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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Before: Shri A. T. Varkey, JM & Shri Rajesh Kumar, AM ]
ITA No.32/Kol/2022 Infinity Infotech Parks Ltd. AY 2017-18 IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, KOLKATA [Before Shri A. T. Varkey, JM & Shri Rajesh Kumar, AM ] I.T.A. No. 32/Kol/2022 Assessment Year:2017-18 Infinity Infotech Parks Ltd. Vs. Principal Commissioner of Income-tax- (PAN: AABCI0692J) 1, Kolkata. Appellant Respondent
Date of Hearing 02.03.2022 Date of Pronouncement 18.04.2022 For the Appellant Shri Akkal Dudhwewala, FCA For the Respondent Md. Atahar H. Choudhury, CIT
ORDER Per Shri A. T. Varkey, JM: This appeal has been preferred by the assessee against the order of Ld. Pr. CIT, Kolkata-1 dated 15.12.2021 for AY 2017-18 u/s. 263 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).
In the several grounds raised in the appeal, the assessee has challenged the usurpation of jurisdiction by the Pr. C.I.T. u/s 263 of the Act, to interfere in the order dated 15.12.2019 passed by the Assessing Officer u/s 143(3) of the Act even though the assessment order was neither erroneous nor prejudicial to the interests of the Revenue.
The background facts of the case which led to the impugned order of the Ld. Pr. CIT is as under:
(i) The assessee company is engaged in the business of development of Software Technology Industrial Parks and related infrastructure facilities for IT, ITES and its end users. These projects have been conducted on the land parcels obtained on lease from the Government. Upon completion of the project, the entire cost so incurred for developing this business apparatus is capitalized under the head 'Fixed Asset'. The company exploits these constructed spaces by leasing them out. Accordingly, the
ITA No.32/Kol/2022 Infinity Infotech Parks Ltd. AY 2017-18 rental income derived by the assessee from short term leases of these properties is taxed as and by way of 'Business income' and the corresponding thereto, the depreciation is claimed on such leased fixed assets u/s. 32 of the Act. This factual position is not in dispute which has been accepted by the Revenue in all earlier years as well.
(ii) The assessee also grants long term lease of such constructed spaces in lieu of which it derives lump-sum lease premium, which is reduced/adjusted from the block of 'Fixed Assets' in terms of the deeming fiction set out in Section 43(6) read with Section 50 of the Act. Accordingly, when the block of asset ceased to exist, the excess/gain arising, after adjustment of the premium received from long term leases from the WDV of the asset, was computed and shown by way of deemed 'Short Term Capital Gain' u/s. 50 of the Act.
(iii) According to the assessee, these leased fixed assets were in the nature of 'business assets' and therefore although the gain derived from long term capital leases was deemed as short term capital gain u/s. 50 of the Act, but the nature and character of such income/gain continued to remain profit/gain derived from the business of leasing of properties Accordingly, the losses brought forward under the head 'Profit & Gain of Business' was adjusted from such reported short term capital gain in terms of Section 72(i) of the Act.
(iv) The above claim was first examined by the Revenue in AY 2015-16 and thereafter in A Y 2016-17 as well. After making enquiries and going through the judicial precedents on the issue, the Revenue had accepted the assessee's claim for set off of brought forward business losses with such deemed short term capital gain in the earlier years.
(v) Accordingly the assessee had filed its return of income for the A Y 2017-18 on 28.03.2018 declaring total income of Rs.59,94,725/-. The case was selected for scrutiny and the assessment was completed u/s. 143(3) of the Act on 15.12.2019 at total income ofRs~58,96,430/-.
