SAC Steel Rolling Mills Pvt. Ltd., Jalgaon V. Joint CIT, Range-2, Jalgaon

ITA 652/PUN/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1656 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 11-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Keywords: Capital asset; Business income; Depreciation; Capital receipt; Revised return; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , ! # $% , & ' BEFORE SHRI VIKAS AWASTHY, JM AND SHRI PRADIP KUMAR KEDIA, AM ( / ITA NO. 652/PN/2013 ) * +* / ASSESSMENT YEAR : 2009-10 SAC STEEL ROLLING MILLS PVT. LTD., PROP. GODAVARI STEEL RE-ROLLING, 40, MAZENINE FLOOR, J.M.P. MARKET, JALGAON PAN : AACCS7951F ....... / APPELLANT ) / V/S. JT. COMMISSIONER OF INCOME TAX, RANGE 2, INCOME TAX OFFICE, JALGAON / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI M.K. SINGH / DATE OF HEARING : 18-05-2016 / DATE OF PRONOUNCEMENT : 04-07-2016 , / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE O RDER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, NASHIK DATED 10-0 1-2013 FOR THE ASSESSMENT YEAR 2009-10. 2 ITA NO. 652/PN/2013, A.Y. 2009-10 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE FILED ITS ORIGINAL RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 29-09-2009 DECLARING TOTAL INCOME OF ` 49,09,660/-. THE ASSESSEE FILED REVISED RETURN OF INCOME ON 29-03-2010 DECLARING TOTAL INCOME OF ` 57,39,126/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY UNDER CASS AND ACCORDINGLY NOTICE U/S. 143(2) WA S ISSUED TO THE ASSESSEE ON 18-08-2010. DURING THE PERIOD RELEVANT TO THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE HAD SOLD PLANT A ND MACHINERY OF THE DISCONTINUED BUSINESS AND EARNED PROFIT OF ` 95,61,163/-. THE ASSESSEE TREATED THE AFORESAID SURPLUS AS SHORT TERM C APITAL GAIN IN TERMS OF SECTION 50 OF THE INCOME TAX ACT, 1961 (HEREINAFT ER REFERRED TO AS THE ACT). THE ASSESSEE HAD SUFFERED BUSINESS LOSS IN THE EARLIER ASSESSMENT YEARS. THE ASSESSEE CLAIMED THAT THE SURPLU S ARISING FROM SALE OF CAPITAL ASSET IS IN THE NATURE OF BUSINESS INCOME TH OUGH BY FICTION IT IS TAXABLE UNDER THE HEAD CAPITAL GAINS. THE ASSE SSEE CLAIMED SET OFF OF BROUGHT FORWARD BUSINESS LOSSES AGAINST THE SUR PLUS ARISING FROM SALE OF CAPITAL ASSETS. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED BY THE ASSESSMENT ORDER DATED 05-09-2011, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF I NCOME TAX (APPEALS), INTER ALIA CHALLENGING THE REJECTION OF CLAIM OF SET OFF OF BROUGHT FORWARD BUSINESS LOSS OF ` 38,67,378/- AND UNABSORBED DEPRECIATION OF ` 8,90,945/-. THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE IMPUGNED ORDER REJECTED THE CLAIM OF THE ASS ESSEE WITH RESPECT TO CLAIM OF SET OFF OF BROUGHT FORWARD BUSINESS LOSS AGAINST THE SHORT TERM CAPITAL GAINS ARISING FROM SALE OF PLANT AND MACH INERY. 3 ITA NO. 652/PN/2013, A.Y. 2009-10 AGAINST THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS), T HE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. SHRI NIKHIL PATHAK APPEARING ON BEHALF OF THE ASSESSEE R EITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. THE LD. AR CONTENDED THAT THE AUTHORITIES BELOW HAVE FAILED TO APPRE CIATE THAT SURPLUS EARNED ON THE SALE ON DEPRECIABLE ASSETS IS NOTH ING BUT BUSINESS INCOME ARISING FROM SALE OF BUSINESS ASSETS. IT IS ONLY BECAUSE OF THE DEEMING FICTION THAT PROFIT ARISING FROM SALE OF CAPITAL ASSET IS TREATED AS SHORT TERM CAPITAL GAINS. THE LD. AR PRAYED FOR REVERSING THE FINDINGS OF AUTHORITIES BELOW. 4. ON THE OTHER HAND SHRI M.K. SINGH REPRESENTING THE DE PARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOM E TAX (APPEALS) IN REJECTING THE CLAIM OF ASSESSEE WITH RESPECT T O SET OFF OF BROUGHT FORWARD BUSINESS LOSS OF ` 38,67,378/- AGAINST THE SHORT TERM CAPITAL GAINS ARISING OUT OF SALE OF PLANT AND MACHINERY. THE LD. DR SUBMITTED THAT THE ISSUE RAISED IN THE APPEAL IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE SPECIAL BENCH DECISION OF TH E TRIBUNAL IN THE CASE OF NANDI STEELS LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX REPORTED AS 134 ITD 73 (BANG.)(SB) : 17 TAXMANN.COM 93 (BAN G.)(SB). THE LD. DR CONTENDED THAT THE LD. AR OF THE ASSESSEE HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF SPECIAL BENCH DECISION OF THE TRIBUNAL AND/OR DISTINGUISH THE SAME. THE LD. DR PRAYED FOR DISMISSIN G THE APPEAL OF THE ASSESSEE AND UPHOLDING THE FINDINGS OF COMMIS SIONER OF INCOME TAX (APPEALS). 4 ITA NO. 652/PN/2013, A.Y. 2009-10 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. THE ASSESSEE HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOM E TAX (APPEALS) BY RAISING FOLLOWING GROUNDS : 1. THE LEARNED CIT (A) ERRED IN CONFIRMING THE REJ ECTION OF SET OFF OF BROUGHT FORWARD BUSINESS LOSS OF RS.38,67,378 AGAIN ST DEEMED S.T.C.G. U/S. 50 OF THE ACT. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLANTS CLAIM FOR SET OFF OF B/FD. BUSINESS LOSS BE ALLOWED . 2. THE LEARNED CIT (A) FAILED TO APPRECIATE THAT SU RPLUS EARNED ON THE SALE OF DEPRECIABLE. ASSETS WAS FROM BUSINESS ONLY AND AS SUCH FOR ALL PRACTICAL PURPOSES IT HAD RETAINED ITS TRAD ING/BUSINESS CHARACTER AND IT WAS ONLY BECAUSE OF DEEMING FICTIO N THAT IT WAS TO BE TREATED AS SHORT TERM CAPITAL GAIN. CONSEQUENTL Y HE FURTHER ERRED IN NOT GRANTING SET OFF OF B/FD. BUSINESS LOS S AGAINST SUCH INCOME. 3. THE LEARNED CIT (A) ERRED IN NOT FOLLOWING THE D ECISION OF ITAT MUMBAI IN DIGITAL ELECTRONICS LTD., V. ADDOL. CIT ( 2011) 135, TTJ, 419 AND OTHER CASES RELIED UPON BY THE APPELLANT. 4. THE LEARNED CIT (A) FAILED TO APPRECIATE THAT FA CTS IN THE CASE OF NANDI STEEL LTD., V. ACIT (ITA NO. 546/BANGALORE/20 08) WERE DISTINGUISHABLE AND AS SUCH NOT COMPARABLE AND CONS EQUENTLY ERRED IN REJECTING APPELLANT'S CLAIM FOR SET OFF OF BUSINESS LOSS AGAINST DEEMED S.T.C.G. RELYING UPON THE SAID DECIS ION. 5. GENERAL 5.1 THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANYONE OR MORE OF THE GROUNDS OF APPEALS AS MAY BE REQUIRE D IN THE NATURE AND CIRCUMSTANCES OF THE CASE. 5.2 THE APPELLANT PRAYS LEAVE TO ADDUCE SUCH FURTHE R EVIDENCE TO SUBSTANTIATE ITS CASE AS THE OCCASION MAY DEMAND. THE ASSESSEE HAS ALSO RAISED FOLLOWING ADDITIONAL GROUNDS : 1. THE LEARNED CIT(A) ERRED IN NOT ALLOWING THE SE T OFF OF UNABSORBED DEPRECIATION OF RS.8,90,945/- BROUGHT FORWARD FROM THE EARLIER YEARS AGAINST THE SHORT TERM CAPITAL GAINS TAXABLE U/S 50 AND INTEREST INCOME OFFERED TO TAX IN THIS YEAR. 2. THE LEARNED CIT(A) ERRED IN NOT ALLOWING THE SET OFF