ITO 9(3)(1), MUMBAI V. SANJAY INDUSTRIAL ENGINEERS P.LTD, MUMBAI

ITA 2052/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71483 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 30-09-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 28-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JYOTHILAKSHMI NAYAK
• Keywords: Business income; Wrong claim
• Section: 27

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI .. , !'# $ $ $ $ % &' , ( !'# !) BEFORE SHRI P.M. JAGTAP, AM AND SHRI AMIT SHUKLA, J M !./ I.T.A. NO. 2052/MUM/2012 ( (+ , $-, (+ , $-, (+ , $-, (+ , $-, / / / / ASSESSMENT YEAR : 2006-07 INCOME AX OFFICER 9(3)(1), ROOM NO. 227, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. + + + + / VS. SANJAY INDUSTRIAL ENGINEERS PVT. LTD., SHAKTI HOUSE, 31 NADIADWALA COLONY NO. 1, S.V. ROAD, MALAD (W), MUMBAI 400 064. #. !./ PAN : AABCS 5079H ( ./ / // / APPELLANT ) .. ( 01./ / RESPONDENT ) APPELLANT BY SMT. JYOTHILAKSHMI NAYAK ASSESSEE BY : NONE !+$ 2 / // / DATE OF HEARING : 30-09-2013 34- 2 / DATE OF PRONOUNCEMENT : 09-10-2013 [ '& / O R D E R PER P.M. JAGTAP, A.M . : .. , !'# THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A)20, MUMBAI DATED 27-01-2012 WHEREBY HE CANCEL LED THE PENALTY OF RS. 17,72,941/- IMPOSED BY THE A.O. U/S 271(1)(C) OF TH E INCOME TAX ACT, 1961. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY W HICH IS ENGAGED IN THE BUSINESS OF TRADING OF TEXTILE MACHINERY AND VEHICL E INSURANCE. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED B Y IT ON 18-11-2006 DECLARING TOTAL INCOME AT NIL. IN THE SAID RETUR N, BROUGHT FORWARD LOSS OF RS. 9,23,294/- AND RS. 49,86,520/- FOR ASSESSMENT YEARS 1999-2000 AND 2000- 01 RESPECTIVELY WAS SET OFF BY THE ASSESSEE AGAINST THE SHORT TERM CAPITAL GAIN ITA 2052/M/12 2 ARISING FROM SALE OF DEPRECIABLE BUSINESS ASSET DUR ING THE YEAR UNDER CONSIDERATION. THE CLAIM OF THE ASSESSEE FOR THE SA ID SET OFF, HOWEVER, WAS DISALLOWED BY THE A.O. KEEPING IN VIEW THE PROVISIO NS OF SECTION 72 OF THE ACT WHICH PROVIDED THAT THE UNABSORBED BUSINESS LOSS CO ULD BE SET OFF ONLY AGAINST PROFITS AND GAINS OF BUSINESS OR PROFESSION IN THE SUBSEQUENT YEAR. ON APPEAL, THE LD. CIT(A) UPHELD THE ACTION OF THE A.O. ON THIS ISSUE RELYING AGAIN ON THE PROVISIONS OF SECTION 72 OF THE ACT. THEREAFTER, A NOTICE WAS ISSUED BY THE A.O. REQUIRING THE ASSESSEE TO SHOW C AUSE AS TO WHY PENALTY U/S 271(1)(C) OF THE ACT SHOULD NOT BE IMPOSED IN R ESPECT OF ADDITION MADE TO ITS INCOME BY DISALLOWING THE CLAIM FOR SET OFF OF CARRIED FORWARD LOSSES OF THE EARLIER YEARS AGAINST THE SHORT TERM CAPITAL GAIN O F THE YEAR UNDER CONSIDERATION. SINCE NO EXPLANATION IN RESPONSE TO THE SAID SHOW CAUSE NOTICE WAS OFFERED BY THE ASSESSEE, THE A.O. PROCEEDED TO IMPOSE PENALTY