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Income Tax Appellate Tribunal, DELHI BENCH “E”, NEW DELHI
Before: SHRI L. P.SAHU & SMT. BEENA A. PILLAI
ORDER
PER BEENA A. PILLAI, JM:
1. The present appeal has been preferred by assessee 1. against the final assessment order dated 08.10.2010 passed by Ld. AO under section 144C (13) read with 143 (3) of the Act on the following grounds of appeal:
1. That on the facts and in the circumstances of the case, the learned Assistant Commissioner of income Tax Circle-3(1), International Taxation, New Delhi (hereinafter called the AO for short) erred in determining the status of the assessee as 'Company'.
2.1 That on the facts and in the circumstances of the case, AO erred in holding that the contract business carried by the assessee stood discontinued and, therefore, the assessee was not entitled to set off the past carried forward losses u7s 72 of the Income Tax Act, 1961. 2.2 That without prejudice to the generality of Ground of Appeal No 2.1 above, the learned AO erred in not allowing expenditure of Rs. 54,806,545.45 incurred during the protracted negotiations from 01.04.2001 till 31.03.2006 with Noida Toll Bridge Co. Ltd. against the settlement amount of Rs 115,000,0007- received by appellant from Noida Toll Bridge Co Ltd. during the accounting year under consideration which was offered for tax by the appellant. The details of the expenditure of Rs. 54,806,545.457- are as follows: Assessment Year Expenses Incurred (Rupees) Assessment Year 2002-03 11,557,204.82 Assessment Year 2003-04 18,886,189.78 Assessment Year 2004-05 14,856,103.95 Assessment Year 2005-06 5,941,825.19 Assessment Year 2006-07 3,565,261.71 Total 54,806,545.45
3. That on the facts and in the circumstances of the case and without prejudice to ground of appeal No 2.1 above, once the AO came to the conclusion that the Appellate's contract business stood discontinued, he was not justified in including the sum of Rs.115,000,0007- received on settlement from Noida Toll Bridge Co Ltd. in the total income of the Appellant.
4. That on the facts and in the circumstances of the case, the learned AO erred in adding back a sum of Rs. 39,423,567/- despite the fact that the aforementioned sum was included in the accrued receipts for FY. 1.4.2000 to 31.3.2001 relevant to AY 2001-2002. The aforementioned action of the AO amounts to Double Taxation of the same income.
5. That the appellant craves liberty to add alter or vary any ground of appeal
either at the time of hearing or before the date of hearing.
2. Subsequently, vide application dated 10.08.2016 assessee, raised additional ground, under Rule 11 of the Income Tax Rules 1963, which is as under:
That on the facts and in the circumstances of the case, the impugned assessment order dated 08.10.2010 for Assessment Year 2007-08 is barred by limitation.
The brief facts of the case are as under: Assessee had filed its return of income declaring nil income on 31.10.2007. The return was processed under section 143 (1) and the case was selected for scrutiny. Notice under section 143 (2) was issued on 26.09.2008, pursuance to which representative of the assessee appeared before assessing officer. Ld. AO observed that assessee is a Japan-based company and has opened a project office (PO) in India. He further records in the final assessment order that as per schedule 9: “Notes to the accounts” filed alongwith return of income, assessee has stated it to be a PO being engaged in the execution of only one construction contract in India, that is Delhi-Noida bridge project and had opted for accounting of profit and loss on project on completion method. During the year under consideration assessee had received an amount of Rs. 7,55,76,433/- on account of construction revenue. Ld. AO observed that in the notes to the accounts, assessee has stated that during the year under consideration all pending disputes with Noida Toll Bridge Company Ltd., were settled and full and final payment was received, in terms of the settlement agreement dated 28.09.2006 between the parties. Ld. AO also observed that as per this agreement Noida Toll Bridge Company Ltd., has paid a lump-sum amount of Rs.11,50,00,000/- less statutory deductions, out of which an amount of Rs.10,00,00,000/- was remitted to the head office, Tokyo, and Rs. 7,55,76,433/- was included in the P & L account as profit. Ld. AO observed that the entire profit shown in the P & L account was set off against losses from earlier years.
