THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1),, GUNTUR vs. ANDHRA TRADE DEVELOPMENT CORPORATION PRIVATE LIMITED, GUNTUR

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM

BEFORE SHRI N.K. CHOUDHRY, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON'BLE ACCOUNTANT MEMBER I.T.A. No. 434/VIZ/2019 (Asst. Year :2015-16)

DCIT, Circle-1(1), vs. M/s. Andhra Trade Guntur. Development Corporation Pvt. Ltd., D.No. 8-24-13, ATDC Building, Mangalagiri Road, Guntur. PAN No. AABCA 8777 C (Appellant) (Respondent)

C.O.No. 05/VIZ/2020 (Arising out of I.T.A. No. 434/VIZ/2019) (Asst. Year :2015-16)

M/s. Andhra Trade vs. DCIT, Circle-1(1), Development Corporation Guntur. Pvt. Ltd., D.No. 8-24-13, ATDC Building, Mangalagiri Road, Guntur. PAN No. AABCA 8777 C (Applicant) (Respondent)

Assessee by : Shri G.V.N. Hari, Advocate. Department by : Shri K.S. Rajendra Kumar, CIT DR

Date of hearing : 28/04/2021. Date of pronouncement : 05/05/2021.

2 ITA No. 434/VIZ/2019 C.O.No. 05/VIZ/2020 (M/s. Andhra Trade Development Corporation Pvt. Ltd.)

O R D E R PERD.S. SUNDER SINGH, ACCOUNTANT MEMBER

This appeal by the Revenue and the cross objection by the assessee are directed against the order dated 04/04/2019 impugned herein passed by the ld.Commissioner of Income Tax (Appeals)-2 [for short, “ld. CIT(A)”], Guntur, u/sec. 250(6) of the Income Tax Act, 1961 (hereinafter referred to as "Act") for the A.Y. 2015-16.

3 ITA No. 434/VIZ/2019 C.O.No. 05/VIZ/2020 (M/s. Andhra Trade Development Corporation Pvt. Ltd.)

Digital Electronics Ltd. Vs. Addl.CIT [(2011) 16 taxmann.com 316 (Mumbai)]and M/s.Nirmal Plastic Industries (ITA No.6428/MUM /2009) and allowed the appeal of the assessee.

“On careful perusal of the return, it was noticed that the appellant was having Rs. 4,96,42,048/- as brought forward business loss (other than loss from speculative business and specified business). This loss pertains to assessment year 2008- 09, 2009-10 & 2014-15. In view of the decision of jurisdictional ITAT, the brought forward business loss can be set off against short term capital gains of the year as the same was resulted on account of sale of depreciable asset. The Hon'ble ITAT, Visakhapatnam relying on the decision of Hon'ble Supreme Court in thecase of Western States Trading Co. (P) Ltd. (80 ITR 21) and also the decision of Hon'ble Madhya Pradesh High Court in the case of Sri Kishan Chandmal (60 ITR 303) held that unabsorbed depreciation and business loss can be set off against short term capital gains computed u/s. 50 ofthe Act. In the present case, the appellant in the return clearly mentioned that capital gains arose on account of sale of depreciable asset. The relevant part of the order of Hon'ble ITAT, Visakhapatnam is reproduced as under: "6.1. As contended by the learned Authorised Representative, the gain arising on sale of depreciable assets is taxed as short-term capital gain in view of the legal fiction created by section 50 of the Act. Otherwise, such gain is normally treated as part of business receipt only. The l-lon1ble Madhya Pradesh High Court in the case

4 ITA No. 434/VIZ/2019 C.O.No. 05/VIZ/2020 (M/s. Andhra Trade Development Corporation Pvt. Ltd.)

of Shrikishan Chandmal (supra) has held that the dividend income from shares held as stock-in-trade which is assessable as "income from other sources", can be set off against brought forward business loss. The Hon'ble Supreme Court in the case of Western States Trading Co. (P) Ltd (supra) has also approved the decision of Hon'ble Madhya Pradesh High Court cited above. In view of the propositions laid down in the above cited case law, we are of the opinion that the assessee is entitled to claim set off of unabsorbed depreciation and eligible business loss, if any, against short-term capital gain computed under section 50 of the Act. Hence we find merit in the contention of the learned Authorised Representative, in any case, the dispute with regard to the eligibility of set off does not arise in respect of unabsorbed depreciation relating to assessment year 1996-97 and earlier years, in view of the decision of Hon'ble Madras High Court decision in the case of S & S Power Switchgear Ltd. supra). Accordingly, we direct the AO to allow set off of the eligible amount of unabsorbed depreciation and unabsorbed business loss against the short-term capital gain. 7. The learned CIT(A) vide para 7 of his order has raised a doubt regarding assessment of lease rentals under the head business. Inviting our attention to the above said observation of learned CIT(A), learned Authorised Representative submitted that the question of application of section 50 of the Act will not arise if the income of the assessee is not assessable under the head business. We do not wish to make any comment m this regard as the observation of learned CIT(A) was not an issue before the AO or before us. 8. In the result, the appeal of the assessee is partly allowed."

