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Income Tax Appellate Tribunal, MUMBAI BENCH “G” MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI MANOJ KUMAR AGGARWAL
ORDER PER MAHAVIR SINGH, V.P. This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-8, Mumbai [in short ‘CIT(A)’] in Appeal No. CIT(A)- 8/IT-339/2016-17 dated 28.11.2018. Assessment was framed by DCIT- 3(3)(1), Mumbai for the Assessment Year 2014-15 under section 143(3) the Income Tax Act 1961, (hereafter referred ‘the Act’) vide order dated 09.12.2016.
The only issue in this appeal of assessee is as regards to disallowance of the claim of losses by 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) of the Act. Thereby the loss disallowed at Rs. 28,02,356/-. For this, the assessee has raised grounds which are as under:
That the Assessing Officer (AO) as well as CIT(A) erred in law as well as on the facts of the case in invoking the provisions of section 72A(A)(b) of the Act and thereby concluding that since 84.54% of the assets were retained by the appellant, being assets pertaining to demerged unit. Appellant is eligible to claim losses to the extent of 84.54% only amounting to Rs.1,53,24,129/- in place of Rs.1,81,26,485/- chimed by the appellant pertaining to the demerged unit.
2. That the AO and CIT(A) failed to appreciate that the entire loss of Rs. 1,81,26,485/-pertains only to the demerged unit and accordingly the facts of your appellant's case is squarely covered by provisions of section 72A(4)(a) of the Act. 3. The AO and CIT(A) failed to appreciate that the investment unit was always having positive income which in fact went on to reduce the losses of the Demerged unit. Accordingly, the Assessing Officer ought to have appreciated that the losses claimed your Appellant pertained only to the demerged unit. 4. That the AO and CIT(A) ought to have further appreciated that the appellant in the computation of income has always disallowed expenses as per the provisions of section14A of the Act and the said disallowance went on to reduce the loss incurred by the demerged unit.
Further, the assessee has also raised ground no.5 in regard to disallowance of expenses in view of the provisions of section 14A of the Act but stated that the issue pertains to disallowance of losses only. Hence, he has not argued this ground.
Briefly stated facts are that the assessee-company was incorporated on 28.10.1969 and was carrying on the business of manufacturing of Aluminum Pressure Die Casting Components etc. During the relevant AY there was a demerger of Sinner Unit of Exemplar Engineering Pvt. Ltd. (EEPL) w.e.f 01.04.2013 as approved by Hon’ble Bombay High Court vide order dated 01.08.2014. According to this demerger, all the assets & liabilities of the Sinner Unit of EEPL was transferred to the assessee. The assessee claimed entire loss of Rs. 1,81,26,485/- as the said loss pertains to the demerger unit and accordingly assessee claimed that its case was covered under the provision of section 72A(4)(a) of the Act. The Assessing Officer while framing assessment under section 143(3) of the Act made disallowance of set off of losses and restricted the claim of loss at Rs. 1,53,24,129/- as against claimed by assessee in the return of income at Rs. 1,81,26,485/-. Thereby the Assessing Officer disallowed the carry forward loss at Rs. 28,02,356/-.
Aggrieved, the assessee preferred appeal before the CIT(A) who also confirmed the action of Assessing Officer and dismissed the assessee’s claim of carry forward of loss by observing common para-3.2.3 and 3.3 as under:
3.2.3 Along with present written submissions, the appellant has submitted ITR & Computation of Income of EEPL since AY 2009-10 to AY 2014-15. The Business Income (Loss)/ Interest received offered under Income from Other Sources shown by appellant in said years are tabulated as under:
A.Y. Business Income/(loss) Interest Income (considered by appellant from Investment division.
2009-10 (86,75,507) 6,86,584 2010-11 (62,59,184) 1,12,264 2011-12 (1,44,43,697) 2,31,158 2012-13 49,44,695) 9,22,428 2013-14 2,99,229 11,04,244 (before set off of b/f losses) AY 2014-15 (20,89,633) 5,59,938
I find that the appellant has not submitted the financial statements of EEPL any of above year, hence the unit-wise break-up if any of above business losses could not be verified. From the, details given, it is difficult to assume that the aforesaid business losses pertained solely to Sinnar unit. Further, if it was so, then there should not have been any business loss in AY 2014-15, since tha1lemerger of Sinnar unit from EEPL had become effective from 01.04.2013, i.e. from the start of previous year pertaining to AY 2014-15. Hence, the appellant's contentions are without any basis and relevant supporting evidences. In such case, since the EEPL has retained 15.46% of total assets, and only 84.54% of total assets have been transferred to appellant company consequent upon said scheme of demerger/ amalgamation, the AO has correctly restricted the brought forward losses/unabsorbed depreciation of Sinnar Unit to 84.54% of total losses of EEPL, by invoking the provision of section 72A(4)(b) of the Act.
3.3 In view of above, the denial of set-off of losses to the extent of Rs. 28,02,356/- made by AO is hereby confirmed, and therefore, the grounds of appeal are dismissed.
Aggrieved against the action of Assessing Officer, assessee came in appeal before the Tribunal.
We have heard rival contentions and gone through the facts and circumstances of the case. Before us, the ld. counsel for the assessee first of all stated that the Assessing Officer has wrongly invoked the provisions of section 72A(4)(b) of the Act. He stated that the assessee’s case is covered by the provisions of section 72A(4)(a) of the Act. He took us through the relevant provisions which read as under:
[Provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger, etc. 72A………. (4) Notwithstanding anything contained in any other provisions of this Act, in the case of a demerger, the accumulated loss and the allowance for unabsorbed depreciation of the demerged company shall- (a) where such loss or unabsorbed depreciation is directly relatable to the undertakings transferred to the resulting company, be allowed to be carried forward and set off in the hands of the resulting company; (b) where such loss or unabsorbed depreciation is not directly relatable to the undertakings transferred to the resulting company, be apportioned between the demerged company and the resulting company in the same proportion in which the assets of the undertakings have been retained by the demerged company and transferred to the resulting company, and be allowed to be carried forward and set off in the hands of the demerged company or the resulting company, as the case may be.
It was claimed by assessee that the income of investment division of EEPL is taxed under the head “Income from Other Sources” and does not form part of income from Business or Profession. Accordingly, the unabsorbed business and depreciation loss pertains wholly and exclusively to the demerger unit and no part of the said expense is attributable to the investment division. It is not the case of the assessee which falls under the provisions of section 72A(4)(b) of the Act as EEPL was not maintaining separate books of account of its two units namely Investment Division and Sinner Unit, which is already the demerged unit, hence, it is not possible to said that the entire losses pertains to the said demerger unit. Even it is not mandatory as per section 72A(4)(a) of the Act that separate books of account are mandatorily required to be maintained and in this case assessee has clearly established that no part of the loss pertains to the Investment Division and the entire loss relates only to the Sinner Unit. For this, the ld. counsel for the assessee drew our attention to assessee’s Paper Book consisting of pages 1 to 109 and particularly he referred to pages 96 to 109 wherein the computation of income of EEPL for AY 2009-10, 2020-11, 2011- 12 & 2012-13 are enclosed. From these computations of income it is clearly demonstrated that the carry forward loss of EEPL does not belongs to Investment Division rather entire loss relates only to Sinner Unit which is demerged.
On the other hand, Sr. DR, however, emphasized upon the points that the assessee has not filed the details of these losses and accounts. Hence, according to him the Assessing Officer while disallowing the loss has categorically noted in the assessment order and he particularly referred to para-5.6 and relevant, he read out as under:
“However, since EEPL has not maintained separate books of accounts for its two activities, it can be stated that the loss stated to be exclusively of Sinner unit is not substantiated with any documentary evidences and hence, it cannot be said to be directly relatable to the Sinner Unit.” 10. Further, he read out the findings of CIT(A) that no financial statements of EEPL were submitted. Hence, he requested that on principle issue can be decided here but matter can be restored back to the AO for verification of facts.
We have heard rival contentions and gone through the facts and circumstances of the case. The above facts discussed are very clear. It is a fact that this is a very small issue concerning disallowance of carry forward of loss of Rs. 28,00,000/-. We have noted that the Investment Division of EEPL has made profit in AY 2009-10 till AY 2012-13 as is seen from computation of income filed in the assessee’s Paper Book. Hence, the question of reducing the losses of the Sinner Unit to the extent of losses pertaining to the Investment Division does not arise. We noted that the entire loss of Rs. 1,81,26,485/- 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. However, 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.
We have noted from the computation of income of EEPL for AY 2013- 14 that it had earned taxable income of Rs. 14,18,473/- and therefore, the loss finally available for set off in the hands of the assessee is Rs. 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 Rs. 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.
In the result, appeal of the assessee is allowed.