Appeal Details
Counselvise Citation
[2019] 115 COUNSELVISE.COM (IT) 3080 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 4 month(s) 3 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
06-03-2019
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
Not Allotted
Assessment Year
2011-2012
Appeal Filed On
03-11-2016
Judgement Text
AAYAKR APILAIYA AIQAKRNA AAYAKR APILAIYA AIQAKRNA AAYAKR APILAIYA AIQAKRNA AAYAKR APILAIYA AIQAKRNA G NYAAYAPIZ MAMUBA[ NYAAYAPIZ MAMUBA[ NYAAYAPIZ MAMUBA[ NYAAYAPIZ MAMUBA[- -- - MAO. MAO. MAO. MAO. IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUM BAI . BEFORE SRI MAHAVIR SINGH, JM AND SRI M BALAGANESH, AM AAYAKR APILA SAM AAYAKR APILA SAM AAYAKR APILA SAM AAYAKR APILA SAM . / ITA NO. 6443/MUM/2016 ( INAQA-ARNA BAYA- / ASSESSMENT YEAR 2011-12) THE INCOME TAX OFFICER, WARD 2(2)(2), ROOM NO. 477B, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20 VS. M/S SMART SENSORS & TRANSDUCERS LTD. 10A, LALWAN INDUSTRIAL ESTATE, 14, G.D. AMBEDKAR ROAD, WADALA, MUMBAI-31 ( APILAAQAI APILAAQAI APILAAQAI APILAAQAI - -- - / APPELLANT) .. ( P`%YAQAAI P`%YAQAAI P`%YAQAAI P`%YAQAAI- -- - / RESPONDENT) . / PAN NO. AAACA3902C ! / APPELLANT BY : SHRI CHAUDHARY ARUNKUMAR SINGH, DR #$ ! / RESPONDENT BY : SHRI RAKESH MOHAN, AR ! () / DATE OF HEARING: 28 - 02 - 2019 ! () / DATE OF PRONOUNCEMENT : 6 - 0 3 - 2019 AADOSA AADOSA AADOSA AADOSA / O R D E R / PER MAHAVIR SINGH, JM: THIS APPEAL FILED BY THE REVENUE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-14, MUMBAI [IN SHORT CIT(A)], IN APPEAL NO. CIT(A)-14/IT-200/14-15 VIDE ORDER DATED 31.08.2016. THE 2 ITAS NO. 6443/MUM/2016 ASSESSMENT WAS FRAMED BY THE INCOME TAX OFFICER, WA RD-7(2)(4) (IN SHORT ITO/ AO) FOR THE A.Y. 2011-12 VIDE ORDER DATED 30 .03.2014 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER TH E ACT). 2. THE ONLY ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) IN ALLOWING SET OFF OF BROUGHT FORWARD B USINESS LOSS AND BROUGHT FORWARD LONG TERM CAPITAL LOSS AGAINST THE DEEMED S HORT TERM CAPITAL GAIN COMPUTED BY THE ASSESSEE. FOR THIS, THE REVENUE HA S RAISED FOLLOWING TWO GROUNDS: 1. THE LD CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT PROVISIONS UNDER SECTION.72 OF THE INCOME TAX ACT 1 961 ALLOWS ONLY BUSINESS LOSS TO BE SET OFF AGAINST BUSINESS INCOME AND PROVISIONS US.74 OF THE INCOME TAX ACT, 1961 ALLOWS ONLY LTCL CAN BE SET OFF AGAINST LTCG,. 2. THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN ALLO WING SET OFF CLAIM OF BROUGHT FORWARD BUSINESS LOSS 73,45,952/- AND BROUGHT FORWARD LONG TERM CAPITAL LOSS OF 28,17,942/- AGAINST SHORT TERM CAPITAL GAIN AS PER SECTION 50 OF THE I. T.ACT. 3. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE A SSESSEE IN THE ORIGINAL RETURN OF INCOME, HAS CLAIMED LONG TERM CA PITAL LOSS OF 1,50,48,444/- ON ACCOUNT OF SALE OF ITS FACTORY BUI LDING. THE ASSESSING OFFICER NOTED THAT SINCE THE FACTORY BUILDING IS A DEPRECIABLE ASSET, THE RESULTANT CAPITAL GAIN ON THE SALE OF SUCH DEPRECIA BLE ASSET IS TO BE TREATED AS SHORT TERM CAPITAL GAIN AS ENVISAGED BY THE PROV ISIONS OF SECTION 50 OF THE ACT. CONSEQUENT TO THIS, THE ASSESSEE REVISED ITS RETURN OF INCOME AND 3 ITAS NO. 6443/MUM/2016 OFFERED THE GAIN FROM SALE OF FACTORY BUILDING AS S HORT TERM CAPITAL GAIN AMOUNTING TO 2,71,01,255/-. THE ASSESSEE REVISED THE RETURN OF INCOME WITHIN THE TIME PRESCRIBED UNDER SECTION.139(5) OF THE ACT. THE ASSESSEE CLAIMED SET OFF OF BROUGHT FORWARD BUSINESS LOSS OF 73,45,952/- AND BROUGHT FORWARD LONG TERM CAPITAL LOSS OF 28,17,942/- AGAINST THE SHORT TERM CAPITAL GAIN CLAIMED IN THE REVISED RETURN ON ACCOUNT OF SALE OF FACTORY BUILDING AT 2,71,01,255/-. THE ASSESSING OFFICER NOTED THAT I N VIEW OF THE PROVISIONS OF SECTION 74 OF THE ACT, ONLY LONG TERM CAPITAL LOSS CAN BE SET OFF AGAINST LONG TERM CAPITAL GAINS. HE ALSO NOTED THAT AS PER THE PROVISIONS OF SECTION 72 OF THE ACT, THE BUSINESS LOSS CAN BE SET OFF AGAINST BUSINESS INCOME AND NOT AGAINST SHORT TERM CAPITAL GAINS COM PUTED BY THE ASSESSEE IN TERMS OF SECTION 50 OF THE ACT. ACCORDINGLY, TH E ASSESSING OFFICER DISALLOWED THE CLAIM OF BROUGHT FORWARD BUSINESS LO SS AND BROUGHT FORWARD LONG TERM CAPITAL GAINS. AGGRIEVED, THE ASSESSEE P REFERRED APPEAL BEFORE THE CIT(A). 4. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO CONSIDERING THE DECISION OF HONBLE BOMBAY HIG H COURT IN THE CASE OF CIT VS. MANALI INVESTMENTS VS ACIT , 39 TAXMAN COM. 4 DATED 13.3.2013 ALLOWED THE CLAIM OF BROUGHT FORWARD BUSINESS LOSS AND BROUGHT FORWARD LONG TERM CAPITAL LOSS TO BE SET OFF AGAINST SHORT TERM CAPITAL GAIN COMPUTED UNDER SECTION 50 OF THE ACT. FOR THIS, THE CIT(A) OBSERVED IN PARA 4., 4.1, 4.2 & 4.3 AS UNDER: 4 ITAS NO. 6443/MUM/2016 4. AS REGARDS GROUND NO. 1, THE FACTS ARE THAT THE APPELLANT HAS SOLD ITS FACTORY BUILDING AND CLAIMED LONG TERM CAPITAL LOSS OF RS 1,50,48,444/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE APP ELLANT SUBMITTED REVISED COMPUTATION SHOWING SHORT TERM CAPITAL GAIN OF RS 2,71,01,255/- WHICH WAS FOUND TO BE IN ORDER BY THE AO. IN THE RE VISED COMPUTATION, THE APPELLANT CLAIMED SET OFF OF BROUGHT FORWARD BUSINE SS LOSS OF RS 73,45,952/- AND BROUGHT FORWARD LONG TERM CAPITAL L OSS OF RS 28,17,942/-. THE APPELLANT RELIED ON VARIOUS DECISIONS AS MENTIO NED IN THE ASSESSMENT ORDER. HOWEVER, THE AO DID NOT ACCEPT THE CLAIM . 4.1 THE DETAILED SUBMISSION OF THE APPELLANT IS REPRODUCED ABOVE. I HAVE CONSIDERED THE SUBMISSIONS MADE. IT IS NOTED THAT HON'BLE JURISDICTIONAL ITAT, MUMBAI IN THE CASE OF RAJSHRE E ROADLINES PVT. LTD ITA NO. 1627/MUM/2012 A.Y 2007-08 DATED 20/3/2013 H AS DISCUSSED THE ISSUE IN DETAIL AND HELD THAT THE SET OFF OF UNABSO RBED DEPRECIATION AND ELIGIBLE BUSINESS LOSS AGAINST SHORT TERM CAPITAL G AIN COMPUTED U/S 50 OF THE ACT IS ALLOWABLE. IN THIS CONNECTION, HON'BLE I TAT HAS OBSERVED THAT POST AMENDMENT ON 1/4/2002 UNABSORBED DEPRECIATION CAN BE SET OFF AGAINST ANY INCOME AND RELIED ON THE DECISION OF SU RESH INDUSTRIES PVT. LTD. 27 TAXMAN.COM 203 AND SRI PADMAVATI SRINIVAS COTTON AND GINNING PROCESS FACTORY 125 TTJ 411. SIMILARLY IN THE CASE OF DIGITAL ELECTRONICS LTD VS ADDL. CITG 135 TTJ 419 (MUM), MUMBAI TRIBUNA L HELD THAT INCOME EARNED BY THE ASSESSEE IN THE RELEVANT 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 INCOM E OF BUSINESS THOUGH ASSESSED AS CAPITAL GAINS UNDER SECTION 50 AND THER EFORE THE ASSESSE IS ENTITLED TO SET OFF OF BROUGHT FORWARD BUSINESS LO SSES AGAINST THE SAID CAPITAL GAIN. 4.2 FURTHER THE HONTDLE BOMBAY HIGH COURT IN T HE CASE OF CIT-9 VS. PURSARTH TRADING COMPANY P. LTD ITA NO. 123 OF 2013 DATED 13/3/2013, 33 TAXMANN.COM. 482(BOM) ALSO HELD THAT B/F LONG TE RM CAPITAL LOSS CAN BE SET OFF AGAINST SHORT TERM CAPITAL GAIN COMPUTED U/S 50C FOLLOWING THE DECISION IN THE CASE OF MANAL INVESTMENTS V S. ACIT (2011). HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT-19 VS MANALI INVESTMENTS 39 TAXMANN.COM. 4 DATED 13/3/2013 HELD THAT IN VIEW OF THE DECISION IN THE CASE OF CIT VS. ACE BUILDERS PVT. LTD 281 ITR 210, SHORT TERM CAPITAL GAIN COMPUTED U/S 50 ON LONG TERM CAPITAL GAIN ASSET CAN BE SET OFF AGAINST LONG TERM CAPITAL LOSS U/S 74. HON'BLE BOMBAY HIG H COURT IN THE CASE OF CIT V. PARRYS (EASTER) (P) LTD DATED 18/2/2016 384 ITR 264 (BOM) HELD THAT THE DEEMING FICTION IS RESTRICTED ONLY TO THE MODE OF COMPUTATION OF CAPITAL GAINS AND DOES NOT CHANGE THE CHARACTER OF THE CAPITAL GAIN FROM THAT OF BEING LONG TERM CAPITAL GAIN. 4.3 THUS BOTH THE CLAIMS OF THE APPELLANT ARE COVER ED IN ITS FAVOUR BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT AND J URISDICTIONAL TRIBUNAL. AS DISCUSSED IN THE SUBMISSION OF THE APPELLANT THE DECISIONS RELIED UPON BY THE APPELLANT ARE DISTINGUISHABLE ON FACTS AND B Y LATEST DECISIONS OF 5 ITAS NO. 6443/MUM/2016 HON'BLE JURISDICTIONAL TRIBUNAL/HIGH COURT. THEREFO RE CONSIDERING THE FACTS OF THE CASE, THE GROUNDS TAKEN BY THE APPELLANT ARE ALLOWED. 5. AGGRIEVED AGAINST THE ORDER OF THE CIT(A) AND AL LOWANCE OF SET OFF OF BROUGHT FORWARD BUSINESS LOSS AND BROUGHT FORWARD L ONG TERM CAPITAL LOSS AGAINST SHORT TERM CAPITAL GAIN COMPUTED UNDER SECTION 50 O F THE ACT, THE REVENUE CAME IN APPEAL BEFORE THE TRIBUNAL. 6. BEFORE US, LD SR DEPARTMENTAL REPRESENTATIVE HEA VILY RELIED ON THE PROVISIONS OF SECTION 74 OF THE ACT AND STATED THAT ONCE THE ASSESSEE ITSELF HAS TREATED THE GAIN ARISING OUT OF SALE OF FACTORY BUI LDING AS SHORT TERM CAPITAL GAIN, BROUGHT FORWARD BUSINESS LOSS CANNOT BE SET OFF AGA INST SUCH GAIN IN TERMS OF PROVISIONS OF SECTION 74 OF THE ACT. SIMILARLY, EV EN BROUGHT FORWARD LONG TERM CAPITAL LOSS CANNOT BE SET OFF AGAINST SHORT TERM C APITAL GAIN AS PER PROVISIONS OF SECTION 74 AND 72 OF THE ACT. ACCORDING TO HIM, TH E ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE CLAIM AND THE CIT(A) TOTALLY ERRED B Y ALLOWING THE CLAIM OF THE ASSESSEE. 7. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE R ELIED ON THE ORDER OF THE CIT(A). 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUG H THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT HONBLE BO MBAY HIGH COURT IN THE GIVEN FACTS HAS CONSIDERED THIS ISSUE IN THE CASE OF MANA LI INVESTMENTS (SUPRA), WHEREIN, THE QUESTION REFERRED BEFORE THE HONBLE HIGH COURT READS AS UNDER: 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE ASSESS EE IS ENTITLED TO SET-OFF UNDER SECTION 74 IN RESPECT OF CAPITAL GAIN ARISING ON TRANSFER OF CAPITAL 6 ITAS NO. 6443/MUM/2016 ASSETS ON WHICH DEPRECIATION HAS BEEN ALLOWED IN TH E FIRST YEAR ITSELF AND WHICH IS DEEMED AS SHORT TERM CAPITAL GAIN UNDER SE CTION 50 OF THE INCOME TAX ACT RELYING UPON THE JUDGMENT OF THIS COURT IN THE CASE OF CIT V/S. ACE BUILDERS (P.) LIMITED (281 ITR 210) EVEN THOUGH THE SAID DECISION WAS RENDERED IN THE CONTEXT OF ELIGIBILITY OF DEDUCTION UNDER SECTION 54E. 9. HONBLE BOMBAY HIGH COURT HAS CONSIDERED THE ISS UE OF ALLOWANCE OF SET OFF OF LONG TERM CAPITAL LOSS IN TERMS OF SECTION 7 4 OF THE ACT AGAINST THE SHORT TERM CAPITAL GAIN COMPUTED UNDER SECTION 50 OF THE ACT. HONBLE HIGH COURT HAS OBSERVED THAT BY VIRTUE OF SECTION 50 OF THE ACT, ONLY THE CAPITAL GAINS I S TO BE COMPUTED IN TERMS THEREOF AND BE DEEMED TO BE SHORT -TERM CAPITAL GAINS AND THIS DEEMING FICTION IS RESTRICTED ONLY FOR THE PURPOSES OF SECTION 50 OF THE ACT BUT THE BENEFIT OF SET OFF OF LONG TERM CAPITAL LOSS UNDER SECTION 74 OF THE ACT IS TO BE ALLOWED. HONBLE HIGH COURT HAS ALSO FOLLOWED ITS DECISION IN THE CASE OF CIT VS. . ACE BUILDERS (P.) LTD, 281 ITR 210 (BOM), 10. AS REGARDS TO SET OFF OF BUSINESS LOSS AGAINST GAIN ON SALE OF DEPRECIABLE ASSET OF FACTORY BUILDING BY THE ASSESSEE, WE FIND THAT THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. RAJ SHREE ROADLIN ES VS ITO (ITA NO.1627/MUM/2012) FOR A.Y . 2007-08 HAS CONSIDERED THE ISSUE OF BUSINESS LOSS OF UNABSORBED DEPRECIATION AND ELIGIBLE BUSINESS L OSS CAN BE SET OFF AGAINST SHORT TERM CAPITAL GAIN COMPUTED UNDER SECTION.50 O F THE ACT. WE FIND THAT THE TRIBUNAL AFTER CONSIDERING THE PROVISIONS OF SECTIO N 32(2), 72(2) AND 73(3) OF THE ACT OPINED THAT WHILE DECIDING THE ISSUE OF CARRYIN G FORWARD OF LOSS/UNABSORBED DEPRECIATION AND THE AMENDMENT MADE IN THESE SECTIO N FROM TIME TO TIME ARE APPLICABLE FOR CARRYING FORWARD OF DEPRECIATION/LOS S WITH EFFECT FROM 1.4.2002. FOR THIS PROPOSITION, THE TRIBUNAL HAS RELIED ON THE DE CISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HATHWAY INVESTMENTS (P ) LTD., IN INCOME TAX APPEAL 7 ITAS NO. 6443/MUM/2016 (L) NO.405 OF 2012 DATED 341.3.2013. WE FIND THE A BOVE PROPOSITION IS SUPPORTED BY THE DECISION OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF MANALI INVESTMENT (SUPRA), , WHEREIN, IT IS HELD THAT SHOR T TERM CAPITAL GAIN COMPUTED UNDER SECTION.50 OF THE ACT CAN BE SET OFF AGAINST BROUGHT FORWARD CAPITAL LOSS AND ALSO BROUGHT FORWARD BUSINESS LOSS. ACCORDINGL Y, WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE AND WE AFFIRM THE SAME. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 -03-201 9. - SD/- SD/- ( . / M BALAGANESH) ( /MAHAVIR SINGH) ( / ACCOUNTANT MEMBER) ( / JUDICIAL MEMBER) MUMBAI, DATED: 6- 03-2019 . BKP /SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. #$ / THE RESPONDENT. 3. % /( ( ) / THE CIT(A) 4. % /( / CIT 5. 23 #(&45 , ) 45 , % / DR, ITAT, MUMBAI 6. 67 / GUARD FILE. / BY ORDER, $2( #( //TRUE COPY// / ( ASSTT. REGISTRAR) !', % / ITAT, MUMBAI
