2016 (7) TMI 1002 - AT - Income Tax

Carry forward of business loss - Held that - The grievance raised is misplaced inasmuch as the claim of set off of business loss is for the business losses which pertain to assessment years of more than 8 years.Since, the assessee is not entitled to carry forward any loss for more than 8 assessment years and since the ld. counsel has conceded ground is accordingly dismissed.- Decided against assessee. Denial of set off of unabsorbed depreciation - Held that - As relying on General Motors India (P.) Ltd. 2012 (8) TMI 714 - GUJARAT HIGH COURT we direct the A.O to allow set off/carry forward of unabsorbed depreciation as claimed by the assessee. - Decided in favour of assessee. Disallowance of interest payment - Held that - In our considered opinion, if the A.O. is of the opinion that any claim of expenditure is excessive then it is incumbent upon him to bring on record the comparable cases. The only reason given by the A.O. is that the normal rate of bank interest is 12.50% but the A.O. has not realized is that the public make deposits in Companies to get more interest than from the bank. If the companies are paying the same rate of interest as the bank are paying then the public would not see any benefit in making deposits with the Company and they will go for bank interest. Further, by no stretch of imagination rate of interest of 15% can be considered as excessive. We, accordingly, set aside the findings of the ld. CIT(A) and direct the A.O. to delete the addition of ₹ 3,00,544/-.- Decided in favour of assessee.

Summary

Issues Involved:
1. Carry forward of business loss.
2. Set-off or carry forward of unabsorbed depreciation.
3. Disallowance of interest payment.

Issue-wise Detailed Analysis:

1. Carry Forward of Business Loss:
The assessee's appeal against the order of CIT(A)-III, Baroda, dated 17.04.2012, pertained to the carry forward of business loss of ?74,44,271/-. The counsel for the assessee conceded that the claim for set off of business loss was for losses pertaining to assessment years older than 8 years. Since the law does not permit carrying forward losses beyond 8 assessment years, this ground was dismissed.

2. Set-off or Carry Forward of Unabsorbed Depreciation:
The revenue authorities denied the set-off of unabsorbed depreciation amounting to ?3,17,82,254/- based on the provisions of Section 32(2)(iii)(b) as amended by the Finance (No. 2) Act, 1996, which limited the carry forward to 8 years. However, this issue had been settled in favor of the assessee by the Hon’ble Jurisdictional High Court in the case of General Motors India (P.) Ltd. 354 ITR 244, which was followed in Gujarat Themis Biosyn Ltd. 228 taxman.com 359. The High Court ruled that the unabsorbed depreciation from A.Y. 1997-98 onwards could be carried forward indefinitely following the amendment by Finance Act, 2001, which removed the 8-year restriction. The Tribunal directed the A.O. to allow the set-off/carry forward of unabsorbed depreciation as claimed by the assessee, thus allowing this ground.

3. Disallowance of Interest Payment:
The A.O. disallowed ?3,00,544/- out of interest payment, restricting the interest rate to 12.50% instead of the 15% paid by the assessee. The assessee argued that the higher interest rate was justified due to past financial losses and the need to attract depositors. The Tribunal found that the A.O. failed to provide comparable cases to justify the disallowance and noted that a 15% interest rate was not excessive. Consequently, the Tribunal set aside the findings of the CIT(A) and directed the A.O. to delete the addition, allowing this ground.

Conclusion:
The appeal by the assessee was partly allowed, dismissing the claim for carry forward of business loss but allowing the set-off/carry forward of unabsorbed depreciation and deleting the disallowance of interest payment. The order was pronounced in open court on 11-07-2016.