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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI RAJESH KUMAR
PER MAHAVIR SINGH, J.M: This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax(Appeals)-8, Mumbai, dated 25-11-2016 in Appeal No. CIT(A)-8/IT-622/14-15. The assessment was framed by the Income Tax Officer-3(1)(2), Mumbai, u/s. 143(3) of the Income Tax Act, 1961 [herein after referred to as ‘Act’] for the AY.2011-12, vide order dated 03-03-2014.
The first issue in this appeal of assessee is raised by way of Ground No.2 as regards the order of CIT(A), confirming the action of AO in disallowing Foreign Travel Expenses amounting to ₹ 4,92,098/-.
At the outset, Ld. Counsel for the assessee stated that he has instructions as per the assessee, not to press this issue and hence the same is dismissed, as not pressed.
The second issue in this appeal of assessee is against the order of CIT(A), confirming the disallowance of expenses incurred towards transfer of office premises. For this, assessee has raised following Ground No.3:
“3. Disallowance of expenses incurred towards transfer of office premises Rs.4,09,966/- i. The Ld. CIT(A) erred in upholding the action of the Ld. A.O in disallowing an amount of Rs.4,09,966/- incurred towards transfer of office premises, which has been offered for tax during the impugned assessment year without appreciating the fact that the expenditure incurred was inextricable linked to the transfer of premises. Hence, the disallowance of expenses amounting to Rs.4,09,966/- is unjustified and the same may be deleted”.
We have heard rival contentions and gone through the facts and circumstances of the case. We noted that the assessee has declared Short Term Capital Gain (STCG) u/s.50 of the Act in respect of sale of immoveable property being office premises amounting to ₹ 2,45,90,740/-. The assessee claimed expenses in respect of sale of property on account of maintenance charges and building amenities. The AO held that these expenses are in respect of maintenance charges and building expenses and cannot be allowed as deduction while computing STCG u/s. 50C of the Act. The CIT(A) also affirmed the action of AO by observing in paras 5.5.1& 5.5.2 as under:
“5.5.1. This relates to disallowance of Rs.4,09,966/- related to transfer of premises with regard to computation of short term capital gain u/s.50. The Assessing Officer has discussed this issue under Para 6 of his order. The explanation of the appellant vide letter dated 23/01/2014 has been tabulated under para 6.2. This has been noted in the contentions of the appellant reproduced above. The Assessing Officer observed that the appellant had not been able to establish how expenses on maintenance, building and amenity charges and legal charges were in relation to transfer of the premises. 5.5.2. During appellate proceedings, the appellant did not produce any document in support of the claim or valid justification that the impugned expenses were necessary for effecting the transfer. Therefore, I do not find any reason to interfere with the findings of the Assessing Officer. Disallowance of expenses of Rs.4,09,966/- is upheld. This ground of appeal is dismissed”.
6. Before us the assessee has not seriously contested this issue and we also noted that even before CIT(A) and before us also, assessee could not show us the justification of these expenses relatable to the STCG. We noted that these are not the expenses allowable while computing income under the head ‘Short Term Capital Gain’ u/s. 50 of the Act. Hence, we dismiss this issue of assessee.
7. The next issue in this appeal of assessee is against the order of CIT(A) confirming the action of AO in denying the benefit of set-off of depreciation of earlier years. For this assessee has raised the following Ground No.4:
“4. Denying the benefit of set off of depreciation of earlier years unjustified- Rs.20,74,619/- i. The Ld.CIT(A) erred in confirming the action of Ld. A.O. in denying the benefit of set off of depreciation of earlier years without appreciating the facts and circumstances of the case. The Appellant prays that the disallowance of set off of carried forward depreciation of earlier years is not at all justified and the same may be deleted. ii. Ld.CIT(A) failed to appreciate that the Appellant's case is governed by the provisions of section 32(2) of the Act as applicable to the impugned assessment year. Hence, denying the benefit of set off of depreciation of Rs.20,74,619/- pertaining to earlier assessment years against the income of the impugned assessment year are not at all justified and the same may be deleted”.
The AO noted that the assessee has wrongly claimed carry forward of un-absorbed depreciation relating to AYs.1999-2000, 2000-01 & 2001-02 amounting to ₹20,74,619/-, against the current year’s income. According to the AO the assessee is entitled to carry forward un-absorbed depreciation for maximum eight years from the end of assessment year immediately succeeding to the assessment year, for which it was first computed. Thus, according to the AO, the un-absorbed depreciation for these three assessment years stood lapsed for the year under consideration i.e. AY.2011-12. The AO relied on the decision of the Special Bench of ITAT, Mumbai in the case of DCIT Vs. Times Guaranty Limited (2010) [4 ITR (Trib.) 210 (Mumbai) (SB). Aggrieved, assessee is in appeal before the CIT(A).
