Section 79 do not apply to carry forward and set off of unabsorbed depreciation in case of change in shareholding

INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH ‘A’, BANGALORE

I.T(TP).A No.635/Bang/2015 (Assessment Year : 2009-10)

M/s. Swiss Re Healthcare Services P. Ltd ….. Appellant  vs. Principal Commissioner of Income-tax …Respondent

Date of Order: 09/03/2016

ORDER

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :

In this appeal filed by assessee it is aggrieved by denial of set off of unabsorbed depreciation of Rs.36,04,019/-.

02. Ld. Counsel for the Assessee submitted at the outset that there was a change in shareholding in excess of 49% as on 31.03.2007. However, as per the Ld. AR though by virtue of Section 79 of the Incometax Act, 1961 (‘the Act’ in short) disentitled the assessee from claiming carry forward of unabsorbed losses, the said section did not apply to carry forward and set off of unabsorbed depreciation. Ld. AR also pointed out that this issue had come up before this Tribunal in assessee’s own case for A. Y. 2008-09 in ITA.736/Bang/2014, dt.30.07.2015. As per the Ld. AR this Tribunal had held that Section 79 of the Act applied only to business loss and not to unabsorbed depreciation, relying on the judgment of Hon’ble Apex Court in the case of CIT v. Subhulaxmi Mills Ltd [249 ITR 795].

03. Per contra, Ld. DR supported the orders of lower authorities.

04. We have perused the orders and heard the rival contentions. In assessee’s own case for A. Y.2008-09, a question arose as to the application of Section 79 of the Act, to unabsorbed depreciation. This Tribunal held as under at para 9 of its order mentioned supra :

9. The second issue arising out of this appeal filed by the assessee is whether the lower authorities are correct in not allowing the assessee to carry forward the unabsorbed depreciation of Rs.36,04,019 relating to assessment year 2007-08 to the subsequent assessment years or not. We find that as per section 79 of the Act, the losses cannot be carried forward when there is considerable change in the share holding pattern of the closely held company. It is an undisputed fact that there was a change in the share holding pattern of the company for the financial year 2006-07. However, we find that unabsorbed depreciation is not a loss but allowances under section 32 of the Act. The Honorable Supreme Court in the case of (cited supra) was dealing the case held as below:

“2. Whether, on the facts and in the circumstances of the case, the finding of the tribunal that in applying section 79 of the Act, only the business loss should be taken into account and not the unabsorbed depreciation or unabsorbed development rebate, is erroneous in law?

Held that So far as question No.2 is concerned, the question is whether in applying section 79 of the Act, only the business loss should be taken into account and not the unabsorbed depreciation or unabsorbed development rebate. The High Court has answered the question saying that when section 79 speaks of loss, it does not include unabsorbed depreciation or unabsorbed development rebate. We agree with the High Court.”

Also High courts of Kerala and Madras have relied on the above judgement in cases (cited supra) relied upon by the Assessee.

Hence, the assessee company is allowed to carry forward unabsorbed depreciation relating to financial year 200607 to the subsequent assessment years Therefore we allow the grounds raised by the assessee on this issue.

05. In the impugned assessment year, unabsorbed depreciation carried forward by the assessee was Rs.36,04,019/-, which is the same amount claimed for A.Y. 2007-08. However, the set off of such amount was disallowed by the lower authorities relying on Section 79 of the Act. Return of income filed by the assessee for the impugned assessment year does show that there was a claim for carry forward and set off of Rs.36,04,109/- and the audit report copy of which has been placed at paper book page 80 show that said amount related to unabsorbed depreciation for A. Y. 2007-08. Thus, we are of the opinion that assessee was well eligible for claim of set off of such amount. Section 79 would not inhibit the claim. We therefore set aside the orders of authorities below and direct the AO to allow the claim of unabsorbed depreciation of Rs.36,04,019/- brought forward by the assessee.

06. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 9th day of February, 2016.

(VIJAY PAL RAO) JUDICIAL MEMBER  (ABRAHAM P GEORGE) ACCOUNTANT MEMBER

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