At the outset Ld. Counsel for the assessee has submitted that assessee has been formed between Mitsui Corporation Co. Ltd and Marubeni Corporation and has been registered as AOP from its inception. It has been submitted by him that pan number obtained by assessee is that of an AOP, however, the assessing officer has assessed it in status of assessee to be that of a Company. A legal issue regarding validity of assessment order passed under the status of a Non Resident Company, under section 144C read with 143 (3) of the Act in Ground No.
Assessee has also raised additional ground in respect of assessment order being time barred. As this grounds raised is legal in nature, we are inclined to admit the additional ground. We first take up Ground no. 1 and additional ground raised by assessee.
Ld. Counsel made reference to the provisions applied by Ld. AO. He argued at length regarding mechanism provided under section 144C (15) of the Act, where assessing officer proposes to make an assessment in case of an “eligible assessee”.
Section 144C (15) defines “eligible assessee” as under: “(i) any person in whose case the variation referred to in subsection (1) arises as a consequence of the order of a transfer pricing officer passed under subsection (3) of section 92CA; and (ii) any foreign company.”
He submitted that assessee is not being an “eligible assessee” as defined under section 144C (15) of the Act. It has been pointed out that neither there was any variation arose as a consequence of the order of the transfer pricing officer passed under section 92CA (3) of the Act, nor was the assessee a foreign company. He submitted that Ld. AO passed draft assessment order on 24.12.2009, where it has been recorded that the project office under the name as that of the assessee has been opened only for the purposes of one construction contract in India being the Delhi-Noida bridge project. Assessee raised objection regarding status adopted. Before DRP on 28.01.2010, against draft assessment order DRP dealt with the objection taken by the assessee as under: “The assessee has stated the AO has erred in determining the status of the assessee as company instead of the correct status as AOP. The assessee has further submitted it has been showing its status as AOP from the inception and the return of income for A. Y. 2007-08 was also filed in the status of AOP. The assessee objection is not acceptable as the AO has assessed the assessee in the status of company which is evident from the assessment orders passed u/s 143(3) of the Act even in the earlier assessment years. Hence the assesee’s objections are rejected.”
Subsequently, AO proceeded to pass final assessment order on 08.10.2010, on the basis of draft assessment order. Aggrieved by such order, the assessee is in appeal before us now. Ld. Counsel for the assessee submitted that the final assessment order dated 08.10.2010 cannot be justified as the assessing officer should have passed the assessment order under section 143 (3) of the Act. Ld. Counsel further submitted that the assessment order passed by the Ld. AO is bad in law as assessee do not fulfill the requirement of being and “eligible assessee”. As per the definition in section 144C (15) of the Act for invoking jurisdiction u/s 144C(1) of the Act. He further submitted that assuming there being a typographic mistake on behalf of Ld. AO in recording the status of assessee to be a Company instead of AOP, even then the draft assessment order passed is time barred.
8. On the contrary, Ld. DR submitted that wrong description of the status cannot invalidate the proceedings for assessment initiated and it can be corrected. He relied upon the orders passed by the authorities below by relying upon the decision of Hon’ble Calcutta High Court in the case of Mahabir Prasad Poddar vs. ITO reported in (1976) 102 ITR 478.
We have perused the submissions advanced by both the parties in the light of the records placed and illegal prepositions advanced by them.
We had called for the assessment records to verify certain facts which was not discernible from the assessment order.
11. It has been argued by Ld. Counsel for assessee is an AOP. He submitted that the members of AOP being Mistui Corporation Co. Ltd., and Marubeni Corporation are Japan based companies who had come together for construction of Delhi-Noida Toll Bridge. He further submitted that assessee has neither been in corporate under Companies Act, 1956 nor under the Laws of Japan as ‘Company”. He further submitted that in the absence of a distinctive label given to such corporation the one like assessee before us, Hon’ble Courts were driven to the necessity of according them the status of an ‘individual’ so as to being them to tax. To remedy this anomaly, Income Tax Act, 1961 introduced two categories like AOP- Association of persons or BOI-Body of Individuals, whether incorporated or not.
12. AOP or Association of Person is defined as a "person" under section 2(31) (v) of the Act. However, what is an Association of Person itself is not defined. The meaning of AOP that culminates from various decisions of Hon’ble Supreme Court and High courts is that an association of persons exists when following conditions are satisfied:
(i) Two or more persons joins; (ii) Voluntarily for; (iii) A common purpose or common action with object to produce profit or gains. However, the object to produce profit or gains is no longer a sine qua non with the explanation as discussed above; (iv) combine for in joint enterprise; and (v) creates some kind of scheme for common management.
13. On perusal of the assessment records it is observed that Ld. AO has issued notice under section 142(1) alongwith detailed questionnaire on 16.07.2009. Subsequently, on 19.08.2009, Ld. AO once again raised specific question as under: From the records, it is discernible that there was no permission that has been sought by Ld. AO to assess the assessee before as under section 92 and there has been no reference that has been made by assessing officer to Ld. TPO for the purposes of passing draft assessment order. There is no doubt that the assessee does not satisfy the requirements of being an “eligible assessee” as per section 144C (15) of the Act. The assessee could not be treated even as a foreign company as it is not a body corporate in terms of section 2 (17) of the Act. We agree with the contentions of Ld. Counsel that assessing officer should have proceeded to pass assessment order under section 143 (3) of the Act and thus it is contrary to the provisions of section 144C of the Act. Ld. Counsel has placed reliance upon an unreported decision of Hon’ble Delhi High Court passed recently in the case of M/s ESPN Star Sports vs. UOI, in WP (C ) No. 2384/2015 and CM No. 47 to 2/2015, vide order dated 23.03.2016, from which we draw our support. He has also place reliance upon the unreported decision dated 17.02.2016 passed by Hon’le Delhi High Court in case of Honda Cars Ltd., (formerly - M/s. Honda Siel Cars India Ltd. vs. DCIT in W.P.(C ) No. 4262 of 2015, wherein the Hon’ble Court has held as under: “8. A reading of Section 144C(1) of the Act shows that the Assessing Officer, in the first instance, is to forward a draft of the proposed order of assessment to the “eligible assessee”, if he proposes to make any variation in the income or loss return which is prejudicial to the interest of such assessee. The draft assessment order is to be forwarded to an “eligible assessee” which means that for the section to apply a person has to be an “eligible assessee”. 9. Section 144C (15)(b) of the Act defines an “eligible assessee” to mean (i) any person in whose case the variation referred to in subsection (1) arises as a consequence of the order of the Transfer Pricing Officer passed under section 92CA(3); and (ii) any foreign company. 10. The Supreme Court in P.Kasilingam & Others v. P.S.G.College of Technology & Ors. : 1995 Suppl 2 SCC 348 has held that the use of word “means” indicates that the definition is a hard and fast definition and no other meaning can be assigned to the expression than is put down in the definition.
In Section 144C (15)(b) of the Act, the term “eligible assessee” is followed by an expression “means” only and there are two categories referred therein (i) any person in whose case the variation arises as a consequence of an order of the Transfer Pricing Officer and (ii) any foreign company. The use of the word “means” indicates that the definition “eligible assessee” for the purposes of Section 144(C)(15)(b) is a hard and fast definition and can only be applicable in the above two categories.
First of all, the petitioner is admittedly not a foreign Company. Secondly, the Transfer Pricing Officer has not proposed any variation to the return filed by the petitioner. The consequence of this is that the Assessing Officer cannot propose an order of assessment that is at variance in the income or loss return. The Transfer Pricing Officer has accepted the return filed by the petitioner. In view of the which, neither of the two conditions are satisfied in the case of the petitioner and thus the petitioner for the purposes of Section 144C(15)(b) is not an “eligible assessee”. Since the petitioner is not an eligible assessee in terms of Section 144C(15)(b), no draft order can be passed in the case of the petitioner under Section 144C(1).
Similar is the view taken by the High Court of Gujarat in Pankaj Extrusion Limited versus Assistant Commissioner of Income Tax : (2011) 198 Taxman 6 (Gujarat), which has held as under:- “7. Plain reading of clause (b) of sub-section (15) of section 144C would show that an assessee can be stated to be an eligible assessee as referred to in sub-section (1) of section 144C in whose case variation referred to in the said sub-section arises as a consequence of order of Transfer Pricing Officer passed under sub-section (3) of section 92CA. We have been taken through the order passed by the Assistant Commissioner of Income tax dated 29-9- 2010, wherein it is held as under: "3. The assessee is engaged in the business of manufacture of Aluminium Profiles. The details of International transactions in terms of section 92B of the Act between the assessee and its Associate Enterprise are given in Form 3CE8. Relevant details regarding international transactions were produced by the assessee and are kept on record. After discussion and based on records produced, no adjustment is being made to the arm’s length price of the transactions." (Emphasis supplied)
From the above, it is clear that for assessment year relevant for our purpose, on account of procedure undertaken in section 92CA of the Act, there was no variation in the income by virtue of order of Transfer Pricing Officer. That being the position, the petitioner cannot be stated to be an eligible assessee as defined in clause (b) of subsection (15) of section 144C of the Act. Procedure for issuance of draft. order calling for his objection and taking further steps as laid down under section 144C therefore, would not apply.” 14. Further in respect of decision relied upon by Ld. DR in case of Mahbir Prasad Poddar Vs. ITO (supra), he had placed reliance upon the following excerpts: “……. We do not think that wrong description of the status of an assessee can have the effect of invalidating the proceedings for assessment initiated after attaining the sanction of the Commissioner when the sanction isn’t terms granted to the initiation of proceedings against the assessee. If the status of the assessee was wrongly described, it can always be corrected by the income tax officer in the course of the assessment proceedings, but that cannot affect the validity of the assessment proceedings. The position would of course be different where the statuses so inextricably mixed up with the question
as to who is the assessee that the description of the state’s one-way would be preferable to one assessee while the description of the state is the other way would be refferable to another assessee. Where such as the case the description of the status may be indicated above the fact that a particular assessee is sought to be proceeded against and if sanction of the Commissioner is obtained for proceeding against that assessee, said sanction cannot be evident for the purposes of initiating proceedings against another assessee who would be indicated by the description of the status of the other way.”
The relevant extracts are from a decision passed by Hon’ble Gujarat High Court reported in (1968) 69ITR 88, which has been reproduced in the decision relied upon by Ld. DR. The second part of the extract reproduced herein above specifies a situation where assessee is sought to be assessed under a different status for which cannot be effected under law. We are, therefore, of the view that decision relied upon by Ld. DR cannot be of any help to the revenue.
In view of the above, it is clear that assessee, not being an “eligible assessee” in terms of Section 144C (15)(b) of the Act, the Assessing Officer was not competent to pass the draft assessment order under Section 144C (1) of the Act. The draft assessment order dated 24.12.2009 is accordingly quashed and set aside. It is further observed that a regular assessment under section 143 (3) on the even date would have even otherwise made the assessment time-barred as per section 153 of the Act.
Considering the totality the exclusive agreement entered into by assessee with Noida toll Bridge Pvt., Ltd., and that it is not a company. we are of the opinion that assessee will have to be considered in the status of an AOP.
Assessee thus succeeds on the additional ground raised.
As, much has been argued by both the sides on merits, we are inclined to adjudicate the grounds raised by the assessee on merits for sake of completeness.
From the assessment order it is observed that Ld. AO has disallowed the claim of the assessee by holding that assessee was not carrying out any business in the accounting year relevant to assessment year under consideration. Assessing Officer thus held that assessee was not entitled to set of the past carry forward losses under section 72 of Income Tax Act.
Ld. Counsel submitted that assessee’s business comprised of execution of contract awarded by Noida Toll Bridge Company Ltd. It has been submitted by Ld. Counsel that if assessee’s business is held to be discontinued immediately after the project was erected, the business loss that has been allowed to be carried forwarded in the preceding assessment years would be wrong.
He submitted that assessing officer in the past assessment years has determined business losses as under: assessment year loss determined 2002-03 99,27,230 2003-04 1,10,76,669 2004-05 13,9,22,484 2005-06 1,36,960 2006-07 34,24,500 Total 3,84,87, 843
He further submitted that, even for the year under consideration, Ld. AO has determined the income from business and profession at Rs.11,49, 04,230/-.
22. Ld. Counsel submitted that whether or not the business of the assessee continued can only be tested on the touchstone of various terms of the agreement. Some of the relevant clauses of the agreement to decide the issue under consideration are reproduced herein below: 48.2 Similar, in accordance with the procedure set out in Sub-Clause 48.1, the Contractor may request and the Engineer shall issue a Taking-Over Certificate in respect of: (a) any Section in respect of which a separate Time for Completion is provided in the Appendix to Tender, (b) any substantial part of the Permanent Works which has been both completed to the satisfaction of the Engineer and, otherwise than as provided for in the Contract, occupied or used by the Employer, or (c) any pan of the Permanent Works which the Employer has elected to occupy or use prior ro completion (where such prior occupation or use is not provided for in the Contract or has not been agreed by the Contractor as a temporary measure). 48.3 If any pan or the Permanent Works has been substantially completed and has satisfactoril) passed any Tests on Completion prescribed by the Contract, the Engineer may issue a Taking-Over Certificate in respect of that part of the Permanent Works before completion of the whole of the Works and, upon the issue of such Certificate, the Contractor shall be deemed to have undertaken to complete with due expedition any outstanding work in that part of the Permaneni Works during the Defects Liability Period. 48.4 Provided that a Taking-Over Certificate given in respect of any Section or part of the Permanent Works before completion of the whole of the Works shall not be deemed to certify completion of any ground or surfaces requiring reinstatement, unless
such Taking-Over Certificate shall expressly so state.
49.1 In these Conditions the expression "Defects Liability Period" shall mean the defects liability period named in the Appendix to Tender, calculated from: (a) the date of completion of the Works certified by the Engineer in accordance with Clause -8, or (b) in the event of more than one certificate having been issued by the Engineer under Clause 48, the respective dates so certified, and in relation to the Defects Liability Period the expression "the Works" shall be construed accordingly. Equivalent of 90 percent of the Contractor reasonable cost of the materials and Plant delivered to the Site as determined by the Engineer after review of the documents listed in subpara (a)(iv) above. (c) the amount to be debited to the Contractor for any materials and Plant incorporated into the Permanent Works shall be equivalent to the credit previously granted to the Contractor for such materials and Plant pursuant to Sub-Clause (b0 above, as determined by the Engineer: and (d) the currencies in which the respective amounts shall be credited or debited as set forth above shall be determined by the Engineer. 60.6 Upon the issue of the Taking-over Certificate with respect to the whole of the Works, one half of the Rentention Money, or upon the issue of a Taking-over Certificate with respect to a Section or part of the Permanent Works only such proportion thereof as the Engineer determines having regard to the relative value of such section or part of the Permanent Works, shall be certified by the Engineer for payment to the Contractor. The Contractor may substitute the remaining retention money with an on-demand hank guarantee in a form, earned from a source acceptable 10 the employer. Upon the expiration of the Defects Liability period for the Works the other half of the Retention Money shall be certified by the Engineer for the payment Lo the Contractor (or return of the remaining security, which replaced the Retention Money). Provided that, in the event of different Defects Liability Periods being applicable to different Sections or parts of the Permanent Works pursuant to Clause 48, the expression ''expiration of the Defects Liability Period” shall for the purpose of this Sub-Clause be deemed to mean the expiration of the latest of such periods. Provided also that if at such time, there shall remain to be executed by the Contractor any work instructed, pursuant to Clause 49 and 50, in respect of the Works, the engineer shall be entitled to withhold certification until completion of such work of so much of the balance of the retention Money as shall, in the opinion of the Engineer, represent the cost of the work remaining to be executed. 