TaxTMI 
TaxTMI 
2020 (6) TMI 47
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....f accumulated losses in this assessment year although the same has been claimed by the demerged company in its return of income for this assessment year. 3) Whether on the basis of facts & circumstances of the case and in law the Ld. CIT(A) erred in restricting the addition u/s 14A upto Rs. 77,678/- as against Rs. 18,32,751/- without appreciating the observation of the A.O. 4) Whether on the basis of facts & circumstances of the case and in law the Ld. CIT(A) erred in restricting the addition on account of disallowance of rent upto Rs. 2,16,000/- as against Rs. 11,82,000/- without appreciating the observation of the A.O. 5) That the appellant craves leave to add modify or alter any of the grounds of appeal and/ or adduce additional evidence at the time of hearing of the case." 2. Ground Nos. 1 and 2 are in respect of set off/adjustment and carry forward of accumulated losses amounting to Rs. 1,21,58,014/- and unabsorbed depreciation amounting to Rs. 20,61,04,026/- of the demerged company. 3. Facts of the case are that the assessee company filed the original return of income on 28-09-2010 showing total income of Rs. 8,67,51,460/-. On l3-09-2010 and 0....
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....into consideration the impact of demerger and assessee acquiring 'Vortal' division was filed at the earliest on 09.06.2011 declaring 'NIL' income after adjustment of brought forward losses and unabsorbed depreciation relating to the 'Vortal' division of M/s. SYK Limited merged with the assessee company. Thus, as per the revised Return of Income the total income was revised at Nil an adjustment of brought forward loss and u/s. 115JB tax payable was at Rs. 1,09,17,085/-. However, the Assessing Officer did not appreciate the submissions of the assessee and refused to take cognizance of the said revised return of income filed on 09-06-2011 wherein the assessee company has claimed the set off of brought forward losses and unabsorbed depreciation of 'Vortal' division merged into the assessee company w.e.f. 01- 03-2010 on the following grounds: i. There was no mention of the scheme of demerger pending before the Hon'ble High Court of Calcutta in the audited accounts of the company. ii. The assessee has not filed the return of loss in time as prescribed u/s 139(3) of the Act. iii. The assessee company has filed a revised return after receipt o....
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....troverting the issues pointed out by the ld. CIT, DR which we would discuss infra and also drew our attention to various case laws to controvert the submission of the Ld. CIT, DR and he does not want us to interfere with the order of Ld. CIT(A). 8. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee company filed return u/s. 139(1) of the Act for the relevant assessment year on 28.09.2010 showing income of Rs. 8,67,51,460/-. Thereafter, the department gave intimation to assessee u/s. 143(1) dated 14.04.2011 accepting the returned income. We note that before filing of return, the assessee (which is a company registered at Kolkata) filed an application on 13.09.2010 jointly with M/s. Star ya Kalakaar.com Limited (Bombay) before the Hon'ble High Court of Calcutta and Hon'ble High Court of Bombay for demerger of 'Vortal' division of M/s. Staryakalakar.com Ltd (henceforth referred to M/s. SYK Limited) under sections 391(2) and 394 of the Companies Act, 1956. Since the application for demerger was filed before the return of income (hereinafter "ROI") originally on 28/09/2010 and mean while there was no ....
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....g to the demerged undertaking (Vortal division of M/s. Star Ya Klakaar.com Ltd.). Thereafter, on 29.08.2011, the assessee's case was selected for scrutiny and AO issued the statutory notice u/s. 143(2) and 142(1) of the Act and assessee participated in the assessment proceedings. However, the AO refused to accept the revised return for the following reasons: i) Since there was no mention of the scheme of demerger pending before the Hon'ble High Court of Calcutta in the audited accounts of the assessee company. ii) The revised return was filed by the assessee after its original return was processed u/s. 143(1) of the Act. iii) Since the revised return was not filed within the time prescribed u/s. 139(5). iv) Since M/s. SYK in its return of income has taken the benefit of loss of its demerged Vortal division, and assessee claiming the same loss through the revised return amounted to double deduction. Therefore, the AO did not allow the set off/adjustment and carry forward of accumulated losses and unabsorbed depreciation of the demerged company. On appeal the Ld. CIT(A) accepted the contention put-forth by the assessee and allowed the claim of the ....
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....ll apply as if it were a return under sub-section (1)." 10. Thus, from a reading of the above provision it is clear that section 139(3) of the Act stipulates that loss of previous year under the head "Income from Business/profession" and under the head "Capital Gains" cannot be carried forward unless the return of loss is submitted before the due date of filing the return u/s 139(1) of the Act. So, losses of earlier years for which return of loss need to be filed within the prescribed due date then only it can be carried forwarded to subsequent years. 11. However, it has to be kept in mind that this sub-section (3) of section 139 of the Act applies to the assessee who wants to avail it while filing the ROI within the stipulated time prescribed u/s. 139(1) of the Act. In the present case, the ROI was filed by assessee on 28.09.2010. At that time the assessee was not having any loss of the previous year to be carried forward. Only after the demerger order of Vortel division of M/s. SYK Ltd. stood vested with the assessee company by virtue of Hon'ble High court order in March/April, 2011, the assessee filed revised ROI on 09.06.2011 and said losses does not pertain to the losses....
