2012 (6) TMI 211 - AT - Income Tax

Set off of business loss - denial on ground of change in shareholding of the company - losses of AY 98-99 purported to set off against income of AY 2006-07 - assessee contended that A.O. was not competent to forbid the set off of the brought toward business loss for A.Y. 1998-99 against the business income for the current year because the so called change in the shareholding pattern took place in an earlier year and not the previous year relevant to the assessment year under consideration - Held that - It is noticed that the contention now raised before us has been taken for the first time. Since additional evidence as well as this argument were admittedly not before the authorities below , we are of the considered opinion that it will be in the fitness of things if this aspect is sent back to the AO for taking a fresh decision after considering all the relevant material - Decided partly in favor of assessee for statistical purposes.

Summary

Issues:
- Disallowance of set off of brought forward business loss against current year's income due to change in shareholding under section 79 of the Act.
- Claim of exception under proviso to section 79 for transfer of shares as cross gifts.
- Competency of Assessing Officer to disallow set off for an earlier year's change in shareholding.

Analysis:
1. Disallowance of set off of brought forward business loss: The appeal concerned the disallowance of set off of a brought forward business loss against the current year's income due to a change in shareholding, as per section 79 of the Act. The Assessing Officer observed a significant change in shareholding pattern from the year 1998 to 2006, leading to the denial of set off. The assessee argued that there was no substantial change in ownership, emphasizing that the shares were transferred within the family. However, the Tribunal upheld the disallowance, stating that section 79 applies when there is a change in shareholding pattern by more than 51% of the voting power beneficially held, which was the case here.

2. Claim of exception under proviso to section 79: The assessee contended that the transfer of shares as cross gifts within the family qualified for an exception under the proviso to section 79. However, no supporting evidence was provided to substantiate this claim, leading to the dismissal of this argument by the Tribunal. The lack of evidence to prove the cross gifts undermined the assessee's case for claiming the exception.

3. Competency of Assessing Officer for disallowance: Another argument raised was regarding the competency of the Assessing Officer to disallow the set off for an earlier year's change in shareholding relevant to the assessment year under consideration. The assessee presented additional evidence to support this argument, which was not raised before the lower authorities. The Tribunal allowed this argument to be considered but decided to send the issue back to the Assessing Officer for a fresh decision after reviewing all the relevant material presented by the assessee. This decision aimed to ensure a fair assessment of the issue based on the new evidence provided.

In conclusion, the Tribunal partially allowed the appeal for statistical purposes, upholding the disallowance of set off of brought forward business loss due to a substantial change in shareholding as per section 79. The lack of evidence for cross gifts and the decision to review the competency of the Assessing Officer's action for disallowance added complexity to the case, requiring a fresh assessment based on the additional evidence presented.