Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: Shri Joginder Singh, & Shri Ramit Kochar
आदेश / O R D E R Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 10/04/2014 of the Ld. First Appellate Authority, Mumbai. The first ground raised by the assessee pertains to confirming not setting off carried forward business loss of Rs.27,08,953/- against profit earned by the assessee on sale of depreciable asset u/s 50 of the Income Tax Act, 1961 (hereinafter the Act).
At the outset, the ld. counsel for the assessee, Shri Shankarlal Jain, claimed that the impugned issue is covered in favour of the assessee by the decision of the Tribunal in the case of Digital Electronics Ltd. vs CIT (135 TTJ (Mumbai) 419), ACIT vs Nirmal Plastics Industries (ITA No.6428/Mum/2009), Shri Padmawati Shrinivasa Cotton Ginning & Processing Factory vs DCIT 125 TTJ 411 (Vishkaha.) It was also contended that the nature of income is to be decided on commercial principles and not based on classification of income u/s 14 of the Act for which reliance was placed upon the decision in CIT vs Cocanada Radhaswamy Bank ltd. 57 ITR 306 (SC), CIT vs Ramnath Goenka 259 ITR 26 (Mad.), CIT vs Excellent Commercial Enterprices and Investment Ltd. 282 ITR 423 (Del.), Southern Travels vs ACIT 232 taxman 689 (Del.) and Lavish Apartment Pvt. Ltd. vs ACIT 210 taxman 9 (Del.). On the other hand, Shri Suman Kumar, Ld. DR, defended the addition confirmed by the Ld. Commissioner of Income Tax (Appeal).
2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee declared income of Rs.13,14,110/- in its return, which was completed u/s 143(3) of the Act on 28/03/2013 at an income of Rs.44,90,720/-. The assessee earned short term capital gain on sale of depreciable asset u/s 50 of the Act, which was set off against carry forward business loss of Rs.27,08,953/-. The Ld. Assessing Officer disallowed the claim of the assessee on the plea that the case relied upon by the assessee in Digital Electronics Ltd. (supra) has not been accepted by the Department and appeal has been filed before the Hon'ble High Court. It is also noted that the Ld. Commissioner of Income Tax (Appeal) also confirmed the addition on the ground that the Bangalore Bench in the case of Kampli Cooperative Sugar Factory Ltd. vs ACIT 83 ITD 406 (Bang.) and Rajkot Bench of the Tribunal in the case of Master Silk Mills Pvt. Ltd. vs DCIT (2001) 77 ITD 530 (Rajkot) has taken contrary decision.
2.2. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, in view of the above, we are reproducing hereunder the relevant portion of the order from the decision of the Co-ordinate Mumbai Bench in the case of Digital Electronics Ltd. vs CIT (supra) for ready reference and analysis:-
“6. In Ground No.2, the assessee is aggrieved that the CIT (A) erred in upholding the order of the AO and not allowing the assessee the set off the brought forward business loss of earlier years of `` 39,85,596/- against the profit realized on sale of business assets.
7. As far as this ground of appeal is concerned, the relevant material facts are like this. In the course of assessment proceedings, the Assessing officer noted that the assessee has set off brought forward losses amounting to Rs .39,85,596/- against short term capital gains on sale of factory building and plant & machinery. The Assessing officer was of the view that in terms of the provisions of section 72, which governs the carry forward and set off of business losses, so much of the carry forward losses as cannot be set off against any profits and gains of business has to be carried forward to the following year upto eight assessment years. The carry forward business losses cannot be set off against any other head of income other than profits and gains of business or profession. It was in this backdrop of these observations by the Assessing officer, that the assessee was required to show cause as to why brought forward business losses amounting to Rs. 39,85,596/- should not be allowed to be set off against short term capital gains on sale of plant and machinery and factory building. The explanation of the assessee was as follows:
“1. During the year, our client had sold the factory building along with plant and machinery/furniture and fixture lying therein for a sum of Rs.1,75,00,000. On the above sale our client had made a profit of `. 1,56,41,001. Against the said profit, unabsorbed depreciation of the previous year amounting to Rs. 47,83,368 was set off.
2. Further, as this was a profit realized on sale of business assets, the said profit being business income, unabsorbed business loss was set
off against the said profit. It is submitted that prior to insertion of section 50, the sale of factory building/plant and machinery/furniture and fixture was covered by section 41(2) wherein the excess of sale proceeds over the written down value was treated as section 41(2) profits and the loss, if any, were treated as balancing charge/terminal allowance while computing income from business. Applying the same yardstick, it is submitted that the profits/loss on sale of factory building/plant and machinery/furniture and fixture is to be treated as business income. It is therefore, submitted that the gains, if any, arising on sale of plant and machinery is to be treated as forming part of business income.
Though the profit realized on sale of business asset is assessable on section 50 as short term capital gain due to scheme of taxation and due to artificial classification under different heads for the purpose of computation of income as per provisions of section 14 of the Act, the income realized on the sale of business asset has to be treated as forming part of business income.