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....e hands of resulting company, i.e. Padma Logistic and Khanij Private Limited as per follows" Hence, we are of the opinion that section 139(3) of the Act is not applicable to the facts of the case as contended by the AO and therefore this ground raised by the AO in rejecting the revised return filed by the assessee is baseless. 14. Another angle to it is that when the assessee filed the original ROI on 28.09.2010, the application for demerger was only filed before the Hon'ble High Court and it was only in the pipe line and the Hon'ble High court sanctioned the demerger scheme only in March/April, 2011, so the assessee filed revised ROI on 09.06.2011. So, when the assessee filed the original ROI on 28.09.2010, it cannot predict the outcome of its application for demerger filed before the Hon'ble High Court and it is quite impossible for the assessee to file any return as contemplated u/s. 139(3) of the Act. So, section 139(3) of the Act would not come in the way in the facts and circumstances of this case. 15. Moreover, it was brought to our notice by Ld. AR that in the instant case, the assessee had filed a 'nil' revised Return of income and not a loss return of income a....
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....essment, when the AO has passed in the relevant year scrutiny assessment u/s. 143(3) of the Act. 17. According to us, the right to file a revised return of income does not lapse with the issuance of intimation under section 143(1) of the Act. Intimation u/s 143(1) of the Act cannot be said to be a 'completion of assessment' and more so, when assessment has subsequently been completed under section 143(3) of the Act. Reliance is placed on the judgment of the Hon'ble Supreme Court in the case CIT v Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 (SC) wherein it was held that, "The expressions 'intimation' and 'assessment order' have been used at different places. The contextual difference between the two expressions has to be understood in the context the expressions are used. The assessment is used as meaning sometimes 'the computation of income', sometimes 'the determination of the amount of tax payable' and sometimes 'the whole procedure laid down in the Act for imposing liability upon the tax payer'. In the scheme of things, as noted above, the intimation under section 143(1)(a) cannot be treated to be an o....
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....sion or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier". 21. Moreover, Section 139(5) of the Act states that an assessee can file a revised return of income before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. In the instant case the assessee had furnished the revised return of income u/s. 139(5) of the Act on 09-06-2011. The last date of filing the revised return of income was 31-03-2012, being one year from the end of the relevant assessment year. And the assessment order u/s. 143(3) of the Act was passed on 28-03-2013. As such, the return of income was filed on time by the assessee. However, the AO has opined that since the intimation u/s. 143(1) of the Act was passed on 14-04-2011, the assessee lost its right to file a revised return thereafter, is on wrong understanding of law and so the reason of AO fails. 22. So in the light of the case laws discussed (supra), we are of the opinion that the intimation issued u/s 143(1) ....
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....#39;ble High Courts, the brought forward losses of the demerged undertaking gets transferred to the resulting company (here the assessee company) and thus to that extent, the company (M/s. SYK) shall not be entitled to take the benefit of brought forward losses relating to the demerged undertaking. Along with the letter, the company (M/s. SYK Ltd.) also submitted the revised computation of income for AY 2010-11 wherein the business losses and unabsorbed depreciation relating to the demerged 'Vortal undertaking' was not carried forward to the subsequent years. M/s. SYK Ltd. also submitted the computation for the immediately succeeding year AY 2011-12 wherein again the business losses and unabsorbed depreciation relating to the demerged 'Vortal undertaking' was not taken into account. The relevant extract of the letter of M/s. SYK ltd submitted to its AO is reproduced below: "Our company had brought forward losses as stated in Annexure "A" of the vortal division which, pursuant to section 72A(4) of the Income Tax Act, 1961 were retransferred to the resultant company M/s. Ppadma Logistic & Khanij Pvt. Ltd. during assessment year 2010-11 since the demerger sche....
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....nd placed at pages 195-196 and 178-200 of the paper book. From a perusal it is evident that the losses of the demerged unit was neither set off during the year nor was carried forward to subsequent years. 26. However, the AO did not accept and was of the opinion that since M/s SYK Limited has not filed a revised return forgoing the set off set off and carry forward of brought forward losses and unabsorbed depreciation attributable to the demerged undertaking he held that both the assessee company and M/s SYK Ltd has taken the benefit of set off and carry forward of brought forward losses and unabsorbed depreciation attributable to the demerged undertaking and hence denied the claim of set off of losses of the demerged undertaking to the assessee. 27. However, it was brought to our notice that the demerged entity namely M/s. SYK has filed a revised computation for AY 2010-11, being the relevant year, before it's jurisdictional Assessing Officer without taking into consideration the brought forward claims and allowances pertaining to the demerged unit. So, the AO's allegation/objection cannot sustain. Moreover, it is noted that when the assessee has brought to the notice of....
