Appeal details
Counselvise Citation
[2014] 140 COUNSELVISE.COM (IT) 84947 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 7 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-08-2014
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
B
Next Hearing Date
26-09-2013
Assessment Year
2008-2009
Appeal Filed On
13-01-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.79/PN/2012 (ASSESSMENT YEAR : 2008-09) TRIMBAK HATCHERIES PVT. LTD., FLAT NO.4 & 5, ANANDKUNJ, GANGAPUR ROAD, NASHIK 422 202. PAN : AABCT0456H . APPELLANT VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE- 1, NASHIK. . RESPONDENT ITA NO.521/PN/2013 (ASSESSMENT YEAR : 2007-08) TRIMBAK HATCHERIES PVT. LTD., VILLAGE- LAKHMAPUR, TAL.- DINDORI, DIST.- NASHIK. PAN : AABCT0456H . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE- 1, NASHIK. . RESPONDENT ASSESSEE BY : MR. KISHOR PHADKE DEPARTMENT BY : MR. S. P. WALIMBE ORDER PER G. S. PANNU, AM THE TWO CAPTIONED APPEALS HAVE BEEN PREFERRED BY TH E SAME ASSESSEE INVOLVING SIMILAR ISSUE FOR TWO DIFFERENT ASSESSMEN T YEARS AND THEREFORE, THEY HAVE BEEN CLUBBED AND HEARD TOGETHER AND ARE BEING DISPOSED-OFF BY WAY OF A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. ITA NO.521/PN/2013 IS AN APPEAL, WHICH IS DIRECT ED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, NASHIK DATED 09.01.2013 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 22.0 9.2009 PASSED BY THE ITA NO.79/PN/2012 ITA NO.521/PN/2013 ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2007-08. 3. IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWIN G THREE GROUNDS OF APPEAL :- 1. THE LEARNED CIT(A)-II, NASHIK ERRED IN LAW AND ON FACTS IN SUSTAINING THE TREATMENT OF INCOME FROM LEASE RENT OF RS.16,20,000/- AS INCOME FROM OTHER SOURCES INSTEAD OF INCOME FROM BUSINESS. 2. ALTERNATIVELY AND WITHOUT PREJUDICE TO GROUND NO .1 ABOVE, THE LEARNED CIT(A)-II, NASHIK AND THE LEARNED AO ERRED IN LAW AND ON FACTS IN HOLDING THAT THE LEASE RENT OF RS.16,20,000/- IS I NCOME FROM HOUSE PROPERTY AND AS SUCH, ELIGIBLE FOR DEDUCTION OF REPAIRS ALLO WANCE OF 30% U/S 24 OF THE IT ACT, 1961. 3. THE LEARNED CIT(A)-II, NASHIK ERRED IN LAW AND O N FACTS IN NOT GRANTING SET-OFF OF CARRIED FORWARD BUSINESS LOSSES OF PAST YEARS AGAINST THE SHORT TERM CAPITAL GAIN OF RS.43,74,000/- ARISING O N ACCOUNT DISTRESS SALE OF DEPRECIABLE ASSETS OF THE POULTRY BUSINESS. 4. AT THE OUTSET, IT MAY BE NOTED THAT IN SO FAR AS THE GROUNDS OF APPEAL NO.1 & 2 ARE CONCERNED, THE SAME HAVE NOT BEEN PRES SED BY THE ASSESSEE AT THE TIME OF HEARING AND ACCORDINGLY, THEY ARE DISMI SSED AS NOT PRESSED. 5. IN ORDER TO APPRECIATE THE CONTROVERSY RELATING TO THE AFORESAID GROUND OF APPEAL NO.3, FOLLOWING BACKGROUND IS RELEVANT. THE APPELLANT WAS HITHERTO ENGAGED IN THE BUSINESS OF HATCHERIES. IT HAS BEEN EXPLAINED AT THE TIME OF HEARING THAT DUE TO HEAVY LOSSES SUFFERED IN THE PO ULTRY BUSINESS ON ACCOUNT OF BIRD-FLUE ASSESSEE COMPANY DECIDED TO SELL ITS A SSETS OF THE BUSINESS TO PAY OFF THE LIABILITIES, DUES OF CREDITORS, BANKERS, ET C.. DURING THE ASSESSMENT YEAR 2007-08, ASSESSEE LEASED OUT CERTAIN ASSETS TO ONE SUGUNA POULTRY FARM LTD.. THE ASSETS LEASED OUT INCLUDED BUILDING (EXCLUDING THE HATCHERY BUILDING), FARM QUARTERS AND PLANT & MACHINERY. THE PROCEEDS OF THE LEASE RENT WERE