In this regards, we wish to submit that the scheme of the Income tax Act is that income tax is one tax. Section 14 of the Indian Income tax Act, 1961, classifies the taxable income under different head for the purpose of computation of the net income of the assessee. Though, for the purpose of computation of the income, profit on sale of depreciable assets is separately classified, the said profit on sale of assets does not cease to be part of income from business if the assets are part of the business assets. Whether a particular income is a part of the income from a business falls to be decided not on the basis of the provisions of section 14 but on commercial principles. Reliance in this regard is placed on decisions of Supreme Court in the case of CIT v. Cocanada Radhaswami Bank ltd.(1965) 57 ITR 306.
It is also submitted that the heads of income described in section 14 of the Indian Income tax Act, 1961 and further elaborated for the purposes of computation in various sections are intended merely to indicate the classes of income. The heads do not exhaustively delimit sources from which arises. Business income is broken up under different heads only for the purpose of computation of the total income. By that breaking up the income does not cease to be the income of the business, the different heads of income being only the classification prescribed by the Income tax Act for computation.
Reliance in this regard is placed on decisions of Supreme Court in case of CIT v. Chugandas and Co.(1965) 055 ITR 0017.
Relying on the above decisions, ITAT, Mumbai in the case of J.K. Chemicals ltd. V ACIT,33 BCAJ (April 2001) page 36, on an identical facts and circumstances, has held that the profit realized on sale of business asset though assessable under the head ‘short term capital gain’, is business income and hence, the brought forward business
losses should be set off as per the provision of section 72 of the Income tax Act.
In view of the above, the assessee, relying on the above decisions of Supreme Court and the Mumbai Tribunal, has correctly treated the income arising on sale of business asses as business income and has correctly set off brought forward the business loss of Rs. 39,85,596/- against the profit realised on sale of business assets viz Factory building/plant and machinery/furniture and fixture.”
The Assessing officer, however, was not impressed by any of these submissions. He was of the view that the provisions of section 72 are very clear that brought forward business losses can only be set off against profits and gains of business or profession and, therefore, brought forward business losses of Rs. 39,85,596/- cannot be allowed to set off against short term capital gains. He, thus, declined to set off the claim of the assessee. Aggrieved by the stand of the AO, the assessee carried the matter in appeal before the CIT (A) but without any success. The CIT (A) upheld the stand of the Assessing Officer and observed that there is no ambiguity in section 72 and it cannot be said that the sale of capital asset will result into capital gains and the income earned shall be treated under the head ‘capital gains and not income from business’. As regards the assessee’s submissions placing reliance on the provisions of erstwhile section 41(2), the CIT (A) observed that this plea is meaningless and the provisions of section 50 are applicable to assessee’s case. Reference was also made on the decision of the Hon’ble Gujarat High court in the case of CIT v. Millind Trading Co. P.Ltd., 76 Taxman 389, holding that there is no provision which give option to the assessee to show the profit as income from one source and carry forward a loss from other source of income to the next year. The CIT (A) also referred to the judgement of the Hon’ble Supreme Court in the case of CIT v. Urmila Ramesh, 96 Taxman 533 (SC), holding that provisions of section 41(2) as also section 50 cannot apply to the same amount. It was in this backdrop that the CIT (A) concluded that the income which is to be assessed under the head “capital gains” cannot be set off against business losses only because it has been generated from the sale of business assets. The action of the Assessing
Officer was thus upheld and in fact fortified by the CIT(A). The assessee is aggrieved and is in appeal before us.
We have heard the rival contentions and perused the material on record. Section 72 of the Income tax Act, inter alia, 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 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 be 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 section 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 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”. 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 requirements of the gains being taxable under the head “profits and gains of business or 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 CIT v. Cocanada Radhaswami Bank ltd(supra), Their Lordships of the Hon’ble Supreme Court took note of this distinction and the implications of these provision regarding carry foreward and set off of business loss. It was noted by the Hon’ble Supreme Court that while one set of provisions, i.e. 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 CIT (A), we find that in the case of Millind Trading Co. P.Ltd, 211 ITR 690 (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 difference sources under the head “business income”. The issue was thus confined to the question as to how the total income for a particular assessment year is to be computed. This decision has no bearing on the issue in appeal before us. So far as the Hon’ble Supreme Court judgement in the case of CIT v. Urmila Ramesh (supra) is concerned, it will have no bearing on the issue before us, because it refers to simultaneous application of section 41(2) and Section 50 on the same amount. In contrast to that position, the short reference to section 41(2) 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 and 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 get relief accordingly.
Ground No.2 is thus allowed.”
