Carry Forward of Business Loss and set off against profit shall be decided by AO who deals with assessment concerning Subsequent Year: Delhi HC [Read Order]

Top Stories Carry Forward of Business Loss and set off against profit shall be decided by AO who deals with assessment concerning Subsequent Year: Delhi HC [Read Order] The Delhi High Court ruled that Assessing Officers (AO) who undertake the assessment for the subsequent year shall decide whether to carry forward business losses and setoff them against profit By Aparna. M – On December 14, 2023 11:02 am – 2 mins read In a significant case, the Delhi High Court held that the carryforward of business loss and set off against profit should be decided by Assessing Officers (AO) dealing with the assessment concerning the subsequent year. Respondent/assessee Burda Druck India Pvt. Ltd filed its Return of Income (ROI) for the AY in question, i.e., AY 2014-15, on 29.11.2014.

In the ROI, the respondent/assessee declared a current loss amounting to Rs. 17,56,64,494/-. Subsequently, the assessee’s case was selected for scrutiny. While framing the assessment order, the AO held that B/F losses are not allowed to be carried forward. Aggrieved by the order, the Respondent/assessee filed an appeal before the CIT(A), who dismissed the appeal. Therefore, the Respondent/assessee filed a second appeal before the tribunal. The Tribunal allowed the appeal and directed the AO to expunge the concluding remark “brought forward loss is not allowed to be carried forward as per para 3, 4 and 5” of the assessment order.

Against the order, the petitioner revenue filed an appeal before the court. Vipul Agrawal, senior standing counsel, who appears on behalf of the appellant/revenue, says that the view taken by the Tribunal is unsustainable in law since there was a change in shareholding of more than fifty-one (51) percent concerning the respondent/assessee, and therefore, the aspect of whether or not business losses could be carried forward was within the remit of the AO. After examining Section 79 of the Income Tax Act, the court observed that Section 79 prohibits the carryforward and setoff of losses that occurred before the previous year when there has been a change of shareholding unless the case fits in any of the provisos referred to therein.

A perusal of Section 79 would show that unabsorbed depreciation and capital losses do not fall within its scope and ambit. Therefore, Section 79 makes it evident that it does not empower an AO, who exercises jurisdiction qua a particular AY, to place limitations on the adjudicatory powers of the AO who would be called upon to deal with the matter in subsequent years.

Thus, the court opined that there is no practical efficacy in the assessee carrying forward business losses, unabsorbed depreciation, and capital losses unless there is a possibility of setting off those losses in the future, albeit subject to the provisions of the Income Tax Act. After reviewing the facts and records, the division bench of Justice Rajiv Shakdher and Justice Girish Kathpalia held that the carryforward of business loss and setoff against profit should be decided by Assessing Officers (AO) who deal with the assessment concerning the subsequent year.

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