9. The CIT(A) also affirmed the action of AO by relying on the observations of Special Bench of ITAT in the case of DCIT Vs. Times Guaranty Limited(supra) and held that -unabsorbed depreciation for AYs.1999-2000, 2000-01 & 2001-02 and earlier assessment years cannot be carried forward beyond eight years. He also dismissed this ground of assessee. Aggrieved, assessee is now in appeal before the Tribunal.
We have heard rival contentions and gone through the facts and circumstances of the case. We noted that this issue is squarely covered by the decision of the Co-Ordinate Bench of this Tribunal in the case of Maniar Injectoplast Pvt. Ltd., Vs. ITO in (AY.2010-11), dt.25-10-2017, wherein it was held as under:
“10. We have considered the rival contentions and gone through the facts and circumstances of the case. We find that this issue is squarely covered by the decision of Hon'ble Gujarat High Court in the case of General Motors India (P.) Limited Vs. DCIT [2013] 354 ITR 244 (Gujarat), wherein the issue regarding unabsorbed depreciation available to assessee as on 01-04-2002 will be dealt in accordance with provisions of section 32(2) as amended by the Finance Act 2001 and not by the provisions of Section 32(2) of the Act as it stood before the amendment Hon'ble Gujarat High Court in General Motors India (P ) Limited (supra), finally held as under:- "37. The CBDT Circular clarifies the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of 8 years for carry forward and set oft of unabsorbed depreciation. The amendment is applicable from assessment year 2002-03 and subsequent years. This means that any unabsorbed depreciation available to an assessee on 1stday of April, 2002 (A.Y 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 and not by the provisions oi section 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow the unabsorbed depreciation allowance worked out in A.Y.1997-98 only for eight subsequent assessment years even after the amendment of section 32(2) by Finance Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision. Hence keeping in view the purpose of amendment of section 32(2) of the Act, a purposive and harmonious interpretation has to be taken. While construing taxing statutes, rule of strict interpretation has to be applied, giving fair and reasonable construction to the language of the section without leaning to the side of assesses or the revenue. But if the legislature fails to express clearly and the assesses becomes entitled for a benefit within the ambit of the section by the clear words used in the section, the benefit accruing to the assesses cannot be denied. However, Circular No. 14 of 2001 had clarified that under Section 32(2), in computing the profits and gains of business or profession for any previous year, deduction of depreciation under Section 32 shall be mandatory. Therefore, the provisions of section 32(2) as amended by Finance Act, 2001 would allow theunabsorbed depreciation allowance available in the A Y. 1997-98, 1999-2000, 2000-01 and 2001-02 to be carried forward to the succeeding years, and if any unabsorbed depreciation or part thereof could not be set off till the AY. 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years.
Therefore, it can be said that, current depreciation is deductible in the first place from the income of the business to which it relates If such depreciation amount is forger than the amount of the profits of that business, then such excess comes for absorption from the profits and gains from any other business or business, if any, earned on by the assesses. If a balance is left even thereafter, that becomes deductible from out of income from any source under any of the other heads of income during that year. In case there is a still balance left over, it is to b& treated as unabsorbed depreciation and it is taken to the next succeeding year Where there is current depreciation for such succeeding year the unabsorbed depredation is added to the current depreciation for such succeeding year and is deemed as part thereof If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance tor such succeeding year. We are of the considered opinion that any unabsorbed depreciation available to an assesses on 1st day of April 2002 (A.Y 2002- 03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No.14 of 2001 clarified that the restriction of8
years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depredation from A.Y. 1997-98 upto the AY. 2001-02 got carried forward to the assessment year 2002-03 and became partthereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. " Respectfully following the Hon'ble Gujarat High Court in General Motors India (P) Limited (supra), we direct the AO to re-compute the unabsorbed depreciation without any limitation in term of the decision. This issue of the assessee's appear is remanded back to the file of the AO and allowed for statistical purposes.”
In view of the facts of the case and above precedent, we set aside the issue to the file of AO to give effect to depreciation. We order accordingly.
The next issue in this appeal of assessee is against the order of CIT(A) confirming the action of AO in denying the benefit of set-off of earlier years’ business losses against STCG chargeable u/s.50 of the Act, amounting to ₹1,28,25,523/-. For this, assessee has raising the following Ground No.5:
“5. Denying the benefit of Set off of earlier years business losses against Short Term Capital Gain chargeable under section 50 of the Act is against the provisions of law - Rs.1,28,25,523/- i. The Ld.C1T(A) erred in upholding the action of Ld. A.O. in denying the benefit of set off of carried forward business lossesof earlier years against the Short Term Capital Gains chargeable under section 50 of the Act without appreciating the facts and circumstances of the case. The Appellant, therefore, prays that denying the benefit of set off of business losses of earlier years amounting to Rs.1,28,25,523/- against the Short Term Capital Gain of the impugned assessment year is not at all justified and the same may be deleted. ii. The Ld. CIT(A] failed to appreciate that the gains arising on sale of the business assets was revenue in the nature, though it was taxed under the head 'Capital Gains'. Therefore, the unabsorbed business losses are eligible to set off against the capital gains charged to tax under section 50 of the Act. Hence, denying the benefit of set off of brought forward business losses of earlier years against the Short Term Capital Gain is not at all justified and the same may be deleted”.
