M/S,. PURSARTH TRADING (P) LTD, MUMBAI V. THE ITO 5(2)(4), MUMBAI

ITA 546/MUM/2008

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9048 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 05-12-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 23-01-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B D PATI
• Assessee Lawyers: VIPUL B JOSHI
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Speculation loss; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J BENCH BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI RAJENDRA (ACCOUNTANT MEMBER) ITA NO.688/MUM/2008: ASSESSMENT YEAR: 2004-05 ITO 5(2)(4), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. PURSARTH TRADING CO. PVT LTD., G-3, ICCHA KUTIR, DEVIDAR LANE, BORIVALI(W), MUMBAI-92 PA NO.AACCP 2006 L (APPELLANT) VS. (RESPONDENT) ITA NO.546/MUM/2008: ASSESSMENT YEAR: 2004-05 PURSARTH TRADING CO. PVT LTD., G-3, ICCHA KUTIR, DEVIDAR LANE, BORIVALI(W), MUMBAI-92 PA NO.AACCP 2006 L ITO 5(2)(4), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. (APPELLANT) VS. (RESPONDENT) ASSESSEE BY : SHRI VIPUL B. JOSHI REVENUE BY: SHRI B.D.PATI DATE OF HEARING: 5 .12.2012 DATE OF PRONOUNCEMENT: 28 .12.2012 ORDER PER B.R.MITTAL, JM: THESE CROSS APPEALS ARE FILED BY THE DEPARTMENT AN D THE ASSESSEE FOR ASSESSMENT YEAR 2004-05 AGAINST ORDER DATED 21.11.2 007 OF LD CIT(A)-V, MUMBAI. 2. THE DEPARTMENT IN ITS APPEAL HAS TAKEN FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD CIT(A),MUMBAI ERRED IN DIRECTING THE AO NOT TO TREA T THE LOSS IN SHARE TRANSACTIONS DETERMINED AT RS.32,43,945/- AS SPECUL ATION LOSS IGNORING THE FACT THAT THE SHORT TERM CAPITAL GAIN HAS ARISE N U/S.50 OF THE ACT AND IS NOT THE NORMAL CAPITAL GAIN ARISING OUT OF SALE OF INVESTMENT AND THUS HIT BY EXPLANATION TO SECTION 73 OF THE ACT. PURSARTH TRADING CO. PVT LTD. 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT(A) ERRED IN DIRECTING THE AO NOT TO APPORTION E XPENSES OF RS.12,09,897 TOWARDS SPECULATION LOSS PURSUANT TO H IS DIRECTION NOT TO TREAT LOSS IN SHARE TRANSACTION AS SPECULATION IN N ATURE. 3. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS IN ITS APPEAL: 1.1 ON FACTS AND INN LAW, LD CIT(A) ERRED IN CONFI RMING ACTION OF THE AO OF NOT ALLOWING UNABSORBED BUSINESS LOSS OF EARLIER YEARS TO BE SET OFF AGAINST INCOME FOR THE YEAR. 1.2 ON FACTS & IN LAW, LD CIT(A) FAILED TO APPRECIA TE THAT THE TAXABLE OF INCOME WAS ON SALE OF BUSINESS ASSET AND THEREBY ER RED IN NOT ALLOWING UNABSORBED BUSINESS LOSS TO BE SET OFF AGAINST INCO ME FOR THE YEAR. 2. THE AO ERRED IN LEVYING INTEREST U/S.234B OF THE I.T.ACT. 4. THE RELEVANT FACTS GIVING RISE TO THESE APPEALS ARE THAT ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF T RADING IN SHARES, GIVING LOANS AND ADVANCES AND PROPERTY DEVELOPMENT. FOR THE ASSESSM ENT YEAR UNDER CONSIDERATION, ASSESSEE FILED RETURN OF INCOME ON 30.10.2004 DECLA RING TOTAL INCOME AT RS.NIL. 5. ASSESSEE HAS SHOWN FOLLOWING INCOMES FOR THE ASS ESSMENT YEAR UNDER CONSIDERATION: I) SALE OF SHARES & SECURITIES : RS. 9,81,993 II) RENT INCOME : RS. 4,96,155 III) INTEREST INCOME : RS. 7,74,028 IV) INCOME FROM JOINT VENTURE : RS. 9,28,046 V) PROFIT ON SALE OF OFFICE PREMISES : RS.1,58,88, 033 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE LOSS ON ACCOUNT OF DIMINUTION OF SHARES/LOSS ON ACCOUNT OF SALES OF SHARES SHOULD NOT BE TREATED AS SPECULATION LOSS AS PER PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT. ASSESSEE STATED THAT ITS PR INCIPAL BUSINESS IS THAT OF GRANTING LOAN/ADVANCES/FINANCE AND, ACCORDINGLY, PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT ARE NOT ATTRACTED. IT WAS ALSO STATED THAT INC OME OF THE ASSESSEE IN THE RELEVANT PURSARTH TRADING CO. PVT LTD. 3 ASSESSMENT YEAR UNDER CONSIDERATION HAS MAINLY ARIS EN FROM INCOME FROM CAPITAL GAINS & INCOME FROM HOUSE PROPERTY. 7. ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. HE STATED THAT CAPITAL GAIN HAS ARISEN TO THE ASSESSEE UNDER SECTI ON 50 OF THE ACT AND NOT THE NORMAL CAPITAL GAIN ARISING OUT OF SALE OF INVESTMENT DURI NG THE YEAR. HE STATED THAT SAID SHORT TERM CAPITAL GAIN U/S 50 IS DUE TO LEGAL FICTION IN THE ACT AND THE MAIN SOURCE OF INCOME OF THE ASSESSEE IS BY WAY OF DEALING IN SECURITIES. HE CONCLUDED THAT ASSESSEE CANNOT BE TREATED AS AN INVESTMENT COMPANY AS THE MAIN INCOME OF THE ASSESSEE IS FROM SHARE BUSINESS. HE STATED THAT ASSESSEE DOES NOT FALL IN THE EXCEPTION TO THE SAID EXPLANATION TO SECTION 73 OF THE ACT. THEREFORE, AO CONSIDERED THE LOSS ON ACCOUNT OF DIMINUTION IN VALUATION OF TRADING STOCK OF SHARES AS SPECULATION LOSS RESULTING IN SPECULATION BUSINESS AND STATED THAT IT CANNOT BE SET OFF AGAINST PROFIT FROM BUSINESS OTHER THAN SPECULATION BUSINESS. AO CONCLUDED THAT THE LOSS IN SHARE TRAN SACTION IS AT RS.32,43,945 AS PER PARA 3.3.8 OF THE ASSESSMENT ORDER. FURTHER, HE ALSO C ONSIDERED THE EXPENDITURE OF RS.12,17,314 INCURRED IN SHARE TRADING ACTIVITY, TH E CALCULATION OF WHICH HE HAS WORKED OUT IN PARA 3.3.9 OF THE ASSESSMENT ORDER. 8. FURTHER, AO ALSO STATED THAT THE SHORT TERM CAPI TAL GAIN ON ACCOUNT OF SALE OF PREMISES AT PUNE CANNOT BE SET OFF AGAINST BROUGHT FORWARD BUSINESS LOSS OF THE ASSESSEE IN VIEW OF ABOVE PROVISIONS OF SECTION 72( 1) OF THE ACT. 9. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE T HE FIRST APPELLATE AUTHORITY. 10. LD CIT(A) BY IMPUGNED ORDER HELD THAT CAPITAL G AIN ARISING TO THE ASSESSEE U/S.50 OF THE ACT HAVE TO BE TREATED AS CAPITAL GAINS ONLY IN QUITE NORMAL SENSE AND, ACCORDINGLY, DID NOT AGREE WITH THE AO THAT IT SHOU LD BE TREATED DIFFERENTLY OTHER THAN CAPITAL GAIN. IN VIEW OF HIS ABOVE FINDINGS, LD CI T(A) HAS STATED THAT ASSESSEE HAS DERIVED ITS INCOME OF RS.1,97,18,710 COMPRISING OF CAPITAL GAINS U/S.50 TO THE TUNE OF RS.1,95,68,230 AND HOUSE PROPERTY INCOME TO THE TUN E OF RS.4,18,603 WHICH IS MORE THAN THE LOSS OF SHARES AS ARRIVED AT BY THE AO AT RS.32,43,945. LD CIT(A) HAS HELD THAT PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT IS NOT APPLICABLE. CONSEQUENTLY, LD PURSARTH TRADING CO. PVT LTD. 4 CIT(A) HAS TREATED THE SAID SHARE LOSS OF RS.32,43, 945 AS BUSINESS LOSS OF THE ASSESSMENT YEAR UNDER CONSIDERATION AND DIRECTED TH E AO TO ALLOW THE SAME TO BE SET OFF AGAINST OTHER INCOME UNDER THE HEAD OF THE CURR ENT YEAR. LD CIT(A) HELD THAT UNABSORBED BROUGHT FORWARD LOSS CANNOT BE ALLOWED A GAINST ASSESSEES OTHER INCOME UNDER OTHER HEAD IN THE CURRENT YEAR. 11. IN VIEW OF ABOVE, ASSESSEE AS WELL AS DEPARTMEN T ARE IN APPEAL BEFORE THE TRIBUNAL. 12. IN THE APPEAL FILED BY THE ASSESSEE, AS MAY BE OBSERVED FROM THE GROUNDS OF APPEAL, THE ONLY ISSUE INVOLVED IS AS TO WHETHER SH ORT TERM CAPITAL GAIN COMPUTED UNDER SECTION 50 OF THE ACT COULD BE SET OFF AGAINST BROU GHT FORWARD BUSINESS LOSS. 13. DURING THE COURSE OF HEARING, LD A.R. SUBMITTED THAT SHORT TERM CAPITAL GAIN U/S.50 OF THE ACT IS NOTHING BUT BUSINESS INCOME AN D TO SUBSTANTIATE HIS ABOVE SUBMISSION, HE PLACED RELIANCE ON THE DECISION OF I TAT IN THE CASE OF J.K. CHEMICALS VS ACIT (I.T.A. NO.8206 AND 8618/BOM/89) DATED 1.11.1993, W HEREIN, THE TRIBUNAL HELD THAT COMPUTATION OF SHORT TERM CAPITAL GAIN/LOSS HA S TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 50 OF THE ACT BUT THE SAM E HAS TO BE DEALT WITH UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. LD A.R. SUBMITTED THAT SIMILAR ISSUE WAS ALSO CONSIDERED BY THE TRIBUNAL IN THE CASE OF DIGITAL ELECTRONICS LTD VS ACIT , 49 DTR (MUMBAI)(TRIB) 484 AND THE TRIBUNAL RELYING O N THE ABOVE DECISION OF J.K. CHEMICALS (SUPRA) HELD THAT THE INCOME EARNED BY TH E ASSESSEE IN THE RELEVANT ASSESSMENT YEAR ON SALE OF FACTORY BUILDING, PLANT AND MACHINERY ALTHOUGH NOT TAXABLE AS PROFITS AND GAINS OF BUSINESS OR PROFESSION IS AN INCOME IN THE NATURE OF INCOME OF BUSINESS THOUGH ASSESSED AS CAPITAL GAINS UNDER SEC TION 50 OF THE ACT. THEREFORE, ASSESSEE IS ENTITLED TO SET OFF OF BROUGHT FORWARD BUSINESS LOSS AGAINST SAID CAPITAL GAINS. LD A.R. ALSO REFERRED THE DECISION OF ITAT, VISHAKH APATNAM BENCH IN THE CASE OF SRI PADMAVATHI SRINIVASA COTTON GINNING AND PRESSING FA CTORY V. DEPUTY COMMISSIONER OF INCOME-TAX , 318 ITR 156(AT) AND SUBMITTED THAT THE TRIBUNAL I N THE SAID CASE HAS ALSO HELD THAT ASSESSEE IS ENTITL ED TO CLAIM SET OFF OF UNABSORBED DEPRECIATION AND ELIGIBLE BUSINESS LOSS, IF ANY, AG