2024 (3) TMI 92 - AT - Income Tax

Set off of brought forward business loss - mistakes in previous years for not claiming benefit of set-off - eligibility for set off of the business loss with future business income - 8 years time limit provided in the statute - HELD THAT - As per the provisions of Section 72 the unadjusted business loss of a particular year would be eligible to be carried forward to 8 subsequent assessment years and the same would be eligible for set off against the business income of 8 subsequent assessment years. Hence as per section 72 of the Act, the assessee had indeed set off the brought forward business loss pertaining to Asst Year 2005-06 with the business income of Asst Year 2010-11 which is within the 8 years time limit provided in the statute. Hence the lower authorities grossly erred in not following the provisions of the Act in the correct perspective and had denied the legitimate deduction to the assessee. AO is hereby directed to allow the set off of brought forward business loss pertaining to Asst Year 2005-06 with the business income of the year under consideration. Accordingly, the grounds raised by the assessee on merits are allowed.

Summary

Issues involved:
The validity of assumption of jurisdiction u/s 147 of the Income-tax Act, 1961 and the denial of set off of brought forward loss of Asst Year 2005-16 in the sum of Rs 12,53,378.

Validity of assumption of jurisdiction u/s 147:
The appeal challenged the validity of assumption of jurisdiction u/s 147 of the Act. The original assessment was sought to be reopened by the ld. AO on the ground that the assessee had set off the brought forward business loss of Rs 12,53,378/- with the business income of the year. The assessee filed objections and provided details of losses available, but the ld. AO proceeded with reassessment without disposing of the objections as required by law. The action of the ld. AO in reopening the assessment was upheld by the ld. CIT(A) based on the reasoning that the business loss should have been set off in previous years. However, the Tribunal found that the assessee was eligible for set off as per Section 72 of the Act, allowing the appeal on this issue.

Denial of set off of brought forward loss:
The main issue to be decided was whether the ld. CIT(A) was justified in confirming the action of the ld. AO in not allowing the set off of brought forward loss of Asst Year 2005-16 in the sum of Rs 12,53,378. The Tribunal noted that the assessee had indeed set off the brought forward business loss of Rs 12,53,378 pertaining to Asst Year 2005-06 with the business income of the year under consideration, Asst Year 2010-11, within the 8 years time limit provided by the statute. The lower authorities erred in not following the provisions of the Act correctly, resulting in the denial of legitimate deduction to the assessee. The Tribunal directed the ld. AO to allow the set off of the brought forward business loss, thereby allowing the grounds raised by the assessee on merits.

Conclusion:
The Tribunal granted relief to the assessee on merits by allowing the set off of the brought forward business loss. As a result, the other legal grounds challenging the validity of reopening of assessment were not addressed. The appeal of the assessee was allowed by the Tribunal.