CONSIDERED BY THE ASSESSEE AS BUSINESS INCOME WHERE AS THE ASSESSING OFFICER AS WELL AS THE CIT(A) WERE OF THE VIEW THAT SUCH LEASE INCOME WAS ASSESSABLE AS INCOME FROM OTHER SOURCES AS PER SECT ION 56(2)(III) OF THE ACT. ITA NO.79/PN/2012 ITA NO.521/PN/2013 ACCORDINGLY, INCOME OF THE ASSESSEE FROM THE LEASE RENT AMOUNTING TO RS.16,20,000/- HAS BEEN CONSIDERED AS INCOME FROM O THER SOURCES. THOUGH THE ASSESSEE RAISED THE GROUND OF APPEAL BEFORE US AGAINST THE AFORESAID, THE SAME HAS NOT BEEN PRESSED, AS NOTED EARLIER. FURTH ER, DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08, ASSES SEE ALSO SOLD SUBSTANTIAL PART OF ITS ASSETS INCLUDING LAND, PLANT & MACHINER Y, FURNITURE AND FIXTURE, EQUIPMENTS TO M/S PRATHMESH CERAMIC PVT. LTD. (A RE LATED CONCERN) FOR A CONSIDERATION OF RS.1,20,00,000/- VIDE SALE DEED DA TED 29.03.2007. SINCE THERE WAS A COMPOSITE SALE DEED OF THE LAND, PLANT & MACHINERY, FURNITURE AND FIXTURE AND OTHER ASSETS INCLUDING POULTRY EQUIPMEN T AND ELECTRICAL/WELL WATER INSTALLATION, THE ASSESSEE TREATED PROFIT ON THIS T RANSACTIONS AS BUSINESS INCOME AND SET-OFF ITS CURRENT AS WELL AS BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION AGAINST THE SAID INCOME. T HE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT SUCH SALE PROCEEDS WERE TAXABLE AS BUSINESS INCOME. THE ASSESSING OFFICER TAXED THE SALE PROCEEDS ON SALE OF FIXED ASSETS UNDER THE HEAD CAPITAL GAIN S BIFURCATING THE SALE CONSIDERATION INTO THE TWO PARTS I.E. (I) TAKING SA LE CONSIDERATION OF LAND AT RS.1,16,44,000/- AS DETERMINED BY THE STAMP DUTY VA LUATION AUTHORITY; AND, (II) SALE CONSIDERATION OF RS.3,56,000/- (RS.1,20,0 0,000/- MINUS RS.1,16,44,000/-) FOR PLANT & MACHINERY AND FURNITU RE AND FIXTURE, ETC.. WITH RESPECT TO THE LAND, THE ASSESSING OFFICER CALCULAT ED THE LONG TERM CAPITAL GAIN AT RS.1,12,33,657/- AND WITH RESPECT TO THE OTHER A SSETS HE CALCULATED SHORT TERM CAPITAL LOSS AT RS.6,45,482/-. THE ASSESSING OFFICER IN THE MEANWHILE HAD CALCULATED THE BUSINESS LOSS FOR THE YEAR UNDER CONSIDERATION AT RS.44,59,842/- BY TREATING THE LEASE RENT OF RS.16, 20,000/- AS ON INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. THE AS SESSING OFFICER ALLOWED THE SET-OFF OF THE CURRENT YEARS BUSINESS LOSS OF RS.45,59,842/- AND SHORT TERM CAPITAL LOSS OF RS.7,50,420/- AGAINST THE CURRENT Y EARS INCOME I.E. RS.16,20,000/- ON ACCOUNT OF INCOME FROM OTHER SOUR CES AND RS.1,12,33,657/- ON ACCOUNT OF LONG TERM CAPITAL GAIN. THE ASSESSIN G OFFICER ALSO ALLOWED ITA NO.79/PN/2012 ITA NO.521/PN/2013 UNABSORBED DEPRECIATION OF EARLIER YEARS AMOUNTING TO RS.62,88,889/- AGAINST THE CURRENT YEARS REMAINING INCOME OF RS.75,73,395 /-. IN THIS MANNER, THE TOTAL TAXABLE INCOME CALCULATED BY THE ASSESSING OF FICER UNDER THE HEAD LONG TERM CAPITAL GAIN CAME TO RS.12,84,506/-. IN APPEA L BEFORE THE CIT(A), ASSESSEE DID NOT SUCCEED ON THE ISSUE THAT THE LEAS E RENTALS WERE TO BE ASSESSED AS BUSINESS INCOME. THE CIT(A) UPHELD THE ASSESSING OFFICERS TREATMENT OF ASSESSING LEASE RENTALS AS AN INCOME U NDER THE HEAD INCOME FROM OTHER SOURCES. THIS ASPECT OF THE MATTER HAS NOT BEEN FURTHER AGITATED BEFORE US THOUGH IT HAS BEEN RAISED IN THE GROUNDS OF APPEAL NO.1 & 2 WHICH HAS NOT SINCE BEEN PRESSED. THE ONLY OTHER ASPECT WHICH IS IN DISPUTE ARISES FROM THE DECISION OF THE CIT(A) THAT ASSESSEE WAS N OT ENTITLED TO SET-OFF THE BROUGHT FORWARD BUSINESS LOSSES AGAINST LONG TERM C APITAL GAIN COMPUTED AT RS.12,84,506/-. THE CLAIM OF THE ASSESSEE WAS BASE D ON A DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DIGITAL ELECTRONICS LTD. VS. ACIT, 135 TTJ 419 TO THE EFFECT THAT ASSESSEE WAS ENTITLE D TO SET-OFF BROUGHT FORWARD BUSINESS LOSSES AGAINST THE CAPITAL GAINS EARNED BY THE ASSESSEE IN THE RELEVANT YEAR ON SALE OF FACTORY BUILDING, PLANT & MACHINERY, EVEN THOUGH SUCH GAINS WERE NOT TAXABLE AS PROFIT AND GAINS OF BUSIN ESS OR PROFESSION, BECAUSE AS PER ASSESSEE SUCH INCOME WAS IN THE NATURE OF BU SINESS INCOME ASSESSABLE AS CAPITAL GAINS U/S 50 OF THE ACT. THE CIT(A) NOTED THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF NANDI STEELS LTD. VS. ACIT, (2012) 134 ITD 73 (BANG) (SB) HAD HELD THAT BROUGHT FORWAR D BUSINESS LOSSES COULD NOT BE ADJUSTED AGAINST CAPITAL GAIN ARISING ON SAL E OF CAPITAL ASSETS U/S 72 OF THE ACT. SINCE THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DIGITAL ELECTRONICS LTD. (SUPRA) RELIED UPON BY THE ASSESSEE WAS CONTRARY TO THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF NANDI STEELS LTD. (SUPRA), THE CIT(A) FOLLOWED THE DECISION OF THE SP ECIAL BENCH OF THE TRIBUNAL IN THE CASE OF NANDI STEELS LTD. (SUPRA) AND DENIED THE CLAIM OF THE ASSESSEE. THIS ISSUE IS THE SUBJECT-MATTER GROUND OF APPEAL N O.3 RAISED BY THE ASSESSEE BEFORE US. ITA NO.79/PN/2012 ITA NO.521/PN/2013 6. DURING THE COURSE OF HEARING, LEARNED COUNSEL FO R THE ASSESSEE HAS VEHEMENTLY POINTED OUT THAT THE FOLLOWING DECISIONS OF THE TRIBUNAL :- (I) DIGITAL ELECTRONICS LTD. VS. ADDL.CIT, 16 TAXM ANN.COM 316; (II) ACIT VS. M/S NIRMAL PLASTIC INDUSTRIES, ITA NO .6428/MUM/2009 DATED 30.11.2011; (III) ITO VS. EVERSHINE PHARMACEUTICALS DISTRIBUTOR S PVT. LTD., ITA NO.4922/MUM/2011 DATED 22.08.2012; AND, (IV) M/S RAJ SHREE ROADLINES PVT. LTD. VS. ITO, ITA NO.1627/MUM/2012 DATED 20.03.2013 HAVE UPHELD THE PROPOSITION THAT ANY GAIN ARISING O N SALE OF BUSINESS ASSETS, THOUGH ASSESSABLE AS SHORT TERM CAPITAL GAI N U/S 50 OF THE ACT, WAS INDEED AN INCOME IN THE NATURE OF BUSINESS INCOME A ND THEREFORE THE BROUGHT FORWARD BUSINESS LOSSES COULD BE SET-OFF AGAINST SU CH INCOME IN TERMS OF SECTION 72(1) OF THE ACT. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS DEFE NDED THE ORDER OF THE CIT(A) BY PLACING RELIANCE ON THE DECISION OF T HE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF NANDI STEELS LTD. (SUPRA) A S ALSO SUBSEQUENT DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF PURSARTH TRADING CO. PVT. LTD. VS. ITO (ITA NO.688/MUM/2008 DATED 28.12.2012, WHICH HAS SINCE FOLLOWED THE DECISION OF THE SPECIAL BENCH OF THE T RIBUNAL IN SIMILAR CIRCUMSTANCES. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE CONTROVERSY BEFORE US IS WITH RESPECT OF SECTION 72(1)(I) OF TH E ACT WHICH READS AS UNDER :- 72 [(1) WHERE FOR ANY ASSESSMENT YEAR, THE NET RE SULT OF THE COMPUTATION UNDER THE HEAD PROFITS AND GAINS OF BU SINESS OR PROFESSION IS A LOSS TO THE ASSESSEE, NOT BEING A 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 ACCORDAN CE WITH THE PROVISIONS OF SECTION 71, SO MUCH OF THE LOSS AS HA S NOT BEEN SO SET OFF OR, [* * *] WHERE HE HAS NO INCOME UNDER ANY OT HER HEAD, THE WHOLE ITA NO.79/PN/2012 ITA NO.521/PN/2013 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 AS SESSABLE FOR THAT ASSESSMENT YEAR; 9. ON A PERUSAL OF AFORESAID, IT IS QUITE CLEAR THA T IN TERMS OF CLAUSE (I) OF SUB-SECTION (1) OF SECTION 72 OF THE ACT, BROUGHT F ORWARD BUSINESS LOSS IS LIABLE TO BE SET-OFF AGAINST THE PROFITS AND GAINS, IF ANY , OF ANY BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE AND ASSESSABLE FOR THAT ASSESSMENT YEAR. IT IS STARKLY EVIDENT FROM THE AFORESAID PROVISION THAT A T THE TIME OF SETTING-OFF OF THE LOSS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AGAINST THE PROFITS AND GAINS OF THE ASSESSEE IN TH E SUBSEQUENT ASSESSMENT YEAR, THERE IS NO CONDITION THAT THE COMPUTATION OF THE PROFITS AND GAINS OF BUSINESS CARRIED ON BY THE ASSESSEE IN THE SUBSEQUE NT YEAR SHOULD ALSO BE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION . WE SAY SO FOR THE REASON THAT WHILE THE OPENING SENTENCE IN SUB-S ECTION (1) OF SECTION 72 OF THE ACT CONTAINS AN EXPRESSION NET RESULT OF THE COMPUTATION UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. BUT SUCH EXPRESSION IS CONSPICUOUSLY ABSENT WHEN IT COMES TO CLAUSE (I) TH EREOF WHICH PERMITS SET-OFF AGAINST THE PROFITS AND GAINS OF ANY BUSINESS OR PR OFESSION CARRIED ON BY THE ASSESSEE IN THE SUBSEQUENT YEAR. THE AFORESAID ASP ECT HAS BEEN APTLY BROUGHT OUT BY THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S LAVISH APARTMENT (P.) LTD. VS. ACIT VIDE ITA NO.254/2006 D ATED 23.07.2012. THE HONBLE HIGH COURT REFERRED TO THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. COCANADA RADHASWAMI BANK LTD., (1965) 57 ITR 306 IN THE CONTEXT OF SECTION 24 OF THE ERSTWHILE INDIAN I NCOME TAX ACT, 1922, WHOSE WORDING IS QUITE PARI-MATERIA TO SECTION 72(1) OF THE ACT. THE HONBLE HIGH COURT OBSERVED AS UNDER :- 15. A SIMILAR POSITION EMERGES ON A READING OF SECT ION 72 (1) OF THE PRESENT ACT. THE OPENING PART OF THE SUB-SECTION RE FERS TO THE NET RESULT OF THE COMPUTATION UNDER THE HEAD 'PROFITS AND GAINS OF BU SINESS OR PROFESSION'. THUS THE COMPUTATION OF THE LOSS SHOULD HAVE BEEN M ADE UNDER THE PARTICULAR ITA NO.79/PN/2012 ITA NO.521/PN/2013 HEAD OF INCOME. HOWEVER, WHEN IT COMES TO THE SET O FF OF THE LOSS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS' AGAI NST THE PROFITS AND GAINS OF THE BUSINESS OF ASSESSEE IN THE SUBSEQUENT YEAR, TH E CONDITION THAT THE COMPUTATION OF THE PROFITS AND GAINS OF THE BUSINES S CARRIED ON BY THE ASSESSEE IN THE SUBSEQUENT YEAR SHOULD BE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' IS CONSPICUOUSLY ABSENT. THIS WILL BE CLEAR FROM CLAUSE (I) OF THE SUB-SECTION WHICH DOES NOT REFER TO THE HEAD OF INCOME BUT MERELY MAKES REFERENCE TO 'THE PROFITS AND GAINS, I F ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM'. IN VIEW OF THE SIMIL ARITY IN THE LANGUAGE OF SECTION 24 (1) & (2) OF THE OLD ACT AND SECTION 72 (1) OF THE ACT, THE RULING OF THE SUPREME COURT CITED ABOVE AND THE OBSERVATIONS WHICH WE HAVE EXTRACTED EARLIER APPLY WITH EQUAL FORCE TO THE INTERPRETATIO N OF PROVISIONS OF SECTION 72 (1) OF THE ACT. 16. IT IS NOT NECESSARY TO MULTIPLY AUTHORITIES ON THE POINT AND THE POSITION WHICH EMERGES IS THAT IN THE SUBSEQUENT YE AR IN WHICH THE ASSESSEE CLAIMS SET OFF OF THE BROUGHT FORWARD BUSINESS LOSS , THERE IS NO CONDITION THAT THE BUSINESS INCOME AGAINST WHICH THE BROUGHT FORWA RD LOSS IS CLAIMED TO BE SOUGHT FOR SHOULD HAVE BEEN COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS'. THE INCOME AGAINST WHICH THE BROUGHT FOR WARD LOSS IS CLAIMED TO BE SET-OFF SHOULD REPRESENT BUSINESS INCOME JUDGED BY THE APPLICATION OF COMMERCIAL PRINCIPLES, AND NOT ON AN APPLICATION OF THE PROVISIONS OF THE ACT. 10. THE SIGNIFICANCE OF THE AFORESAID DISCUSSION LI ES IN THE FACT THAT WHILE THE COMPUTATION OF THE LOSS WHICH IS SOUGHT TO BE S ET-OFF SHOULD HAVE BEEN MADE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION BUT WHEN IT IS TO BE SET-OFF AGAINST THE PROFITS AND GAINS OF A NY BUSINESS OR PROFESSION IN THE SUBSEQUENT YEAR, THE PRESCRIPTION THAT THE COMP UTATION OF SUCH PROFITS AND GAINS OF BUSINESS SUBSEQUENT ASSESSMENT YEAR SHOULD ALSO BE DONE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION IS NOT EXISTING. IN OTHER WORDS, IN THE SUBSEQUENT YEAR, THE PROFITS AND GAIN S OF THE BUSINESS WHICH ARE AVAILABLE FOR ABSORBING THE BROUGHT FORWARD BUSINES S LOSS NEED NOT BE COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION. ACCORDINGLY, IT IS BE UNDERSTOOD THAT THE INCOME AG AINST WHICH BROUGHT FORWARD LOSS IS CLAIMED TO BE SET-OFF SHOULD REPRESENT BUSI NESS INCOME JUDGED ON THE COMMERCIAL PRINCIPLES ALONE. 11. THEREFORE, IN ORDER TO DETERMINE THE CASE SETUP BY THE ASSESSEE IT WOULD BE NECESSARY TO EXAMINE WHETHER THE INCOME BY WAY OF IMPUGNED CAPITAL GAINS EARNED DURING THE YEAR UNDER CONSIDER ATION REPRESENTS BUSINESS ITA NO.79/PN/2012 ITA NO.521/PN/2013 INCOME JUDGED BY APPLICATION OF COMMERCIAL PRINCIPL ES AND NOT ON AN APPLICATION OF THE PROVISIONS OF THE ACT, WHICH PRO VIDE FOR ASSESSMENT UNDER DIFFERENT HEADS OF INCOME. IN OTHER WORDS, IT WOUL D BE REQUIRED TO BE EXAMINED AS TO WHETHER THE INCOME REPRESENTED BY CAPITAL GAI N THOUGH ASSESSED UNDER THE HEAD CAPITAL GAINS CAN BE TREATED AS BUSINESS INCOME OF THE ASSESSEE AS TO BE ELIGIBLE FOR ADJUSTMENT AGAINST THE BROUGHT F ORWARD BUSINESS LOSS. BEFORE PROCEEDING FURTHER, IT WOULD BE APPROPRIATE TO REPR ODUCE HEREINAFTER THE TOTAL TAXABLE INCOME DETERMINED BY THE CIT(A) AFTER ALLOW ING CERTAIN ADJUSTMENTS WHILE WORKING OUT THE LONG TERM AND SHORT TERM CAPI TAL GAINS. THE SAME HAS BEEN DRAWN UP BY THE CIT(A) IN PARA 11 OF HIS ORDER , WHICH READS AS UNDER :- (I) LTCG ON LAND: VALUATION FOR LAND AS PER STAMP DUTY VALUATION OFFI CER. 62,32,000 LESS: (I) COST OF LAND (PURCHASE IN 1983-84) 86,180 (II) INDEX COST 86,180 X 519 116 3,85,581 BALANCE 58,64,419 LESS: TRANSFER CHARGES 31,206 LONG TERM CAPITAL GAIN ON LAND 58,33,213 (II) SHORT TERM CAPITAL GAIN ON PLANT/MACHINERY: SALE OF ASSETS 1,20,00,000 LESS : REIMBURSEMENT OF SECURITY DEPOSIT 1,92,800 BALANCE 1, 18 ,07,200 LESS: VALUATION OF LAND 62,32,000 TOTAL VALUE OF ASSETS OTHER THAN LAND 55,75,200 LESS: WDV OF ASSETS AS PER BALANCE SHEET 10,01,482 BALANCE 45,73,718 LESS: VAT PAID ON SALE OF ASSETS 94,480 BALANCE 44,79,238 LESS: LOSS ON SALE OF FIXED ASSETS 1,04,938 TOTAL STCG ON ASSETS 43,74,300 (III) TOTAL INCOME FOR A.Y. 2007-08: (I) INCOME FROM BUSINESS AS CALCULATED BY AO ( - ) 45,29,842 (II) INCOME FROM OTHER SOURCES 16,20,000 (III) LTCG AS DETERMINED ABOVE 58,33,213 (IV) STCG AS DETERMINED ABOVE 43,74,300 BALANCE 72,97,671 LESS : SETTING OFF OF UNABSORBED DEPRECIATION OF EARLIER YEAR 62,88,889 TOTAL TAXABLE INCOME FOR A.Y. 2007-08 10,08,782 12. AGAINST THE AFORESAID TAXABLE INCOME, ASSESSEE CHALLENGES THE ORDER OF THE CIT(A) UPHOLDING THE ACTION OF THE ASSESSING OF FICER IN DENYING SET-OFF OF BROUGHT FORWARD BUSINESS LOSS OF RS.1,98,42,328/-. IN THIS CONTEXT, THE PLEA OF ITA NO.79/PN/2012 ITA NO.521/PN/2013 THE ASSESSEE IS THAT THE AFORESAID TAXABLE INCOME R EFLECTS SURPLUS ARISING FROM THE SALE OF LAND AND OTHER ASSETS OF ITS POULTRY BU SINESS, AND THUS SUCH SURPLUS IS IN THE NATURE OF BUSINESS INCOME. ACCORDING TO THE APPELLANT, THOUGH SUCH SURPLUS IS TAXABLE AS CAPITAL GAINS AS PER THE PR OVISIONS OF THE ACT, BUT THE REAL CHARACTER OF SUCH SURPLUS IS BUSINESS INCOME; AND THUS, THE SAME IS AVAILABLE FOR SET-OFF AGAINST THE BROUGHT FORWARD B USINESS LOSS. IN-PRINCIPLE, WE HAVE NO QUARREL WITH THE PROPOSITION BEING ADVANCED BY THE APPELLANT AS PER OUR DISCUSSION IN EARLIER PARAS, BASED ON THE JUDGE MENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LAVISH APARTMENT (P) LTD. (SUPRA). SO HOWEVER, THE MOOT POINT TO BE DETERMINED IS WHETHER BY APPLYING COMMERCIAL PRINCIPLES, CAN THE IMPUGNED INCOME/RECEIPTS BE CLASSIFIED AS BUSIN ESS INCOME/RECEIPTS. THE AFORESAID DETERMINATION IS NECESSARY BECAUSE IT IS ONLY WHEN THE IMPUGNED INCOME/RECEIPTS ARE CHARACTERIZED AS BUSINESS INCO ME JUDGED BY THE APPLICATION OF COMMERCIAL PRINCIPLES, THE SAME SHAL L BE AVAILABLE FOR SETTING-OFF THE BROUGHT FORWARD BUSINESS LOSS AND NOT OTHERWISE . 13. OSTENSIBLY, ONE LIMB OF THE IMPUGNED TAXABLE IN COME/RECEIPTS ARE ON ACCOUNT OF SALE OF ASSETS OF ASSESSEES BUSINESS OF POULTRY. WHETHER SUCH LIKE RECEIPTS ARE IN THE NATURE OF BUSINESS INCOME OR NO T ON AN APPLICATION OF COMMERCIAL PRINCIPLES WAS AN ISSUE BEFORE THE SPECI AL BENCH OF THE TRIBUNAL IN THE CASE OF NANDI STEELS LTD. (SUPRA). IN THE C ASE BEFORE THE SPECIAL BENCH, THE ASSETS SOLD BY THE ASSESSEE WERE CAPITAL ASSETS AND INCOME FROM SALE OF SUCH ASSETS WAS ASSESSED UNDER THE HEAD CAPITAL GA INS. NEVERTHELESS, THE CASE SETUP BY THE ASSESSEE WAS THAT GAIN ON A SALE OF A CAPITAL ASSET WAS TO BE TREATED AS BUSINESS INCOME BASED ON COMMERCIAL PRINCIPLES AND WAS ACCORDINGLY AVAILABLE FOR SETTING-OFF THE BROUGHT F ORWARD BUSINESS LOSS. THE SPECIAL BENCH OF THE TRIBUNAL DISAGREED WITH THE AS SESSEE AND HELD THAT THE ASSETS SOLD BY THE ASSESSEE WERE NOT BUSINESS ASSET S WHOSE SALE WOULD RESULT IN EARNING OF BUSINESS INCOME CLASSIFIED ON THE BASIS OF COMMERCIAL PRINCIPLES. ON THE CONTRARY, AS PER THE SPECIAL BE NCH, THE SAME WERE CAPITAL ITA NO.79/PN/2012 ITA NO.521/PN/2013 ASSETS AND THUS THE PROFITS RECEIVED ON THEIR SALE WERE CAPITAL RECEIPTS. ON THIS BASIS, THE SPECIAL BENCH HELD THAT THE GAIN ON SALE OF CAPITAL ASSETS WAS NOT AVAILABLE TO BE SET-OFF AGAINST THE BROUGHT FOR WARD LOSS OF EARLIER YEARS. IN COMING TO SUCH CONCLUSION, THE SPECIAL BENCH REFERR ED TO THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. EXPRES S NEWSPAPERS LTD. (1964) 53 ITR 250 (SC) WHEREIN IT HAS BEEN OBSERVED THAT THE FACT THAT CAPITAL GAINS ARE CONNECTED WITH THE CAPITAL ASSETS OF THE BUSINESS CANNOT MAKE THEM THE PROFIT OF THE BUSINESS. THEREFORE, HAVING REGA RD TO THE AFORESAID, IT CANNOT BE SAID THAT EVEN AFTER APPLYING COMMERCIAL PRINCIP LES THE IMPUGNED RECEIPTS ON ACCOUNT OF SALE OF CAPITAL ASSETS ARE IN THE NAT URE OF BUSINESS INCOME SO AS TO BE AVAILABLE FOR SETTING-OFF THE BROUGHT FORWARD BUSINESS LOSS OF EARLIER YEARS. 14. NOW, THE SECOND LIMB OF THE IMPUGNED TAXABLE IN COME BEFORE SETTING-OFF OF UNABSORBED DEPRECIATION IS ON ACCOUNT OF LEASE R ENT ON LEASE OF BUILDING, FARM, QUARTERS AND PLANT & MACHINERY. EVEN IF WE W ERE TO CONCEDE THE POINT OF THE ASSESSEE THAT SUCH RECEIPTS HAVE AN IMPRINT OF BUSINESS INCOME ON AN APPLICATION OF COMMERCIAL PRINCIPLES, YET IT DOES N OT HELP THE ASSESSEE, AS THE SAME HAS BEEN SET-OFF AGAINST UNABSORBED DEPRECIATI ON, AND THE NET RESULTANT TAXABLE INCOME DOES NOT CONTAIN ANY ELEMENT OF SUCH INCOME. 15. IN VIEW OF THE AFORESAID DISCUSSION, WE THEREFO RE FIND NO JUSTIFICATION ON THE PART OF THE ASSESSEE TO CLAIM THAT THE TAXABLE INCOME WORKED OUT BY THE CIT(A) IS AVAILABLE FOR SETTING-OFF THE BROUGHT FOR WARD BUSINESS LOSS. THE CIT(A), IN OUR VIEW, JUSTIFIABLY DECLINED THE PLEA OF THE ASSESSEE. 16. BEFORE PARTING, WE MAY ALSO REFER TO THE VARIOU S DECISIONS OF THE TRIBUNAL WHICH HAVE RELIED UPON BY THE ASSESSEE BEF ORE US. IN THIS CONTEXT, IT WOULD SUFFICE TO OBSERVE THAT THE SAID DECISIONS AR E EITHER RENDERED PRIOR TO THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF NANDI STEELS LTD. ITA NO.79/PN/2012 ITA NO.521/PN/2013 (SUPRA) OR ARE RENDERED WITHOUT CONSIDERING THE DEC ISION OF THE SPECIAL BENCH. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF NA NDI STEELS LTD. (SUPRA), IN OUR VIEW, COVERS THE PRESENT CONTROVERSY AGAINST TH E ASSESSEE. IN THIS VIEW OF THE MATTER, WE HEREBY AFFIRM THE ORDER OF THE CIT(A ) ON THIS ASPECT AND AS A RESULT THE GROUND OF APPEAL NO.3 RAISED BY THE ASSE SSEE IS ALSO DISMISSED. 17. IN THE RESULT, APPEAL OF THE ASSESSEE FOR ASSES SMENT YEAR 2007-08 VIDE ITA NO.521/PN/2013 IS DISMISSED. 18. NOW, WE MAY TAKE-UP APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2008-09 VIDE ITA NO.79/PN/2012. THIS APPEAL IS DIR ECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, NASHIK DATED 24.10.2011 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 24.12.2010 PASSED BY THE ASSESSING OFFICER U/S 143(3) & 115WE(3) OF THE ACT. 19. IN SO FAR AS THE ASSESSMENT YEAR 2008-09 IS CON CERNED, IN THIS YEAR ALSO, ASSESSEE SOLD CERTAIN OTHER ASSETS BELONGING TO ERSTWHILE BUSINESS OF POULTRY. ASSESSEE SOLD ITS REMAINING LAND, PLANT & MACHINERY TO M/S PRATHMESH CERAMICS PVT. LTD. VIDE SALE DEED DATED 0 4.04.2007 FOR A CONSIDERATION OF RS.1,20,00,000/-. THE ASSESSING O FFICER TREATED THE SALE AS A SLUMP-SALE AND SUBJECTED THE ENTIRE SALE TRANSACTIO N TO TAX AS A LONG TERM CAPITAL GAINS AND COMPUTED THE INCOME AT RS.1,20,00 ,000/-. THE CIT(A) HAS ALSO AFFIRMED THE SAID ACTION BY NOTICING THAT ASSE SSEE HAS SOLD THE ASSETS WITHOUT INDIVIDUALLY VALUING THEM FOR A LUMP-SUM CO NSIDERATION OF RS.1,20,00,000/-. SINCE ASSESSEES NET WORTH WAS N EGATIVE I.E. A LOSS OF RS.1,03,90,435/-, THE FULL VALUE OF SALE CONSIDERAT ION OF RS.1,20,00,000/- HAS BEEN HELD TO BE TAXABLE AS LONG TERM CAPITAL GAIN. IN THIS BACKGROUND, ASSESSEE IS IN FURTHER APPEAL BEFORE US AND HAS RAI SED THE FOLLOWING GROUNDS OF APPEAL :- ITA NO.79/PN/2012 ITA NO.521/PN/2013 1. THE LEARNED CIT(A), NASIK ERRED IN LAW AND ON F ACTS IN SUSTAINING THE VIEW OF THE LEARNED AO THAT THE APPE LLANT HAS NOT CARRIED OUT ANY BUSINESS IN A.Y. 2008-09 AND FURTHER ERRED IN D ISREGARDING BUSINESS LOSS OF RS.9,39,096/- INCURRED AND CRYSTALLIZED DUR ING A.Y. 2008-09. 2. THE LEARNED CIT(A), NASIK ERRED IN LAW AND ON FA CTS IN CONFIRMING THE TREATMENT GIVEN BY THE LEARNED AO OF APPLYING THE PROVISIONS OF SEC. 50B AND SEC. 2(42C) OF THE ITA, 1961, AND TREATING THE TRANSACTION OF SALE OF BUSINESS ASSETS AS SLUMP SALE TRANSACTION. THE I-T AUTHORITIES OUGHT TO HAVE APPR ECIATED THAT WHAT WAS SOLD BY THE APPELLANT WERE VARIOUS ASSETS SUCH AS L AND, BUILDING, ETC. AND THAT TOO, UNDER A DISTRESS SITUATION. 3. CONSEQUENTIALLY, THE LEARNED CIT(A)-NASIK AND TH E LEARNED AO ERRED IN LAW AND ON FACTS IN NOT GRANTING DEDUCT ION OF INDEXED COST OF LAND, SOLD BY THE APPELLANT DURING A.Y. 2008-09. 4. THE LEARNED CIT(A), NASIK ERRED IN LAW AND ON FA CTS IN NOT ALLOWING SET OFF OF BROUGHT FORWARD BUSINESS LOSS A ND UNABSORBED DEPRECIATION AGAINST SHORT LONG TERM CAPITAL GAINS ARISING FROM SALE OF BUILDING AND OTHER DEPRECIABLE ASSETS USED FOR CARR YING OUT BUSINESS ACTIVITIES. 20. BEFORE WE ATTEMPT TO ADJUDICATE THE SPECIFIC GR OUNDS OF APPEAL RAISED BY THE ASSESSEE IT MAY BE NOTICED THAT IN THE ASSES SMENT OF ASSESSMENT YEAR 2007-08, WHICH HAS BEEN DEALT WITH IN EARLIER PARAS , ASSESSEE HAD PARTLY SOLD ASSETS OF POULTRY BUSINESS AND THE ASSESSMENT WAS F INALIZED WITHOUT TREATING IT AS A SLUMP SALE. IN THIS VIEW OF THE MATTER, IT WA S A COMMON POINT BETWEEN THE PARTIES THAT THE CONTROVERSY BE RE-VISITED BY T HE ASSESSING OFFICER IN PARTICULARLY HAVING REGARD TO THE ASSESSMENT OF THE PRECEDING YEAR AND ALSO OUR ORDER FOR THE SAID ASSESSMENT YEAR IN THE EARLI ER PARAGRAPHS. BEFORE PARTING, WE MAY ALSO NOTICE THE PLEA SETUP BY THE A SSESSEE BEFORE US IS THAT THE SALE OF ASSET IN QUESTION CAN BE TREATED AS SLU MP SALE ONLY WHEN ALL ASSETS AND LIABILITIES OF AN UNDERTAKING ARE SOLD AND THE BUSINESS IS TRANSFERRED IN ONE-GO AS A GOING CONCERN. ACCORDING TO THE ASSESS EE, THE SAID FEATURE IS MISSING IN THE PRESENT CASE. BE THAT AS IT MAY, WE DEEM IF FIT AND PROPER TO SET-ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND R ESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL RE-VISIT TH E CONTROVERSY AFRESH IN THE BACKGROUND OF THE ASSESSMENT FOR ASSESSMENT YEAR 20 07-08 AS ALSO OUR DECISION OF EVEN DATE FOR THE ASSESSMENT YEAR 2007- 08. ITA NO.79/PN/2012 ITA NO.521/PN/2013 21. IN THE RESULT, WITHOUT OPINING ON THE MERITS OF THE DISPUTE RAISED IN THE ASSESSMENT YEAR 2008-09, THE ISSUE IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER FOR A DE-NOVO ASSESSMENT. NEEDLE SS TO MENTION, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASON ABLE OPPORTUNITY OF BEING HEARD BEFORE PASSING AN ORDER AFRESH IN ACCORDANCE WITH LAW. 22. THUS, ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSE S IN ITS APPEAL ASSESSMENT YEAR 2008-09. 23. RESULTANTLY, THE APPEAL OF THE ASSESSEE FOR ASS ESSMENT YEAR 2007-08 IS DISMISSED, AND THE APPEAL FOR ASSESSMENT YEAR 2008- 09 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2014. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 28 TH AUGUST, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I & II, NASHIK; 4) THE CIT-I & II, NASHIK; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE
