RANGRAJ ELECTRO PRODUCTS PVT LTD,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-14(1)(2), MUMBAI

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ITA 5369/MUM/2024Status: DisposedITAT Mumbai28 January 2025AY 2022-23Bench: SHRI SAKTIJIT DEY, V.P., SHRI GIRISH AGRAWAL, A.M. Rangraj Electro Products Pvt. Ltd., C/o Sumaria & Sumaria, Chartered Accountants, 807, Ecstasy Business Park, J.S.D. Road, Mulund (West)-4000801 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that brought forward business losses can be set off against short-term capital gains arising from the sale of depreciable assets, following jurisdictional High Court and Supreme Court precedents. The requirement of Section 72 of the Act does not restrict set-off only to profits from business or profession.

What were the facts?

The assessee transferred a capital asset forming part of a block of depreciable assets, deriving capital gain. They also had brought forward business loss. The assessee set off this brought forward business loss against the short-term capital gain derived from the asset sale. The CPC disallowed this set-off, and the First Appellate Authority upheld the disallowance.

What were the issues?

Whether brought forward business loss can be set off against deemed short-term capital gains taxable under Section 50 of the Income Tax Act, 1961.

Which sections of the Income-tax Act were involved?

Section 50,Section 72,Section 154

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI

Before: SHRI SAKTIJIT DEY, V.P. & SHRI GIRISH AGRAWAL, A.M.

For Appellant: Shri V.G. Ginde, Advocate And Shri Shri Kumar Kale, Advocate
For Respondent: Shri R.R. Makwana, Addl. CIT
Hearing: 16.01.2025
1.

This is an appeal by the assessee against order dated 20.08.2024 passed by National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year (AY) 2022-23.

2.

The short issue arising for consideration in the present appeal is, whether brought forward business loss can be set off against deemed short term capital gain taxable under Section (u/s.) 50 of the Income Tax Act, 1961 (in short the ‘Act’).

3.

Briefly, the facts are, in the year under consideration, the assessee had transferred certain capital asset forming part of a block of depreciable assets and derived capital gain. The assessee had also brought forward business loss. In the return of income filed for the impugned assessment year, assessee had set off the brought forward business loss against the short-term capital gain derived in terms of Section 50 of the Act. While processing the return of income, the Centralized Processing Centre (CPC) did not allow set off of brought forward business loss against the deemed short term capital gain. Thereafter, assessee filed an application u/s. 154 seeking rectification, which was rejected by the CPC.

4.

Challenging such rejection, the assessee preferred an appeal before the First Appellate Authority. While deciding the appeal, the First Appellate Authority, referring to Section 72 of the Act, held that brought forward business loss can be set off only against the profit and loss of business and profession assessable for that assessment year and it cannot be set off in any other manner. Accordingly, he dismissed assessee’s appeal.

5.

We have heard the parties and perused the materials on record. Having gone through the judicial precedents cited before us by learned counsel for the assessee in course of hearing, it is observed that the Hon’ble Jurisdictional High Court has decided identical issue in favour of the assessee in case of PCIT vs. Alcon Developers, [2021] 128 taxmann.com 371 (Bombay). The observations of the Hon’ble Court while deciding the issue are as under:

“28. Thus, it is quite clear that the view taken by the ITAT in its impugned order dated 15-9-2016, is entirely consistent with the view taken by the coordinate bench of the ITAT in Digital Electronics Ltd. (supra). As was noted by this Court in Hickson & Dadajee (P.) Ltd. (supra), the Revenue, has accepted the decision of the ITAT in Digital Electronics Ltd. (supra). Based thereon, this Court has accepted the position that it is not the requirement of section 72 of the said Act that such gain or profit must be taxable only under the head of "profits and gains of business or profession". The carry forward business losses would therefore be set off against the short-term capital gains on the sale of building, plant, and machinery. This is yet another reason not to accept the submissions of Ms. Linhares and to answer the substantial questions of law against the Revenue and in favour of the assessee.”

6.

Notably, the Special Leave Petition (SLP) filed by the Revenue against the aforesaid decision of the Hon’ble Jurisdictional High Court has been dismissed by the Hon’ble Supreme Court, of course, due to low tax effect. Identical issue has been decided in favour of the assessee by the Coordinate Bench in case of Digital Electronics Ltd. vs. Addl.

Commissioner of Income Tax [2011] 16 taxmann.com 316 (Mumbai), and the decision has been upheld by the Hon’ble Jurisdictional High Court. Thus, respectfully following the ratio laid down in the judicial precedents noted above, we direct the Assessing Officer to allow assessee’s claim of set off of carried forward business loss against the deemed short term capital gain computed u/s. 50 of the Act.

7.

In the result, appeal is allowed.

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