2017 (11) TMI 1662 - HC - Income Tax

Set off of brought forward losses - Held that - Assessee company is held eligible to claim set off of brought forward unabsorbed business losses against and to the extent of the profit of the year under consideration - The result the grounds taken by Revenue are dismissed. - We are in complete agreement with the view taken by the tribunal above. Hence no substantial question of law arises.

Summary

Issues Involved:

1. Legality of set off of brought forward losses under Section 72(1) when manufacturing activities were closed.
2. Legality of set off of brought forward losses against income from commission activities.
3. Legality of set off of carried forward business losses based on common management, administration, organization, funds, employees, and unity of control.
4. Legality of set off of business loss when the same was disallowed in the preceding assessment year and not appealed by the assessee.

Issue-wise Detailed Analysis:

1. Legality of Set Off of Brought Forward Losses under Section 72(1):

The appellant questioned whether the Tribunal was justified in allowing the set off of brought forward losses of ?1,99,95,292 under Section 72(1), given that the manufacturing activities were closed, the factory was locked, and taken over by RFC in July 1991. The Tribunal held that the closure of the manufacturing unit did not equate to the closure of the business. The assessee maintained one set of books for all activities, indicating common management, funds, and unity of control, thus establishing interconnection, interlacing, and interdependence between the activities.

2. Legality of Set Off of Brought Forward Losses Against Income from Commission Activities:

The Tribunal was challenged on whether it was justified in allowing set off of brought forward losses against income from commission activities. The Tribunal found that the commission business and manufacturing activities were interconnected, interlaced, and interdependent. The income earned from the commission business was used to meet liabilities of manufacturing activities, indicating a common management, common funds, and unity of control.

3. Legality of Set Off of Carried Forward Business Losses Based on Common Management, Administration, Organization, Funds, Employees, and Unity of Control:

The appellant contended that the assessee failed to substantiate its claim of common management, administration, organization, funds, employees, and unity of control with documentary evidence. The Tribunal, relying on CIT(A)'s observations, found that the assessee had common management, common funds, and unity of control, thus meeting the criteria for interconnection, interlacing, and interdependence. The Tribunal cited Supreme Court judgments supporting the principle that unity of control is decisive, not the nature of business lines.

4. Legality of Set Off of Business Loss When Disallowed in Preceding Assessment Year:

The appellant argued that the set off of business loss was disallowed for the immediately preceding year (AY 1993-94) by the Assessing Officer and confirmed by CIT(A), and no appeal was preferred by the assessee. The Tribunal upheld that the assessee was entitled to set off the carried forward business losses, as the activities of the assessee company were interconnected and interdependent, supported by common management, funds, and unity of control.

Conclusion:

The Tribunal, agreeing with CIT(A), concluded that the assessee was eligible to claim set off of brought forward unabsorbed business losses against the profits of the year under consideration. The Tribunal dismissed the grounds taken by Revenue, stating that the appeal did not raise any substantial question of law. Consequently, the appeal was dismissed.