1994 (10) TMI 90 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of Expenses
2. Assessment of Business Loss
3. Set-off of Loss Against Other Income
4. Enhancement of Income by D.C. (Appeals)

Summary:

1. Disallowance of Expenses:
The assessee, engaged in the business of film distribution, claimed expenses related to the film 'Bindiya Chamkegi'. The Income-tax Officer (ITO) disallowed Rs. 30,000 from the expenses on an estimated basis, which was contested by the assessee. The Tribunal found that complete details of the expenses were provided and no specific inflation or unvouched expenditure was pointed out by the ITO. Therefore, the disallowance of Rs. 30,000 was deleted, and the loss claimed by the assessee for the assessment year 1985-86 was accepted.

2. Assessment of Business Loss:
The assessee entered into agreements with M/s. Usha Movies and M/s. Amar Jyoti Industrial Promotion Ltd. for financial assistance in distributing the film. The loss from the joint venture was shared among the parties as per the agreements. The D.C. (Appeals) viewed the business as an Association of Persons (A.O.P.) and held that only the A.O.P. could carry forward the business loss, not the individual members. The Tribunal, however, concluded that the assessee's 25% share in the loss was rightly set off by the ITO against the assessee's other income.

3. Set-off of Loss Against Other Income:
The D.C. (Appeals) enhanced the assessment by disallowing the entire loss claimed by the assessee, arguing that there was a statutory bar u/s 77(2) against such set-off. The Tribunal disagreed, stating that there is no express prohibition in the Income-tax Act against a member of an A.O.P. setting off his share of the loss against his other income. The Tribunal cited various judicial precedents to support this view and held that the assessee was entitled to set off his share of the loss against his other income.

4. Enhancement of Income by D.C. (Appeals):
The D.C. (Appeals) enhanced the income for both assessment years, resulting in a positive income for the assessment year 1985-86 and disallowing the set-off of loss in the assessment year 1986-87. The Tribunal found this enhancement unjustified, as the assessee's share of the loss was rightly set off by the ITO. Consequently, the enhancement made by the D.C. (Appeals) was not sustainable for both years.

Conclusion:
The Tribunal allowed the appeals, deleting the disallowance of Rs. 30,000 and accepting the set-off of the assessee's share of the loss against other income. The enhancement of income by the D.C. (Appeals) was found to be unjustified.