DCIT, CIRCLE 4(2), NEW DELHI vs. BANSAL STEELS POWER LTD, NEW DELHI

“8.1 In the said ground, the Appellant has challenged the denial of carry forward of business loss by the AO by invoking the provisions of Section 79 of the Act. I have considered the submission made by the appellant and have also gone through the material available. I have also gone through the case law relied upon by the appellant. Claim for carry forward of business loss was denied invoking the provision of Section 79 of the Act. Section 79 of the Act reads as under: “79. Carry forward and set off of losses in the case of certain companies Notwithstanding anything contained in this Chapter, where a change in shareholding has taken place in a previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless on the last day of the previous year the shares of the company carrying not less than fifty-one per cent, of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent, of the voting power on the last day of the year on years in which the loss was incurred.” 8.2 In accordance with the provisions of section 79 of the Act, loss incurred by a company in any year prior to the, previous year shall not be allowed to be carried forward and set off against the income of the previous year if the said company is not a company in which public are substantially interested and there is a change in the shareholding of that company. 8.3 The provisions of section 79 are attracted only in the year in which the loss is sought to be set off. The Hon’ble Supreme Court of India in case of Commissioner of Income Tax vs. Manmohan Das (59 ITR 699) held that the question of allowability of losses was to be determined for the assessment 3 year in which such losses were claimed. The relevant part of the order is reproduced as under: "Whether the loss of profits or gains in any year may be carried forward to the following year and set off against the profits and gains of the same business, profession or vocation under s. 24(2) has to be determined by the ITO who deals with the assessment of the subsequent year. It is for the ITO dealing with the assessment in the subsequent year to determine whether the loss of the previous year may be set off against the profits of that year. A decision recorded by the ITO who computes the loss in the previous year under s. 24(3) that the loss cannot be set off against the income of the subsequent year is not binding on the assessee. Taking into consideration that nature of the duties performed, the obligations undertaken, together with the right remuneratuion subject to compensation for loss arising to the bank from his own acts and omissions or of servants introduced by him into business of the bank, the assessee may be regarded as following a vocation. The remuneration must, therefore, be computed u/s 10 of the IT Act 1922 and loss of profit suffered in that vocation any year may be carried forward to the next year and be set off against the profit of the succeeding year.” 8.4 As stated herein above, the appellant had incurred a loss during the year and as such question of claiming set off of brought forward losses of earlier year does not arise. In view of above facts and legal proposition, the order passed by AO u/s 143(3) of the Act rejecting the claim for carry forward of business losses of earlier year invoking the provisions of section 79 of the Act is contrary to the law. The provisions of section 79 of the Act are not applicable to the appellant for the year under consideration and AO ought not to have made any reference to carry forward of loss of earlier years. The question of allowability of carried forward losses arises in the year when the set off of such losses is claimed by the assessee. It is for the AO in that year to decide whether the set off of loses is allowable or not as per provisions of relevant sections of the Act including section 79. It may be possible that there is further change in the shareholding in any subsequent year and accordingly, the issue of eligibility of set off as per section 79 of the Act will be decided on that basis in that year and the observations or reference made in the order for current year will not be relevant at all. In view of these facts and legal position, the findings given by the AO that earlier business loss is not allowed to be carry forward is not sustainable in the eyes of law. Therefore, the AO is directed to allow the business losses of earlier years to be carried forward to subsequent years. Accordingly, Ground No.3 is allowed.”

Order pronounced in the open court on 30.10.2025