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Facts
The assessee, Mashreque Communications Ltd, originally filed a nil return for AY 2014-15. Its case was reopened under Section 147 due to an unallowable amortization claim of Rs. 75 lakhs for a film, leading to an escapement of income. In response to the reassessment notice, the assessee accepted the addition but claimed set-off of Rs. 13.91 crores in brought forward business losses, again resulting in a nil income. The CIT(A) upheld the AO's decision to deny the set-off, considering Rs. 85 lakhs earned by the assessee as interest income (not business income) and stating that set-off was not available without business income for the current year.
Held
The Tribunal held that the assessee was entitled to set-off the brought forward business losses against the enhanced income in the reassessment. It found that the Rs. 85 lakhs characterized by the CIT(A) as interest income was, in fact, consultancy income and thus business income, as evidenced by the profit and loss account and Form 26AS. Since the brought forward losses were previously determined and not a fresh claim, and the assessee had business income, the conditions for set-off were met. The Tribunal directed the AO to grant the benefit of set-off for these losses.
Key Issues
1. Whether the assessee is entitled to set-off brought forward business losses against income assessed during reassessment proceedings, especially when there is an addition to income. 2. Whether the income of Rs. 85 lakhs earned by the assessee constitutes 'income from other sources' (interest) or 'business income' (consultancy income) for the purpose of loss set-off.
Sections Cited
Section 147, Section 148, Section 154, Section 149(1)(b), Section 144B, Rule 9A of ITA rules, Section 72, Section 152(2), Section 143(3), Section 271(1)(c)
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRISANDEEP SINGH KARHAIL, JM
O R D E R PER PRASHANT MAHARISHI, AM:
This appeal is filed by the assessee against the appellate order passed by the National faceless appeal Centre (NFAC), Delhi (the learned CIT – A) dated 9/10/2023 wherein appeal filed by the assessee against assessment order passed by assessment unit (the learned AO)dated 19/1/2023 was dismissed.
Assessee is aggrieved and has raised following grounds of appeal: –
i. On the facts and circumstances of the case and in law, the learned Commissioner of income tax (A), NFAC order in upholding the decision of the learned assessing officer in initiating proceedings under section 147 while the issue under consideration was required to be dealt with under section 154 of the act only. ii. Without prejudice to the foregoing grounds of appeal and on the facts and circumstances of the case and in law, the learned CIT (A) erred in upholding rejection by learned AO of the contention that the reopening proceedings are bad in law within the meaning of section 149 (1) (b) of the income tax act, 1961. iii. Without prejudice to the foregoing grounds of appeal, the learned AO erred in passing the order under section 147 read with section 144B of the act, without considering the return of income filed by the appellant on 24/8/2022 in response to the notice dated 26/7/2022 under section 148 of the act, even though the said ground of appeal was not taken before the learned CIT (A) through oversight. Still this ground of appeal is a legal ground of appeal and all the facts relating to this ground of appeal are already part of the record and hence the present ground of appeal deserves to be admitted. iv. A) Without prejudice to the foregoing grounds of appeal and on the facts and circumstances of the case and in law the learned CIT – A did not admitting the following additional ground of appeal: –
2A. On the facts and circumstances of the case and in law assessing officer erred in assuming the reopening of the appellant’s assessment as maintainable in accordance with the decision of the Supreme Court in case of Union of India versus Ashish Agarwal and instruction number 01/2022 dated 11/file/2021 when the said decision was applicable only to the cases which were subject matter of read petitions filed before the high courts at that time and not varied petition is were not filed as in case of appellant.
As far as appellant’s case is concerned, reassessment proceedings originating from a notice under section 148 dated 23/4/2021 wrongly issued under the pre-amended reassessment provisions effective from 1/4/2021.
The reassessment proceedings so initiated are without mandate of law and hence deserve to be quashed in appeal.
B) It is prayed that in view of the above ground of appeal also, the reopening proceedings deserves to be quashed v. Without prejudice to the foregoing grounds of appeal and on the facts and circumstances of the case and in law, the learned CIT – A in dismissing the grounds of appeal number
3. (before the learned CIT – A) of the appellant relating to the fact that the learned AO erred while passing the order under section 147 of the act in not considering ITR filed on 24/8/2022 in response to notice under section 148 he even though learned AO clearly mentioned in page number 2 of assessment order about the ITR Filed on 24/8/2029 vi. Without prejudice to the four glowing grounds of appeal and on the facts and circumstances of the case and in law the learned CIT – A all to not allowing set off of brought forward business losses. vii. That the learned CIT – A all to not considering appellant’s submission dated 7/2/2023 and mentioning “ consultancy income” as interest on income tax refund in third para on page number 40 of the impugned appellate order and hence not allowing the set off of brought forward business loss.
