Facts of the Case

The assessee, M/s Burda Druck India Pvt. Ltd., filed its return of income declaring a loss of ₹17.56 crores for AY 2014-15. During assessment proceedings, the Assessing Officer (AO) accepted the loss but added a remark that brought forward losses would not be allowed to be carried forward.

The assessee had significant carried forward losses including:

  • Business losses
  • Unabsorbed depreciation
  • Capital losses

Aggrieved by the AO’s remark, the assessee filed appeals before CIT(A) and then the Tribunal. The Tribunal ruled in favor of the assessee and directed deletion of the remark.

Issues Involved

  1. Whether the AO, while assessing a particular AY, can decide the eligibility of carry forward of losses for future years.
  2. Whether Section 79 empowers the AO to restrict carry forward of losses at the stage of assessment of the current year.
  3. Whether unabsorbed depreciation and capital losses fall within the scope of Section 79.

Petitioner’s Arguments (Revenue)

  • The Revenue argued that there was a change in shareholding exceeding 51%, triggering Section 79.
  • Therefore, the AO was justified in stating that losses could not be carried forward.
  • It was contended that such determination falls within the AO’s jurisdiction even in the current assessment year.

Respondent’s Arguments (Assessee)

  • The assessee contended that the AO’s role is limited to computing losses for the relevant AY.
  • The issue of carry forward and set-off arises only in subsequent years, not in the current year.
  • Reliance was placed on judicial precedent that such determinations must be made by the AO of the relevant future AY.

Court Findings / Order

  • The AO cannot pre-judge the allowability of carry forward of losses while assessing a particular AY.
  • The determination of whether losses can be carried forward or set off must be made in the subsequent assessment year.
  • Section 79 does not empower the AO of the current year to restrict future adjudication powers.
  • No substantial question of law arose; hence, the appeal was dismissed.

Important Clarifications

  • Jurisdiction Limitation: AO of a specific AY can only compute losses, not decide future eligibility.
  • Section 79 Scope: Applies only at the stage of set-off in subsequent years.
  • Unabsorbed Depreciation & Capital Loss: These are outside the ambit of Section 79.
  • The Court relied on the principle laid down in
    Commissioner of Income-tax v. Manmohan Das
    which clarified that carry forward/set-off is to be determined in the relevant subsequent year.

Sections Involved

  • Section 79 – Carry forward and set-off of losses in case of change in shareholding
  • Section 72 – Carry forward and set-off of business losses
  • Principles analogous to Section 24(2) of the 1922 Act

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS24112023ITA6602023_115525.pdf

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