2021 (1) TMI 878 - AT - Income Tax

Disallowance of the carry forward of loss pertaining to the demerged unit - restricting the losses at 84.5% on account of assets being retained by assessee i.e. proportionate allowance of losses by invoking the provisions of section 72A(4)(b) - HELD THAT - The entire loss set off of by assessee pertains only to the Sinner Unit of EEPL that was demerged with the assessee. The effective date of demerger is 01.4.2013 by the order of Hon ble High Court dated 01.08.2014. Accordingly, the expenses continued to be incurred by EEPL towards Sinner Unit after 31.03.2013 - since these expenses were not to be taken over by assessee, the same were charged to the continuing company and accordingly the Investment Division of EEPL incurred these expenses. Since these expenses do not pertain to the Investment Division in the computation of income of EEPL, the same has not been claimed as deduction. This fact is explained by assessee s counsel by drawing our attention to the computation of income filed in assessee s Paper Book. Computation of income of EEPL for AY 2013- 14 states that it had earned taxable income of ₹ 14,18,473/- and therefore, the loss finally available for set off in the hands of the assessee is ₹ 1,81,26,485/-. Even year-wise details of losses including the final loss available for set of in the hands of assessee after reducing the income for AY 2013-14 is available in assessee s Paper Book in the shape of computation of income. Accordingly, we are of the view that the losses finally available to assessee of ₹ 1,81,26,485/- pertains only to Sinner Unit and not for EEPL Investment Division. Hence, we are of the view that the assessee is entitled for carry forward of the entire loss and we allowed the same. - Decided in favour of assessee.

Summary

Issues:
Disallowance of claim of losses by restricting losses at 84.5% due to assets being retained by assessee under section 72A(4)(b) of the Income Tax Act 1961.

Analysis:
1. The main issue in this appeal was the disallowance of the claim of losses by restricting the losses at 84.5% due to assets being retained by the assessee, invoking section 72A(4)(b) of the Income Tax Act. The assessee contended that the entire loss pertained only to the demerged unit, covered under section 72A(4)(a) of the Act. The Assessing Officer and CIT(A) failed to appreciate that the losses claimed pertained solely to the demerged unit and not the Investment Division. However, the AO disallowed the carry forward loss at ?28,02,356, leading to the appeal before the Tribunal.

2. The CIT(A) confirmed the action of the Assessing Officer, stating that the losses could not be solely attributed to the demerged unit as EEPL had not maintained separate books of accounts for its two activities. The appellant's contentions were deemed baseless without relevant supporting evidence. The CIT(A) upheld the denial of set-off of losses at ?28,02,356, leading to the assessee's appeal before the Tribunal.

3. Before the Tribunal, the assessee argued that the provisions of section 72A(4)(b) were wrongly invoked, asserting that the losses wholly related to the demerged unit. The assessee presented computations to demonstrate that the losses did not pertain to the Investment Division but only to the Sinner Unit, which was demerged. The Senior DR, however, emphasized the lack of detailed submissions and accounts by the assessee.

4. After considering the arguments, the Tribunal noted that the losses of ?1,81,26,485 pertained solely to the Sinner Unit, as evidenced by the computation of income. The Tribunal observed that the losses were not attributable to the Investment Division and allowed the carry forward of the entire loss. Consequently, the appeal of the assessee was allowed, overturning the disallowance of losses by the Assessing Officer and CIT(A).