1985 (3) TMI 123 - AT - Income Tax

Summary

Issues:
1. Disallowance of provident fund contribution
2. Carry forward of unabsorbed business losses, depreciation, and other allowances

Issue 1: Disallowance of provident fund contribution

The appeal by the Revenue challenged the CIT(A)'s order deleting the disallowance of Rs. 2,474 as contribution made by the assessee for the period May 1976 to December 1977. The CIT(A) allowed the deduction based on the settlement of a dispute with the Provident Fund Commissioner in October 1978 and the subsequent remittance in December 1978. The Commissioner relied on legal precedents such as Nonsuch Tea Estate Ltd. vs. CIT and Kedarnath Jute Mfg. Co. Ltd. vs. CIT to support the decision. The Revenue contended that the decision was contrary to legal precedents like Kedarnath Jute Mfg. Co. Ltd. and L.J. Patel & Co. vs. CIT. However, the Tribunal upheld the CIT(A)'s decision, emphasizing that the liability was incurred during the relevant year and could be claimed as a deduction. The Tribunal cited cases like Pope The King Match Factory vs. CIT and CIT vs. Woodlands Hotel to support the decision. The Tribunal concluded that the order of the CIT(A) was justified and rejected the Revenue's grounds.

Issue 2: Carry forward of unabsorbed business losses, depreciation, and other allowances

The second issue involved the ITO's refusal to carry forward business losses, unabsorbed depreciation, and investment allowance due to a change in shareholding under section 79 of the IT Act, 1961. The Commissioner (Appeals) disagreed with the ITO, citing the Bombay High Court decision in Italindia Cotton Co. Pvt. Ltd. vs. CIT and the Madras High Court decision in CIT vs. Concord Industries Ltd. The Commissioner found that the change in shareholding was not for tax avoidance purposes, as the new shareholders had income below the exemption limit and were mainly agriculturists. The Tribunal upheld the Commissioner's decision, noting that the conditions in section 79 were cumulative and not exclusive. The Tribunal emphasized that both conditions in section 79 needed to be satisfied for any exemption and rejected the Revenue's grounds, stating that the matter was covered by the decision in Concord Industries Ltd.

In conclusion, the Tribunal dismissed the appeal, upholding the decisions of the CIT(A) regarding the disallowance of provident fund contribution and the carry forward of unabsorbed business losses, depreciation, and other allowances.