OF BROUGHT FORWARD BUSINESS LOSS PERTAINING TO THE EARLIER YEA RS AGAINST THE BUSINESS INCOME OFFERED TO TAX IN THIS YEAR. 5 ITA NO. 652/PN/2013, A.Y. 2009-10 6. THE LD. AR OF THE ASSESSEE HAS STATED AT THE BAR TH AT HE IS NOT PRESSING THE ADDITIONAL GROUNDS RAISED IN THE APPEAL. IN SO FAR AS THE GROUND NOS. 1 TO 4 ARE CONCERNED, ALL THE GROUNDS RELATE TO SINGLE ISSUE I.E. THE REJECTION OF SET OFF OF BROUGHT FORWARD BUSINESS LOS S AGAINST SHORT TERM CAPITAL GAINS ARISING ON SALE OF PLANT AND MACHI NERY. THE ONLY CONTENTION OF THE LD. AR OF THE ASSESSEE IS THAT ALTH OUGH SURPLUS ON SALE OF PLANT AND MACHINERY IS HELD TO BE SHORT TERM C APITAL GAINS BUT THEY ARE IN THE NATURE OF BUSINESS INCOME. THE CLAIM OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER. IN FIRST APPEAL THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE FINDINGS O F ASSESSING OFFICER BY PLACING RELIANCE ON THE DECISION OF SPECIA L BENCH OF THE TRIBUNAL IN THE CASE OF NANDI STEELS LTD. VS. ASSISTAN T COMMISSIONER OF INCOME TAX (SUPRA). THE GROUNDS RAISED BE FORE THE SPECIAL BENCH FOR ADJUDICATION WERE : 4. GROUND NO.5 & 6 RAISED BY THE ASSESSEE IN THE A PPEAL ARE AS UNDER : 'GROUND NO.5: THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS THAT THE APPELLANT IS NOT ENTITLED TO SET OFF CARRY FORW ARD BUSINESS LOSS OF RS. 39,99,652/- AGAINST THE LONG TERM CAPITAL GAIN ARISING ON SALE OF LAND USED FOR THE PURPOSE BUSINESS'. GROUND NO.6: THAT THE AUTHORITIES BELOW OUGHT TO HA VE APPRECIATED THAT THERE IS NO CESSATION OF BUSINESS AND THE APPE LLANT IS ENTITLED TO SET OFF THE CARRY FORWARD BUSINESS LOSS'. 7. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF NANDI S TEELS LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX (SUPRA) WHILE ADJUD ICATING THE ISSUE HELD AS UNDER : 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 6 ITA NO. 652/PN/2013, A.Y. 2009-10 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 RESU LT OF THE COMPUTATION UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON' 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 INCOME IN ACCORDANCE WITH THE PROVISIONS OF SEC.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 PROVISIONS OF THIS CHAPTER, BE CARRIED FORWARD TO THE 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 ASSESSABLE 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 SUB-CLAUSE -(I) OF SUB-SEC.(1) OF SEC.72 OF THE IT ACT. WHAT ARE TH E PROFITS 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 CARRIED 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 ASSESSEE WERE BUSINESS ASSETS. UNDISPUTEDLY, THEY WERE CAPITAL AS SETS AND THE CAPITAL RECEIPTS ARE NOT TAXABLE NOR ARE THE CAPITAL PAYMEN TS DEDUCTIBLE FROM THE INCOME OF THE ASSESSEE. THE CAPITAL IS TO BE USED F OR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE AND IT SHA LL REMAIN IN THE BUSINESS OF THE ASSESSEE TILL IT IS EITHER CONVERTE D INTO STOCK-IN-TRADE OR IS DISPOSED OFF. THE INCOME EARNED BY THE ASSESSEE BY CARRYING ON THE BUSINESS BY USE OF THE STOCK IN TRADE ONLY IS THE B USINESS INCOME OF THE ASSESSEE. LIKEWISE, ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR 7 ITA NO. 652/PN/2013, A.Y. 2009-10 CARRYING ON OF BUSINESS AND FOR EARNING THE INCOME FROM SUCH BUSINESS OR PROFESSION IS ONLY ALLOWABLE AS DEDUCTION. AFTER TA KING INTO ACCOUNT THE RECEIPTS AND PAYMENTS FOR CARRYING ON THE BUSINESS OF THE ASSESSEE ONLY THE PROFIT OR GAIN OR LOSS FROM THE BUSINESS IS COM PUTED. IF THE PROFIT OR LOSS RELATE TO THE SAME ASSESSMENT YEAR FROM ONE SO URCE THEN IT CAN BE SET OFF FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME U/S 70 ACT, AND IT CAN BE SET OFF AGAINST THE INCOME FROM ANY O THER HEAD OF INCOME U/S 71 OF THE ACT. SEC.72 OF THE ACT HOWEVER, PERMI TS THE CARRY FORWARD BUSINESS LOSS TO SUBSEQUENT ASSESSMENT YEARS AND AL LOWS IT TO BE SET OFF AGAINST PROFIT & GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE AND ASSESSABLE FOR THE RELEVANT ASSESS MENT YEAR. THUS, IT IS CLEAR THAT IT IS ONLY THE BUSINESS LOSS THAT CAN BE CARRIED FORWARD U/S 72 OF THE ACT AND IT CAN ALSO BE SET OFF ONLY AGAIN ST THE BUSINESS INCOME OF THE ASSESSEE, BE IT FROM THE SAME BUSINESS OR FR OM ANY OTHER BUSINESS. IN THE CASES RELIED UPON BY THE LEARNED C OUNSEL FOR THE ASSESSEE, THE HON'BLE SUPREME COURT WAS DEALING WIT H THE CASES OF THE ASSESSEE'S WHOSE BUSINESS WAS DEALING IN SECURITIES ALSO AND IT WAS THUS HELD THAT THESE SECURITIES WERE TRADING ASSETS AND THEREFORE, THE INCOME THEREFROM THOUGH TO BE COMPUTED UNDER THE HE AD 'INCOME FROM SECURITIES' DOES NOT LOSE THE CHARACTER OF 'BUSINES S INCOME'. BUT IN THE CASE OF EXPRESS NEWSPAPERS LTD. (SUPRA) THE FACTS O F THE CASE ARE LITTLE DIFFERENT AND AFTER TAKING INTO CONSIDERATION THE F ACTS OF THE CASE THEREIN, THE HON'BLE SUPREME COURT HAS HELD THAT THE CAPITAL GAINS ON SALE OF CAPITAL ASSETS IS NOT TO BE SET OFF AGAINST THE BRO UGHT FORWARD LOSS OF EARLIER YEARS. IN OUR OPINION, THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF EXPRESS NEWSPAPERS LTD. (SUPRA), IS FAI RLY APPLICABLE TO THE FACTS OF THE CASE BEFORE US. THE COORDINATE BENCH O F THE TRIBUNAL IN THE CASE OF STEELCON INDUSTRIES (P.) LTD. (SUPRA) HAS M ISPLACED ITS RELIANCE UPON THE DECISION OF THE APEX COURT IN THE CASES OF UNITED COMMERCIAL BANK LTD., AND COCANADA RADHASWAMI BANK LTD. (SUPRA) . IN VIEW OF THE SAME, WE ARE INCLINED TO REJECT THE GROUNDS OF APPE AL NOS.5 & 6 RAISED BY THE ASSESSEE. THUS, THE REFERENCE IS ANSWERED IN FA VOUR OF REVENUE. 8. THE LD. AR OF THE ASSESSEE HAS NOT BEEN ABLE TO DISTIN GUISH THE CASE FROM THE DECISION RENDERED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF NANDI STEELS LTD. VS. ASSISTANT COMMISSIONER O F INCOME TAX (SUPRA) WHICH SQUARELY COVERS THE ISSUE RAISED IN THE INS TANT APPEAL. 8 ITA NO. 652/PN/2013, A.Y. 2009-10 WE DO NOT FIND ANY ERROR IN THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN REJECTING THIS GROUND OF APPEAL OF THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED BEING DEVOID OF ANY MERIT. ORDER PRONOUNCED ON MONDAY, THE 04 TH DAY OF JULY, 2016. SD/- SD/- (PRADIP KUMAR KEDIA) (VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; !' / DATED : 04 TH JULY, 2016 RK ,-#./0+. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. # # $ () / THE CIT(A)-II, NASHIK 4. # # $ / THE CIT-II, NASHIK 5. '() *+ , # *+ , , ,-. , / DR, ITAT, B BENCH, PUNE. 6. )/0 12 / GUARD FILE. // ' // TRUE COPY// #3 / BY ORDER, 4 *. / PRIVATE SECRETARY, # *+ , / ITAT, PUNE