ITAT allows business Loss as AO Misunderstands INX News’ Business Activity

DCIT Vs INX News Pvt Ltd (ITAT Delhi)

Introduction: The Income Tax Appellate Tribunal (ITAT) Delhi presided over a case involving the Deputy Commissioner of Income Tax (DCIT) and INX News Pvt Ltd, which led to a significant ruling about understanding a company’s business activities. The DCIT appealed against the CIT(A)-4, Mumbai’s order, challenging the allowance of a business loss claimed by INX News.

Analysis: The Assessing Officer (AO) was unable to perceive the nature of INX News’ business operations and concluded that the company had not undertaken any business activities during the relevant year. Consequently, the AO disallowed the business loss claimed by INX News. However, the CIT(A) rightly acknowledged that INX News had indeed commenced business operations, including content creation and resource allocation for news broadcasting, following receiving statutory permission from the competent authority.

ITAT Delhi agreed with the CIT(A)’s understanding of the situation and observed that the AO’s inability to grasp INX News’ business nature led to the incorrect denial of the business loss claim. Thus, the ITAT concluded that the appeal lacked substance and dismissed the revenue’s appeal.

The ITAT Delhi’s ruling emphasizes the need for a comprehensive understanding of a company’s business operations to make accurate tax assessments. It points out that regulatory authorities must have a deep insight into different business models and sectors. This verdict not only justified INX News Pvt Ltd’s business loss claim but also highlighted the need for tax authorities to enhance their understanding of diverse business activities.

FULL TEXT OF THE ORDER OF ITAT DELHI

The appeal has been preferred by the Revenue against the order dated 13.08.2015 of CIT(A)-4, Mumbai (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in appeal No. CIT(A)-4/Tr-426/Appeal(3)/ACIT.16(1)/2015-16 arising out of an appeal before it against the order dated 24.12.2010 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the DCIT-5(2), Mumbai (hereinafter referred as the Ld. AO).

2. The facts in brief are that after going through the details filed by the appellant, the A.O. observed that as per Schedule 14 to P&L Account, the following are the only credit to P&L Account:-

In the computation of income, according to A.O., the appellant has subjected to tax interest income under the head ‘income from other sources’, dividend has been claimed exempt, profit on sale of investment has been considered for tax under the head capital gain. It was, therefore, observed that miscellaneous income could not be said to be business income whereas the appellant after claiming various expenses and allowances arrived at a business loss of Rs.49,13,34,690/-. The appellant was asked to explain the claim of expenses under the head business and arriving at a business loss of Rs.49,13,34,690/-. It is mentioned that the appellant failed to furnish any document to establish that the company was really involved in any business activity during the relevant previous year. The Assessing Officer, therefore, disallowed the business loss claimed holding that since no business activities had been carried out during the year, the same is not allowable and brought to tax the capital gain and income from other sources totaling to Rs.53,90,920/-.

3. The appeal before Ld. CIT(A) remand report was called upon the written submissions of the assessee and the paper book filed for which the Ld. AO submitted that para 4.5 of Ld. CIT(A) “5 Thus the only issue to be verified is whether the claim of launch of news channel is correct. From the submission/proof it appears that channel was inaugurated on 27.03.2008. And this is also genuine that before inauguration assessee must have incurred some expenses but fixed asset schedule is showing that most of the assets were put to use on 27.03.2008, so it is doubtful that this much expenses was incurred during the year.”

4. The Bench is of considered opinion that Ld. CIT(A) has rightly appreciated the facts in the light of the submissions of assessee and the remand report once statutory permission were received from the competent authority on 21.09.2007 the business operations of the assessee company required creation of content and resources for broadcasting the news. The Ld. AO had failed to appreciate the nature of business of the assessee to conclude that the assessee had not done any business activity during the relevant period. Thus, there is no substance in the grounds raised by the revenue, Consequently, the appeal of revenue is dismissed.

Order pronounced in the open court on 23^rd May, 2023.