On identical set of facts the Hon'ble ITAT, Mumbai in the case of Digital Electronics Ltd., which was relied upon by the appellant directed the AO to grant set off of brought forward business loss. The relevant part of the order is as under:- 8. The AO, however, was not impressed by any of these submissions. He was of the view that the provisions of s. 72 are very clear that brought forward business losses can only be set off against profits and gains of business or profession and, therefore, brought forward business losses of Rs. 39,85,596 cannot be allowed to be set off against short-term capital gains. He, thus, declined to set off the claim of the assessee. Aggrieved by the stand of the AO, the assessee carried the matter in appeal before

5 ITA No. 434/VIZ/2019 C.O.No. 05/VIZ/2020 (M/s. Andhra Trade Development Corporation Pvt. Ltd.)

the CIT(A) but without any success. The CIT(A) upheld the stand of the AO and observed that there is no ambiguity in s. 72 and it cannot be said that the sale of capital asset will result into capital gains and the income earned shall be treated under the head 'Capital gains and not Income from business'. As regards the assessee's submissions placing reliance on the provisions of erstwhile s. 41(2), the CIT(A) observed that this plea is meaningless and the provisions of s. 50 are applicable to assessee's cases. Reference was also made on the decision of the Hon'ble Gujarat High Court in the case of CIT v. Millind Trading Co. (P.) Ltd. [1994] 76 Taxman 389/[1995] 211 ITR 690 , holding that there is no provision which gives option to the assessee to show the profit as income from one source and carry forward a loss from other source of income to the next year. The CIT(A) also referred to the judgment of the Hon'ble Supreme Court in the case of CIT v. Urmila Ramesh [1998] 96 Taxman 533 , holding that provisions of s. 41(2) as also s. 50 cannot apply to the same amount. It was in this backdrop that the CIT(A) concluded that the income which is to be assessed under the head "Capital gains" cannot be set off against business losses only because it has been generated from the sale of business assets. The action of the AO was thus upheld and in fact fortified by the CIT(A). The assessee is aggrieved and is in appeal before us. 9. We have heard the rival contentions and perused the material on record. Sec. 72 of the IT Act, inter alia, provides that "where for any assessment year, the net result of the computation under the head "Profits and gains of business 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 accordance with the provisions of s. 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 gains, if any, of any business or profession carried on by him and assessable for that assessment year ..........". It is thus clear that s. 72 of the Act provides that where for any assessment year, the net result of the computation under the head "Profits and gains of business 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 accordance with the provisions of s. 71, so much of the loss as has not been

6 ITA No. 434/VIZ/2019 C.O.No. 05/VIZ/2020 (M/s. Andhra Trade Development Corporation Pvt. Ltd.)

so set off is to be carried forward to the following assessment year and is allowable for being set off "against the profits, if any, of that business or profession carried on by him and assessable for that assessment year". It is thus for setting off the income that while the loss to be carried forward has to be under the head "Profits and gains of business or profession", the gains against which such loss can be set off, has to be profits of "any business or profession carried on by him and assessable in that assessment year". In other words, there is no requirement of the gains being taxable under the head "Profits and gains of business or profession" and thus, as long as gains are "of any business or profession carried on by the assessee and assessable to tax for that assessment year", the same can be set off against loss under the head profits and gains of business or profession carried forward from earlier years. In the case of CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306 (SC), their Lordships of the Hon'ble Supreme Court took note of this distinction and the implications of these provisions regarding carry forward and set off of business loss. It was noted by the Hon'ble Supreme Court that while one set of provisions, i.e., the nature of loss incurred by the assessee, classifies the same on the basis of income being taxable under a particular head for the purpose of computation of the net income, the other set of provisions is concerned, only with the nature of gains being from business and not with the head of tax. Their Lordships held that as long as the profits and gains are in the nature of business profits and gains, and even if these profits are liable to be taxed under a head other than income from business and profession, the loss carried forward can be set off against such profits of the assessee. In this view of the matter, the objection raised by the authorities below, in our humble understanding, are devoid of any legal substance. Coming to the judicial precedents cited by the CIT(A), we find that in the case of Millind Trading Co. (P.) Ltd. (supra), their Lordships were concerned with the question whether or not the assessee had option of not setting off the losses incurred against the income from different sources under the head "Business income". The issue was thus confined to the question as to how the total income for a particular assessment year is to be computed. This decision has no bearing on the issue in appeal before us. So far as the Hon'ble Supreme Court judgment in the case of Urmila Ramesh (supra) is concerned, it will have no bearing on the issue before us, because it refers to simultaneous application of s. 41(2) and s. 50 on the same amount. In contrast to that position, the short reference to s. 41(2) in the present case is to show the nature of income in

7 ITA No. 434/VIZ/2019 C.O.No. 05/VIZ/2020 (M/s. Andhra Trade Development Corporation Pvt. Ltd.)

contradistinction with the head under which it is to be assessed. Revenue thus does not derive any advantage from this decision. In view of these discussions and as also bearing in mind the entirety of the case, we are of the considered view that the income earned in the year before us, although not taxable as "profits and gains from business or profession" was an income in the nature of income of business nevertheless. The assessee was, therefore, indeed justified in claiming the set off of business losses against the income of capital gains. We uphold the grievance of the assessee and direct the AO to grant the set off. The assessee gets relief accordingly. The appellant also relied on the decision of Hon'ble ITAT, Mumbai in the case of M/s. Nirmal Plastic Industries (ITA No. 6428/MUM/2009). I have also perused the decision and found that the Hon'ble Tribunal allowed the claim of set off of brought forward business loss against capital gains computed u/s.50 of IT Act. Respectfully following the above decisions, including the decision rendered by jurisdictional Tribunal, the AO is hereby directed to allow the set off of brought forward business loss against short term capital gains of the year. The AO determined short term capital gains at Rs.3,01,79,750/- after set off of current year's business loss. The brought forward business loss as per the return is Rs.4,96,42,048/- which is more than capital gains determined by the AO. Hence, after allowing the set off of, there will be no income under the head short term capital gains. The appellant will be entitled to carry forward business loss of Rs.1,94,62,300/- only apart from long term capital loss to be carry forward as determined by the AO. The AO is directed to modify the order accordingly. The grounds of appeal filed by the appellant are allowed.”

8 ITA No. 434/VIZ/2019 C.O.No. 05/VIZ/2020 (M/s. Andhra Trade Development Corporation Pvt. Ltd.)

in the case of M/s. VisakhaJilla Nava Nirmana Samithi Vs. DCIT in ITA No. 152/VIZ/2019. For the sake of clarity and convenience, the relevant part of the order of this Tribunal in para 5 which reads as under:-

“5. We have heard both the parties, perused the material placed on record. As per the adjustments made by the CPC, Bangalore to the extent of Rs. 7,31,016/- u/sec. 143(1)(a) is an issue which required to be verified with the relevant documents. Therefore, the adjustments are not within the scope provided u/sec. 143(1) (a) of the Act. As per proviso to section 143(1)(a), the AO is required to give an intimation before making such adjustments, either in writing or in electronic mode and the department has not demonstrated that it has given an intimation to the assessee proposing to make such adjustments. Therefore, the adjustment made by the CPC u/sec. 143(1)(a) is beyond the scope of the said section, hence, not permissible and accordingly deleted.” Even otherwise, the ld. CIT(A) has followed the decision of this Tribunal while allowing the set off of losses and the department did not place any other decision of the superior Court to controvert the decision relied upon by the ld. CIT(A) cited supra. Therefore, the issue is squarely covered by the decision of this Tribunal against the Revenue, hence, we find no reason to interfere with the order of ld. CIT(A) and dismiss the appeal of the Revenue.

9 ITA No. 434/VIZ/2019 C.O.No. 05/VIZ/2020 (M/s. Andhra Trade Development Corporation Pvt. Ltd.)

Order Pronounced in open Court on this 05th day of May, 2021.

Sd/- sd/- (N.K. CHOUDHRY) (D.S. SUNDER SINGH) Judicial Member Accountant Member

Dated: 05th May, 2021. vr/- Copy to: 1. The Assessee -M/s. Andhra Trade Development Corporation Pvt. Ltd., D.No. 8-24-13, ATDC Building, Mangalagiri Road, Guntur. 2. The Revenue –DCIT, Circle-1(1), Guntur. 3. The Pr.CIT, Guntur. 4. The CIT(A)-1, Guntur. 5. The D.R., Visakhapatnam. 6. Guard file. By order

(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.