2022 (7) TMI 431 - AT - Income Tax

Disallowing the loss u/s 79 - Reason for such disallowance is that during the previous year there is change in shareholding of the assessee company - HELD THAT - Section 79 of the Act reads that where a change in shareholding has taken place in any previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year, but subject to certain conditions. Here in this case the previous year is 2013-14 and the relevant assessment year is 2014-15. With reference to these, the losses that are not allowable to be carried forward to be set off against the income of the assessment year 2014-15 or the losses relating to the period prior to the assessment year 2014-15. It means that any loss that is coming from the assessment year 2013-14 is not allowable against the income of the assessment year 2014-15. This does not mean that the losses incurred during the assessment year 2014-15 (in the financial year 2013-14) are not to be allowed to be carried forward. With this view of the matter, we find that the observations of the authorities below that the current year losses are not to be allowed to be carried forward further are untenable. We accordingly allowing the grounds of appeal, direct the learned Assessing Officer to delete the disallowance made under section 79 - Appeal of assessee allowed.

Summary

Issues involved:
Interpretation of Section 79 of the Income Tax Act regarding the carry forward of losses due to a change in shareholding.

Analysis:
The judgment by the Appellate Tribunal ITAT Hyderabad involved the interpretation of Section 79 of the Income Tax Act concerning the carry forward of losses due to a change in shareholding. The case revolved around M/s Aster Rail Private Limited, engaged in the business of railway equipment. The assessee filed an appeal against the order of the Learned Commissioner of Income Tax (Appeals)-1 for the assessment year 2014-15, which disallowed a loss under section 79 of the Act due to a change in shareholding. The Assessing Officer made an addition by disallowing the loss under section 79, citing a change in shareholding during the previous year. The assessee argued that only brought forward losses, not current year losses, should be disallowed due to changes in shareholding.

The Learned Commissioner of Income Tax (Appeals) dismissed the appeal, stating that the transition process was complete during the relevant previous year, justifying the disallowance of losses for the assessment year 2014-15. The assessee then appealed, contending that section 79 should not apply to current year losses, allowing for the carry forward of losses incurred in the financial year 2013-14. The Appellate Tribunal analyzed the case, noting that the change in shareholding occurred as per a share purchase agreement, resulting in a loss of Rs. 1,99,32,403 as of 31/03/2014.

Section 79 of the Act prohibits the carry forward of losses from any year prior to the previous year in cases of a change in shareholding. However, the Tribunal concluded that losses incurred during the assessment year 2014-15 (financial year 2013-14) should be allowed to be carried forward, contrary to the lower authorities' interpretation. Thus, the Tribunal directed the Assessing Officer to delete the disallowance made under section 79 of the Act, allowing the appeal of the assessee. The judgment was pronounced on June 30, 2022, in favor of the assessee.