Briefly stated, the facts of the case show that i. assessee is engaged into production and distribution of films and television serials.
ii. It filed its return of income on 29/9/2014 at a total loss of Rs. 184,563/–. The return of income was not scrutinized. iii. The case of the assessee was reopened under section 147 of the act by issue of notice under section 148 of the act on 23/4/2021. iv. The reason being that the assessee had produced and commercially released the feature film Taj mahal on 18 November 2005 relevant to assessment year 2006 – 07. During assessment year 2013 – 14 (financial year 2014 – 15), the assessee has amortized Rs. 65 lakhs towards the cost of film “Taj Mahal”. During the course of scrutiny assessment of assessment year 2013 – 14, the AO had made addition on account of amortized cost of film Taj Mahal. On examination of the records, it was found that in the current assessment year 2014 – 15 also, assessee claimed the amortization cost of Rs. 75 lakhs towards the film Taj Mall.This is not allowable to the assessee in terms of Rule 9A of the ITA rules. Therefore, there is an escapement of income of Rs 75 lakhs for this year as the amortized cost is not a deductible expense for this year. v. Pursuant to the decision of the honourable Supreme Court in case of Ashish Agarwal, assessee was provided the copy of the reasons recorded, administrative approval and the details of information by letter dated 20/ 05 /2022. This was not responded to. vi. Notice under section 144 of the act was issued which was replied on 3/2/2023 wherein the assessee submitted that. i. as per notice under section 148 of the act dated 26/7/2022 issued and served upon the assessee , it has filed return in response to that on 24/8/2022 where in the claim of deduction of Rs 75 lakhs of amortized cost of Film Taj mahal was found to be not allowable and hence same was offered for taxation, therefore, after claiming set off of brought forward business losses of earlier years, ROI is filed at Rs nil. ii. As it can be rectified under section 154 of the act. vii. The learned assessing officer made the addition of Rs. 75 lakhs on amortization of films cost as agreed by the assessee. However, the final computation of the taxable income was made at the total income of Rs. 7,315,437/– and therefore, naturally the loss brought forward was not granted set-off to the assessee. Assessment order under section 147 read with section 144B of the act was passed on 11/4/2023.
Assessee preferred appeal before the learned CIT – A wherein assessee stated that the AO should have taken the route of rectification under section 154 of the act and not under section 147 of the act when the assessee has accepted that there is an error in claiming the deduction of Rs. 75 lakhs. It was further stated that the learned assessing officer has not considered the assessee’s return filed pursuant to notice under section 148 dated 26/7/2022 by passing the assessment order. Therefore, the claim was that assessee should have been granted set off of brought forward losses and total income should be determined at Rs Nil.
The learned CIT – A while deciding ground number 3 and 4 of the appealheld that the assessee cannot reagitate claims already assessed in reopening proceedings and therefore assessee is not entitled to the set-off of carry forward of losses brought forward from earlier years relying up on decisions of the honourable Bombay High Court in 119 CTR 250 and 241 ITR 865. The learned CIT – A has also observed that during the year the assessee earned only interest on income tax refund of Rs. 85 lakhs, therefore same is chargeable to tax as ‘income from other sources’, assessee does not have any ‘business income’ during the year and therefore according to the provisions of section 72, set off of brought forward losses under the head profits and gains of business and profession shall be set off only against the profits and gains of business carried on by the assessee during the year. As there is no business income, otherwise the claim of the set off of brought forward business losses is not available to the assessee.
Therefore, assessee is in appeal before us. The only claim of the assessee was with respect to granting the benefit of the brought forward losses of earlier years to be set off against the current income.
The learned authorized representative submitted a paper book containing 61 pages wherein return of income filed under section 148 on 24/8/2022 for the impugned assessment year, the audited balance sheet for year ended on 31/3/2014 along with computation of total income, form number 26 AS for assessment year 2014-15 and submissions made before the learned CIT – A. The learned authorized representative also submitted a reference note.
The claim of the assessee is that the learned assessing officer should have followed the provisions of section 152 (2) of the act and as the assessee has offered the income included in the reasons recorded for reopening of the assessment stating that there is an escapement and such as Income has been offered in the return of income, the reopening proceedings should have been dropped . It was further stated that in the case of the assessee there was no assessment originally made under section 143 (3) of the act and therefore assessee has right to claim set off of brought forward losses in the reassessment proceedings. He states that assessee is not claiming a new benefit but is merely asking for the computation of total income according to laws, where the brought forward losses have been determined in the earlier years which are required to be set off against the total income. In the original return of income as the assessee does not have positive income, though losses were determined in the earlier years, same are not required to be set off at the time of filing of the original return. But when the reassessment proceedings there is an adjustment of Rs. 75 Lacs upward to the returned income, it became positive and therefore brought forward losses from earlier years are required to be set off. He further submitted that the claim of the learned CIT – A about the consultancy income of Rs. 85 lakhsare not interest income but business income, the learned lower authorities have looked into the audited profit and loss account for financial year 2014 – 15 instead of financial year 2013 – 14 relevant to assessment year 2014 – 15. Therefore, only claim is that assessee is right in claim for set off of brought forward business losses against current year’s business income to be set off and the reassessment proceedings ought to be dropped under section 152 (2) of the act.
The learned departmental representative vehemently supported the order of the learned CIT – Aand submitted that there is no claim of the assessee in the original return of income of set off of brought forward business losses from earlier years and therefore the learned CIT – A is correct in not allowing the same following the decision of the honourable Bombay High Court. It was further stated that the provisions of section 152 (2) do not apply because of the reason that there is an addition to the total income of Rs. 75 Lacs which is wrongly claimed by the assessee and therefore assessee is assessed at higher income. He submits that the learned assessing officer has made an addition to the extent of Rs. 75 lakhs and has also issued notices under section 271 (1) © of the act and therefore the claim of the assessee that learned assessing officer should have dropped the assessment proceedings is incorrect.
We have carefully considered the rival contentions and pursued the orders of the ld. Lower Authorities. We have also considered the decision of the various courts cited before us.
The main claim of the assessee is that no doubt there is a mistake in the return of income to the extent of Rs. 75 lakhs which was amortization cost claimed by writing off the closing stock of the film’s rights. In the return filed under section 148 on 24/8/2022 the assessee has disallowed the above loss(accepting the reasons for which reopening has been made). But as assessee has available
brought forward business losses, same was claimed as set off and total income was returned at Rs. Nil. But at the time of computation of total income by the learned assessing officer he merely made an addition of Rs. 75 lakhs as disallowance of amortization cost but did not consider the claim of set off of brought forward losses. When assessee agitated the same before the learned CIT – A, it was rejected stating that reassessment proceedings are for the benefit of the revenue.
Facts clearly show that the assessee has claimed deduction of Rs. 75 lakhs while filing the original return of income. The case of the assessee was reopened for the reason that the claim of deduction of Rs. 75 lakhs of amortizing cost of film claimed by the assessee are not allowable. In response to 148 notices, assessee filed return of income where assessee accepted that the reasons for reopening are correct, assessee is not entitled for claim of amortization cost of Rs. 75 lakhs which was claimed by the assessee in the original return of income, therefore in the return in response to notice under section 148 of the act, assessee disallowed the above sum and same resulted into positive business income for the current year. Assessee has brought forward business losses from the earlier years and set off of such business losses was claimed resulting into total income as per that return at Rs Nil. Thus, originally return filed by the assessee was also at Rs. Nil and return in response to notice under section 148 of the act was also Rs. nil, though there is a disallowance of Rs. 75 lakhs on account of reopening, but because of the brought forward business losses to be set off.
The claim of the assessee is that according to section 152 (2) of the act assessee was assessed at total income of Rs. nil, after reopening of the assessment also, therefore the learned assessing officer should have dropped the reassessment proceedings. We disagree
with the proposition of the learned authorized representative because assessee is not assessed at the same income which was returned but there is an adjustment of Rs. 75 lakhs to the total income of the assessee and therefore the provisions of section 152 (2) do not apply to the assessee. This is also for the reason that in case all reopening of the assessment, where there is huge brought forward losses available to the assessee, and there is an addition on account of reopening of the assessment, which is less than the amount of brought forward losses available to the assessee, there would not be any reassessment order and consequently all the consequences of penalty etc. would not apply. This is a complete misreading of provisions of section 152 (2) of the act. Hence same is rejected.
As far as the issue of brought forward losses set-off available to the assessee, assessee deserves set-off of the same. The assessee has brought forward losses from earlier years of Rs. 13.91 crores, which was not set off in the original return of income for the reason that there was no positive income in the original return of income. Now on the reassessment proceedings is a positive income and therefore the assessee should be granted benefit of set off of brought forward losses from earlier years.It is not the case that assessee is seeking fresh claim. The brought forward losses are determined in the earlier returns, therefore it is also the part of the original computation and in the reassessment proceedings also if the correct computation of the reassessment, is made, the assessee is to be granted the benefit of set-off of brought forward business losses. The decision cited by the learned CIT – A for denying the claim of the assessee is with respect to fresh claims made during the reassessment proceedings, which are not connected with reassessed income found during the course of reassessment
proceedings. This is not the case before us.it is also not the case of the learned lower authorities that the assessee is not entitled to set off the benefit of brought forward business losses if all other conditions are satisfied. Secondlythe learned CIT -A further states that assessee does not have any business income during the year. On examination of the records, we found that it is incorrect statement because assessee has earned Rs. 85 lakhs during the year as consultancy income, on such income service tax has been paid, same is also disclosed in the profit and loss account for the financial year 2013 – 14. The learned CIT – A has wrongly look that the audited profit and loss account for financial year 2014 – 15 wherein there is a wrong classification. Even otherwise the income tax department could have seen how the assessee will get an interest on refund of 85 lakhs of rupees, when such taxes are not at all paid. Form number 26AS also shows that Rs. 85 lakhs are consultancy income on which tax is deducted at source. In view of this ground number 6 of the appeal is allowed and learned AO is directed to grant the benefit of set off of brought forward business losses to the assessee, if those are not lapsed.
In view of our decision on ground number 6, all other grounds of appeal become merely academic and hence dismissed.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 05/08/2024.