AINST SHORT TERM CAPITAL GAIN COMPUTED PURSARTH TRADING CO. PVT LTD. 5 UNDER SECTION 50 OF THE ACT. HE SUBMITTED THAT ABO VE CASES SQUARELY APPLY TO THE CASE OF THE ASSESSEE AND, THEREFORE, BROUGHT FORWARD BUS INESS LOSS SHOULD BE SET OFF AGAINST SHORT TERM CAPITAL GAIN COMPUTED UNDER SECTION 50 O F THE ACT. LD A.R. ALSO REFERRED THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF LAVISH APARTMENT (P) LTD VS. ACIT , (2012) 23 TAXMANN.COM 414(DELHI). HOWEVER, ON PE RUSAL THEREOF, IT IS OBSERVED THAT THE JUDGMENT IS NOT RELEVANT TO THE ISSUE BEFO RE US AS IN THAT CASE, THE HONBLE COURT HAS HELD THAT CONSIDERING FACTS OF THE CASE, RENTAL INCOME, HIRE CHARGES FROM CAR AND COMPUTER AND COMMISSION INCOME, ALL REPRESENTED PROFITS AND GAINS OF BUSINESS CARRIED ON BY ASSESSEE IN THE RELEVANT ASSESSMENT Y EAR, ALTHOUGH THEY WERE ASSESSED UNDER RESPECTIVE HEADS AND, ACCORDINGLY, BROUGHT FO RWARD BUSINESS LOSS CAN BE SET OFF AGAINST THESE ITEMS OF INCOME. LD A.R. SUBMITTED T HAT THERE IS A CLOSE NEXUS OF THE ASSETS SOLD BY THE ASSESSEE WHICH WERE USED FOR THE BUSINESS PURPOSE AND THE CHARACTER OF RECEIPT ON SALE OF THE SAID ASSETS AND, THEREFOR E, SAID STCG COMPUTED U/S.50 OF THE ACT HAS TO BE CONSIDERED AS BUSINESS INCOME OF THE ASSESSEE. WHEN THE ATTENTION OF LD A.R. WAS DRAWN TO THE DECISION OF SPECIAL BENCH IT AT (BANGALORE) IN THE CASE OF M/S. NANDI STEELS LTD. VS ACIT, 17 TAXMANN.93(BANG)(SB)/(2012) 13 ITR (TRIB) 494 (SB) WHEREIN, TRIBUNAL HAS HELD THAT CAPITAL GAIN ARISIN G TO THE ASSESSEE ON SALE OF LAND USED FOR BUSINESS PURPOSES CANNOT BE SET OFF AGAINST CAR RY FORWARD BUSINESS LOSS, LD A.R. SUBMITTED THAT ITAT BANGALORE (SB) HAD NOT CONSIDER ED THE CHARACTER OF RECEIPT ON SALE OF LAND WHICH WAS USED FOR BUSINESS PURPOSES AS THE SAME WAS NOT ARGUED BEFORE IT. HE FURTHER SUBMITTED THAT SPECIAL BENCH RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. EXPRESS NEWSPAPER LTD , 53 ITR 250(SC). LD A.R. SUBMITTED THAT THE CASE OF SPECIAL BENCH, IF READ IN ENTIRETY , IT CANNOT BE MADE APPLICABLE TO THE CASE OF THE ASSESSEE AND RATHER CASES CITED BY HIM ARE APPLICABLE, AND ARE RELEVANT. LD A.R. RELYING ON THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF GOODYEAR INDIA LTD. V. STATE OF HARYANA, 188 ITR 402(SC) AND ALSO THE DECISION IN THE CASE OF C OMMISSIONER OF INCOME-TAX V. SUN ENGINEERING WORKS P. LTD., 198 ITR 297 (SC) SUBMITTED THAT HONBLE APEX COURT HAS HELD THAT TH E JUDGMENT MUST BE READ AS A WHOLE AND THE OBSERVATIONS FROM THE JUDGMENT HAVE T O BE CONSIDERED IN THE LIGHT OF THE QUESTIONS WHICH WERE BEFORE THE COURT. IT IS NEITHE R DESIRABLE NOR PERMISSIBLE TO PICK OUT A WORD OR A SENTENCE FROM THE JUDGMENT OF THE SUPRE ME COURT DIVORCED FROM THE CONTEXT OF THE QUESTION UNDER CONSIDERATION AND TRE ATS IT TO BE THE COMPLETE LAW PURSARTH TRADING CO. PVT LTD. 6 DECLARED BY THE COURT. LD A.R. SUBMITTED THAT THE D ECISION OF SPECIAL BENCH IN THE CASE OF NANDI STEELS (SUPRA) SHOULD NOT BE CONSIDERED WH ILE DECIDING THE ISSUE OF SET OFF OF SHORT TERM CAPITAL GAIN COMPUTED UNDER SECTION 50 O F THE ACT AGAINST BROUGHT FORWARD BUSINESS LOSS AS IN THAT CASE, THE ISSUE WAS NOT PR OPERLY CONSIDERED. 14. ON THE OTHER HAND, LD D.R. SUBMITTED THAT THE I SSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF ITAT BANGALORE (SB) IN THE CASE OF NANDI STEEL LTD (SUPRA). HE SUBMITTED THAT THE SAID DECISION OF SP ECIAL BENCH IS BASED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF EXPRESS NEWSPA PERS LTD (SUPRA). HE SUPPORTED THE ACTION OF AO. 15. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTA TIVES OF PARTIES, ORDERS OF AUTHORITIES BELOW AND THE CASES CITED BEFORE US. 16. AT THE OUTSET, WE MAY STATE THAT FINDINGS GIVE N BY THE AO IS CONTRARY IN ITSELF. ON THE ONE HAND, AO HAS HELD THAT CAPITAL GAIN ARIS ING TO THE ASSESSEE U/S. 50 OF THE ACT IS NOT NORMAL CAPITAL GAIN ARISING OUT OF SALE OF I NVESTMENTS AND HAS CONSIDERED IT AKIN TO BUSINESS PROFIT WHILE CONSIDERING APPLICABILITY OF THE EXPLANATION TO SECTION 73 OF THE ACT. ACCORDINGLY, AO HAS HELD THAT THE SHARE LOSS TO THE ASSESSEE IS MORE THAN THE INCOME OF THE ASSESSEE UNDER THE HEAD INTEREST ON SECURITIES , INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. T HEREFORE, ASSESSEE IS NOT ENTITLED TO THE EXCEPTION AS PROVIDED IN EXPLANATION TO SECTION 73 OF THE ACT AND, ACCORDINGLY, CONSIDERED THE SHARE LOSS TO THE ASSESSEE AS SPECUL ATION LOSS. ON THE OTHER HAND, AO WHILE CONSIDERING THE SET OFF OF BROUGHT FORWARD BU SINESS LOSS OF THE EARLIER YEARS, HAS HELD THAT IT CAN NOT BE ALLOWED TO SET OFF OF THE C APITAL GAIN COMPUTED UNDER SECTION 50 OF THE ACT ON THE GROUND THAT SAID SHORT TERM CAPI TAL GAIN ON SALE OF ASSET IS CAPITAL GAIN AND IT IS NOT A BUSINESS INCOME. IN THE FIRST APPEA L, LD CIT(A) HAS HELD THAT CAPITAL GAIN ARISING U/S.50 OF THE ACT SHOULD NOT BE TREATED DIF FERENTLY THAN THE OTHER CAPITAL GAIN. LD CIT(A) HAS HELD THAT PROVISIONS OF SECTION 45 DO NO T SPECIFY THE CAPITAL GAINS ARRIVED AT U/S.50 TO BE TREATED DIFFERENTLY. THUS, FOR ALL TH E PURPOSES OF INCOME TAX ACT, 1961, THE CAPITAL GAINS ARISING U/S.50 OF THE ACT HAVE TO BE TREATED AS CAPITAL GAINS ONLY IN QUITE NORMAL SENSE AND NOT OTHERWISE. IN VIEW THEREOF, LD CIT(A) HAS TREATED THE SAID SHORT PURSARTH TRADING CO. PVT LTD. 7 TERM CAPITAL GAIN COMPUTED U/S.50 OF THE ACT AS NOR MAL CAPITAL GAIN AND HAS HELD THAT INCOME OF THE ASSESSEE FROM CAPITAL GAIN AND HOUSE PROPERTY IS MORE THAN THE LOSS ARRIVED AT BY THE AO ON TRADING OF SHARES. THEREFOR E, SAID SHARE LOSS CANNOT BE TREATED AS SPECULATION