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.... iii) The property and the liabilities of the undertaking or undertakings begin transferred by the demerged company are transferred at values appearing in its books of account immediately before the demerger. iv) The resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis. v) The shareholders holding not less than three fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become share holders of the resulting company or companies by virtue of the demerger, otherwise than a a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company; vi) The transfer of the undertaking is on a going concern basis. 29. Once demerger is sanctioned by the Hon'ble High court the enabling provision is section 72A of the Act, which allows carry forward and set off of accumulated loss and unabsorbed depreciation allowance in cases of amalgamation or demerger etc. Sub-section (4) of sect....
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.... Rs. 8,72,853/- TOTAL Rs. 19,10,251/- Less: Amount suo moto disallowed by the assessee Rs. 77,500/- Rs. 18,32,751/- 32. Aggrieved, assessee preferred an appeal before the Ld. CIT(A) who gave relief to the assessee by holding as under: "The Assessing Officer, in paragraph 26.1.3 of the assessment order has stated that: "Whereas, as per the provision of S. 14A of the Act, there are laid down rules to be adopted to compute the amount of expenses to have been involved to earn such exempted income for disallowance. It is specifically stated in the Rule 8D of the Income Tax Rules, 1962." It thus appears that the Assessing officer was of the view that the provisions of Section 14A are mandatorily required to be adopted in computing this disallowance under section 14A of the Income Tax Act, 1961. This is not correct. The provisions of section 14A can be invoked only if the Assessing officer, having regards to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the Act. There is n....
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....ts, have fallen from Rs. 313 lakhs as at the beginning of the year to Rs. 48 lakhs as at the end of the, year which shows that the additional investment made during the year is out of self-owned funds of the assessee company. Thus there should be no disallowance on the interest paid by the assessee. In the light of the aforesaid discussion, I hereby limit disallowance under section 14A to investments made by the company in companies other than investment made in Aryan Mining and Trading Corporation Pvt. Ltd. as per follows: Particulars Rs. Opening investments (other than investment made in Aryan Mining & Trading Corporation Pvt. Ltd. 1,43,00,500 Closing investments (other than investment in Aryan Mining & Trading Corporation Pvt. Ltd. 1,67,70,500 Total 3,10,71,000 Average thereof 1,55,35,500 ½% thereof 77,678 Hence I limit the disallowance to Rs. 77,678 and the balance amount of disallowance is not sustained." 33. Having heard both the parties on this issue, we do not subscribe to the reason given by the Ld. CIT(A) that since the assessee had strategic investment in the M/s. Aryan Mining & Trading Corporation Ltd., the....
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.... to the dividend income or not. 34. Having clarified the aforesaid position, the first and foremost issue that falls for consideration is as to whether the dominant purpose test, which is pressed into service by the assessees would apply while interpreting Section 14A of the Act or we have to go by the theory of apportionment. We are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the investee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is non-taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. Keeping this objective behind section 14A of the Act in mind, the said provision has to be interpreted, particularly, the word 'in relation to the income' that does not form part of total income. Considered in this hue, the princ....
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....red to investments of only Rs. 20,55,90,500/- as at the end of the year. As such, it can be safely presumed that the assessee was having sufficient own funds to invest in shares. And since the assessee was having a common fund consisting of both own funds and borrowed funds and in case the own funds are sufficient to invest in non-business activities, a presumption drawn is that the said investment is made out of own funds. For this proposition of law, we rely on the judgment of Hon'ble Bombay High court in the case of CIT Vs. Reliance Utilities & Power Ltd. 313 ITR 340 and hold that no disallowance under rule 8D(2)(ii) is warranted. However, we are of the opinion that disallowance under Rule 8D(2)(iii) needs to be recomputed accordingly as per the law laid in REI Agro Ltd. Vs. DCIT (2013) 36 CCH0360 (Kol. Trib.) wherein it was held that - "Thus, not all investments become the subject matter of consideration when computing disallowance u/s. 14A read with rule 8D. The disallowance u/s. 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given ris....
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.... some technical issues. 1 have carefully perused the Remand Report submitted by the Assessing Officer and the submissions filed by the assessee in this regard. I do not find any infirmity in the claim of the assessee. The assessee has paid rent and copies of rental agreement and evidence of payment are available. The Assessing Officer has raised an issue with respect to non registration or delayed registration of property by the Landlords which are non consequential as far as revenue is concerned. It is well settled law that the assessing authority cannot step into the shoes of the assessee and decide the business expediency of a business expenditure. In this case it has to be proved that the expenditure - that of rent23 was the purpose of the appellant's business. This has been brought on record by the appellant and has nowhere been refuted by the AO. However, in the case of rent paid to Nathmall Girdharilal Steels Ltd. the assessee has failed to deduct TDS on rent paid for two properties @ 1,08,000 each totalling Rs. 2,16,000 and the same ought to be disallowed under section 40(a)(ia). Therefore, I limit the disallowance to Rs. 2.16.000 and the balance rent Rs. 9,66,....