Perfect Press Pvt. Ltd. vs ITO Ward 19(4): Dispute Over Business Loss and Section 50C Addition for AY 2015-16

Case Overview: Perfect Press Pvt. Ltd. vs ITO Ward 19(4), Delhi

Case Number: ITA 6239/DEL/2019

Appellant: Perfect Press Private Limited, Delhi

Respondent: ITO Ward 19(4), New Delhi

Assessment Year: 2015-16

Case Filed On: 2019-07-23

Order Type: Final Tribunal Order

Date of Order: 2023-02-15

Pronounced On: 2023-02-15

Introduction

The case of Perfect Press Pvt. Ltd. vs ITO Ward 19(4) involves significant issues related to the disallowance of business loss claimed by the appellant and an addition made under Section 50C of the Income Tax Act, 1961. The matter was brought before the Income Tax Appellate Tribunal (ITAT) Delhi, which eventually remanded the case back to the Assessing Officer (AO) for fresh adjudication, offering the appellant an opportunity to address the deficiencies noted in the original assessment.

Background of the Case

Perfect Press Pvt. Ltd., a company incorporated on 17th October 1990, did not engage in any business activities during the assessment year 2015-16. However, the company filed its income tax return on 31st March 2017, declaring an income of Rs. 23,16,730. The return included a claim for a business loss of Rs. 25,39,908, which was attributed to expenses incurred to maintain its corporate entity and prepare for a resumption of business activities.

In addition to the business loss, the appellant reported the sale of an immovable property for Rs. 90,00,000. However, the stamp duty value of the property was assessed at Rs. 1,41,44,000, leading the AO to invoke Section 50C of the Income Tax Act and add Rs. 51,44,000 to the appellant’s income as a deemed income.

Grounds of Appeal

The appellant raised several grounds of appeal against the order passed by the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the AO’s decision. The primary issues raised were:

1. Disallowance of Business Loss: The appellant argued that the expenses claimed as a business loss were necessary to keep the corporate entity operational during a temporary suspension of business activities. The appellant cited precedents where similar claims had been allowed, emphasizing that the business was merely in a temporary lull and not discontinued.
2. Addition Under Section 50C: The appellant challenged the addition made under Section 50C, arguing that the sale consideration was genuine and that the AO should have referred the matter to a Valuation Officer to determine the fair market value (FMV) of the property, as provided under Section 50C(2) of the Income Tax Act.

Tribunal’s Analysis and Findings

The ITAT Delhi bench, comprising Shri Shamim Yahya (Accountant Member) and Ms. Astha Chandra (Judicial Member), examined the submissions made by the appellant and the Departmental Representative (DR). After considering the facts and the legal arguments, the Tribunal made the following observations:

1. Disallowance of Business Loss

The Tribunal acknowledged that the appellant claimed the loss on account of expenses incurred during a period of temporary business suspension. However, the Tribunal noted that there was insufficient verification to establish whether this was indeed a case of temporary lull or a complete cessation of business. The ITAT emphasized the need for a thorough examination of the facts to determine the validity of the appellant’s claim. As such, the Tribunal decided that the matter required a fresh evaluation by the AO.

2. Addition Under Section 50C

Regarding the addition made under Section 50C, the Tribunal noted that the AO did not refer the matter to the Valuation Officer, despite the appellant’s request. The ITAT pointed out that the word “may” in Section 50C(2) could be interpreted as “shall” in contexts where a taxpayer disputes the stamp duty valuation, necessitating a reference to the Valuation Officer. The Tribunal found that the AO’s failure to follow this procedure necessitated a remand for reconsideration.

Conclusion and Tribunal’s Decision

Based on the above analysis, the ITAT Delhi set aside the CIT(A)’s order and remanded the case back to the AO for a fresh adjudication of both issues—the disallowance of business loss and the addition under Section 50C. The Tribunal directed the AO to provide the appellant with a fair opportunity to present evidence and to reconsider the issues in accordance with the law.

This decision underscores the importance of following due process in tax assessments, particularly in cases involving complex issues such as business losses during periods of temporary suspension and the determination of property values under Section 50C. The Tribunal’s order to remand the case for fresh consideration offers the appellant another chance to substantiate its claims and seek relief from the disallowed expenses and the addition made under Section 50C.

Implications of the Decision

The remand of the case to the AO provides Perfect Press Pvt. Ltd. with an opportunity to present additional evidence to support its claims. The decision also highlights the necessity for tax authorities to adhere to procedural requirements, ensuring that taxpayers are given a fair chance to contest assessments that they believe to be unjust.

Order Pronounced in the Open Court on 15th February, 2023.

Judicial Member: Astha Chandra

Accountant Member: Shamim Yahya

Perfect Press Pvt. Ltd. vs ITO Ward 19(4): Dispute Over Business Loss and Section 50C Addition for AY 2015-16