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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
PER SUSHMA CHOWLA, JM:
The appeal filed by the assessee is against the order of CIT(A)-2, Nashik dated 12.01.2017 relating to assessment year 2013-14 against order passed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’).
The assessee has raised the following grounds of appeal:-
The Grounds of Appeal stated under each of the heads below are WITHOUT PREJUDICE to each other.
ITA No.803/PUN/2017, 2 A.Y. 2013-14
Disallowance of Rs.1,21,615 out of Electricity Expenses The learned CIT (A) II Nashik erred m confirming the disallowance of Rs.1,21,615 being 50% of Rs.2,43,230 claimed by the appellant. On the facts and in the circumstances of the case, the claim for deduction of Rs.2,43,230 be allowed in full, cancelling the disallowance of Rs.1,21,615 sustained by the learned CIT (A), or in the alternative the disallowance be restricted to a nominal amount. 2. Disallowance of Rs.1,01,540 being the stock of packing material written of to P&L Account. The learned CIT (A) erred in confirming the addition of Rs.1,01,540 made by the AO rejecting appellant's claim for deduction of account of write off of packing material. On the facts and in the circumstances of the case, the appellant prays for the deletion of the said addition, or in the alternative the addition be restricted to a nominal amount. 3. Rejection of claim for set off of S.T.C.L. of Rs.30,56,804 3.1 The learned CIT (A) erred both on facts and in law in confirming the rejection of appellant's claim by the AO for set off of loss deemed to be short term u/s. 50 against business income. On the facts and in the circumstances of the case, the appellant's claim for set off be allowed. 3.2 The learned CIT (A) failed to appreciate that fiction created by Sec. 50 is limited only for computation of capital gain and cannot be extended to other provisions of the Act such as applicability of provisions relating to set off and carry forward of losses. 3.3 The learned CIT (A) failed to appreciate that the ratio of the decisions relied upon by the appellant was clearly applicable to the facts of the case under consideration and consequently erred in confirming the AO's action in rejecting of appellant's claim for set off of S.T.C.L. against business income. 3.4 The learned CIT (A) ought to have appreciated that mere change in methodology in computing loss applying deeming provision of Sec.50 could not alter the business character of the loss and as such the appellant's claim for set off of deemed Short Term Capital Loss. against business income was tenable both on facts and in law. 3.5 The learned CIT (A) erroneously concluded that the decisions relied upon by the appellant were not applicable to the facts of the case.
General
4.1 The appellant craves leave to add, amend, alter or delete anyone or more of the grounds of appeal as may be required in the nature and circumstances of the case.
ITA No.803/PUN/2017, 3 A.Y. 2013-14
4.2 The appellant prays leave to adduce such further evidence to substantiate its case as the occasion may demand.
The first issue raised in the present appeal is against the disallowance of Rs.1,21,615/-.
Briefly, in the facts of the case, the assessee was a private limited company and was engaged in the business of Retail Medical Stores during the relevant year. The assessee had discontinued its ginning/pressing business w.e.f. 01.07.2012. The assessee for the year under consideration had declared the income at Rs. Nil. The assessee had debited sum of Rs.2,43,230/- on account of electricity charges. The Assessing Officer was of the view that since the assessee had closed its Ginning division in July, 2012, the electricity expenses claimed by it were not tenable.
The Commissioner of Income Tax (Appeals) has upheld the addition to the extent of 50% of the expenses.
The assessee is in appeal against the order of CIT(A).
The learned Authorized Representative for the assessee pointed out that the electricity expenses of the ginning factory were claimed till the date of sale of factory. He further pointed out that the same is to be allowed as business expenditure in view of the ratio laid down by the Hon’ble Supreme Court in the case of Veecumsees Vs. Commissioner of Income Tax reported in 220 ITR 185 (SC).
ITA No.803/PUN/2017, 4 A.Y. 2013-14
The learned Departmental Representative for the Revenue on the other hand placed reliance on the order of Commissioner of Income Tax (Appeals).
On perusal of record, it is noted that the first issue raised in the present appeal is in respect of electricity expenses. The assessee initially was carrying on two lines of business i.e. cotton ginning business and also running medical stores. The ld. AR for the assessee pointed out that since major partner had expired, the legal heirs had carried on only one business i.e. retail medical stores and the cotton ginning unit was closed down. He further pointed out that the said unit was also sold during the year under consideration. However, the electricity expenses till the date of sale of the factory unit were debited and claimed as expenditure. The case of the Revenue on the other hand was that no income has been generated from ginning factory and hence no question of allowance of electricity expenses. The income which is recognized in the hands of the assessee can be either positive or negative. In other words even if the assessee carrying on business incurs loss, expenditure incurred by it is to be allowed while computing the income from business. In the facts of the present case, the expenditure on electricity was claimed by assessee till the date of sale of unit by the assessee; the said expenditure is duly allowable in the hands of the assessee. Even otherwise the assessee is carrying on the second line of business of retail medical stores and losses if any from ginning business need to be adjusted against the income from running the medical stores. Thus, the claim of the assessee is directed to be allowed and the addition of Rs.1,21,615/- is thus deleted.
Now, coming to the issue raised by the assessee in ground of appeal No. 2 which is against the write off of stock of packing material. The assessee explained that once the ginning business was stopped and then the stock of
ITA No.803/PUN/2017, 5 A.Y. 2013-14
packing material available with the assessee at the close of the business became non-useful since it was specific packing material to be used in ginning factory; the same could not be sold in open market. The assessee had no other option but to write off the cost of packing material in its books of account when its business of ginning factory had stopped. Hence, the same is allowed. Accordingly, the ground of appeal No. 2 raised by the assessee is allowed.
The third issue raised by the assessee is against the set off of loss deemed to be short term under section 50 of the Act against business income. The ld. AR for the assessee pointed out that the transaction was in respect of sale of business asset and hence the same needs to be adjusted against the business loss.
The ld. DR for the Revenue on the other hand placed reliance on the ratio laid down of the Special Bench of the Bangalore Tribunal in the case of Nandi Steels Ltd. Vs. Assistant Commissioner of Income Tax reported in 13 ITR 494 and the provisions of section 71(3) of the Act. He also pointed out that the similar issue had arisen in the Pune Bench of Tribunal in ITA No. 79/PN/2012 judgment dated 28.08.2014.
On perusal of record and after hearing both the learned Authorized Representatives, the last issue raised in the present appeal by way of ground of appeal No. 3 is against the set off of income from Short Term Capital Loss against business income of the assessee. The said capital loss had arisen because of sale of ginning factory i.e. the sale of immovable property. In view of the provisions of section 71(3) of the Act, the loss claimed by the assessee under the head Short Term Capital Loss cannot be set off against the income
ITA No.803/PUN/2017, 6 A.Y. 2013-14
from business which had arisen during the year under consideration, which is dictate of section 71(3) of the Act.
Similar proposition has been laid down by the Special Bench of the Bangalore Tribunal in the case of Nandi Steels Ltd. Vs. Assistant Commissioner of Income Tax (supra) and following the same parity of reasoning, it is held that the income from Business has to be assessed in the hands of the assessee independent from Short Term Loss incurred by the assessee. Accordingly, the ground of appeal No. 3 raised by the assessee is thus dismissed.
In the result, appeal of assessee is partly allowed.
Order pronounced on this 23rd day of May, 2018.
Sd/- (SUSHMA CHOWLA) न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक Dated : 23rd May, 2018. RK आदेश की प्रयिलऱपप अग्रेपषि/Copy of the Order is forwarded to : अऩीऱाथी / The Appellant; 1. प्रत्यथी / The Respondent; 2. आयकर आयुक्त(अऩीऱ) / The CIT(A)-2, Nashik; 3. 4. The Pr. CIT-2, Nashik; ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, ऩुणे, एक-सदस्य 5. मामऱा / DR ‘SMC’, ITAT, Pune; गार्ड पाईऱ / Guard file. 6. आदेशािुसार/ BY ORDER, सत्यावऩत प्रतत //True Copy// तनजी सधिव / Private Secretary आयकर अऩीऱीय अधधकरण ,ऩुणे / ITAT, Pune