Other Referred Cases
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Laws Referred To
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Expert Summary
"FACTS OF THE CASE:
The assessee company had sold a Factory building on which it had originally declared Long-term capital Loss. However, the Assessing Officer brought to the notice of the assessee that, since the factory building is a depreciable asset, the resultant capital gain on the sale of such depreciable asset is to be treated as short-term capital gain as envisaged by the provisions of section 50.
Consequently, assessee revised its return of income and declared short-term capital gain amounting to Rs. 2,71,01,255/-. However, against this STCG, the assessee claimed set off of brought forward business loss of Rs. 73,45,952/- and brought forward long-term capital loss of Rs. 28,17,942/-.
The Assessing Officer rejected this claim of the assessee by taking the view that, as per the provisions of section 74, LTCL can be set off only against LTCG, whereas the assessee has incurred STCG. Further, as per the provisions of section 72, business loss can be set off only against business income and not against STCG.
CIT(A), considering the judicial pronouncement in the case of CIT v. Manali Investments [2013] 219 Taxman 113 (Bombay)(MAG.), allowed the claim of the assessee. Aggrieved by the order of CIT(A), the revenue filed an appeal before the Hon'ble ITAT.
QUESTION BEFORE HON'BLE TRIBUNAL:
a) Whether brought forward LTCL be set off against STCG, arising out of Long Term Capital Asset?
b) Whether the brought forward business loss can be set off against STCG, arising out of Long Term Capital Asset?
FINDINGS & DECISION OF THE HON'BLE TRIBUNAL:
Hon'ble Tribunal followed the decision of Jurisdictional Bombay High Court in case of CIT v. Manali Investments (supra), wherein the Hon'ble High Court held that that by virtue of Section 50, the gains arising even from Long Term Capital Asset is deemed to be short-term capital gains and this deeming fiction is restricted only for the purposes of Section 50 but the benefit of set off of LTCL under section 74 of the Act is to be allowed. Accordingly, the set off of brought forward LTCL against deemed STCG was held allowable.
Further, Hon'ble Tribunal relied upon the decision of the Co-ordinate bench in the case of Raj Shree Roadlines (P.) Ltd. v. ITO [ITA 1627/Mum/2012, dt. 20/03/2013], wherein considering the provisions of section 32(2), 72(2) and 73(3) and the amendments brought upon w.e.f. 01/04/2002, it was held that unabsorbed depreciation and eligible business loss can be set off against deemed Short Term Gains computed in accordance with the provisions of Section 50. Accordingly, the claim of setting off business loss against deemed STCG was held allowable.
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