Assessee entitled to business loss set off & deduction under section 35AB allowed. Revenue appeal dismissed.

The tribunal concluded that the assessee is entitled to set off and carry forward business losses as the voting power of the subsidiary company was beneficially held by the assessee. The claim of lease rentals and improvements as revenue expenditure was dismissed due to not being raised before the CIT(A). The deduction under section 35AB was allowed as the liability to pay the consideration arose earlier and met the definition of "paid" in the IT Act. The appeal by the Revenue was dismissed, and the appeal by the assessee was partly allowed.

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Issues Involved:
1. Entitlement to set off brought forward losses prior to the assessment year 2002-03.
2. Claim of lease rentals and improvements as revenue expenditure.
3. Entitlement for deduction u/s 35AB.

Summary:

1. Entitlement to Set Off Brought Forward Losses Prior to the Assessment Year 2002-03:
The first grievance of the assessee is that the learned CIT(A) erred in holding that the assessee company is not entitled to set off brought forward losses prior to the assessment year 2002-03 due to a violation of s. 79(1) of the Act. The AO noticed a change in shareholding during the period in which the assessee claimed set off of carry forward business loss. According to s. 79 of the IT Act, the benefit of carry forward of business loss is denied unless 51 percent of the voting power is beneficially held by the same persons who held it on the last date of the previous year in which such losses were incurred. The learned CIT(A) held that the assessee is not entitled to set off of carry forward loss, stating that even if APIL is a 100 percent subsidiary, it does not mean that ABL is the beneficial owner of the shares owned by APIL. The Tribunal, however, concluded that since the board of directors of M/s APIL is controlled by M/s ABL, the voting power of M/s APIL is controlled by M/s ABL, and hence such voting power is beneficially held by M/s ABL. Therefore, the assessee is entitled to set off and carry forward business loss.

2. Claim of Lease Rentals and Improvements as Revenue Expenditure:
The last grievance of the assessee is that the claim of lease rentals and improvements should have been allowed as revenue expenditure. The Tribunal noted that this issue was not raised before the learned CIT(A) and hence, it is not emanating from the order of the learned CIT(A). Therefore, this ground of appeal is dismissed.

3. Entitlement for Deduction u/s 35AB:
The Revenue is aggrieved by the finding of the learned CIT(A) in holding that the assessee is entitled to deduction u/s 35AB. The learned Departmental Representative argued that s. 35AB is applicable if any lump sum consideration is paid. The learned CIT(A) referred to the meaning of the word "paid" as given under s. 43(2) of the IT Act, which means actually paid or incurred according to the method of accounting. The Tribunal agreed with the learned CIT(A) that the liability to pay the consideration of Rs. 5 crores arose on 1st March 1998 by virtue of the agreement and this is to be treated as paid in view of the definition of the word "paid" as contained in s. 43(2) of the Act. Therefore, the deduction u/s 35AB should be allowed.

Conclusion:
The appeal filed by the Revenue is dismissed, while the appeal filed by the assessee is partly allowed.

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