The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) allowed relief to the assessee which had filed a revised return for Assessment Year(AY) 2014-15 to set off brought forward losses under Section 72(3) of Income Tax Act,1961, based on a Board for Industrial and Financial Reconstruction ( BIFR ) scheme.
Vadilal Dairy International Ltd, appellant-assessee,engaged in the manufacture of milk and milk products, filed its income tax return for AY 2014-15 on September 29, 2015, declaring a total income of ₹1.20 crore. A revised return was filed on September 22, 2016, showing nil income after setting off brought forward losses of ₹4.44 crore. The case was selected for scrutiny.
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During assessment, the Assessing Officer (AO) noted that the assessee had set off ₹4.37 crore of business losses from AY 2015-16 against losses from AY 2007-08 and ₹6.63 lakh of income from “other sources” against unabsorbed depreciation from AY 2002-03. However, no evidence of such losses or depreciation was found in the returns for those years. The AO issued a show-cause notice asking for supporting documents, including relevant orders and circulars.
The assessee submitted a reply but failed to provide satisfactory evidence. The AO concluded that the set-offs were not allowable under Section 72(3) of the Act, as the BIFR order cited by the company did not direct the Central Board of Direct Taxes(CBDT) to approve the claims. The AO disallowed the set-offs and raised a tax demand.
The assessee appealed to the Commissioner of Income Tax(Appeals)[CIT(A)], who upheld the AO’s decision. Aggrieved by the decision of the CIT(A) the assessee appealed before the tribunal.
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The tribunal reviewed the available material and noted that the BIFR’s order dated October 31, 2007, had granted relief to the assessee, including exemptions under Section 72(3) of the Act. It concluded that the assessee was entitled to this benefit.
The appellate tribunal referred to a Madras High Court ruling, which had interpreted a Supreme Court decision. The Court explained that under the Sick Industrial Companies (Special Provisions) Act (SICA), the BIFR’s sanction of a revival scheme implied that the company met the requirements for carrying forward losses under Section 72(3) of the Act.
It was further noted that once the BIFR sanctioned the scheme, the conditions under Section 72A of the Act were considered satisfied. Therefore, it held that the provisions of SICA took precedence over the Act and that no further compliance was needed.
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As a result, the tribunal deleted the disallowance made by the AO and allowed the assessee’s claim.
The two member bench comprising T.R.Senthil Kumar(Judicial Member) and Annapurna Gupta(Accountant Member) reviewed the disallowance of ₹7,849 on interest expenses under Section 14A. Since the appellant had sufficient interest-free funds, the disallowance was deleted. However, the disallowance of ₹12,500 for administrative expenses, due to lack of supporting details, was confirmed.
In short,the appeal filed by the assessee was partly allowed.
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