Income Tax Computation without Brought-Forward Business Losses, Unabsorbed Depreciation: ITAT Quashes CIT(A) Order [Read Order]

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT), in a recent ruling set aside the order Commissioner of Income Tax (Appeals) ( CIT(A) ) that had summarily dismissed an appeal challenging the computation of income without allowing the set-off of brought forward business losses and unabsorbed depreciation.

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The appellant Hanning Motors India Pvt Ltd, engaged in the manufacture and sale of synchronous drain pumps used in washing machines and dishwashers filed its return for the Assessment Year 2017-18 declaring a business loss of ₹21,48,541.

This case was selected for Complete Scrutiny under the Computer Assisted Scrutiny Selection (CASS) and notices were issued for the same under sections 143(2) and 142(1) of the Income Tax Act, 1961.

Since the appellant had international transactions with associated enterprises, a reference was made to the transfer pricing officer under section 92CA of the Act. The transfer pricing officer proposed a transfer pricing adjustment of ₹6,92,75,149, which was incorporated into the final assessment order.

The appellant filed an appeal before the CIT(A) challenging the transfer pricing adjustments and contended that the assessing officer had erred in computing the total income without granting set off of brought forward business losses and unabsorbed depreciation.

It was further submitted by the appellant that CIT(A) has also erred in computing the tax liability without providing a set off of minimum alternate tax credit available as per provisions of section 115JAA of the Act.

Additionally it was contended that interest under section 234B of ₹1,10,58,900 was not leviable being consequential in nature and even otherwise the interest computed was excessive.

The appeal was filed with a delay of 11 days beyond the statutory time limit. The appellant submitted an affidavit explaining that the order of the CIT(A) was not served physically to the appellant and the appellant became aware of the order only upon logging into the Income Tax website.

During the hearing the department did not raise any objections to the condonation of delay.

The tribunal thereby condoned the delay, stating that the reasons cited in the affidavit and the fact that the delay was minor and caused due to reasonable circumstances beyond the assessee’s control. Subsequently the appeal was admitted for adjudication on merits.

Naman Desai, the counsel for the appellant submitted that the CIT(A) has not adjudicated the matter upon any of the grounds and has merely dismissed the appeal without deciding the issues on merits.

Prathvi Raj Meena, the counsel for the department conceded that the appeal should have been heard by the Commissioner of Income Tax (Appeals) - Transfer Pricing ( CIT(A) - TP ), given that the primary issues involved transfer pricing adjustments and the matter must be restored to CIT(A) - TP for proper adjudication.

The Bench comprising Siddhartha Nautiyal (Judicial Member) and Makarand V. Mahadeokar (Accountant Member) set aside the order and restored the matter to the file of the CIT(A) -TP for fresh adjudication on merits after granting a reasonable opportunity of being heard to the appellant.

The Tribunal observed that the CIT(A) has dismissed the appeal without rendering any findings on the merits of the case. which is against the principles of natural justice and the failure of the CIT(A) to decide the issues on merits has resulted in an improper disposal of the appeal, necessitating a remand.

Accordingly, the appeal was allowed for statistical purposes.

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