TaxTMI 
TaxTMI 
2018 (3) TMI 1313
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....ing of chlorinators, evaporators & flexible connectors etc. 2.1 The first issue under appeal is addition of Rs. 7,33,565/- on account of legal expenses since the same, in the opinion of Ld. AO, were not incurred for the purpose of business and moreover, TDS deducted there-from was not deposited within the stipulated time limit. The Ld. Authorized Representative for assessee [AR] pleaded for admission of additional evidences in support of the claim on this account. Keeping in view the principle of natural justice, the issue stands remitted back to the file of Ld. AO with a direction to assessee to substantiate his claim and demonstrate that these expenses were incurred for the purpose of assessee's business and further the provisions of TDS has duly been complied with against the same. Ground Nos. 1 & 2 stands allowed for statistical purposes. 2.2 Ground No. 3 & 4 contest adhoc disallowance against telephone expenses, motor expenses & depreciation and sundry expenses debited to the profit & Loss Account. Keeping in view, the reasonable disallowance rate of 10% & 20%, the same do not require any interference on our part and hence, dismissed. 3.1 Ground Numbers 5 & 6 plead for allo....
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....ed to the assessee against which the assessee is in further appeal before us. 3.4 The primary argument of Ld. AR revolves around the fact that it was the case of succession by inheritance and therefore, the provisions of Section 78 were not applicable to the facts of the case and hence, the set- off of the losses was allowable to the assessee. The Ld. DR placed reliance on the stand of Ld. CIT(A). 3.5 We have carefully heard the rival contentions and perused the impugned order. At the outset, it is noted that loss of Rs. 5,55,990/- incurred by the assessee in the capacity of proprietor for AY 2007-08 has completely been set-off in AY 2008-09 and the same is, undisputedly, in order. 3.6 Now, we are concerned with set-off of balance amount of Rs. 20,63,402/- which is nothing but assessee's own share of loss to the extent of 50% in erstwhile firm as on the date of dissolution i.e. 22/09/2006. In our opinion, this loss has been incurred by the firm and exclusively belongs to the firm only and is not available for set-off to the partner in individual capacity. Clearly, the firm and individual are separate legal / taxable entities in the eyes of law. From the facts culled out by Ld. f....
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.... did not continue. This is not a case of inheritance due to death under the law of succession. The loss suffered by the appellant as an individual can be included and accounted for but not the loss suffered by a different person/unit i.e. the partnership firm. Section 78(2) of the Act does not permit the said set off or diminution. 6. The Madhukant M. Mehta (supra) the sole proprietor had expired and after his death his heirs had succeeded and carried on business in partnership. In this case the losses suffered by the deceased proprietor were allowed to be set off in terms of Section 78(2) of the Act. Section 78(2) carves out an exception in case of succession by inheritance. The general rule is that it is only the person who has suffered the loss is entitled to set off and account for the same and not a different or a third person. In the case of Madhukant M. Mehta (supra) it was succession by inheritance. In the case of Saroj Aggarwal (supra) there was a partnership firm and on death of one of the partners, the legal heirs of said partner were inducted as partners. It was noticed that the partnership was not dissolved on the death of the partner. In such circumstances, Section ....
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.... carrying on the business by succession. Section 78(2) provides for a different situation. It speaks only of carry forward of the losses of a person who was carrying on a business or profession and who was succeeded to by another person. It makes no provision for the division of the income of the previous year between the predecessor and successor. It says that it is only the person who incurred or suffered the loss who will be entitled to carry forward the same and set it off, and no other person. An exception to this rule is the case of succession by inheritance. 10. In the present case the assessee has claimed to set off the loss of Rs. 22,40,193/- against his income earned for the period from 18.09.2004 to 31.03.2005. The loss is not the loss suffered by him. It is the loss suffered by the erstwhile partnership firm before 18.09.2004 on which date the firm was dissolved. When the assessee took over the business of the erstwhile partnership firm, it was not a case of succession by inheritance. The appeal is accordingly dismissed. No costs. Upon perusal of the same, we find that the court after considering various judicial pronouncements including that of Hon'ble Apex Court re....