CAMBRIDGE CONSTRUCTION (DELHI) LTD,NEW DELHI vs. ITOI, WARD-5(3), NEW DELHI

As per the scheme of arrangements, line by line transfer of assets, liabilities and reserve of transferor company relating to the property division merged with the resultant company, the assessee inherited the following five properties at their book value:

During the year under consideration, the assessee sold property at Sr. No. 3 for a consideration of Rs. 14 crores on which the assessee earned long term capital gain [LTCG] of Rs. 9,53,65,881/-. The assessee adjusted this LTCG from the brought forward long term capital loss [LTCL] for A.Ys 2005-06 and 2007-08.

On perusal of the computation of LTCG, the Assessing Officer noticed that the assessee has taken total cost of assets sold at Rs. 2,64,72,187/- for indexation purposes, while the book value of the assets transferred to it was Rs. 2,57,62,000/-. The assessee was, therefore, asked to file the details of the value taken for indexation purposes.

In its reply, reply, the assessee stated that the original cost of the assets was Rs. 2.16 crores to the previous owner. Further expenses of Rs. 17,79,881/- were made in F.Y. 2006-07, Rs. 26,69,204/- in F.Y.

On perusal of the details, the Assessing Officer noticed that barring the amount of Rs. 40,000/-, all the expenses have been incurred by the previous owner NOFPL, which is already added in the book value of assets, as these are capital expense and is properly reflected in the book value shown at the time of merger at Rs. 2,57,62,000/-.

Since the assessee was not able to produce the bill of Rs. 4,96,548/-, the Assessing Officer disallowed the claim of such expenses from the cost of improvement.

The assessee challenged the addition before the ld. CIT(A) but without success.

Before us, it has been strongly contended that all the expenses were incurred by the previous owner long time back and, therefore, the assessee is not in a position to file the bills/vouchers.

Be that as it may, in our considered opinion, if the expenses were incurred by the previous owner, the same becomes part of book value of impugned asset and book value pursuant to the order of the Hon'ble High Court was Rs. 2,57,62,000/-. Therefore, any expenses incurred by the previous owner must have found place in this book value.

The underlying facts in the issue raised vide Ground No. 2(a) and (b) are that the assessee has set off its LTCGs earned during the year under consideration with brought forward losses of A.Ys 2005-06 and 2007-08. The assessee was asked to justify its claim of brought forward losses.

In its reply, the assessee filed copy of Income tax return and assessment order u/s 143(3) of the Act passed by the then AO.

On perusal of the same, the Assessing Officer noticed that assessment for A.Y 2007-08 was completed at an income of Rs. 1,45,467/- against the NIL returned income which was adjusted out of brought forward losses. No details whatsoever were filed by the assessee as a proof, in support of its claim of brought forward loss for A.Ys 2005-06 and 2007-08.

The assessee strongly contended that since the loss was not disallowed by the Assessing Officer, it can be safely presumed that he has allowed the losses.

This contention of the assessee was dismissed by the Assessing Officer who was of the opinion that in the assessment order, the Assessing Officer has made it very clear that the assessee filed its return declaring NIL income and after making certain additions/ disallowances, total income assessed for A.Y 2007-08 was Rs. 1,45,467/-. The Assessing Officer, accordingly, disallowed the set off of loss.

The assessee challenged the action of the Assessing Officer before the ld. CIT(A) but without any success.

Before us, the ld. counsel for the assessee reiterated the facts, drew our attention to the return filed and pointed out that it has disclosed the amount of loss in the return of income and since the assessee has no role in framing the assessment order, the assessee cannot be held to be responsible for the action of the Assessing Officer.

Strong reliance was placed on the decisions of the Hon'ble Punjab and Haryana High Court in the case of Hari Iron Trading Co. Vs. CIT 263 ITR 437, Hon'ble Delhi High Court in the case of Usha International Limited order dated 21.09.2012 and the decision of the Hon'ble Delhi High Court in the case of Eicher Ltd 294 ITR 310.

Per contra, the ld. DR strongly supported the findings of the lower authorities.

We have given thoughtful consideration to the orders of the authorities below and have carefully considered the judicial decisions relied upon by the ld. counsel for the assessee.

At the very outset, all the decisions relied upon by the ld. counsel for the assessee are not at all relevant to the facts of the case in hand. There is no dispute that the assessment order for A.Y 2007- 08, framed u/s 143(3) of the Act is completely silent on the brought forward/carried forward losses.

The ld. counsel for the assessee has time and again emphatically stated that the assessee has no control over the language of the assessment order framed by the Assessing Officer. This may be true, but, at the same time, law has provided a tool to the assessee in the form of Section 154 in the Act by which the assessee can always ask the Assessing Officer to rectify the mistake apparent from record.

When the assessee received the assessment order for A.Y 2007- 08, he was well aware that the Assessing Officer has not allowed the carried forward of losses claimed by it and yet chose to remain silent and did not care to invoke the provisions of section 154 of the Act, nor filed any appeal before the ld. CIT(A).

Now, at this stage, referring to the return for A.Y 2007-08, the ld. counsel for the assessee cannot claim that the loss was claimed by the assessee. Assuming, yet not accepting the loss was claimed by the assessee, but the fact of the matter is that he said loss was never assessed and allowed by the Assessing Officer. Therefore, we do not find any merit in the claim of the assessee. We decline to interfere with the findings of the ld. CIT(A). Ground No. 2 with all its sub- ground is dismissed.

Ground No. 3 relates to the disallowance of Rs. 7,00,343/- being business loss.

The Assessing Officer disallowed the claim of expenses on the ground that the assessee has not carried on any business during the year under consideration. The Assessing Officer further observed that the assessee has also not carried on any business in the previous and succeeding A.Y. The Assessing Officer added back the claim of expenses.

The disallowance /addition was challenged before the ld. CIT(A) but without any success.

Before us, the ld. counsel for the assessee drew our attention to the profit and loss account and pointed out that total expenses claimed by the assessee was at Rs. 16,28,515/- and in the computation of income, the assessee has suo moto added back the expenses to the tune of Rs. 4,84,008/- and has only claimed those expenses which were necessary to maintain the corporate status of the assessee.

The ld. DR strongly supported the findings of the Assessing Officer.

We have carefully perused the orders of the authorities below.

The details of administrative and other expenses are given at Page 15 of the Paper Book under the head Note. No. 13. A perusal of the details shows that the expenses are for electricity and water charges, rates and taxes, payment to auditors, file fees, nominal bank charges. In our considered opinion, such expenses are incurred to maintain the corporate status of the assessee. Whether the assessee has carried on any business or not is not material in so far as these expenses are concerned. We, accordingly, direct the Assessing Officer to delete the disallowance of Rs. 7,00,343./-. Ground No. 3 is, accordingly, allowed.

In the result the appeal of the assessee in is partly allowed.