OF RS. 17,72,941/- U/S 271(1)(C) OF THE ACT BEING 100% OF TAX SOUGHT TO BE EVADED BY THE ASSESSEE BY MAKING A WRONG CLAIM OF SET OFF OF CARRIED FORWARD BUSINESS LOSS AGAINST THE SHORT TERM CAPITAL GAIN. 3. THE PENALTY IMPOSED BY THE A.O. U/S 271(1)(C) OF THE ACT WAS CHALLENGED BY THE ASSESSEE IN AN APPEAL FILED BEFORE THE LD. C IT(A). BEFORE THE LD. CIT(A), IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT ALT HOUGH THE PROFIT ON SALE OF DEPRECIABLE BUSINESS ASSETS WAS CHARGEABLE TO TAX A S SHORT TERM CAPITAL GAIN U/S 50(2) OF THE ACT, THE TRUE CHARACTER OF THE SAI D PROFIT WAS BUSINESS INCOME. IN SUPPORT OF THIS CONTENTION, RELIANCE WA S PLACED BY THE ASSESSEE ON THE DECISION OF MUMBAI BENCH OF ITAT IN THE CASE OF DIGITAL ELECTRONICS LTD. VS. DCIT REPORTED IN 135 TTJ 419 WHEREIN THE CLAIM OF THE ASSESSEE FOR SET OFF OF BROUGHT FORWARD BUSINESS LOSS AGAINST SHORT TERM CAPITAL GAINS WAS ALLOWED. IT WAS CONTENDED THAT THE ISSUE INVOLVING THE CLAIM OF THE ASSESSEE FOR SIMILAR SET OFF THUS WAS A DEBATABLE ONE AND PE NALTY U/S 271(1)(C) OF THE ACT WAS NOT IMPOSABLE ESPECIALLY WHEN ALL THE MATER IAL FACTS RELATING TO THE SAID CLAIM WERE FULLY AND TRULY DISCLOSED BY THE AS SESSEE. ITA 2052/M/12 3 4. THE LD. CIT(A) FOUND MERIT IN THE CONTENTION OF THE ASSESSEE AND CANCELLED THE PENALTY IMPOSED BY THE A.O. U/S 271(1 )(C) OF THE ACT FOR THE FOLLOWING REASONS GIVEN IN PARA 3 OF HIS IMPUGNED O RDER:- 3. 1 HAVE PERUSED THE PENALTY ORDER AND WRITTEN SU BMISSIONS OF THE APPELLANT. IT IS AN ADMITTED FACT THAT THE APPELLAN T SOLD FACTORY BUILDING, PLANT & MACHINERY WHICH WAS USED FOR THE PURPOSES O F BUSINESS IN THE PAST. INCOME EARNED BY THE ASSESSEE IN THE RELEVANT YEAR ON SALE OF FACTORY BUILDING, PLANT & MACHINERY ALTHOUGH NOT TA XABLE AS BUSINESS IS AN INCOME IN THE NATURE OF BUSINESS THOUGH ASSESSED AS CAPITAL GAINS U/S.50 AND, THEREFORE, THE HONBLE MUMBAI ITAT IN T HE RECENT DECISION OF DIGITAL ELECTRONICS RELYING ON THE DECISION OF H ONBLE SUPREME COURT IN THE CASE OF CIT VS COCNADA RADHASWAMI BANK (57 ITR 306) HAD HELD THAT THE APPELLANT IS ENTITLED TO SET OFF BR OUGHT FORWARD BUSINESS LOSS AGAINST THE CAPITAL GAINS. IT IS OBVIOUS THAT THE ISSUE IS HIGHLY CONTENTIOUS OR VEXATIOUS IN NATURE AND LEVY OF PENA LTY U/S.271(1)(C) IS SOMEWHAT HARSH, MORESO, WHEN ALL THE DETAILS REGARD ING THE COMPUTATION MADE U/S.50(2) AND SETTING THE SAME UND ER UNABSORBED BUSINESS LOSS IN ITS RETURN OF INCOME AND IN ITS CO MPUTATION WAS DISCLOSED. IN THESE CIRCUMSTANCES, IT CANNOT BE SAI D THAT DETAILS FILED BY THE APPELLANT WERE INACCURATE. THE EXPLANATION OFFE RED BY THE APPELLANT HELD TO BE BONAFIDE AND THE LEVY OF PENALTY ON THE GIVEN FACTS AND CIRCUMSTANCES CANNOT BE SUSTAINED, THE SAME IS CANC ELLED. 5. AT THE TIME OF HEARING BEFORE US, NOBODY HAS PU T IN APPEARANCE ON BEHALF OF THE ASSESSEE DESPITE THE FACT THAT NOTICE OF THE SAID HEARING SENT TO THE ASSESSEE BY RPAD IS DULY SERVED, THE PROOF OF W HICH IS AVAILABLE ON RECORD. THIS APPEAL OF THE REVENUE IS THEREFORE BEING DISPO SED OF EX PARTE QUA THE ASSESSEE AFTER HEARING THE ARGUMENTS OF LD. D.R., W HO HAS RELIED ON THE ORDER OF THE A.O. IN SUPPORT OF THE REVENUES CASE. 6. IT IS OBSERVED THAT THE IMPUGNED PENALTY U/S 27 1(1)(C) OF THE ACT WAS IMPOSED BY THE A.O. IN RESPECT OF ADDITION MADE TO THE TOTAL INCOME OF THE ASSESSEE BY DISALLOWING ITS CLAIM FOR SET OFF OF BR OUGHT FORWARD BUSINESS LOSS OF THE EARLIER YEARS AGAINST THE SHORT TERM CAPITAL GAIN ARISING DURING THE YEAR UNDER CONSIDERATION ON SALE OF DEPRECIABLE BUSINESS ASSETS. IT IS ALSO OBSERVED THAT A SIMILAR CLAIM MADE BY THE ASSESSEE IN THE CA SE OF DIGITAL ELECTRONICS LTD. (SUPRA) FOR SET OFF OF BROUGHT FORWARD BUSINES S LOSS OF THE EARLIER YEARS ITA 2052/M/12 4 AGAINST THE PROFIT ARISING DURING THE RELEVANT YEAR ON SALE OF DEPRECIABLE ASSET CHARGEABLE TO TAX AS SHORT TERM CAPITAL GAIN WAS DI SALLOWED BY THE A.O. AS WELL AS THE LD. CIT(A) AND WHEN THE MATTER REACHED TO THE TRIBUNAL, THE SAME WAS ALLOWED BY THE TRIBUNAL FOR THE FOLLOWING REASO NS AS GIVEN IN THE HELD PORTION OF THE ORDER OF THE TRIBUNAL REPORTED IN 13 5 TTJ 419. SEC. 72 OF THE IT ACT, INTER ALIA, PROVIDES THAT 'W HERE FOR ANY ASSESSMENT YEAR, THE NET RESULT OF THE COMPUTATION UNDER THE HEAD 'P ROFITS AND GAINS OF BUSINESS OR PROFESSION' IS A LOSS TO THE ASSESSEE, NOT BEING A LOSS SUSTAINED IN A SPECULATION BUSINESS, AND SUCH LOSS CANNOT BE OR IS NOT WHOLLY SET OFF AGAINST INCOME UNDER ANY HEAD OF INCOME IN ACCORDANCE WITH THE PROVISION S OF S. 71, SO MUCH OF THE LOSS AS HAS NOT BEEN SO SET OFF OR, WHERE HE HAS NO INCOME UNDER ANY OTHER HEAD, THE WHOLE LOSS SHALL, SUBJECT TO THE OTHER PROVISIO NS OF THIS CHAPTER, BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AND,-(I) I T SHALL BE SET BE OFF AGAINST THE PROFITS AND GAINS, IF ANY, OF ANY BUSINESS OR P ROFESSION CARRIED ON BY HIM AND ASSESSABLE FOR THAT ASSESSMENT YEAR '''..'. IT IS T HUS CLEAR THAT S. 72 OF THE ACT PROVIDES THAT WHERE FOR ANY ASSESSMENT YEAR, THE NE T RESULT OF THE COMPUTATION UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION' IS A LOSS TO THE ASSESSEE, NOT BEING A LOSS SUSTAINED IN A SPECULATI ON BUSINESS, AND SUCH LOSS CANNOT BE OR IS NOT WHOLLY SET OFF AGAINST INCOME U NDER ANY HEAD OF INCOME IN ACCORDANCE WITH THE PROVISIONS OF S. 71, SO MUCH OF THE LOSS AS HAS NOT BEEN SO SET OFF IS TO BE CARRIED FORWARD TO THE FOLLOWING A SSESSMENT YEAR AND IS ALLOWABLE FOR BEING SET OFF 'AGAINST THE PROFITS, IF ANY, OF THAT BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESSABLE FOR THAT ASSESSMENT YEAR'. IT IS THUS FOR SETTING OFF THE INCOME THAT WHILE THE LOSS TO BE CARRIED FORWARD HA S TO BE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', THE GAINS AGAINST WHICH SUCH LOSS CAN BE SET OFF, HAS TO BE PROFITS OF 'ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESSABLE IN THAT ASSESSMENT YEAR'. IN OTHER W ORDS, THERE IS NO REQUIREMENT OF THE GAINS BEING TAXABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' AND THUS, AS LONG AS GAINS ARE 'OF ANY BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE AND ASSESSABLE TO TAX FOR THAT A SSESSMENT YEAR', THE SAME CAN BE SET OFF AGAINST LOSS UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION CARRIED FORWARD FROM EARLIER YEARS. THE INCOME EAR NED IN THE RELEVANT YEAR ALTHOUGH NOT TAXABLE AS PROFITS AND GAINS FROM BUS INESS OR PROFESSION WAS AN INCOME IN THE NATURE OF INCOME OR BUSINESS NEVERTHE LESS. THE ASSESSEE WAS, THEREFORE, INDEED JUSTIFIED IN CLAIMING THE SET OFF OF BUSINESS LOSSES AGAINST THE INCOME OF CAPITAL GAIN ASSESSABLE U/S 50 - CIT VS. COCANADA RADHASWAMI BANK LTD. (1965)57 ITR 306(SC). THE DECISION OF THE TRIBUNAL RENDERED IN THE CASE OF DIGITAL ELECTRONICS LTD. (SUPRA) ALLOWING THE SIMILAR CLAIM OF THE ASSESSEE FOR SET OFF OF BROUGHT FORWARD ITA 2052/M/12 5 BUSINESS LOSSES AGAINST THE PROFIT ARISING FROM SAL E OF DEPRECIABLE BUSINESS ASSETS CHARGEABLE TO TAX AS SHORT TERM CAPITAL GAIN CLEARLY SHOWS THAT THE ISSUE INVOLVED IS A DEBATABLE ONE AND THE VIEW TAKE N BY THE ASSESSEE WHILE MAKING THE CLAIM FOR SUCH SET OFF WAS A POSSIBLE AN D BONAFIDE VIEW. AS RIGHTLY HELD BY THE LD. CIT(A), MAKING SUCH BONAFIDE CLAIM BY ADOPTING A POSSIBLE VIEW CANNOT BE EQUATED WITH CONCEALMENT AS ENVISAGE D IN SECTION 271(1)(C) OF THE ACT FOR IMPOSING PENALTY ESPECIALLY WHEN ALL TH E MATERIAL FACTS RELATING TO THE SAID CLAIM WERE FULLY AND TRULY FURNISHED BY TH E ASSESSEE. AS SUCH, CONSIDERING ALL THE FACTS OF THE CASE, WE ARE OF TH E VIEW THAT THE PENALTY IMPOSED BY THE A.O. U/S 271(1)(C) OF THE ACT WAS RI GHTLY CANCELLED BY THE LD. CIT(A) AND UPHOLDING HIS IMPUGNED ORDER, WE DISMISS THIS APPEAL FILED BY THE REVENUE. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH OCTOBER, 2013. . '& 2 34- 5'[phone] SD/- SD/- (AMIT SHUKLA) (P.M. JAGTAP ) ( !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; 5'+ DATED 09-10-2013 $.(+.!./ RK , SR. PS ITA 2052/M/12 6 '& 2 0(%7 87- '& 2 0(%7 87- '& 2 0(%7 87- '& 2 0(%7 87-/ COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. 01./ / THE RESPONDENT. 3. 9 () / THE CIT(A)20, MUMBAI. 4. 9 / CIT 9, MUMBAI 5. 7$< 0((+ , , / DR, ITAT, MUMBAI E BENCH 6. =, > / GUARD FILE. '&+! '&+! '&+! '&+! / BY ORDER, !17 0( //TRUE COPY// ? ? ? ?/ // /!@ !@ !@ !@ ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI