2019 (2) TMI 2006 - AT - Income Tax

Reopening of assessment u/s 147 - Deduction u/s 10A - failure on part of the assessee in claiming wrongful claim of set off of business loss of ineligible business unit from profits of eligible business units before claiming deduction u/s 10A - HELD THAT - CIT(A) has held that reopening is not justified. In this view of the matter when the CIT(A) has held that reopening is not justified it is amply evident that if revenue was aggrieved, it should have raised a ground in this regard. A reading of the grounds of appeal mentioned above shows that no ground challenging the ld. CIT(A) s order on the issue of lack of jurisdiction has been raised before the ITAT. The adjudication on the merits of the issue is only of academic interest. Hence, holding that ld. CIT(A) has held the assessment to be without jurisdiction and the revenue has not challenged the same, in our considered opinion, the adjudication on merits is infructuous. Accordingly, this appeal by the revenue stands dismissed being infructuous.

Summary

Issues:
1. Validity of reopening of assessment after more than 4 years.
2. Treatment of loss from ineligible business unit against income from eligible unit for deduction u/s 10A.
3. Allowance of carried forward business loss due to change in shareholding pattern.
4. Treatment of unabsorbed depreciation from ineligible business unit for deduction u/s 10A.

Analysis:

Issue 1: Validity of reopening of assessment after more than 4 years
The Appellate Tribunal noted that the assessment for the relevant year was reopened more than 4 years after the end of the assessment year. The Tribunal found that there was no new material to justify the reopening and concluded it was a case of a change in the assessing officer's opinion. The Tribunal agreed with the appellant's argument that the reopening violated the provision of the first proviso to section 147 of the Income Tax Act. It was held that if there was any income that had escaped assessment, the appropriate action would have been under section 263 of the Act. Consequently, the Tribunal allowed the grounds challenging the validity of the reopening, holding that the assessment was without jurisdiction.

Issue 2: Treatment of loss from ineligible business unit for deduction u/s 10A
The Revenue contended that the loss from the ineligible business unit should have been set off against the income from the eligible unit before claiming deduction under section 10A. However, the CIT(A) held that there was no failure on the part of the assessee in claiming the wrongful set off of business loss. The Tribunal upheld the CIT(A)'s decision, stating that the loss of the ineligible business unit need not be first set off against the income from the eligible unit for the purpose of claiming deduction under section 10A.

Issue 3: Allowance of carried forward business loss due to change in shareholding pattern
The CIT(A) allowed the loss incurred from the ineligible business unit to be carried forward despite a change in the shareholding pattern during the previous year. The Tribunal noted that the CIT(A) correctly held that the loss should be allowed to be carried forward, even though there was a lapse of brought forward business loss due to the change in shareholding pattern. This decision was based on the information provided in the tax audit report filed by the assessee.

Issue 4: Treatment of unabsorbed depreciation for deduction u/s 10A
The Revenue argued that the unabsorbed depreciation from the ineligible business unit should have been set off against the income from the eligible unit before claiming deduction under section 10A. However, the CIT(A) and the Tribunal held that the unabsorbed depreciation need not be first set off against the income from the eligible unit for claiming the deduction under section 10A, even after considering Circular No. 7 of 2013 issued by the Central Board of Direct Taxes on the issue.

In conclusion, the Appellate Tribunal dismissed the appeal filed by the Revenue, as the assessment was held to be without jurisdiction due to the invalid reopening. The Tribunal upheld the decisions of the CIT(A) on various issues related to the treatment of losses, carried forward business loss, and unabsorbed depreciation for the purpose of claiming deduction under section 10A of the Income Tax Act, 1961.