008 (2) TMI 448 - AT - Income Tax

Tribunal upholds set-off of losses, allows insurance premium & air fare expenses

Deputy Commissioner Of Income-Tax. Versus Gujarat Nre Coke Limited.

The Tribunal upheld the CIT(A)'s decision allowing the set off of brought forward losses under section 72A for a company engaged in business activities, ... Carry Forward And Set Off Issues Involved:1. Set off of brought forward losses u/s 72A.2. Allowability of insurance premium payment.3. Allowability of air fare expenses.Summary:Issue 1: Set off of brought forward losses u/s 72AThe Department contested the CIT(A)'s decision to allow the set off of brought forward losses of M/s. Aparna Projects (P.) Ltd., arguing that the company was not engaged in business for the required three years prior to the relevant assessment year as per section 72A. The Departmental Representative emphasized that the amalgamating company had only started production from the assessment year 2003-04. In rebuttal, the assessee's representative argued that 'engaged in the business' is broader than 'engaged in manufacturing' and includes preparatory activities. The Tribunal agreed with the assessee, citing various case laws, and held that Aparna Projects (P.) Ltd. was engaged in business from April 2000, fulfilling the conditions of section 72A. Therefore, the assessee was entitled to set off the brought forward loss and unabsorbed depreciation of Aparna Projects (P.) Ltd.Issue 2: Allowability of insurance premium paymentThe Department argued that the insurance premium for an amount of Rs. 58,20,079 did not pertain to the assessment year in question and should be disallowed as prepaid expenses. The assessee's representative countered that the entire premium was due when billed by the insurance company, and under the mercantile system of accounting, it should be allowed in the year it accrues. The Tribunal agreed with the assessee, stating that the expense had accrued during the relevant assessment year and should be allowed in its entirety. The CIT(A)'s deletion of the disallowance was upheld.Issue 3: Allowability of air fare expensesThe Department contended that the assessee failed to show that the air travel expenses of Rs. 37,126 were for business purposes. The assessee's representative argued that the expenses were for consultants' travel to the factory and were not personal. The Tribunal found the assessee's argument convincing and noted the absence of contrary evidence from the Department. The CIT(A)'s deletion of the disallowance was upheld.Conclusion:The appeal of the revenue was dismissed in its entirety, upholding the CIT(A)'s decisions on all grounds.