2025 (12) TMI 167 - AT - Income Tax

Tribunal upholds loss carry forward under section 79(2)(c), disallows PF/ESI claims, applies CBDT Circular 9/2024

ITAT Delhi dismissed the Revenue's appeal and upheld the CIT(A)'s order in toto. On the issue of carry forward of losses, the Tribunal affirmed the ... Carry forward of losses denied - as per AO there is a change in the share holding pursuant to the order of the NCLT, Delhi Bench dated 04.12.2018 under IBC Code and thus the provisions of section 79(2)(c) are applicable to the assessee company pursuant to which since no approval has been taken from the Pr. CIT or CIT provisions of section 79(2)(c) of the Act are attracted - HELD THAT:- On careful perusal of the order of the CIT(A), we find no good reason to interfere with the findings of the CIT(A) in directing the AO to allow carry forward of losses. Thus, we sustain the order of the Ld. CIT(A) on this issue. Even otherwise, since the revenue effect in the appeal of the Revenue is NIL the same is liable to be dismissed in view of the Circular of CBDT No.9/2024 dated 17.09.2024. Disallowance in respect of PF & ESI contributions relating to employees contributions - We find no infirmity in the order passed by the Ld. CIT(A) in sustaining the disallowance following the decision of Checkmate Services Ltd. Vs. CIT [2022 (10) TMI 617 - SUPREME COURT (LB)]. Thus, this ground is rejected. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Applicability of section 79 of the Income-tax Act to deny carry forward of business losses for the year under consideration. 1.2 Maintainability of the Revenue's appeal in view of CBDT Circular No. 9/2024 dated 17.09.2024 and the resulting monetary/tax effect. 1.3 Allowability of employees' contribution to PF and ESI where deposited beyond the due dates, in light of the decision in Checkmate Services Pvt. Ltd. vs. CIT. 1.4 Necessity to adjudicate cross-objection grounds that merely support the order of the first appellate authority when that order is sustained. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of section 79 to deny carry forward of business losses Legal framework (as discussed) 2.1 The Tribunal noted that the Assessing Officer invoked section 79(2)(c) of the Income-tax Act to deny carry forward of current year and earlier years' business losses, on the ground of change in shareholding pursuant to an order of the NCLT under the IBC. 2.2 The first appellate authority reproduced and applied section 79, which restricts carry forward and set-off of losses in the case of certain closely held companies where there is a change in shareholding, unless on the last day of the relevant previous year not less than 51% of the voting power is beneficially held by the same persons who held such voting power on the last day of the year in which the loss was incurred. 2.3 Reliance was placed on the judgment of the Supreme Court in Commissioner of Income Tax vs. Manmohan Das (59 ITR 699), holding that the question whether losses can be carried forward and set off is to be determined in the assessment year in which the set-off is claimed, by the Assessing Officer dealing with that subsequent year. Interpretation and reasoning 2.4 The Tribunal recorded that, as per the details on record, there was no change in shareholding between 31.03.2017 and 31.03.2018, i.e., during the previous year relevant to the assessment year under consideration. 2.5 The first appellate authority reasoned that section 79 applies only in the year in which the loss is sought to be set off, and that the question of allowability of brought-forward losses arises only in that subsequent year when such set off is actually claimed. 2.6 It was observed that during the year under appeal the assessee incurred loss and did not claim set-off of brought-forward losses from earlier years, hence the question of applying section 79 for denial of set-off did not arise at all in the current year. 2.7 It was further held that the Assessing Officer's observations in the current assessment year regarding non-allowability of carry forward of earlier years' losses under section 79 would not bind or govern subsequent years, as eligibility must be freshly determined in the year in which set off is claimed, considering the then-prevailing shareholding pattern. Conclusions 2.8 The Tribunal upheld the finding that the provisions of section 79 were not applicable to the assessee for the year under consideration. 2.9 The denial of carry forward of earlier years' business losses by the Assessing Officer was held to be contrary to law and unsustainable. 2.10 The direction of the first appellate authority to allow carry forward of business losses of earlier years to subsequent years was sustained. Issue 2: Maintainability of the Revenue's appeal in light of CBDT Circular No. 9/2024 Legal framework (as discussed) 2.11 The assessee, in its cross-objection, contended that the tax effect in the Revenue's appeal was below the monetary limits prescribed by CBDT Circular No. 9/2024 dated 17.09.2024. Interpretation and reasoning 2.12 The Tribunal noted that the revenue effect in the appeal was NIL. 2.13 In view of the CBDT circular prescribing monetary limits for filing appeals and the NIL tax effect, the Tribunal held that the appeal was liable to be dismissed on this ground as well. Conclusions 2.14 The appeal filed by the Revenue was dismissed, inter alia, on the ground that the tax/revenue effect was NIL in terms of CBDT Circular No. 9/2024. 2.15 Ground No. 1 of the assessee's cross-objection, challenging the maintainability of the Revenue's appeal on the basis that the monetary limit was less than Rs. 60 lakhs, was allowed. Issue 3: Disallowance of employees' contribution to PF and ESI Legal framework (as discussed) 2.16 The Assessing Officer disallowed employees' contribution to PF and ESI on the ground of non-compliance with the prescribed due dates. 2.17 The first appellate authority sustained the disallowance by following the Supreme Court decision in Checkmate Services Pvt. Ltd. vs. CIT. Interpretation and reasoning 2.18 The Tribunal noted that the disallowance was upheld by the first appellate authority strictly in consonance with the ratio laid down by the Supreme Court in Checkmate Services Pvt. Ltd. vs. CIT on the treatment of employees' contribution to PF and ESI. 2.19 No reason was found by the Tribunal to take a view different from that of the first appellate authority on this issue. Conclusions 2.20 The order sustaining the disallowance of employees' contributions to PF and ESI was affirmed. 2.21 The corresponding ground (ground no. 4) in the assessee's cross-objection challenging such disallowance was rejected. Issue 4: Necessity to adjudicate supportive grounds in the cross-objection Interpretation and reasoning 2.22 Ground nos. 2 and 3 in the assessee's cross-objection merely supported the order of the first appellate authority allowing carry forward of losses. 2.23 As the Tribunal had already sustained the said order on the carry forward of losses, it considered that no separate adjudication on these supportive grounds was required. Conclusions 2.24 Ground nos. 2 and 3 of the cross-objection were treated as infructuous or academic and were not adjudicated. 2.25 Overall, the Revenue's appeal was dismissed and the assessee's cross-objection was partly allowed, consistent with the above findings.