LOSS IN VIEW OF EXCEPTION TO EXPLANA TION OF SECTION 73 OF THE ACT. SINCE LD CIT(A) HAS TREATED THE CAPITAL GAIN COMPUTED U/S.50 OF THE ACT AS NORMAL CAPITAL GAIN, HE HAS ALSO HELD THAT THE UNABSORBED BUSINESS LOSS CANNOT BE ALLOWED TO BE SET OFF AGAINST CAPITAL GAIN COMPUTED U/S.50 OF THE ACT. 17. ON CONSIDERATION OF THE CASES CITED BY LD A.R., WE OBSERVE THAT THE TRIBUNAL IN THE CASE OF J.K. CHEMICALS LTD (SUPRA) WHICH WAS DE CIDED BY THE TRIBUNAL VIDE ORDER DATED1.11.1993, THE CASE OF DIGITAL ELECTRONICS LT D(SUPRA) WHICH WAS DECIDED BY ORDER DATED 20.10.2010 AND ALSO THE DECISION OF ITAT VISH AKHAPATNAM BENCH IN THE CASE OF SRI PADMAVATHI SRINIVASA COTTON GINNING AND PRESSIN G FACTORY(SUPRA), WHICH WAS DECIDED ON 6.3.2009 (SUPRA) HAVE HELD THAT CAPITAL GAIN COMPUTED U/S.50 OF THE ACT IS THE INCOME IN THE NATURE OF BUSINESS INCOME EVEN TH OUGH IT IS NOT TAXABLE AS PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE TRIBUNAL HAS HELD THAT ASSESSEE IS ENTITLED TO CLAIM SET OFF OF UNABSORBED BUSINESS LOSS AND UNABSORBED DEPRECIATION AGAINST SHORT TERM CAPITAL GAIN COMPUTED U/S.50 OF THE ACT. HOWEVER, WE OBSERVE THAT SIMILAR ISSUE CAME BEFORE THE TRIBUNAL BANGALORE BENCH AND THE SPECIA L BENCH ITAT (BANGALORE) VIDE ORDER DATED 9..12.2011 (SUPRA) HAS HELD THAT INCOME EARNED BY THE ASSESSEE BY CARRYING ON THE BUSINESS BY USE OF THE STOCK-IN-TRADE ONLY I S THE BUSINESS INCOME OF THE ASSESSEE. THUS, THE BUSINESS LOSS THAT CAN BE CARRIED FORWARD UNDER SECTION 72 CAN ALSO BE SET OFF ONLY AGAINST THE BUSINESS INCOME OF THE ASSESSEE, B E IT FROM THE SAME BUSINESS OR FROM ANY OTHER BUSINESS. THE TRIBUNAL WHILE REJECTING TH E CONTENTION OF THE ASSESSEE HAS HELD THAT FACTORY BUILDING AND PLANT & MACHINERY THAT ST OOD ON THE SAME LAND WHICH WERE CONNECTED TO THE BUSINESS OF THE ASSESSEE AND THE GAIN FROM SALE OF THOSE ASSETS COULD NOT BE BUSINESS PROFIT AND, THEREFORE, CANNOT BE SE T OFF AGAINST THE CARRIED FORWARD BUSINESS LOSSES FROM EARLIER YEARS. THE TRIBUNAL A LSO REJECTED THE CONTENTION OF THE ASSESSEE THAT SINCE THE SAID FIXED ASSETS OF THE ASSESSEE HAD DIRECT NEXUS WITH THE BUSINESS CARRIED ON BY THE ASSESSEE ARE BUSINESS A SSETS, ANY GAINS FROM THE SALE OF SUCH ASSETS WOULD ALSO HAVE THE CHARACTER OF BUSINE SS INCOME. IT IS HELD BY THE SPECIAL BENCH THAT THE CAPITAL IS TO BE USED FOR THE PURPOS E OF CARRYING ON THE BUSINESS OF THE PURSARTH TRADING CO. PVT LTD. 8 ASSESSEE AND IT SHALL REMAIN THE BUSINESS OF THE AS SESSEE TILL IT IS EITHER CONVERTED INTO STOCK-IN-TRADE OR DISPOSED OF. THE INCOME EARNED B Y THE ASSESSEE BY CARRYING ON THE BUSINESS BY THE USE OF STOCK IN TRADE ONLY IS THE BUSINESS INCOME OF THE ASSESSEE AND LIKEWISE ANY EXPENDITURE INCURRED BY THE ASSESSEE F OR CARRYING ON BUSINESS AND FOR EARNING INCOME FROM SUCH BUSINESS OR PROFESSION IS ONLY ALLOWABLE AS DEDUCTION. THE TRIBUNAL AFTER CONSIDERING THE DECISION OF HONBLE APEX COURT IN THE CASE OF EXPRESS NEWSPAPERS LTD (SUPRA) HELD THAT CAPITAL GAIN ON SA LE OF CAPITAL ASSETS IS NOT TO BE SET OFF AGAINST BROUGHT FORWARD LOSSES OF EARLIER YEARS . THUS, THE TRIBUNAL DECIDED THE ISSUE AGAINST THE ASSESSEE. 18. KEEPING IN VIEW OF ABOVE DECISIONS CITED BY LD A.R. AND ALSO THE DECISION OF SPECIAL BENCH IN THE CASE OF NANDI STEEL LTD (SUPRA ) RELIED BY LD D.R., WHICH IS SUBSEQUENT TO THE DECISIONS RELIED BY LD A.R., AND ALSO KEEPING IN VIEW THE PRINCIPLE THAT THE DECISION OF SPECIAL BENCH PREVAILS OVER THE DEC ISIONS OF DIVISION BENCHES, WE HOLD THAT CAPITAL GAIN EVEN THOUGH COMPUTED U/S.50 OF T HE ACT, CANNOT BE TREATED DIFFERENTLY AND SAME IS TO BE CONSIDERED AS CAPITAL GAIN AND CO NSEQUENTLY, BROUGHT FORWARD BUSINESS LOSS COULD NOT BE SET OFF AGAINST CAPITAL GAIN THAT HAS ARISEN TO THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION ON ACCOUNT OF SALE OF ITS PREMISES AT PUNE. HENCE, WE UPHOLD THE ORDER OF LD CIT(A) BY REJECTIN G GROUNDS OF APPEAL TAKEN BY ASSESSEE IN ITS APPEAL. 19. NOW COMING TO GROUNDS OF APPEAL TAKEN BY DEPART MENT, AS TO WHETHER THE SHARE LOSS IS TO BE CONSIDERED AS SPECULATION LOSS OR BUS INESS LOSS OF THE ASSESSEE, WE HOLD THAT IN VIEW OF THE FACT THAT THE SHORT TERM CAPITA L GAIN COMPUTED U/S.50 OF THE ACT HAS BEEN HELD BY US AS CAPITAL GAIN OF THE ASSESSEE AND ADMITTEDLY, THE INCOME OF THE ASSESSEE FROM CAPITAL GAIN AND HOUSE PROPERTY IS MO RE THAN THE SHARE LOSS COMPUTED BY THE AO, WE AGREE WITH LD CIT(A) THAT EXPLANATION TO SECTION 73 OF THE ACT IS NOT APPLICABLE. HENCE, THE SHARE LOSS CANNOT BE DEEMED TO BE LOSS FROM SPECULATION BUSINESS IN THE ASSESSMENT YEAR UNDER CONSIDERATION . THEREFORE, WE UPHOLD THE ORDER OF LD CIT(A) IN DIRECTING THE AO TO ALLOW SET OFF OF S HARE LOSS AGAINST INCOME UNDER OTHER HEADS FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. CONSEQUENTLY, ACTION OF THE AO TO APPORTION EXPENSES TOWARDS SPECULATION LOSS IS ALSO SET ASIDE AS THE SAME WILL FORM PART PURSARTH TRADING CO. PVT LTD. 9 OF BUSINESS EXPENSES OF THE ASSESSEE, WHICH ARE ALL OWABLE AS PER PROVISIONS OF THE ACT. HENCE, BOTH GROUNDS OF APPEAL TAKEN BY DEPARTMENT A RE REJECTED BY UPHOLDING THE ORDER OF LD CIT(A). 20 IN THE RESULT, THE APPEAL OF THE ASSESSEE AS WEL L AS THE DEPARTMENT ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 28 TH DECEMBER, 2012 SD/- (RAJENDRA) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI, DATED 28 TH DECEMBER, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),V, MUMBAI 4. COMMISSIONER OF INCOME TAX, MC-V , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH J MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI