ITL & FABRIC P. LTD, MUMBAI V. ACIT (OSD) CIR 7, MUMBAI

ITA 3276/MUM/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59804 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 01-02-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 18-05-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PARTHASARTLI NAIK
• Assessee Lawyers: HIRAL SHAH
• Keywords: Capital asset; Business income; Depreciation; Capital receipt; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, I , MUMBAI BEFORE SHRI R.S. SYAL (A.M) AND SHRI N.V. VASUDEVAN (J.M) ITA NO. 3276/M/2009 (ASSESSMENT YEAR:2006-2007) ITL & FABRIC P. LTD. SHRADDHA BUNGLOW NO.1, PREMIUM TOWERS, LOKHANDWALA COMPLEX, ANDHERI (E), MUMBAI 400 061. PAN : AAACI4803N VS. ASST.COMM.I.T.(OSD) CIR- 7(1) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. APPELLANT RESPONDENT APPELLANT BY MISS. HIRAL SHAH (AR) RESPONDENT BY SHRI PARTHASARTLI NAIK (DR) O R D E R PER N.V. VASUDEVAN (J.M.): THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 26.03.2009 OF LD CIT(A) CENTRAL -5, MUMBAI RE LATING TO A.Y. 2006-07. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE RE AD AS FOLLOWS: 1. THE LD CIT(A) ERRED IN NOT ALLOWING THE SET OFF OF BUSINESS LOSS/UNABSORBED DEPRECIATION AGAINST THE DEEMED SHORT TERM CAPITAL GAINS U/S.50 ON SALE OF DEPRECIABLE ASSETS. 2. THE LD CIT(A) OUGHT NOT TO HAVE CONFIRMED DISALLOWANCE OF THE SET OFF OF BUSINESS LOSS/UNABSORBED DEPRECIATION AGAINST THE DEEMED SHORT TERM CAPITAL GAIN U/S.50 ON SALE OF DEPRECIAB LE ASSETS. 3. THE SET OFF OF BUSINESS LOSS/UNABSORBED DEPRECIA TION LOSS AGAINST THE DEEMED SHORT TERM CAPITAL GAIN U/S .50 ON SALE OF DEPRECIABLE ASSETS REQUIRES TO BE ALLOWE D. ITA NO. 3276/M/2009 2 3. THE ASSESSEE IS A COMPANY. THE AO NOTICED FROM THE PERUSAL OF PROFIT & LOSS A/C. IT IS NOTICED THAT THE ASSESEE H AS CREDITED RS.32,85,543/- ON ACCOUNT OF PROFIT ON SALE OF ASSE TS. THE SAID PROFIT ON SALE OF ASSETS WAS ADJUSTED AGAINST UNABS ORBED BUSINESS LOSS AND UNABSORBED DEPRECIATION OF EARLIER YEAR. T HE AO WAS OF THE VIEW THAT SET OFF OF UNABSORBED BUSINESS LOSS A GAINST PROFIT ON SALE OF ASSETS CANNOT BE ALLOWED IN VIEW OF THE FAC T THAT PROFIT ON SALE OF ASSETS WAS SHORT TERM CAPITAL GAIN WITHIN T HE MEANING OF SECTION 50 OF THE INCOME TAX ACT, 1961(THE ACT) AND AS PER THE PROVISIONS OF SEC.72 OF THE ACT, LOSS UNDER THE HEA D PROFIT AND GAINS OF BUSINESS OR PROFESSION CAN BE SET OFF ONL Y AGAINST PROFITS OF ANY BUSINESS IN THE SUBSEQUENT YEAR. 4. THE ASSESSEE CONTENDED BEFORE THE AO THAT THE P ROFIT ACCRUED TO THE ASSESSEE ON SALE OF BUSINESS ASSETS AND NOTWITH STANDING THE FACT THAT SUCH PROFIT IS TO BE REGARDED AS SHORT T ERM CAPITAL GAIN, IN EFFECT IT WAS NOTHING BUT INCOME FROM BUS INESS AND THEREFORE THE SET OFF SHOULD BE ALLOWED. IN THIS R EGARD, THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS. I) J.K. CHEMICALS LTD. ITA