ITA No.32/Kol/2022 Infinity Infotech Parks Ltd. AY 2017-18 (vi) Later on, the assessment records were called for and examined by the Ld. Pr. CIT, Kolkata-1 and after going through the same he issued a show cause notice dated 09.09.2021 u/s 263 of the Act, wherein it was observed that “there has been set off of brought forward business loss with the short term capital gain of Rs.5,41,41,587/- which is irregular and this has resulted in under charge of tax of Rs.1,62,62,837/-”. After considering the reply of the assessee, the Ld. Pr. CIT held as under:
“5. I have considered the facts of the case and submission of the assessee. In the instant case, from perusal of the assessment record it was observed that there has been set off of brought forward business loss with the short term capital gain of Rs.5,41,41,587/- which is irregular and this has resulted in under charge of tax of Rs.1,62,62,837-. ln the submission dated 11/12/2021, the assessee already stated that the leased assets were in the nature of 'business assets' and therefore the gain derived from long term capital leases were to be computed and disclosed as deemed short term capital gain u/s.50 of the Act but the nature and character of such income/gain continued to remain profit/gain derived from the business of leasing of properties. The A.O. has passed the assessment order without making enquiries or verification which should have been made in the instant case. Clause (a) and (b) of Explanation-2 to Section 263(1) is attracted in this case. Accordingly, it is held that the assessment order is erroneous in so far as it is prejudicial to the interest of revenue. Hence, in fitness of things, there is no alternative but to set aside the case to the AO, before whom the assessee is given another chance to argue his case.” Aggrieved by the aforesaid action of the Ld. Pr. CIT, the assessee is before us.
We have heard both the parties and perused the records. Since the assessee has challenged in the first place the very usurpation of jurisdiction by Ld. Principal CIT to invoke his revisional powers enjoyed u/s 263 of the Act, we have to first see whether the requisite jurisdiction necessary to assume revisional jurisdiction existed in this case before the Pr. CIT has exercised his revisional power. For that, we have to examine as to whether in the first place the order of the Assessing Officer found fault by the Principal CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedence laid down by the Hon’ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT.
ITA No.32/Kol/2022 Infinity Infotech Parks Ltd. AY 2017-18 The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer’s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him;[ because AO has to discharge dual role of an investigator as well as that of an adjudicator ]then in aforesaid any event the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. “prejudicial to the interest of the revenue’’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue “unless the view taken by the Assessing Officer is unsustainable in law”.
On the touch stone of the ratio laid down by the Hon’ble Supreme Court in Hon’ble Supreme Court in Malabar (supra), it is now required to be examined as to whether there is any merit in the appeal preferred by the assessee against the action of the Ld. PCIT to have invoked his revisional jurisdiction u/s. 263 of the Act. For that, first of all we would like to look into the facts pertaining to this case.
It is noted that, after going through the assessment records, the Ld. Pr. CIT had raised a specific issue that, the action of the AO allowing the set off of brought forward business loss with the short term capital gain of Rs.5,41,41,587/- was irregular and according to him
ITA No.32/Kol/2022 Infinity Infotech Parks Ltd. AY 2017-18 this has resulted in under charge of tax of Rs.l,62,62,S37/-. Assailing the action of the Ld. Pr. CIT, the assessee had explained their entire business apparatus and modus operandi of the business and thereafter, it was specifically pointed out that this issue raised in the show cause was no longer res integra, for which the assessee relied upon the decision of the Hon'ble Supreme Court in the case of CIT Vs. Cocanada Radhaswami Bank Ltd. (57 ITR 306) along with the following judgments:
(i) CIT Vs. Hickson & Dadajee P. ltd. (122 taxmann.com 94) (SC); (ii) Nandi Steels Ltd. Vs. ACIT (436 ITR 22S) (Kar HC); (iii) Digital Electronics ltd. Vs. ADIT (16 taxmann.com 316) (ITAT Mum) (iv) PCIT Vs. Alcon Developers (432 ITR 277) (Born HC)
The Ld. AR Shri Akkal Dudhwewala submitted that, instead of dealing with the submissions and judicial precedents placed on record by the assessee, the Ld. Pr. CIT simply set aside this issue back to the file of the AO for decision afresh. According to the Ld. AR Shri Akkal Dudhwewala, this action of the Ld. Pr. CIT was not sustainable. At the time of hearing, he reiterated the submissions which were made before the Ld. Pr. CIT on the merits of the claim. He further submitted that, when the specific objection of the Ld. Pr. CIT had been met with adequate explanation and it had been demonstrated that the claim of the assessee was in accordance with law, then the Ld Pr. CIT was unjustified in setting aside the order of the AO without first himself dealing with the explanation put forth by the assessee. On the allegation of non-enquiry by the AO, he pointed out that this issue of set off of brought forward business loss with the short term capital gain had in fact been raised by the AO in the earlier year i.e. in AY 2015-16 and thereafter by the same AO in AY 2016-17, who had framed the assessment for the relevant A Y 2017-18. After making enquiry on this aspect and upon going through the judicial precedents on this subject, the AO was satisfied with the assessee's claim of set off of brought forward business losses with the short term capital gain. The Ld. AR thus contended that it could not be alleged that the claim for set-off of loss was allowed without making any enquiry.