Brief facts of the case are that assessee is engaged in the business of Foreign Exchange and Travel Agency. The assessee filed its return of income for AY.2011-12 declaring NIL income, after setting-off of business losses and un-absorbed depreciation of earlier years. During the year under consideration, the assessee had income from interest as well as STCG computed u/s. 50 of the Act. The assessee claimed year-wise business losses and un-absorbed depreciation (the issue of un-absorbed depreciation has already been adjudicated vide above ground) pertains to AY.2008-09 amounting to ₹82,26,254/- and for AY.2010-11, amounting to ₹45,98,269/-. It was claimed by assessee before the AO that during the relevant year the assessee has declared STCG amounting to ₹2,45,90,740/- with the sale of immoveable property being office premises u/s.50 of the Act. The said office premise was utilized by the assessee for its business purposes and has also claimed depreciation on the same in earlier years. As the assets sold was eligible for STCG and was used for the business purposes, the assessee while filing the return of income, claimed the set-off of un-absorbed depreciation and brought forward business losses of earlier years against this income of STCG. The AO disallowed the set-off of un- absorbed business losses for the reason that even loss is against STCG u/s.50 of the Act, cannot be set-off rather these can be set-off only against business income. The CIT(A) also affirmed the action of AO. Aggrieved, now the assessee is in appeal before the Tribunal.
We have heard rival contentions and gone through the facts and circumstances of the case. The short question before us is only brought forward business loss or brought forward depreciation can be set-off against STCG, arising u/s.50 of the Act on sale of office premises. We noted that this issue has been dealt by the Co-ordinate Bench of this Tribunal in the case of ITO Vs. Smart Sensors & Transducers Ltd., [176 ITD 104 / 104 taxmann.com 129 (Mumbai-Trib), wherein the Tribunal has considered the following decisions:
(i) CIT Vs. Manali Investments [39 taxmann.com 4/219 Taxman 113 (Mag.)]; (ii) CIT Vs. ACE Builders (P) Ltd., [144 Taxman 855 / 281 ITR 210 (Bom)]; (iii) Raj Shree Roadlines (P) Ltd., Vs. ITO [IT Appeal No.1627 (Mum) 2012, dt.20-03-2013] and held as under: “8. We have heard the rival contentions and gone through the facts and of the case. We find that Hon'ble Bombay High Court in the given facts has considered this issue in the case of Manali Investments (supra), wherein, the question referred before the Hon'ble High Court reads as under:
Whether on the facts and in the circumstancesof thecase and in law, the Tribunal was correct in holding that the assessee is entitled to set- off under Section 74 in respect of capital gain arising on transfer of capital assets on which depreciation has been allowed in the first year itself and which is deemed as short term capital gain under Section 50 of the Income Tax Act relying upon the judgment of this Court in the case of CIT v. ACE Builders (P.) Limited (281 ITR 210) even though the said decision was rendered in the context of eligibility of deduction under Section 54E
Hon'ble Bombay High Court has considered the issue of allowance of set off of long term capital loss in terms of section 74 of the Act against the short term capital gain computed under section 50 of the Act. Hon'ble High Court has observed that by virtue of Section 50 of the Act, only the capital gains is to be computed in terms thereof and be deemed to be short-term capital gains and this deeming fiction is restricted only for the purpose of Section 50 of the Act but the benefit of set off of long term capital loss under section 74 of the Act is to be allowed. Hon'ble High Court has also followed its decision in theCIT v. ACE Builders (P.) Ltd. [2005] 144 Taxman 855 / 281 ITR 210 (Bom.).
10. As regards to set off of business loss against gain on sale of depreciable asset of factory building by the assessee, we find that the co-ordinate Benchof the Tribunal in the case of Raj Shree Roadlines (P.) Ltd. v. ITO [IT Appeal No.1627 (Mum) 2012, dated 20-3-2013] has considered the issue of business lossof unabsorbed depreciation and eligible business loss can be set off against short term capital gain computed under section 50 of the Act We find that the Tribunal after considering the provisions of sections 32(2), 72(2) and 73(3) of the Act opined that while deciding the issue of earning forward of loss/ unabsorbed depreciation and the amendment made in these section from time to time are applicable for carrying forward of depreciation /loss with effect from 1.4.2002. For this proposition, the Tribunal has relied on the decision of Hon'ble Bombay High Court in the case of CIT v. Hathway Investments (P) Ltd. in [Income Tax Appeal (L) No. 405 of 2012 dated 31-1-2013]. We find the above proposition is supported by the decision of Hon'ble Bombay High Court in the case of Manali Investments (supra), wherein, it is held that short term capital gain computed undersection 50 of theAct canbe set off against brought forward capital loss and also brought forward business loss. Accordingly, we are of the