Change of Shareholding : Sec 79 is not applicable to unabsorbed depreciation and capital losses

M/S BURDA DRUCK INDIA PVT. LTD (ITA 660/2023 & CM APPL. 60770/2023)

Facts:

1. The respondent filed its Return of Income (ROI) for AY 2014-15, declaring a current loss of Rs. 17,56,64,494/-.

2. The Assessing Officer (AO) observed in the assessment order dated 22.12.2016, that brought forward losses were not allowed to be carried forward, since there was a change in shareholding as per Sec 79 of Income Tax Act.

3. The respondent, had carried forward business losses, unabsorbed depreciation, and capital losses from earlier years, appealed to the Commissioner of Income Tax (Appeals) [CIT(A)].

4. The CIT(A) dismissed the appeal, citing Section 79 of the Income-tax Act.

5. The respondent then appealed to the Income Tax Appellate Tribunal, which allowed the appeal, directing the AO to remove the concluding remark from the assessment order.

6. The appellant/revenue challenged the Tribunal’s decision in the High Court, arguing that the change in shareholding justified the AO’s observation on carry forward of losses.

Hon Delhi High Court held as below:

1. Section 79 of the Act, prohibits the carry forward and set off of losses in case of a change in shareholding.

2. However It is emphasized that Section 79 does not apply to unabsorbed depreciation and capital losses.

3. The Tribunal’s decision was correct, and no interference was warranted.