2015 (12) TMI 1613 - AT - Income Tax

Double disallowance u/s.40(a)(ia) - prohibition of carrying forward losses u/s 79 - amalgamation - Held that - We find that the assessee has itself disallowed and added to its income ₹ 12,30,374/- while filing the return of income on the basis of note in clause 17(f) of the tax audit report as per Table A (supra). We further note from the comparative statement of disallowance u/s.40(a)(ia) of the Act that the A.O. again disallowed and added ₹ 17,97,259/- to the income of assessee as stated in para 6 of the A.O. order, the break up of which is given in Table B (supra). The ld. CIT(A) while disposing of the appeal before him allowed relief in respect of ₹ 5,76,899/-as mentioned in Table B (Total B) meaning thereby that double disallowance in respect of ₹ 12,20,360/- (Rs.12,15,060 5300) as which stands added to the total income of the assessee suo motto on the basis of tax audit report. On the basis of these facts, it is apparent that the disallowance in respect of ₹ 12,20,360/- has been made twice, first by the assessee on his own and secondly by the A.O. We, therefore, delete the disallowance/addition - Decided in favour of assessee Rejection of assessee s claim for setting off of brought forward losses - Held that - As decided in COMMISSIONER OF INCOME TAX Versus SELECT HOLIDAY RESORTS PVT LTD. 2013 (1) TMI 187 - DELHI HIGH COURT as during the earlier period 98% of the assessee s share were held by IIPL the holding company, which was amalgamated with the assessee company. However, after merger of the shareholder of the IIPL continued to be shareholder in the assessee company. Thus, the shareholders beneficially entitled to 98% of the shares continued to be same. In these circumstances, prohibition of carrying forward losses placed by Section 79 does not operate. The same issue was also come up before Karnataka High Court in the case of CIT vs. AMCO Power System Ltd. 2015 (10) TMI 2385 - KARNATAKA HIGH COURT has affirmed the same.- Decided in favour of assessee

Summary

Issues:
1. Double disallowance of expenses under section 40(a)(ia) of the Income Tax Act, 1961.
2. Rejection of claim for set-off of brought forward losses under section 79 of the Act.

Issue 1: Double Disallowance of Expenses under Section 40(a)(ia) of the Income Tax Act, 1961:

The appellant filed an appeal against the order of the Commissioner of Income-Tax (Appeals)-38, Mumbai, regarding the double disallowance of expenses totaling Rs. 12,30,374 under section 40(a)(ia) of the Act. The appellant had initially disallowed this amount in the return of income based on the tax audit report but the Assessing Officer (A.O.) made a second disallowance resulting in a double disallowance. The Appellate Tribunal noted the double disallowance and ruled in favor of the appellant, deleting the additional disallowance of Rs. 12,20,360. The Tribunal found that the disallowance had been made twice, first by the appellant and then by the A.O., leading to the deletion of the additional disallowance.

Issue 2: Rejection of Claim for Set-off of Brought Forward Losses under Section 79 of the Act:

The appellant's claim for setting off brought forward losses of Rs. 63,902 was rejected by the CIT(A) due to a change in shareholding exceeding 51%. The appellant argued that there was no change in beneficial shareholding as the overall shareholding remained within the same group. The Appellate Tribunal reviewed the shareholding patterns before and after the transfer of shares and cited precedents where similar scenarios were considered for set-off of losses. Relying on these decisions, the Tribunal allowed the appellant's claim for set-off of brought forward losses under section 79 of the Act. The Tribunal directed the A.O. to act accordingly, ruling in favor of the appellant.

In conclusion, the Appellate Tribunal ruled in favor of the appellant on both issues. The double disallowance of expenses under section 40(a)(ia) was deleted, and the claim for set-off of brought forward losses under section 79 was allowed based on the continuity of beneficial shareholding within the same group. The appeal filed by the appellant was allowed by the Tribunal on December 7, 2015.