NO.8206 & 8213/B/89 DATE D 01.11.1993 II) ORM SP. SV FIRM VS. CIT 63 ITR 404 (SC) III) EMPRESS TIN FACTORY P. LTD. VS. JCIT ITA B 01555/M/2000 DATED 26.10.2004 IV) CIT VS. COCANADA RADHASWAMI BANK 57 ITR 306 (SC ) V) CIT VS. LADY KANDHANBAI & ANOTHER 771 ITR 123 (S C) VI) WESMERCURR HANDELMIJI VS. CIT 80 ITR 21 (SC) 5. THE AO HOWEVER HELD THAT THE ABOVE CASE LAWS RE LIED UPON BY THE ASSESSEE WERE DISTINGUISHABLE ON FACTS. ACCORD ING TO THE AO, IN THE CASE OF THE ASSESSEE THE UNABSORBED BUSINESS LOSS OF EARLIER YEARS HAS BEEN ADJUSTED AGAINST THE SHORT TERM CAPI TAL GAIN EARNED DURING THE YEAR UNDER CONSIDERATION WHEREAS IN THE CASES RELIED UPON BY THE ASSESSEE THE LOSS OF THE SAME YEAR OCCU RRED UNDER ONE HEAD HAS BEEN ADJUSTED AGAINST THE INCOME EARNED AG AINST ANY ITA NO. 3276/M/2009 3 OTHER HEADS OF THE SAME YEAR. HE WAS OF THE VIEW T HAT AS PER PROVISION OF SECTION 70 OF THE ACT, IF THE NET RESU LT FOR ANY ASSESSMENT YEAR, IN RESPECT OF ANY SOURCE UNDER ANY HEAD OF INCOME, IS A LOSS, THE ASSESSEE IS ENTITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AGAINST HIS INCOME FROM ANY OTHER SOURCES UNDER THE SAME HEAD OF INCOME FOR THE SAME ASSESSMENT YEA R EXCEPT THE (I) LOSS FROM SPECULATION (II) LONG TERM CAPITAL LO SS (III) LOSS FROM RACE HORSES (IV) AND LOSS CANNOT BE SET OFF AGAINST WINNING FROM LOTTERIES, CROSS WORD PUZZLES ETC. SINCE, IN THE C ASE OF THE ASSESSEE THERE WAS NO LOSS UNDER ANY OF THE HEADS OF ITS INC OME DURING THE YEAR UNDER CONSIDERATION, THE CLAIM OF THE ASSESSEE COULD NOT BE ACCEPTED. THE AO ALSO HELD THAT SET OFF THE UNABSO RBED BUSINESS LOSS OF EARLIER YEARS AGAINST THE SHORT TERM CAPITA L GAIN OF THE PREVIOUS YEAR CANNOT BECAUSE AS PER SECTION 72 OF T HE ACT, A LOSS UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PRO FESSION CAN BE SET OFF AGAINST PROFITS OF ANY BUSINESS IN THE SUBS EQUENT YEAR. THE AO ALSO HELD THAT THE ASSESSEES BUSINESS ACTIVITIE S WERE NOT PURCHASE AND SALE OF ASSETS. THEREFORE, THE UNABSO RBED BUSINESS LOSS ADJUSTED BY THE ASSESSEE AGAINST THE SHORT TER M CAPITAL GAIN WAS NOT ALLOWED. 6. ON APPEAL BY THE ASSESSE, THE LD CIT(A) CONFIRME D THE ACTION OF THE AO GIVING RISE TO THE PRESENT APPEAL BY THE ASSESSEE BEFORE THE TRIBUNAL. 7. AT THE TIME OF HEARING OF THE APPEAL, IT WAS ACC EPTED BY THE PARTIES BEFORE US THAT THE ISSUE RAISED BY THE ASSE SSEE IN THIS APPEAL HAS BEEN DECIDED BY THE SPECIAL BENCH OF ITA T, BANGALORE IN THE CASE OF M/S. NANDI STEELS LTD. VS. A.C.I.T. IN ITA NO.546/BANG/08 ORDER DATED 09.12.2011. THE TRIBUN AL IN THE AFORESAID ORDER HELD AS FOLLOWS: 10. HAVING HEARD BOTH THE PARTIES AND HAVING CONSI DERED THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THA T THE ONLY QUESTION BEFORE US FOR CONSIDERATION IS WHETHER THE BROUGHT FORWARD LOSS FROM THE EARLIER YEARS CAN BE SET OFF AGAINST THE INCOME FRO M CAPITAL GAINS U/S 72 ITA NO. 3276/M/2009 4 OF THE IT ACT. FOR THE PURPOSE OF READY REFERENCE, THE RELEVANT PORTION OF SEC.72 IS REPRODUCED HERE UNDER; 72 (1) WHERE FOR ANY ASSESSMENT YEAR, THE NET RES ULT OF THE COMPUTATION UNDER THE HEAD PROFITS AND GAINS OF BU SINESS OR PROFESSION IS LOSS TO THE ASSESSEE, NOT BEING LOSS SUSTAINED IN A SPECULATION BUSINESS, AND SUCH LOSS CANNOT BE OR IS NOT WHOLLY SET OFF AGAINST INCOME UNDER ANY HEAD OF INC OME IN ACCORDANCE WITH THE PROVISIONS OF SEC.71, SO MUCH O F THE LOSS AS HAS NOT BEEN SO SET OFF OR .. WHERE HE HAS NO IN COME UNDER ANY OTHER HEAD, THE WHOLE LOSS SHALL, SUBJECT TO TH E OTHER PROVISIONS OF THIS CHAPTER, BE CARRIED FORWARD TO T HE FOLLOWING ASSESSMENT YEAR, AND (I) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS, IF ANY , OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND AS SESSABLE FOR THAT ASSESSMENT YEAR;. MUCH STRESS HAS BEEN LAID BY BOTH THE PARTIES ON TH E TERM PROFITS AND GAINS IF ANY, OF ANY BUSINESS OR PROFESSION MENTIO NED IN SUBCLAUSE (I) OF SUB-SEC.(1) OF SEC.72 OF THE IT ACT. WHAT ARE THE P ROFITS AND GAINS OF BUSINESS OR PROFESSION ?. WHETHER IT SHOULD BE THE INCOME EARNED OUT OF THE BUSINESS CARRIED ON BY THE ASSESSEE OR IT MAY B E THE INCOME IN ANY WAY CONNECTED TO THE BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE ?. THE ANSWER TO THIS QUESTION ENTIRELY DEPENDS ON THE INTERPRETATION TO BE GIVEN TO THE TERM OF ANY BUSINESS OR PROFESSION CA RRIED ON BY THE ASSESSEE AND ASSESSABLE FOR THAT ASSESSMENT YEAR F OR DETERMINATION OF THE ISSUE. IT IS NOT IN DISPUTE THAT THE LAND, BUIL DING AND BORE WELL SOLD BY THE ASSESSEE WERE USED BY THE ASSESSEE FOR ITS BUSI NESS PURPOSES. IT IS ALSO NOT DISPUTED THAT THESE ASSETS WERE FIXED ASSE TS OF THE ASSESSEE. THE ONLY ARGUMENT OF THE ASSESSEE HAS BEEN THAT THE Y HAVE DIRECT NEXUS WITH THE BUSINESS CARRIED ON BY THE ASSESSEE AND TH EREFORE, ARE BUSINESS ASSETS AND ANY GAINS FROM THE SALE OF SUCH ASSETS W OULD ALSO HAVE THE CHARACTER OF BUSINESS INCOME. WE ARE UNABLE TO AGRE E WITH THIS CONTENTION OF THE ASSESSEE THAT THE ASSETS SOLD BY THE ASSESSE E WERE BUSINESS ASSETS. UNDISPUTEDLY, THEY WERE CAPITAL ASSETS AND THE CAPITAL RECEIPTS ARE NOT TAXABLE NOR ARE THE CAPITAL PAYMENTS DEDUCT IBLE FROM THE INCOME OF THE ASSESSEE. THE CAPITAL IS TO BE USED FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE AND IT SHALL REMAIN IN THE BUSINESS OF THE ASSESEE TILL IT IS EITHER CONVERTED INTO STOCK-IN-T RADE OR IS DISPOSED OFF. THE INCOME EARNED BY THE ASSESSEE BY CARRYING ON THE BU SINESS BY USE OF THE STOCK IN TRADE ONLY IS THE BUSINESS INCOME OF THE A SSESSEE. LIKEWISE, ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR CARRYING O N OF BUSINESS AND FOR EARNING THE INCOME FROM SUCH BUSINESS OR PROFESSION IS ONLY ALLOWABLE AS DEDUCTION. AFTER TAKING INTO ACCOUNT THE RECEIPTS A ND PAYMENTS FOR CARRYING ON THE BUSINESS OF THE ASSESSEE ONLY THE P ROFIT OR GAIN OR LOSS FROM THE BUSINESS IS COMPUTED. IF THE PROFIT OR LOS S RELATE TO THE SAME ASSESSMENT YEAR FROM ONE SOURCE THEN IT CAN BE SET OFF FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME U/S 70 ACT, AN D IT CAN BE SET OFF AGAINST THE INCOME FROM ANY OTHER HEAD OF INCOME U/ S 71 OF THE ACT. SEC.72 OF THE ACT HOWEVER, PERMITS THE CARRY FORWAR D BUSINESS LOSS TO SUBSEQUENT ASSESSMENT YEARS AND ALLOWS IT TO BE SET OFF AGAINST PROFIT & GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIE D ON BY THE ASSESSEE AND ASSESSABLE FOR THE RELEVANT ASSESSMENT YEAR. TH US, IT IS CLEAR THAT IT IS ONLY THE BUSINESS LOSS THAT CAN BE CARRIED FORWA RD U/S 72 OF THE ACT AND IT CAN ALSO BE SET OFF ONLY AGAINST THE BUSINES S INCOME OF THE ITA NO. 3276/M/2009 5 ASSESSEE, BE IT FROM THE SAME BUSINESS OR FROM ANY OTHER BUSINESS. IN THE CASES RELIED UPON BY THE LEARNED COUNSEL FOR THE AS SESSEE, THE HONBLE SUPREME COURT WAS DEALING WITH THE CASES OF THE ASS ESSEES WHOSE BUSINESS WAS DEALING IN SECURITIES ALSO AND IT WAS THUS HELD THAT THESE SECURITIES WERE TRADING ASSETS AND THEREFORE, THE I NCOME THEREFROM THOUGH TO BE COMPUTED UNDER THE HEAD INCOME FROM SECURITI ES DOES NOT LOSE THE CHARACTER OF BUSINESS INCOME. BUT IN THE CASE OF M/S EXPRESS NEWSPAPERS LTD., CITED SUPRA, THE FACTS OF THE CASE ARE LITTLE DIFFERENT AND AFTER TAKING INTO CONSIDERATION THE FACTS OF THE CA SE THEREIN, THE HONBLE SUPREME COURT HAS HELD THAT THE CAPITAL GAINS ON SA LE OF CAPITAL ASSETS IS NOT TO BE SET OFF AGAINST THE BROUGHT FORWARD LOSS OF EARLIER YEARS. IN OUR OPINION, THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S EXPRESS NEWSPAPERS LTD., IS FAIRLY APPLICABLE TO TH E FACTS OF THE CASE BEFORE US. THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S STEELCON INDUSTRIES PVT.LTD., CITED SUPRA, HAS MISP LACED ITS RELIANCE UPON THE DECISION OF THE APEX COURT IN THE CASES OF M/S UNITED COMMERCIAL BANK LTD., AND M/S COCANADA RADHASWAMI BANK LTD., I N VIEW OF THE SAME, WE ARE INCLINED TO REJECT THE GROUNDS OF APP EAL NOS.5 & 6 RAISED BY THE ASSESSEE. THUS, THE REFERENCE IS ANSWERED IN FA VOUR OF REVENUE. 8. IN VIEW OF THE AFORESAID DECISION OF THE SPECIAL BENCH, WE ARE IN THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN UPH OLDING THE ORDER OF THE AO REJECTING THE CLAIM OF THE ASSESSEE FOR S ET OFF OF SHORT TERM CAPITAL GAIN AGAINST CARRIED FORWARD BUSINESS LOSS /UNABSORBED DEPRECIATION OF EARLIER YEARS. WE THER EFORE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL BY T HE ASSESSEE. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH FEBRUARY, 2012. SD/- (R.S. SYAL) ACCOUNTANT MEMBER SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER MUMBAI, DATED 08.02.2012 JANHAVI COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED ITA NO. 3276/M/2009 6 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI