THE COMMISSIONER OF INCOME TAX V. M/S KARNATAKA STATE ELECTRONICS DEVT CORPN LTD

ITA/1007/2006

AI Insights

The case involves the Commissioner of Income Tax and the Joint Commissioner of Income Tax as appellants against M/s Karnataka State Electronics Development Corporation Limited as the respondent. The dispute arose from the reassessment of income tax for the assessment year 1996-97, where the respondent declared a total loss but was later reassessed to have a short-term capital gain from the sale of industrial sheds and land. The main legal contention was whether the brought forward business losses could be set off against the capital gains, which the Assessing Officer initially denied under a rectification order. The Income Tax Appellate Tribunal reversed this decision, leading to the Revenue's appeal to the High Court.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 728031 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 24-08-2012
• Assessment Year: misc
• Other Referred Cases: T.S.BALARAM, INCOME TAX OFFICER v/s VOLKART BROTHERS & OTHERS, VOLKART BROTHERS AND OTHERS v/s INCOME TAX OFFICER, COMPANIES CIRCLE-IV (4), BOMBAY, COMMISSIONER OF INCOME TAX v/s MOOLCHAND NARAINDAS, COMMISSIONER OF INCOME TAX v/s SAROJA B.K.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S PARTHASARATHI
• Assessee Lawyers: G KAMALADHAR
• Keywords: Capital Gain; Depreciation; Income Tax; Long Term Capital Asset; Rectification of mistake; Short Term Capital Gain; Setting Off Loss
• Section: 143(3); 143(2); 154; 43B; 72(1); 143(1)(a); 260-A

Judgement Text

"1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 24TH DAY OF AUGUST 2012 PRESENT THE HON'BLE MR. JUSTICE K.SREEDHAR RAO AND THE HON'BLE MR. JUSTICE B.MANOHAR ITA No.1007/2006 BETWEEN : 1. THE COMMISSIONER OF INCOME TAX, C.R.BUILDING, QUEENS ROAD, BANGALORE. 2. THE JOINT COMMISSIONER OF INCOME TAX SPECIAL RANGE – 5, C.R.BUILDING, QUEENS ROAD, BANGALORE. ...APPELLANTS (BY SRI.G.KAMALADHAR, ADV) AND: M/S KARNATAKA STATE ELECTRONICS DEVELOPMENT CORPORATION LIMITED, NO 29/1, RACE COURSE ROAD, BANGALORE. ...RESPONDENT (BY SRI.S.PARTHASARATHI, ADV) * * * 2 I.T.A. FILED U/S.260-A OF I.T.ACT 1961 ARISING OUT OF ORDER DATED 20-01-2006 PASSED IN ITA NO. 1218/BANG/2003 FOR THE ASSESSMENT YEARS 1996-97, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND TO ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN ITA NO. 1218/BANG/2003 DATED 20-01-2006 & CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE JOINT COMMISSIONER OF INCOME TAX, SPECIAL RANGE-5, BANGALORE IN THE INTEREST OF JUSTICE AND EQUITY. THIS ITA HAVING BEEN HEARD AND RESERVED AND COMING ON FOR PRONOUNCEMENT OF JUDGEMENT THIS DAY, B.MANOHAR J., DELIVERED THE FOLLOWING: JUDGMENT The Revenue has preferred this appeal under Section 260-A of the Income Tax Act, (‘the Act’ for short) being aggrieved by the order dated 20th January 2006 made in ITA No.1218/Bang/2003 passed by the Income Tax Appellate Tribunal, Bangalore Bench-‘B’, partly allowing the appeal and setting aside the order passed by the Commissioner of Income Tax (Appeals) (hereinafter referred to as CIT (Appeals)) and the Assessing Authority for the assessment year 1996-97. 3 2. The respondent-Corporation filed the return of income tax on 20- 11-1996 for the assessment year 1996-97 declaring total loss of Rs.15,57,948/-, which after set off of brought forward loss from the earlier years is shown at NIL. The return of income was duly accompanied by the audited profit and loss account. The return of income was processed under Section 143(1)(a) on 21-02-1997 accepting NIL income return. Thereafter the case was selected for scrutiny and notice was issued to the assessee under Section 143(2) of the Act. The authorised representative of the assessee appeared and produced necessary documents. The Assessing Authority after scrutinizing the returns completed the scrutiny assessment on 31-03-1999 holding NIL income after setting off of unabsorbed losses of earlier years. The notice was issued to the assessee under Section 154 of the Act for rectification of mistake stating that some mistake has been crept in, in computation of income chargeable under Capital gain, set-off of loss, calculation of allowable depreciation and non-disallowance under Section 43(B) of the Act on 05-10-2000. The assessee has filed reply to the said notice on 20-12-2000. The Assessing Authority on recomputation of capital gain held that the assessee-Corporation has sold four industrial sheds along with land appurtenant to it, furniture, electrical fittings and fans attached to the sheds for Rs.72,00,000/- and claimed the value of land amounting to Rs.5,03,019/- and written down value of other assets, such as building, machinery, furniture and fittings amounting to Rs.43,19,071/- 4 as deduction and a sum of Rs.23,77,910/- was offered as a short term capital gain. In the scrutiny of returns, the deduction claimed on account of written down value of other assets was confined only to industrial shed amounting to Rs.21,42,442/- and though the gain on sale of land was considered as long term capital gain, no deduction on cost of indexation was allowed. The assessee noticed that originally four industrial sheds and appurtenant land was obtained by the assessee on lease-cum-sale from the KSSIDC on 25-10-1980. After completion of the lease period, the assessee got the absolute ownership over the property on 23-10-1993. The said property was sold on 25-09-1995 i.e. within 3 years period. The assessee was in absolute ownership only for a period of one year and 11 months. Hence, it cannot be termed as long term capital asset. Further the Assessing Authority held that disallowance made under Section 43B is also not correct and that the business loss cannot be set off from the capital gain. The depreciation has to be made at 50% and accordingly reassessed the tax liability and issued demand notice for payment of Rs.61,04,823/-. Being aggrieved by the reassessment order, the respondent preferred an appeal before the CIT (Appeals). The CIT (Appeals) by its order dated 11-07-2003 dismissed the appeal holding that setting off of brought forward business loss against the capital gain and income from other sources is against the provisions of Section 72(1). So the mistake has been correctly rectified. 5 3. Being aggrieved by the order dated 11-07-2003 passed by the CIT (Appeals), Bangalore the respondent-Corporation approached the Income Tax Appellate Tribunal, Bangalore in ITA Nos.1218-1220/Bang/2003. The Appellate Authority after considering the matter in detail relying upon the judgment of Hon'ble Supreme Court held that setting off of brought forward business loss against the profit arising from sale of business assets is a debatable point and cannot be rectified under Section 154 of the Act. Accordingly, the action of the Assessing Authority in not allowing the set off of business loss against the profit from sale of business asset is contrary to law and the order passed under Section 154 is liable to be set aside. Accordingly, allowed the appeal in part insofar as appeal No.1218/Bang/2003 by its order dated 20th January 2006. The Revenue being aggrieved by the order dated 20-01-2006 passed by the Income Tax Appellate Tribunal has preferred this appeal. 4. The appeal is admitted for considering the following substantial questions of law. “Whether the Assessing Officer has justified to exercise the power under Section 154 of the Income Tax Act on a question, which is a debatable one and whether the Assessing Officer should specify the nature of the mistake apparent on record while exercising the jurisdiction under Section 154 of the Income Tax Act.?” 6 5. The issue raised in this appeal is no longer res-integra. The Hon'ble Supreme Court in a judgment reported in (1971) 82 ITR 50 (SC) in the case of T.S.BALARAM, INCOME TAX OFFICER v/s VOLKART BROTHERS & OTHERS has held that – “ It was not open to the Income Tax Officer to go into the true scope of the relevant provisions of the Act in a proceedings under Section 154 of the I.T. Act, 1961. A mistake apparent on the record must be obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. A decision on debatable point of law is not a mistake apparent from the record. The power of the officers mentioned in Section 154 of the I.T. Act, to correct “any mistake apparent from the record” is undoubtedly not more than that of High Court to entertain a writ petition on the basis of an “error apparent on the face of the record”. 6. The Bombay High Court in (1967) 65 ITR 179 in the case of VOLKART BROTHERS AND OTHERS v/s INCOME TAX OFFICER, COMPANIES CIRCLE-IV (4), BOMBAY has held that the mistake apparent from the record in Section 154 must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on a point, on which, there may conceivably be two opinions. 7. Further this Court, in a judgment reported in (1977) 108 ITR 859(KAR) (COMMISSIONER OF INCOME TAX v/s MOOLCHAND 7 NARAINDAS) has held that Section 154 of the Act cannot be invoked where conceivably there can be more than one view and, according to one view, deduction of interest paid to the HUF of which the partner is the Kartha is allowable. 8. The reasoning of the Assessing Authority is that, the lease-cum- sale agreement executed by the KSSIDC on 25-10-1980 and thereafter the absolute sale deed was executed on 23-10-1993. The said property was sold on 25-9-1995 i.e. within three years period. The assessee was the absolute owner only for a period of one year and 11 months is totally misconceived. The Division Bench of this court in ITA NO.328/2003 disposed off on 13-12-2007 in the case of COMMISSIONER OF INCOME TAX v/s SAROJA B.K. has held that “When a party is put in possession of the property under the part performance of the agreement as contemplated under Section 53A of the Transfer of Property Act, the person who is in possession in such capacity has to be treated as a owner from the date on which, he was put in possession. If the same is taken into account, when the B.D.A. has allotted the site and put the possession of the property, if the property is sold on 8-5- 1997 it has to be treated as a long term capital gain as he was enjoying for more than 36 months as contemplated under Section 2(42) of the Income Tax Act.” 8 In view of the law laid down by this Court, the order passed by the Assessing Authority which was confirmed by the First Appellate Authority cannot be sustained. 9. In view of the authoritative pronouncement of law interpreting Section 154 of the Act, the substantial question of law raised in this appeal is to be held against the revenue and this appeal is liable to be dismissed. Accordingly, we pass the following: ORDER The Appeal is dismissed. Sd/- JUDGE Sd/- JUDGE mpk/-* "