ITA No.32/Kol/2022 Infinity Infotech Parks Ltd. AY 2017-18 8. Per contra, the Ld. CIT DR vehemently opposing the submission of the Ld. AR, submitted that the Ld. Pr. CIT had the powers to interdict the order of the AO if it is found to be erroneous as well as prejudicial to the interest of revenue. According to him, the set off of brought forward business loss could have been done only with profits assessable under the head ‘Business’ and not from ‘Capital gain’. Therefore, according to him, the Ld. Pr. CIT has rightly set aside the order of AO which needs no interference from our part.
Having heard both the parties and after perusal of the record as noted by us, we find that the admitted facts of the case are that, the assessee company is engaged in the business of development of Software Technology Industrial Parks and related infrastructure facilities for IT, ITES and its end users on the land parcels obtained on lease from the Government. These IT Parks developed by the assesse are leased out to various IT & other companies on commercial basis. The spaces so constructed are sub-leased either on short term and long term basis. It is therefore clear that, the leasing activity is the core business activity of the assessee. The assesse develops these properties with the intent of commercially exploiting the same and derives profit therefrom. It is noted that the assesse derives primarily three streams of income from these constructed spaces viz., (a) rental income from short term leases, (b) service & maintenance charges for maintaining the properties and providing amenities therein and (c) lease premium upon grant of long term sub-leases. It is noted that, the rental income and service & maintenance charges derived by the assessee are offered and taxed as and by way of 'Business income’. This position has been accepted by the Department all along. Accordingly, the constructed spaces are reflected as ‘Fixed Assets’ of this leasing business in the books of the assessee on which depreciation is claimed u/s. 32 of the Act, which has also been all along allowed as deduction from the ‘Business Income' of the assessee company. It is noted that, where the constructed spaces are given on long term leases, the assessee receives lump-sum lease premium. Although by nature, such premium bears the character of income derived from the leasing business, but by virtue of the Section 43(6) of the Act, such lease premium is treated to be ‘consideration’ received/accrued upon transfer of the fixed asset, which is accordingly reduced/ adjusted from the block of 'Fixed
ITA No.32/Kol/2022 Infinity Infotech Parks Ltd. AY 2017-18 Assets'. Accordingly, when the block of asset ceases to exist, the excess/gain upon adjustment of the premium received from long term leases from the WDV of the depreciable asset, is deemed to be in the nature of 'Short Term Capital Gain' u/s. 50 of the Act. According to the assesse, such deemed short term capital gain arising from long term leases constitutes profits and gains derived from any business carried on by the assessee and therefore any brought forward loss which is assessed under the head ‘Profits & Gains of Business or Profession’ is eligible to be set-off in terms of Section 72(1)(i) of the Act. This according to the Revenue is not permissible.
In order to address the above dispute, it is first relevant to examine the provisions of Section 72 of the Act, which reads as under:
“Section 72 of the Act provides as follows:
(1) 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 section 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, of any, business or profession carried on by him and assessable for assessment year;
(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on” 11. A careful reading of the above Section shows 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 section 71, so much of the loss as has not been 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". Hence, for claiming set-off under this Section, the loss to be carried
ITA No.32/Kol/2022 Infinity Infotech Parks Ltd. AY 2017-18 forward has to be under the head "Profits and gains of business or profession", but 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 set out in Section 72 of the Act that the gains from any business or profession carried on by the assessee has to be taxable under the head "Profits and gains of business or profession". Thus, as long as gains are "of any business or profession carried on by the assessee and assessable to tax for that assessment year", then the same can be set off against loss under the head profits and gains of business or profession carried forward from earlier years. 12. From the facts as noted in Para 9 above, we agree with the Ld. AR of the assessee, that the short term capital gain derived from the ‘long term leases’ granted in the course of leasing business by the assessee before the character of profits and gains of the business carried on by the assessee and therefore the loss assessed under the head "Profits and gains of business or profession" brought forward from earlier years could be set-off in terms of Section 72(1)(i) of the Act. The fact that such gain derived from leasing business was taxable under the head ‘Capital Gain’ was of no relevance, as there is no condition attached in sub-clause (i) of Section 72(1) of the Act, that such profits/gains of the business, against which set-off is being claimed, is also to be taxed under the head ‘Profits & Gains of Business or Profession’, the profits/gains of any business or profession carried on by the assessee in the relevant assessment year, is also to be taxed under the head "Profits and gains of business or profession". Hence, in our view, the argument advanced by the Ld. CIT, DR that Section 72(1)(i) of the Act permits only set off of brought forward loss assessed under the head "Profits and gains of business or profession" from the profits/gain assessed under the same head "Profits and gains of business or profession" is untenable on the extant provisions itself. 13. It is noted that this same issue was considered by the Hon’ble Supreme Court in the case of Cocanada Radhaswami Bank Ltd (supra). In the decided case the assessee bank had derived 'interest from securities' held by it which was taxable under the head ‘Income from Other Sources’. The assessee had claimed set-off for the business loss from banking activities brought forward from earlier years against 'interest from securities'. The ITO