2.3. We find that in the aforesaid order, the Tribunal reached to a particular conclusion by placing reliance upon the decision from Hon'ble Apex Court in the case of CIT vs Cocanada Radhaswamy Bank Ltd. (1965) 57 ITR 306 (SC), Hon'ble Gujarat High Court in CIT vs Milind Trading Co. Pvt. Ltd. (1994) 118 CTR (Guj.) 154 and the decision in CIT vs Urmila Ramesh (1998) 146 CTR (SC) 81 was distinguished. The Bench concluded that the assessee is entitled to set off of brought forward business losses against the capital gains, thus, the observation of the Ld. Commissioner of Income Tax (Appeal) that contrary decision, mentioned in the order, were not considered is of no help to the Revenue because, the coordinate Bench duly considered the decisions from Hon'ble Gujarat High Court as well as Hon'ble Apex Court. Even otherwise, the ratio laid down in the order of the Tribunal in the case of Nirmal Plastic Industries and Shri Padmavati Shrinivasa Cotton Ginning and Processing Factory (supra) further supports the case of the assessee. Respectfully following the aforesaid decisions, we reverse the order of the Ld. Commissioner of Income Tax (Appeal) and allow the appeal of the assessee on the issue in hand.
3. The next ground raised by the assessee pertains to confirming the disallowance of Rs.1,91,280/-, claimed as business loss/bad debt. The crux of the argument is identical to the ground raised. The Ld. DR defended the addition.
3.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee had written of bad debt amounting to Rs.90,35,880/- (including the bad debt written off amounting to Rs.87,78,922/- in respect of M/s TATI SA, Paris, France). The assessee was asked to furnish the complete details along with supporting correspondence etc in support of its claim. The assessee filed the details showing that the bad debt written off during the Financial Year 2009-10 relevant to Assessment Year 2010-11. The assessee was asked with respect to bad debt written off amounting to Rs.1,91,280/- in respect of certain parties as has been detailed in the assessment order. The assessee vide letter dated 21/03/2013 replied as under:-
“With reference to Assessee’s claim for write off of bad debt and details of written off of Rs.1,91,279/-, we have honour to submit that advance given by the assessee during the course of business for business transactions which advance could not be adjusted as the party did not supply the material or raised counter claim against the assessee. The necessary details of the same is enclosed herewith. The said amount of Rs.1,91,279/- will be allowable as reduction either as business loss under provision of section 28 read with 37(1) or as bad debt under provision of section 36.”
3.2. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that the case of the assessee is squarely covered from the decision of the Tribunal in the case of ACIT vs M/s Bank of Baroda for A.Y. 2005-06 (ITA No.2927/Mum/2011 etc.) order dated 25/07/2014. The following cases also supports the case of the assessee. i) South Indian Bank v/s CIT, 262 ITR 579 (Kar.); ii) DCIT v/s Catholic Syrian Bank Ltd., 267 ITR 52, ITAT Cochin Special Bench; iii) State Bank of Bikaner & Jaipur v/s DCIT, [2001[ 74 ITD 203 (Jaipur Bench); iv) Bank of Baroda v/s JCIT, ITAT “B” Bench, Mumbai, for A.Y. 1996–97, 1997–98 and 2000–01; v) TRF Ltd. v/s CIT, 323 ITR 397 (SC) and Vijaya Bank v/s CIT (SC) 323 ITR 167.
2.3. Even otherwise, in view of the amendment in the taxation laws with effect from 01st April, 1989, the requirement of demonstrating that the debts has become bad has been dispensed with and only requirement remains that it should be “written off” in books of accounts of the assessee, which has been further clarified by CBDT Circular No.551 dated 23/01/1990. Our view find support from the ratio laid down in CIT vs Brilliant Tutorials Pvt. Ltd. 292 ITR 399 (Mad.), CIT vs Morgan Securities and Credits Pvt. ltd. (210 CTR 336)(Del.), DCIT vs Oman International Bank Saog. (313 ITR 128)(Bom.), CIT vs Star Chemicals (Bom.) Pvt. Ltd. 220 CTR 319 (Bom.), CIT vs Global Capital Ltd. 201 taxation 210 (Del.), CIT vs M/s Excel Fashion Pvt. Ltd. (201 taxation 216)(Del), CIT vs Auto meters Ltd. 292 ITR 345 (Del.). So far as, the reliance upon the decision in Kashmir Trading Company vs DCIT and Ahamadabad Electricity Company Ltd. (supra), the decision from Hon’ble Rajasthan High court and Gujarat High Court are concerned, the Hon’ble Apex Court, later on, in T.R.F. Ltd. vs CIT 323 ITR 397 (SC), considering the provision of section 36(1)(vii), prior to April, 1, 1989 and post amendment held that it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. Mere written off in its accounts is enough, thus, following the aforesaid decision from Hon’ble Apex Court, we allow the ground of the assessee. Finally, the appeal of the assessee is allowed. This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 06/04/2017. Sd/- Sd/-
(Ramit Kochar) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 07/04/2017 f{x~{tÜ? P.S /�नजी स�चव आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :