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Income Tax Appellate Tribunal, BENCH “I”,MUMBAI
Before: SHRI D.KARUNAKARA RAO & SHRI PAWAN SINGH
Assessee by : Shri Anil Sathe (AR) Revenue by : Shri B.C.S. Naik (CIT-DR) Date of hearing : 07.12.2016 Date of Pronouncement : 01.02.2017 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JM:
1. 1. This appeal by assessee u/s 253 of the Income-tax Act (‘Act’) is directed against the order of Ld. Commissioner of Income-tax (Appeals) [for short ‘the CIT(A)] –13, Mumbai dated 30.06.2010 for Assessment Year (AY) 2007-08.
2. We have noticed that the appeal is barred by 375 days of limitation period as recorded by the registry. The assessee filed an application for condonation of delay which is supported with the affidavit of Shri Sandeep Arjan Khetwani, Director of assessee- company. In the application and the affidavit the assessee has contended that the ld. CIT(A) passed the impugned order on 30.06.2010. The order passed by ld. CIT(A) was not served at the address given in the Form-35. In the application the assessee/applicant further pleaded that the assessee-company was suffered loss over several years and the assessee had been in the process of winding up or closure business activity. Hence, the registered office was closed, the affairs of the company were being looked after by Shri Radhakishnan Khetwani. Shri Radha Krishna Khetwani died on 26.08.2011. The applicant further pleaded that they came to know 2 Sky Lite Electro Fixtures P. Ltd. about the order passed by ld. CIT(A) only when penalty order was received. On receipt of penalty order, the assessee tried to locate the record relating to the case. The applicant thereafter filed appeal in the penalty order and succeeded therein. The assessee was advised to file the appeal in the quantum assessment as the assessee has a good case on merit. The applicant further pleaded that the impugned order was collected only on 15.05.2013. The applicant/assessee could not approach their counsel as the assessee was not in a position to meet out the expenses and the appeal fee to file the appeal. The assessee arranged the counsel’s fees on 15.05.2014. And, thus, the present appeal was filed on 24.07.2014. The assessee prayed that there was no intention or deliberate delay in filing the appeal. The main delay in filing the present appeal was due to non-service of impugned order and the remaining part as the assessee was not in a position to meet out the legal expenses required for filing and pursuing the appeal.
We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The Ld. AR for the assessee argued on the line of the contention pleaded in the application and the affidavit filed in support thereof. On the other hand, ld. DR for the Revenue submitted that the assessee never communicated the change of their address to the Income Tax Authorities as required under the law.
We have considered the contentions of both the parties and noticed that on 16.08.2016, while hearing this case, the ld. DR for the Revenue was directed to verify the correctness of non-service of impugned order at the known address of assessee. In compliance of Tribunal’s order, the ld. DR for the Revenue filed the report along with the copy of return envelope through which the impugned order was sent. The perusal of record revealed that the copy of order was sent to the address appearing on Form- 35 and the same was returned. The record submitted in compliance of Tribunal’s order further reveals that the assessee applied for copy of impugned order vide application dated 04.05.2013 and the impugned order was supplied to the assessee only on 15.05.2013. Thus, we have noticed that the contention of applicant with regard to delay from the date of passing of impugned order till 15.05.2013 appears to be correct. The other contentions of ld. AR of the assessee which is duly supported with the affidavit of Shri Sandeep Arjan Khetwani. Thus, considering the contention, 3 Sky Lite Electro Fixtures P. Ltd. we are inclined to condone the delay and to decide the appeal on merit, hence, the delay in filing the appeal is condoned. Now, we shall take up the grounds of appeal
raised on merits.
5. The assessee has raised the following grounds of appeal:
1. The learned CIT (A) erred in confirming the view taken by the Ld.AO that the carried forward business loss of Rs. 30,40,999 cannot be set off against income in the nature of capital gain computed under Section 50 of the Income Tax.
2. The learned CIT (A) failed to appreciate that the provisions of Section 50 of the income Tax Act provide for special method for computation of gain in a depreciable asset and not for determining the nature of asset or income.
3. The Learned CIT-(A) has erred in law in not appreciating the fact that the depreciable asset continues to be a business asset and consequently the gain so computed continues to be business income.
4. The learned CIT-(A) has failed to appreciate that Section 50 is deeming fiction and must be limited to the purpose for which it was incorporated in the Act.
5. The learned CIT-(A) erred in considering the provisions of Sec 50C as applicable while computing capital gain in case of sale of depreciable asset u/s 50. If fiction under Sec 50C is allowed to extrapolate on fiction created by sec 50, then it would amount to creating ‘fiction on fiction'. Thus CIT(A) is not justified in adopting the stamp duty valuation in place of amount shown in the sale deed.
6. At the outset, at the time of hearing the ld. AR of the assessee submitted that he has not pressing ground no.4 to 6.Thus, ground no. 4 to 6 are dismissed as not pressed. We have seen that assessee in the remaining grounds of appeals i.e. Ground No. 1 to 3 has raised the sole and substantive issue relates to confirming of the action of AO for not setting off carried forward business loss against the Capital Gain computed u/s 50 of the Act.
7. Brief facts of the case are that the assessee filed return of income for relevant AY on 31.10.2007 declaring total income of Rs. 12,85,473/- after claiming set off of carried forward business loss and unabsorbed depreciation amounting to Rs. 49,84,450/- under the normal provision and book profit of Rs. 44,43,266/- u/s. 115JB of the Act. The assessment was completed on 08.12.2009 u/s 143(3) of the Act and the AO disallowed the set off of carried forward business loss. On appeal, the action of AO was confirmed, thus, the present appeal is field before us.
8. We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and gone through the order of authorities below. The ld. AR for the assessee argued that the assessee is entitled for set off of carried forward business loss against the capital gain computed u/s 50 of the Act and relied upon the decision of Mumbai Tribunal in Digital Electronics Ltd. vs.
4 Sky Lite Electro Fixtures P. Ltd. ACIT (2011) 49 DTR 484, Sri Padmavathi Srinivasa Cotton Ginning & Pressing Factory vs. DCIT (2009) 29 DTR 0001 (Mumbai Trib.) Visakhapatnam Tribunal and Pune Tribunal in DCIT vs. Demech Heavy Equipments Pvt. Ltd.(2016) 47 CCH 0109 (Pune Trib.). On the other hand, ld. DR for the Revenue honestly supported the order of authorities below.
We have considered the contention of both the parties. The AO while framing the assessment disallowed the set off of carried forward business loss holding that carried forward business loss cannot be set of against the income from capital gain u/s. 72 of the Act. The ld. CIT(A) while considering this ground upheld the action of AO on two counts (i) that section 50 being a special provision shall prevail the general provision for computing capital gain in respect of depreciable asset. First, section 50 is a charging section independent of section 45 & 48, thus, being deeming provision is required to be strictly interpreted. (ii) Even a fiction is created u/s 15, the transfer of assets/block of asset will result in STCG which cannot change the nature of assets. Nature of asset and the capital gain earned cannot be a business income.
We have seen that the co-ordinate bench of Mumbai Tribunal in Demech Heavy Equipments Pvt. Ltd vs. ACIT (Supra) while considering the similar grounds hold as under: 9. We have heard the rival contentions and perused the material on record. Sec. 72 of the IT 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 s. 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 s. 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 s. 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 requirement 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 5 Sky Lite Electro Fixtures P. Ltd. business or profession carried forward from earlier years. In the case of CIT vs. Cocanada Radhaswami Bank Ltd. (1965) 57 ITR 306 (SC), their Lordships of the Hon'ble Supreme Court took note of this distinction and the implications of these provisions regarding carry forward 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 I that in the case of CIT vs. Millind Trading Co. (P) Ltd. (1994) 118 CTR (Guj) 154 : (1995) 211 690 (Guj), 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 different sources under the head "Business income". The issue was thus confined to the question as to how the total come 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 judgment in the case of CIT vs. Urmila Ramesh (supra) is concerned, it will have no bearing on the issue before us, because it refers to simultaneous application of s. 41(2) and s. 50 on the same amount. In contrast to that position, the short reference to s. 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 or 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 gets relief accordingly.
Further, the co-ordinate bench of Pune Tribunal in ACIT vs. Demech Heavy Equipments Pvt. Ltd. held that provision of section 50 makes explicitly clear that deemed fiction under sub-section 1 & 2 is restricted only to the mode of computation of capital gain contend in section 48 & 49 and legal fiction is to be deemed the capital gain as STCG and not to deemed asset as Short Term Capital Asset and accordingly the exemption u/s 54E cannot be denied on account of deemed fiction and the Tribunal held that assessee is entitled for setting off of brought forward loss from deemed STCG.
In view of the above legal position as discussion by co-ordinate bench in the decision cited above, we are of the view that the assessee is entitled for setting off of carried forward business loss against the capital gain computed u/s 50 of the Act. Thus, following the decision of co-ordinate bench, the appeal of the assessee is allowed. The AO is directed to allow the set off of carried forward business loss against the Capital Gain computed u/s 50 of the Act.
6 Sky Lite Electro Fixtures P. Ltd. 12. In the result, appeal of the assessee is allowed. Order pronounced in the open court on this 1st February, 2017. Sd/- Sd/- (D.KARUNAKARA RAO) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 01/02/2017 S.K.PS Copy of the Order forwarded to :