60.11 Not later than 66 days, after the issue of the Defects Liability Certificate pursuant to Sub- Clause 62.1, the Contractor shall submit to the Engineer for consideration a draft final statement in the number of copies stipulated in the Appendix to Bid with supporting documents showing in detail, in the form approved bv the Engineer, (a) the value of ail work done in accordance with the Contract; and (b) any further sums uhich the Contractor considers to be due to him under the Contract or otherwise. If the Engineer disagrees with or cannot verify any part of the draft final statement, the Contractor shall submit such further information as the Engineer may reasonably require and shall make such changes in the draft as may be agreed between them. The Contractor shall then prepare and submit to the Engineer the final statement as agreed (for the purposes of these conditions referred to as the "Final Statement"). If, following discussions between the Engineer and the Contractor and any changes to the draft final statement which may be agreed between them, it becomes evident that a dispute exists, the Engineer shall deliver to the Employer an Interim Payment Certificate for those parts of the draft final statement which are not in dispute. The dispute shall then be settled in accordance with Clause 67. The Final Statement shall be agreed upon settlement of the dispute. Upon submission of the Final Statement, the Contractor shall give to the Employer, with a copy to the Engineer a written discharge confirming that the total of the Final Statement represents full and final settlement of all monies due to the Contractor arising out of or in respect of the Contract. Provided that such discharge shall become effective only after payment due under the Final Payment Certificate issued pursuant to Sub-Clause 60.18 has been made and the performance security referred to in Sub-Clause 10.1 has been returned to the Contractor.
60.13 Within 28 days after receipt of the Final Statement and the written discharge, the Engineer shall deliver to the Employer (with a copy to the Contractor) a Final Payment Certificate Stating (a) the amount which in the opinion of the Engineer is finally due under the Contract or otherwise, and (b) after giving credit to the Employer for all amounts previously paid by the Employer and for all sums to which the Employer is entitled, other than under Clause 47, the balance, if any, due from the Employer to the Contractor or from the Contractor to the Employer as the case may be. 60.14 The Employer shall not be liable to me Contractor for any matter or thing arising out of or in connection with the Contract or execution of the Works unless the Contractor shall have included a claim in respect thereof in his Final Statement and (except in respect of matter or things arising after the issue of the “Taking-Over Certificate in respect of the whole of the Works) in the Statement at Completion referred to in Sub-Clause 60.10.
It has been submitted by Ld. Counsel that the engineer issued a Taking-over certificate on 13.05.2001, as per clause 48.2 and 48.3 (which has been reproduced hereinabove). Subsequently certain defects were pointed out by the engineer during the defect liability period in the Bridge Barings, and it was kept under observation for almost 2 years. Ld. Counsel submitted that the engineering side of the contract was completed in the financial year 2000-01 relevant to assessment year 2001- 02 however, the bills and claims raised by assessee for the construction done, were in serious dispute with Noida Toll Bridge Company Ltd. During the process of getting assessee’s bills cleared, certain issues and disputes arose which ended in a protracted arbitration/negotiation with Noida Toll Bridge Corporation Ltd. Ld. Counsel submitted that on 28.09.2006, assessee entered into a Settlement Agreement and mutual releases of required documents/payment due to assessee, with Noida Toll Bridge Corporation Ltd. As per settlement agreement all the disputes pending before the Arbitral Tribunal were considered on which consensus were arrived. He referred to clause 1 of the Settlement Agreement placed at pages 151 of paperbook, which has been reproduced hereinbelow: NTBCL and MMC have jointly and mutually agreed to waive the contractual requirement of certification by the Engineer of the Payment Certificate including inter alia the Final Payment Certificate as per Clause 60 of the Conditions of Particular Application of the Contract and have accorded their written consent therein, by virtue of signing this Agreement, which may be treated as a mutually agreed amendment to the Contract in respect of the said Clause 60 and other applicable provisions connected therewith of the Conditions of Particular Application relating to the certification and payment of the Final Payment Certificate.
Ld. Counsel submitted that by the Settlement Agreement entered between assessee and Noida Toll Bridge Corporation Ltd., the arbitral proceedings pending stood dissolved and Noida Toll Bridge Company Ltd., agreed to pay a sum of Rs.11,50,00,000/- to assessee, by way of settlement amount, and parties to the agreement have jointly and mutually agreed to waive contractual requirement of certification to be issued by the engineer as per clause 60 of the original agreement. By virtue of signing the settlement agreement the parties recorded a written consent in respect of clause 60 and other applicable provisions connected therewith regarding the conditions of particular application relating to certification and payment of the final payment certificate was relieved.
Ld. Counsel submitted that assessee was there discharged from the Original Agreement of construction, finally after he received the full and final payment in the year September 2006. He submitted that under entered by assessee with Noida Toll Bridge Corporation Ltd. all the obligations continued till the full and final payment was received from Noida Toll Bridge Corporation Ltd. Ld. Counsel further submitted that Assessing Officer has included the settlement amount received on gross basis, without considering the expenses incurred by assessee to receive the full and final payment as per contract.
On the contrary, Ld. DR placed reliance upon the decision of Hon’ble Calcutta High Court in the case of CIT vs. C. Still Export GmbH, reported in (2002) 120 taxman 194. He submitted that as assessee was not carrying on any business in the preceding years all previous year relevant to the assessment year under consideration here year losses cannot be set off against the income in the assessment year in hand. He submitted that relevant provisions for carryforward and setoff of business loss under section 72 requires business to be in continuation in the previous year relevant to the assessment year under consideration.
We have perused the detailed submissions advanced by both the sides and reliance placed upon various judicial pronouncements.
It has been argued by Ld. Counsel that the expenditure incurred by assessee in the preceding assessment years is directly connected with the earning of income received in the year under consideration. He submitted that Ld. AO in all the preceding years has allowed to carry forward the business losses (being the expenses incurred for litigation) and has considered the income earned during the year under consideration as income from business.
On interpretation of covenants in the contract referred to herein above, it is very clear that the assessee’s contract would be considered to come to an end only on receipt of final payment for the construction work done. As assessee had no other businesses except this contract, for which it entered into contract with Noida Toll Bridge Corporation Ltd. for construction, and the expenditure incurred was in order to obtain the remuneration under the same contract. Issue of allowance of setoff of the carry forward loss with the income for the year under consideration has to be analyzed in the facts of this case more particularly with reference to the contract under which assessee had carried on its business activity. "Business" as defined in Section 2(4) of Act includes amongst others, any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture. The income received during the year under consideration was in view of the same contract entered into by assessee with Noida Toll Bridge, which has been rightly treated as business income by Ld. AO himself.
The question whether the business is continuing to be carried on, depends on facts of each case and not any general theory of law. In the present case, the assessee had maintained its establishment for the purposes of receiving the final remuneration, as per the contract and had not completely abandoned or closed his business for ever. Under such circumstances business must be deemed to be continuing. 30. We are, therefore, of the considered opinion that loss earned by assessee under the contract, which has been allowed to be carried forward by Assessing Officer himself in the preceding assessment years must be allowed to be set off against the income earned by assessee under the same contract for the year, under consideration. In the result the appeal filed by the assessee is allowed on the additional ground as well as on merits.
Order pronounced in the open court on 27th February, 2017.