2024 (12) TMI 380 - AT - Income Tax

Disallowing allowing set off of carried forward business loss of earlier years against business income of the current year - Board for Industrial and Financial Reconstruction (BIFR) had recommended reliefs and concessions, including the set-off of such losses, which were to be considered by the Central Board of Direct Taxes (CBDT) - HELD THAT - Sanctioned scheme specifically deals with the reliefs and concessions From CBDT namely to consider the exemption/grant relief to the company from the provisions of various sections including Section 72(3). Further the CBDT was represented by its Counsel and after considering the same, BIFR passed the above order. Since the views of the Income Tax Department were considered by BIFR, the recommendations of BIFR was allowed to the assessee in view of CBDT Circular dated 16-02-2000 which specifically provides to recommendations contained in BIFR s order as to consider any particular must be allowed, if views of Income Tax Department have been considered by BIFR during the course of hearing. Thus the CBDT Circulars are binding on the Income Tax Authorities. Thus the Lower Authorities ought to have allowed the benefit of set off of brought forward business loss against business income of current year instead of denying the same on this count. In this connection, in the case of CIT Vs. Lakshmi Machine Works Ltd 2019 (2) TMI 1780 - MADRAS HIGH COURT was relied upon wherein it was held that the provisions of SICA would override the provisions of Income Tax Act. Denial of benefit of Section 72(3) - Since the provisions of SICA would override those of the provisions of the Income Tax Act, When BIFR has sanctioned the scheme which is sufficient and no further compliance need to be called for in regard to the conditions set out about u/s. 72(3) of the Act. Therefore the disallowance made by the Assessing Officer is hereby deleted and Ground No. 1 raised by the assessee is allowed. Disallowance made u/s. 14A on interest expenses - Since substantial interest free funds were available with the assessee, the disallowance on this count is directed to be deleted. Regarding Administrative expenses disallowed u/s. 14A wherein no details furnished therefore the same is confirmed. In the result, Ground No. 2 is partly allowed.

Issues Involved:

1. Delay in filing the appeal.
2. Set off of carried forward business loss against current year business income.
3. Invocation of Rule 8D without recording dissatisfaction.
4. Disallowance under Section 14A of the Income Tax Act.
5. Levy of interest under Section 234A/B/C of the Income Tax Act.
6. Principles of Natural Justice and consideration of submissions by lower authorities.

Detailed Analysis:

1. Delay in Filing the Appeal:

The Tribunal noted that there was a delay of 147 days in filing the appeal. However, since the appeal was filed during the COVID-19 pandemic period, the delay was condoned, and it was considered that there was no delay in filing the appeal.

2. Set Off of Carried Forward Business Loss:

The primary issue was whether the assessee was entitled to set off carried forward business losses from previous years against the business income of the current year. The assessee argued that the Board for Industrial and Financial Reconstruction (BIFR) had recommended reliefs and concessions, including the set-off of such losses, which were to be considered by the Central Board of Direct Taxes (CBDT). The Tribunal referred to the BIFR's order and CBDT Circular dated 16-02-2000, which mandated that recommendations in BIFR's order should be followed if the views of the Income Tax Department were considered. The Tribunal also relied on the Madras High Court decision in the case of Lakshmi Machine Works Ltd., which held that the provisions of the Sick Industrial Companies (Special Provisions) Act (SICA) would override the Income Tax Act. Consequently, the Tribunal allowed the set-off of brought forward business losses against the current year's business income, thereby deleting the disallowance made by the Assessing Officer.

3. Invocation of Rule 8D Without Recording Dissatisfaction:

The assessee contended that the CIT(A) erred in confirming the action of the Assessing Officer in invoking Rule 8D without recording any dissatisfaction with the assessee's claim. However, the Tribunal did not provide a separate ruling on this specific issue, focusing instead on the broader applicability of Section 14A.

4. Disallowance under Section 14A of the Income Tax Act:

The Tribunal addressed the disallowance under Section 14A concerning interest expenses and administrative expenses. The assessee had substantial interest-free funds, which were significantly higher than the investments made. Citing jurisdictional High Court judgments, the Tribunal directed the deletion of the disallowance related to interest expenses, as the interest-free funds were sufficient to cover the investments. However, the Tribunal confirmed the disallowance of administrative expenses due to a lack of details provided by the assessee.

5. Levy of Interest under Section 234A/B/C:

The assessee challenged the levy of interest under Sections 234A, 234B, and 234C of the Income Tax Act. The Tribunal did not specifically address this issue in the judgment, as it primarily focused on the substantive issues related to loss set-off and disallowance under Section 14A.

6. Principles of Natural Justice and Consideration of Submissions:

The assessee argued that the lower authorities failed to properly appreciate the facts and submissions made, thereby breaching the principles of natural justice. The Tribunal implicitly addressed this concern by thoroughly examining the BIFR's recommendations, CBDT circulars, and relevant case law, ultimately deciding in favor of the assessee on key issues.

Conclusion:

The appeal was partly allowed, with the Tribunal permitting the set-off of carried forward business losses and directing the deletion of disallowance on interest expenses under Section 14A, while confirming the disallowance of administrative expenses.

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