ACIT 25(3), MUMBAI V. NIRMAL PLASTIC INDUSTRIES, MUMBAI

ITA 6428/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55887 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O A MAO
• Assessee Lawyers: F V IRANI
• Keywords: Business income; Depreciation; Deemed to accrue or arise in india; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B : MUMBAI BEFORE SHRI D. MANMOHAN, (VICE PRESIDENT [MZ]) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO.6428/MUM/2009 ASSESSMENT YEAR : 2006-07 ASSTT. COMMISSIONER OF INCOME TAX -25(3) C-11, ROOM NO.308 PRATYAKSHKAR BHAVAN BANDRA-KURLA COMPLEX BANDRA (E) MUMBAI-400 051. ..( APPELLANT ) VS. M/S. NIRMAL PLASTIC INDUSTRIES B-WING, TRADE WORLD, 9 TH FLOOR KAMALA MILLS COMPOUND SENAPATI BAPAT MARG, LOWER PAREL MUMBAI-400 013. ..( RESPONDENT ) P.A. NO. (AAAFN 5437 A) APPELLANT BY : SHRI O.A. MAO RESPONDENT BY : SHRI F. V. IRANI DATE OF HEARING : 17.11.2011. DATE OF PRONOUNCEMENT : 30 TH NOVEMBER, 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 22.9.2009 OF CIT(A) FOR THE ASSESSMENT YEAR 2006-07 . THE ONLY DISPUTE IS REGARDING SETTING OFF OF BROUGHT FORWARD BUSINESS L OSS AND UNABSORBED DEPRECIATION AGAINST SHORT TERM CAPITAL GAIN UNDER SECTION 50 OF THE INCOME TAX ACT. ITA NO.6428/M/09 A.Y:06-07 2 2. BRIEFLY STATED, FACTS OF THE CASE ARE THAT THE A SSESSEE FOR THE ASSESSMENT YEAR 2006-07 HAD BUSINESS INCOME OF RS.2 1,61,463/- WHICH HAD BEEN SET OFF AGAINST BROUGHT FORWARD BUSINESS LOSS FOR THE ASSESSMENT YEAR 1998-99 TO 2002-03 AGGREGATING TO RS.51,86,380/- AN D THERE WAS THUS NET BUSINESS LOSS OF RS.29,48,917/- FOR THE YEAR. THER E WAS ALSO UNABSORBED BROUGHT FORWARD DEPRECIATION AGGREGATING TO RS.19,6 3,526/- FOR THE ASSESSMENT YEAR 1998-99 TO 2005-06. THE ASSESSEE H AD ALSO EARNED GAIN OF RS.1,36,45,567/- FROM TRANSFER OF DEPRECIABLE ASSET S WHICH HAD TO BE ASSESSED AS SHORT TERM CAPITAL GAIN UNDER DEEMING P ROVISIONS OF SECTION 50. THE ASSESSEE HAD SET OFF UNABSORBED BUSINESS LOSS O F RS.29,48,917/- AND UNABSORBED BROUGHT FORWARD DEPRECIATION OF RS.19,63 ,526/- AGAINST SHORT TERM CAPITAL GAIN. THE AO HELD THAT THE BROUGHT FO RWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION COULD NOT BE SET OFF AGAINS T THE SHORT TERM CAPITAL GAIN. ACCORDINGLY, HE DISALLOWED THE CLAIM OF THE ASSESSEE. IN APPEAL CIT(A) REFERRED TO THE DECISION OF THE TRIBUNAL IN THE CAS E OF J.K. CHEMICALS LTD. IN ITA NO.8206 AND 8618/BOM/89 DATED 1.11.1993 IN WHIC H IT WAS HELD THAT THOUGH INCOME FROM SALE OF DEPRECIABLE ASSET WAS DE EMED AS SHORT TERM CAPITAL GAIN UNDER SECTION 50 OF THE INCOME TAX ACT , THE NATURE OF SUCH INCOME WAS ONLY BUSINESS OR PROFESSION. THE TRIBUNA L IN ARRIVING AT THE SAID CONCLUSION HAD REFERRED TO THE JUDGMENT OF THE HON'B LE SUPREME COURT IN THE CASE OF CIT VS. COCANADA RADHASWAMI BANK LTD. (57 I TR 306). CIT(A), THEREFORE, HELD THAT BROUGHT FORWARD UNABSORBED BUS INESS LOSS AND UNABSORBED DEPRECIATION HAS TO BE SET OFF AGAINST S HORT TERM CAPITAL GAIN ITA NO.6428/M/09 A.Y:06-07 3 WHICH WAS OF THE NATURE OF BUSINESS INCOME. AGGRIE VED BY THE SAID DECISION THE REVENUE IS IN APPEAL. 3. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE REI TERATED THE SUBMISSIONS MADE BEFORE CIT(A) AND ARGUED THAT THE DEEMED INCOME UNDER SECTION 50 WAS OF THE NATURE OF BUSINESS AND THEREF ORE, BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION HAS TO BE SET OFF. HE PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CAS E OF SRI PADMAVATHI SRINIVASA COTTON GINNING & PRESSING FACTORY VS. DCI T (125 TTJ 411). THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND SUPPO RTED THE ORDER OF THE AO AND PLACED RELIANCE ON THE DECISION OF THE SPECI AL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. TIMES GUARANTEE LTD. (4 ITR (T RIB.) 210). 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING SET OFF OF BRO UGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION AGAINST THE DEEMED SHOR T TERM CAPITAL GAIN UNDER SECTION 50 OF THE IT ACT. THERE IS NO DISPUT E THAT BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION CAN BE SE T OFF AGAINST BUSINESS INCOME AND, THEREFORE, IN CASE THE SHORT TERM CAPIT AL GAIN IS TREATED AS BUSINESS INCOME, THE CLAIM OF THE ASSESSEE HAS TO B E ALLOWED. THE REAL DISPUTE IS, THEREFORE, NATURE OF INCOME OF DEEMED S HORT TERM CAPITAL GAIN UNDER SECTION 50. THIS ISSUE HAS ALREADY BEEN EXAM INED BY THE VISAKHAPATNAM BENCH OF THE TRIBUNAL IN CASE OF SRI PADMAVATHI SRINIVASA COTTON GINNING & PRESSING FACTORY (SUPRA) IN WHICH IT WAS HELD THAT GAIN ARISING ON SALE OF DEPRECIABLE ASSETS IS TAXED AS S HORT TERM CAPITAL GAIN DUE ITA NO.6428/M/09 A.Y:06-07 4 TO LEGAL FICTION CREATED BY SECTION 50 OF THE ACT B UT OTHERWISE SUCH GAIN ARISING FROM SALE OF DEPRECIABLE ASSETS HAS TO BE TREATED AS PART OF BUSINESS INCOME. THE TRIBUNAL REFERRED TO THE JUDGMENT OF HO NBLE HIGH COURT OF MADHYA PRADESH IN THE CASE OF CIT VS. SHRIKISHAN CH ANDMAL (60 ITR 303) IN WHICH IT WAS HELD THAT THE NATURE OF DIVIDEND INCOM E RECEIVED FROM SHARES HELD AS STOCK IN TRADE WAS BUSINESS. THE SAID JUDG MENT OF THE HONBLE HIGH COURT WAS APPROVED BY HON'BLE SUPREME COURT IN THE C ASE OF WESTERN STATES TRADING CO. P. LTD. VS CIT (80 ITR 21). THE TRIBUNAL, THEREFORE, HELD THAT THE NATURE OF GAIN FROM SALE OF DEPRECIABLE AS SETS DEEMED AS SHORT TERM CAPITAL GAIN UNDER SECTION 50 OF THE IT ACT HAS TO BE CONSIDERED AS BUSINESS INCOME. THE TRIBUNAL, THEREFORE, HELD THAT UNABSOR BED DEPRECIATION AND UNABSORBED BUSINESS LOSS HAS TO BE SET OFF AGAINST SHORT TERM CAPITAL GAIN ARISING FROM DEPRECIABLE ASSETS. FACTS IN THE CASE OF THE ASSESSEE ARE IDENTICAL. WE, THEREFORE, RESPECTFULLY FOLLOWING T HE DECISION OF THE TRIBUNAL IN THE CASE OF SRI PADMAVATHI SRINIVASA COTTON GINNING & PRESSING FACTORY (SUPRA), ALLOW THE CLAIM OF THE ASSESSEE. THE DECI SION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF TIMES GUARANTEE (SUP RA), RELIED UPON BY THE LD. DR WAS ON A DIFFERENT ISSUE. THE SPECIAL BENCH IN THE SAID CASE HAD HELD THAT CARRY FORWARD AND SET OFF OF UNABSORBED DEPREC IATION HAS TO BE DEALT WITH IN TERMS OF PROVISIONS APPLICABLE TO THE YEAR TO WHICH THE UNABSORBED DEPRECIATION RELATED. THUS IN TERMS OF THE DECISIO N OF THE SPECIAL BENCH UNABSORBED DEPRECIATION FOR ASSESSMENT YEARS 1997- 98 TO 2001-02 COULD BE SET OFF ONLY AGAINST BUSINESS INCOME WHEREAS UNABSO RBED DEPRECIATION FOR THE PRIOR YEARS AND SUBSEQUENT YEARS CAN BE SET OFF AGA INST ANY INCOME. IN THE ITA NO.6428/M/09 A.Y:06-07 5 PRESENT CASE SET OFF IS BEING CONSIDERED AGAINST BU SINESS INCOME AND, THEREFORE, THERE IS NO CONFLICT WITH THE DECISION O F THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF TIMES GUARANTEE (SUPRA). 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 30.11.2011 SD/- SD/- (D. MANMOHAN) (RAJENDRA SINGH ) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 30/11/2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.