ITA No.32/Kol/2022 Infinity Infotech Parks Ltd. AY 2017-18 denied the claim on the premise that, the brought forward 'business loss' could be set-off only against income assessed under the head ‘Business’. On appeal the Hon'ble Supreme Court examined the then provisions of 24(2) of the Indian Income-tax Act, 1922 [Section 72 of the Income-tax Act, 1961] and took note of the above discussed distinction and the implication regarding carry forward and set off of business losses. The Hon’ble Apex Court held that, while the determination and carry forward of the nature of loss incurred by the assessee, gets classified on the basis of income being taxable under a particular for the purposes of computing the same, but the set off for such loss is concerned only with the nature of profit or gain and not the head under which such profit or gain is being taxed. The Court held that as long as the profit or gain bore the character of income derived from a business / trading asset, then irrespective of the fact that it was being taxed under a different head of income, the brought forward business loss was liable to be set off against such profit or gain. The relevant findings of the Court is extracted hereunder:
“While sub-section (1) of section 24 provides for setting off of the loss in a particular year under one of the heads mentioned in section 6 against the profits under a different head in the same year, sub-section (2) provides for the carrying forward of the loss of one year and setting off of the same against the profits or gains of the assessee from the same business in the subsequent year or years. The crucial words, therefore, are "profits and gains of the assessee from the same business", i.e., the business in regard to which he sustained loss in the previous year. The question, therefore, is whether the securities formed part of the trading assets of the business and the income there from was income from the business. The answer to this question depends upon the scope of section 6 of the Act. Section 6 of the Act classified taxable income under the following several heads: (i) salaries; (ii) interest on securities; (iii) income from property; (iv) profits and gains of business, profession or vocation; (v) income from other sources; and (vi) capital gains. The scheme of the Act is that income-tax is one tax. Section 6 only classifies the taxable income under different heads for the purpose of computation of the net income of the assessee. Though for the purpose of computation of the income, interest on securities is separately classified, income by way of interest from securities does not cease to be part of the income from business if the securities are part of the trading assets. Whether a particular income is part of the income from a business falls to be decided not on the basis of the provisions of section 6 but on commercial principles. To put it in other words, did the securities in the present case which yielded the income form part of the trading assets of the assessee? The Tribunal and the High Court found that they were the assessee's trading assets and the income there from was,
ITA No.32/Kol/2022 Infinity Infotech Parks Ltd. AY 2017-18 therefore, the income of the business. If it was the income of the business, section 24(2) of the Act was immediately attracted. If the income from the securities was the income from its business, the loss could, in terms of that section, be set off against that income.
A comparative study of sub-sections (1) and (2) of section 24 yields the same result. While in sub-section (1) the expression "head" is used, in sub-section (2) the said expression is conspicuously omitted. This designed distinction brings out the intention of the legislature. ….. ..Be it noted that clause (2) of section 24, in contradistinction to clause (1) thereof, is concerned only with the business and not with its heads under section 6 of the Act. Section 24, therefore, is enacted to give further relief to an assessee carrying on a business and incurring loss in the business though the income there from falls under different heads under section 6 of the Act. (emphasis supplied)
The Ld. AR also brought to our notice that, the provisions of Section 24(2) of the erstwhile Income-tax Act, 1922 was akin to Section 72(1)(i) of the Act. In fact, he pointed out that the scope of set off under section 72(1)(i) of the Act was wider than Section 24(2) in as much as, earlier the loss assessed under the head ‘Business’ could be carried forward and set off only against the profits and gains derived from the same business, but under the present provision of Section 72(1)(i) of the Act, the loss assessed under the head ‘Profits & Gains of Business or Profession’ could be set-off against the profits and gains derived from any business. We find merit in this submission of the Ld. AR. On the above issue, we may also gainfully refer to the decision of the Hon’ble Bombay High Court in the case of CIT Vs Hickson and Dadajee (P) Ltd (supra). In the decided case, this same question came up for consideration before the Hon’ble High Court, which is reproduced hereunder:
"(i) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing set off of brought forward business loss against deemed short term capital gains arising from sale of building and plant and machinery?
The Hon’ble High Court answered the above question in favour of the assesse, by holding as under:
“3.Regarding question no. (i):—
ITA No.32/Kol/2022 Infinity Infotech Parks Ltd. AY 2017-18 (a) The impugned order of the Tribunal allowed the appeal of the respondent-assessee on the issue of set off of brought forward business losses against deemed short term capital gains arising on sale of building, plant and machinery. This was by following the decision of its Co-ordinate Bench in Digital Electronics Ltd. v. Addl. CIT [2011] 16 taxmann.com 316/[2012] 49 SOT 65. (Mum.) (URO) In Digital Electronics Ltd's case (supra) the Tribunal held that under section 72 of the Act, the loss under the head 'profits and gains of business or profession' can be carried forward and the same can be set off against profits of any business or profession. It is not the requirement of section 72 of the Act that such gain or profit must be taxable under the head 'profit and gains of business or profession'. Thus carry forward business loss was set off against short term capital gains on sale of building.
(b) Mr. Kotangale, the learned counsel, appearing for the Revenue very fairly states that the decision of the Tribunal in Digital Electronics Ltd's case (supra) has been accepted by the Revenue. Further no distinguishing features in the present facts have been shown to us, which would warrant taking of a different view from that taken by the Tribunal in Digital Electronics Ltd's case (supra) and accepted by the Revenue.
(c) In the above view, question no. (i) as proposed does not give rise to any substantial question of law. Thus not entertained.”
In the above judgment, the Hon’ble Bombay High Court took note of the decision of this Tribunal at Mumbai in the case of Digital Electronics Ltd Vs Addl. CIT (supra) wherein on similar set of facts and circumstances the Tribunal held that, there was no requirement in Section 72 of the Act that the loss determined under the head 'Business' could be carried forward and set off only against income reported under the same head viz., 'Business’. Taking note of the express language used in Section 72(1)(i), the Tribunal held that irrespective as to under which head the income was being classified, but if such income bore the character of profit or gain derived in the course of any business, then the brought forward business loss can be set-off against the same. Accordingly the Tribunal allowed the set-off or brought forward business loss from the deemed short term capital gain computed u/s. 50 of the Act on sale of business assets.
We note that Hon’ble Karnataka High court in the case of Nandi Steels Ltd. (supra) had also dealt with a similar issue. In the instant case also, the ld. Pr. CIT had exercised revisionary jurisdiction u/s 263 of the Act and had proposed to deny the claim for set off of
ITA No.32/Kol/2022 Infinity Infotech Parks Ltd. AY 2017-18 brought forward business loss claimed against capital gain arising upon sale of capital asset which was used for the purposes of business. The Hon’ble High Court following the ratio of the decision of the Hon’ble Supreme Court in the case of Cocanada Radhaswami Bank Ltd. (SC) (supra) answered the question of law in favour of assesse. The question of law framed before the Hon’ble High Court and answer given therein, was as follows:
“(i) Whether the Tribunal was justified in law in not allowing the set-off of carry forward business loss of Rs. 39,99,652/-against capital gain arising on sale of business asset used for the purpose of business on the facts and circumstances of the case? (ii) Whether the Tribunal was justified in law in not holding that the income arising out of sale of business assets has the character of business income, and consequently the income though assessed as capital gain is entitled to set-off against the carry forward business loss on the facts and circumstances of the case? The above question was answered by the High Court in favour of the assessee by holding as under: 14. Thus in Cocanada Radhaswami Bank Ltd. (supra) the Supreme Court dealt with section 24(2) of the Act which is pari materia with section 72 of the Act. Therefore, the aforesaid decision applies to the act situation of the case. In view of aforesaid enunciation of law, it is evident that the assessee is entitled to set-off brought forward loss against income which has the attributes of business income even though the same is assessable to tax under a head other than profits and gains from business. Therefore, the substantial questions of law 1 and 2 are answered in favour of the assessee and against the revenue.”
We find that same view was expressed by the Hon'ble Bombay High Court in the case of Pr. CIT Vs Alcon Developers (supra) wherein also the High Court upheld the order of this Tribunal quashing the revisionary order passed by the ld. Pr. CIT u/s. 263 of the Act holding the AO’s order was erroneous and prejudicial to the interests of the Revenue, since he (AO) had allowed the set off of brought forward business loss from the income assessable under the head 'Capital Gain'.
Having regard to the above, according to us, the ratio laid down in the above judgments is squarely applicable to the given facts of the present case. As stated earlier, the assessee is engaged in the business of developing & leasing out commercial properties. The activity of leasing such constructed spaces is undeniably its core business activity. Hence, these properties constructed by the assessee are its 'business asset' reflected by way of 'Fixed
ITA No.32/Kol/2022 Infinity Infotech Parks Ltd. AY 2017-18 Asset'. Undisputedly, the income derived from leasing these fixed assets on short term basis has all along been taxed as 'Business Income'. Under the scheme of the Act, the income from grant of ‘long term capital leases’ results in deemed transfer of fixed assets, and therefore by way of operation of deeming fiction set out in Section 50 of the Act, the excess/ gain over the WDV of the fixed asset has to be taxed as 'Short Term Capital Gain'. However, it cannot be denied that the act of entering into 'long term leases’ is the business activity of the assessee and the income, which is assessed by way of capital gain, bears the character of profits or gain derived from such leasing business. Hence, irrespective of under which head such income is taxable (‘short term capital gain’ in the present case), we are of the view that, the loss assessed under the head ‘Profits & Gains of Business or Profession’ in the preceding years and brought forward to the relevant year had been rightly claimed as set off against the profits or gain derived from long term leases assessed under the head 'Short Term Capital Gain'.
We further note that this particular issue was specifically enquired into by the AO in assessee’s own case for AY 2015-16. The Ld. AR of the assessee invited our attention to the notice dated 22.06.2017 issued u/s. 142(1) of the Act albeit for AY 2015-16 wherein the Question no. 2 reads as under (Page 38 of paper-book):
“2. Please give copy of Form 29B and Computation of Income. Give details and explanation of short term capital gains as appearing in the ‘computation of Total Income’ and legal basis of set off of business losses with capital gains income.”
And the assessee has replied as under (Page 41-42 of paper-book): “During the previous year 2014-15 we have derived gain from the transfer of depreciable assets consisting 'Building block' and ' Plant & Machinery block'. The excess of sale proceeds over the cost of acquisition of the block of the assets amounting to Rs.21,18,20,467/- is computed as 'Deemed Short Term Capital Gain' in accordance with Section 50 of the Income Tax Act, 1961. However, for the purpose of Section 72 the gain were treated as business income/profits derived from transfer of business assets and thus interpreted as the same available for set-off with brought forward unabsorbed depreciation and Business Loss of earlier years. The same were thus adjusted and set off with the 'Deemed Short Term Capital Gain' so derived from the transfer of depreciable assets. However, the software utility as downloaded from
ITA No.32/Kol/2022 Infinity Infotech Parks Ltd. AY 2017-18 income-tax. efiling website does not allow to set-off business loss against such business profits whIch is deemed to be short term capital gain u/s 50 and erroneously taking the resulting gain (after setting off the brought forward unabsorbed depreciation only) into consideration for computing the tax liability. Since the software is automated there was restriction in inserting any data in the columns under the title 'Brought forward loss set off' and 'Brought forward depreciation 'set off' in the Schedule BFLA to input the data of and Business Loss of earlier years. Due to such restriction and technical glitch, we were compelled to disclose the same as 'Any other item of addition under section 28 to 44DA' in the item no. 23 of Schedule - BP of ITR- 6 for AY 2015-16 instead of in the items No. 16 of Schedule DPM and Schedule DOA. From the resultant income we have set off the brought forward unabsorbed depreciation amounting to Rs. 5,54,57,363/- and Business Loss of earlier years amounting to Rs.5,07,28,544/-. Moreover, the ITR software does not allow us put any note or disclosure to set forth our treatment of the income and set off of the losses.”
