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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI AMARJIT SINGH
आदेश / O R D E R Per Amarjit Singh (AM): The present appeal filed by the assessee is directed against the order passed by the ld. CIT(A)-47, dated 01.06.2018 for A.Y. 2011-12. The assessee has raised the following grounds before us: “1. The learned Assessing office erred in reopening assessment under section 147 and the same is without Jurisdiction and bad in law. 2. The learned commissioner of income tax (Appeals) erred in not deciding on merits the grounds of appellant challenging want of jurisdiction in reopening the assessment.
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The Learned commissioner of income tax (appeals) erred in upholding by treating the gain on sale of a business asset of Rs.99,02,478 as short term capital gain and not allowing the business expenditure of Rs. 12,04,777. 4. The learned commissioner of Income Tax (Appeals) erred in upholding the disallowance of expenditure of Rs.12,04,777 incurred by the appellant. 5. The learned commissioner of Income tax (Appeals) erred in upholding the denial of setting off of brought forward losses of earlier years of Rs.2,89,561 against the deemed business income of Rs.99,02,478. 6. The Appellant pray's that a. It may be held that the reopening of the assessment under section 147 is without jurisdiction and bad in law and the assessment order may be annulled. b. It may be held that the Gain on sale of a business assets amounting to Rs.99,02,478 be treated as deemed business income c. The business expenditure incurred of Rs.12,04,777 may be allowed as expenditure against the deemed business income. d. The set off of brought forward losses of earlier years of Rs.2,89,561 may be allowed against the deemed business Income. e. Any other reliefs your honors may deem fit. 7. The appellant craves leave to add, alter, amend or delete any or all the grounds of appeal.” 2. Fact in brief is that return of income declaring total income at Rs.84,08,300/- was filed on 26.03.2013. Assessment u/s 143(3) was completed on 28.03.2014 assessing the total income at Rs.86,97,860/-. Subsequently, the case of the assessee was reopened by issuing of notice u/s 148 of the Act on 13.04.2015. As per the reason recorded the assessee had earned a short term capital gain of Rs.99,02,478/- on depreciable assets, however, the assessee had shown the short term capital gain as business income in the return of income and further claimed expenses to the amount of Rs.12,04,777/-. After perusal of the submission of the assessee the A.O stated that as per Sec. 50 of the Act any gain or loss arising on sale of depreciable assets where entire block of assets ceases to exist shall be deemed to be the capital gain arising from transfer of short term capital assets. Therefore, the A.O was of the
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view that the case of the assessee clearly falls within the scope of Sec. 50 of the Act as per which gain arising on transfer of capital assets on which depreciation was claimed in earlier years and entire block of such assets ceases to exist needs to be treated as short term capital gain. In that case only expenses related to transfer of assets can be allowed to be claimed against short term capital gain. Therefore, the claim of deduction of general expenses to the amount of Rs.12,04,777/- was disallowed and added to the total income of the assessee. 3. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. 4. Heard both the sides and perused the material on record. Regarding Ground No. 1 & 2 of the assessee in respect of reopening assessment u/s 147 of the Act. 5. The original assessment u/s 143(3) was completed and order was passed on 28.03.2014. Therefore, the case was reopened u/s 147 of the Act within the 4 years of the assessment on 13.04.2015. On perusal of the record revealed that assessee had earned a short term capital gain of Rs. 99,02,478/- on depreciable assets, however, the assessee had shown the short term capital gain as business income in the return of income and further claimed expenses to the amount of Rs.12,04,777/-. During the course of assessment neither A.O has called any detail on the issue of assessing the income on sale of depreciable assets u/s 50C of the Act as short term capital gain nor assessee has filed any detail on this issue. It is also noticed that no any discussion on this issue has been made in the assessment order passed u/s 143(3) on 28.03.2014. Therefore, we consider that there was material on record on the perusal of which the
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A.O has issued notice u/s 148 of the Act within the period of 4 years on assessment and which demonstrate that A.O has valid reason to initiate the reassessment proceedings, therefore, we don’t find any merit in these grounds of appeal of the assessee the same stand dismissed. Ground No. 3 & 4: 6. During the year under consideration the assessee has sold depreciable assets and the entire block of assets has ceased to exist at the end of the financial year, therefore, the A.O has assessed the amount of Rs.99,02,637/- on sale of depreciable assets as short term capital gain as against business income claimed by the assessee and also disallowed the claim of expenses of Rs.12,04,777/-. We have perused the provision of Sec. 50 of the Act which are reproduced as under: “50. Notwithstanding anything contained in clause (424) of section 2, where the capital asset is an asset forming part of a block of assets" in respect of which depreciation has been allowed under this Act or under the Indian Income- tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications: (Provided that in a case where goodwill of a business or profession forms part of a block of asset for the assessment year beginning on the 1st day of April, 2020 and depreciation thereon has been obtained by the assessee under the Act, the written down value of that block of asset and short-term capital gain, if any, shall be determined in such manner as may be prescribed]”
After the introduction of Sec.50 of the Act any gain or loss on sale of any business assets on which deposit is claimed is deemed to be treated as short term capital gain or loss, though the receipt is in the nature of business income/receipts. We have perused the decision of coordinate bench of the ITAT in the case of Digital Electronics Ltd. Vs. Addl. CIT (2011) 16 taxmann.com 316 (Mum) wherein it is held that such income is of the nature of business and therefore, assessee is entitled to set off
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brought forward business loss against the income from capital gains. The relevant part of the decisions reproduced as under:
“9. We have heard the rival contentions and perused the material on record Sec 72 of the IT Act inter ala, 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 lots 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 71, so much of the loss as has not been so set off or, where he had no income under any other head, the whole loss shall, subject to the other provisions of this chapter, be cared 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 lots cannot be or is not wholly set off against income under any head of income in accordance with the provisions of s 71, se much of the loss as has not been so set off is to be canied 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 of 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 CTv Catonodo Rodhaswami Bank Ltd 119651,52 ITR 306 15C), 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, ie, 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 CITIAL, we find that in the case of Millind Trading Co. (P) Lid (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
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total income for a particular assessment year is to be computed. The 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(7) and s 50 on the same amount. In contrast to that position, the short reference to s 4112) in the present case is to show the nature of income in 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.”
We have also perused the decision of coordinate bench of ITAT, Mumbai in the case of ITO Vs. Smart Censor & Transduces Ltd. (2019) 104 taxman.com 129 wherein it is held that brought forward business loss and brought forward long term capital loss can be set off against short term capital gain arising as per Sec. 50 on sale of factory building being a depreciable assets. Following the decision of coordinate benches as supra it is observed that by virtue of Sec. 50 of the Act, only the capital gain is to be computed in terms thereof and it deemed to be short term capital gains and this deeming fiction is restricted only for the purpose of Sec. 50 of the Act without providing benefit of indexation, but the benefit of set off of business loss is to be allowed. Therefore we are of the considered view that the assessee is entitled to claim set off of business loss against the short term capital gain computed u/s 50 of the Act in the case of the assessee. Therefore, ground no. 3 & 4 of the assessee are allowed.
Ground No.5: Regarding denial of setting off of brought forward losses of earlier years of Rs.2,89,561/-:
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The ld. CIT(A) has not allowed this ground of appeal of the assessee holding that the issue of addition of Rs.2,89,561/- was not emanating from the reassessment order dated 14.12.2016 which was under challenge in the appellate proceedings. However, the assessee has not challenged the original order made u/s 143(3) of the Act wherein the said claim was not allowed. During the course of appellate proceedings before us assessee has not produced any material to controvert the finding of the ld. CIT(A) that this claim was not pertaining to the reassessment proceedings but pertained to the original assessment proceedings against which the assessee has not filed any appeal. Therefore, we don’t find any reason to interfere in the decision of ld. CIT(A). Accordingly, this ground of appeal of the assessee is dismissed. Ground No. 6: 8. Ground No. 6 is the summary of ground no. 1 to 5 which was not required any adjudication. 9. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 24.11.2022
Sd/- Sd/- (Vikas Awasthy) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 24.11.2022 Rohit: PS
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देश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. विभागीय प्रविवनवध, आयकर अपीलीय अवधकरण DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file.
सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.