S.K. Jain, Judicial Member - (1.) THE question of set off of losses under Section 79 of the Income-tax Act, 1961 ('the Act') is involved in this appeal of the assessee-company against the order of the Commissioner (Appeals) arising out of the assessment order for the assessment year 1978-79.
(2.) The assessee-company had incurred losses in the assessment year 1975-76. The business loss and unabsorbed depreciation in the assessment year 1975-76 were as follows : Rs. Business loss 2,77,119 Unabsorbed depreciation for 1975-76 2,494 Unabsorbed depreciation for 1974-75 7,686 ---------- 2,87,299 ---------- Following was set off against the income of the assessment year 1976-77 : Rs. Business loss of 1975-76 95,647 Unabsorbed depreciation for the assessment year 1974-75 7,686 ---------- 1,03,333 ---------- The balance of Rs. 1,83,966 (Rs. 2,87,299 - Rs. 1,03,333) consisting of balance of business loss of Rs. 1,81,472 relating to the assessment year 1975-76 and unabsorbed depreciation of Rs. 2,494 relating to the assessment year 1975-76, was required to be carried forward for set off against the income in the assessment year 1977-78. The dispute arose as to set off of losses against the income in the assessment year 1977-78 since in that year change in shareholding of the company had taken place. Gulshanrai Sachdev group had no shareholding in the assessee-company till 31-8-1974 that is to say till the end of the previous year relevant to the assessment year 1975-76. The said group acquired 513 shares in the assessment year 1976-77 and 523 shares in the assessment year 1977-78 and thus total shareholding of the said group (1036) out of total shares of the company (2004) became more than 51 per cent in the assessment year 1977-78. The ITO while framing the assessment for the assessment year 1977-78, was of the view that the assessee-company was not entitled to set off of losses since shares in the said company carrying not less than 51 per cent of the voting power were not beneficially held by one and the same person or persons, both on the last day of the year in which the loss arose and also on the last day of the accounting year in which the brought forward loss was to be adjusted. Thus, Clause (a) of Section 79 was attracted. According to him, Clauses (a) and (b) of Section 79 are independent of each other and, therefore, application of one of them was enough to shut out the claim of the assessee for setting off of losses. He, therefore, did not examine if Clause (5) was also applicable in the instant case. The assessee took up the matter in appeal before the Commissioner (Appeals) who, following the decision of the Hon'ble Bombay High Court in the case of Italindia Cotton Co. (P). Ltd. v. CIT [1978] 113 ITR 58, held that for denying claim of set off of losses conditions mentioned in both the clauses should be satisfied. He accordingly remitted the case to the ITO for examination if Clause (6) was also attracted to the case of the assessee. The department went in appeal against the said order of the Commissioner (Appeals) before the Tribunal and the Tribunal by order in IT Appeal No. 382 (Bom.) of 1981, dated 2-2-1984 upheld the order of the Commissioner (Appeals). It is stated on behalf of the assessee that the ITO thereafter did not modify the original assessment order for the said assessment year 1977-78 in which total income was assessed at Us. 91,791. This happened because, according to the learned counsel for the assessee, the assessment became barred by limitation. However, according to him, loss to the extent of income of Rs. 91,791 was deemed to have had been adjusted in the assessment year 1977-78. The assessee, therefore, claimed adjustment of the balance of Rs. 92,175 (Rs. 1,83,966-Rs. 91,791) against the income of the assessment year 1978-79.
(3.) THE said set off of Rs. 92,175 against the income of the instant assessment year 1978-79 was also denied by the ITO on the ground that in the instant case conditions contained in both the Clauses (a) and (b) were satisfied. THE assessee unsuccessfully appealed before the Commissioner (Appeals) and has now come up in second appeal.;