After examining the above issue, the AO had accepted the set-off for b/f business loss claimed by the assessee against the deemed short term capital gain in AY 2015-16 in the assessment order dated 18.12.2017 [Pages 43-46 of paperbook]. We note that identical explanation was also furnished by the assessee in the income-tax assessment for AY 2016- 17 which was accepted in the assessment completed u/s 143(3) on 26.12.2018. Copies of the notice, reply and the assessment is found available at Pages 47 to 62 of the paper-book. It was brought to our attention that the Assessing Officer who passed the assessment order for AY 2016-17 was the same Assessing Officer who framed the income-tax assessment for the relevant AY 2017-18. It is therefore noted, that the AO had applied his mind to this particular claim of the assessee in the earlier years and had been accepted and, therefore, when the same claim had been raised in the relevant year as well, the AO had rightly accepted it, in absence of any change of facts or position of law, which permeated through the earlier assessment years. In our view therefore, the AO could not have disturbed the aforesaid settled position. For that, we rely on the decision of Radhasoami Satsang Vs CIT (193 ITR 321).
For the reasons set out above, we hold that the AO had correctly allowed the set off of brought forward business loss against the short term capital gain in the relevant year and
ITA No.32/Kol/2022 Infinity Infotech Parks Ltd. AY 2017-18 therefore AO's order cannot be termed as 'erroneous' for paving way to invoke the revisional jurisdiction of Ld. Pr. CIT under of Section 263 of the Act.
We also note in the instant case that, although the assessee had explained the above issue in detail to the Ld. Pr. CIT supported with judicial precedents, the Ld. Pr. CIT however did neither himself examine this issue nor recorded his own finding proving that the explanations furnished by the assessee suffered from any infirmity and because of which he found that the view adopted by the AO was unsustainable in law making his order as erroneous within the meaning of Section 263 of the Act. In our opinion, once the Ld. Pr. CIT initiates the proceedings u/s 263 of the Act for specific reasons and these reasons are met by the assessee, then it was incumbent upon the Ld. CIT to himself independently deal with the objections and record his own satisfaction to prove that the AO's order is in fact erroneous and prejudicial to the interests of the Revenue for the reasons out in the SCN. The Ld. CIT in such a situation cannot merely set aside the assessment order directing AO to pass the order of assessment afresh, effectively giving the AO a second innings without establishing that the assessment order was indeed erroneous as well as prejudicial to the interests of the Revenue. In this regard, we may refer to the observations and the decision rendered by the Hon'ble Delhi High Court in the case of ITO v. D.G. Housing Projects Ltd. [2012] 20 taxmann.com 587/[2013] 212 Taxman 132 (Mag.)/343 ITR 329, which is reproduced below:
"19. In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent's computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous
ITA No.32/Kol/2022 Infinity Infotech Parks Ltd. AY 2017-18 and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not."
We therefore hold that the order of the Ld. Pr. CIT merely setting aside the AO's order without independently dealing with merits of the issue was untenable and therefore the same is set aside.
For the various reasons set out above, we hold that the AO’s order cannot be held to erroneous as well as prejudicial to the interest of the revenue. Therefore, since AO’s order is valid in the eyes of law as per the law laid by the Hon’ble Supreme court and various other High courts, we find that the Ld. Pr. CIT erred in interfering/interdicting the order of the AO on this issue. Therefore, the assessee succeeds and we are of the opinion that the Ld. Pr. CIT lacks jurisdiction to interfere in this case so, we quash the impugned order of the Ld. Pr. CIT.
In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 18th April, 2022.
Sd/- Sd/- (Rajesh Kumar) (Aby. T. Varkey) Accountant Member Judicial Member Dated : 18th April, 2022 JD(Sr.P.S.)
ITA No.32/Kol/2022 Infinity Infotech Parks Ltd. AY 2017-18 Copy of the order forwarded to: 1. Appellant – Infinity Infotech Parks Ltd., Plot A3, Block GP Infinity Tower, Sec-V, Saltlake, Kolkata-700 091. . 2 Respondent – Pr.CIT, Kolkata-1. 3. ACIT, Circle-2(1), Kolkata.. 4. CIT , Kolkata 5. DR, ITAT, Kolkata. (sent through e-mal)
/True Copy, By order, Assistant Registrar