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Income Tax Appellate Tribunal, DIVISION BENCH, ‘A’ CHANDIGARH
Before: SHRI SANJAY GARG, JUDICIAL MEMBE & Ms. ANNAPURNA GUPTA, ACCOUNTANTMEMBER
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order dated 31.12.2016 of the Commissioner of Income Tax(A)-2,
Ludhiana [hereinafter referred to as ‘CIT(A)’].
The sole issue involved in this appeal is as to whether under the provisions of section 71 of the Income-tax Act, 1961 (in short
'the Act') there is an option to the assessee to set off the business losses against the capital gains or is it mandatory to do so.
The brief facts of the case are that during the year under
consideration, the assessee had business loss of Rs. 3,04,56,921/-,
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whereas, the assessee had earned short term capital gains of Rs. 8,80,902/-. The assessee in the return of income did not set off the business loss against the short term capital gain. However, after adjusting the capital gains of the year against the brought forward short term capital loss of Rs. 4,86,524/- and claiming deduction u/s 80 at Rs. 3,94,378/- returned the taxable income at ‘nil’ with carry forward business loss of Rs. 2,91,52,776/-. However, the lower authorities have adjusted the current year capital gains against the current year business loss and accordingly computed the income of the assessee.
Before us, Ld. Counsel for the assessee has relied upon the provisions of section 71 of the Act as amended from time to time. He has further submitted that to arrive at the correct conclusion, provisions of section as introduced vide 1961 Act and further substituted by Finance Act 1961 w.e.f. 1.4.1962 and further substituted by Finance Act 1967 w.e.f. 1.4.1968 (as above) and further substituted by Finance Act 1987 are also relevant.
1961 - As originally enacted this section read as under:- Set off of loss from one head against income from another - 71. Where in respect of any assessment year the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee has no income under the head "Capital gains", he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income assessable for the assessment year under any other head. Provided that where the total income includes any income assessable under the head “capital gain’, the loss computed under any other head of income, if the assessee so desires, shall not be set off against the income under the head ‘Capital gains”
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but shall set off against his income assessable under any other head of income.”
1962 – By the Finance (No.2) Act,1962 (20 of 1962) the following section was substituted for the earlier section with effect from 1 April,1962. “71. Set off of loss from one head against income from another – (1 ) Where in respect of any assessment year the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee has no income under the head "Capital gains", he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for the assessment year under any other head. (2) Where in respect of any assessment year, the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee has income assessable under the head "Capital gains", such loss may, subject to the provisions of this Chapter, be set off against his income, if any, of the assessee assessable for that assessment year under any other head including income from Capital gains relating to the short-term capital assets as well as other capital assets or if the assessee so desires, shall be set-off only against his income, if any, assessable under any head of income other than capital gains. The effect of this was to number the earlier section as sub- section(1), with verbal changes, delete the original proviso and insert sub-section(2)
1967 – Sub-section (2) was substituted by the following sub- sections (2) and (3) by the Finance (No. 2) Act 1967 with effect from I April 1968 : (2) Where in respect of any assessment year, the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee has income assessable under the head "Capital gains", such loss may, subject to the provisions of this Chapter, be set off - (i) against his income, if any, of the assessee assessable for that assessment year under any other head including income assessable under the head “Capital gains”
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(whether relating to the short-term capital assets or any other capital assets),or (ii) if the assessee so desires, only against his income, if any, under the head “Capital gains” in so far as such income relates to short-term capital assets, and income under any other head. Substituted by Finance Act, 1987 w.e.f. 1.4.1988 Set off of loss from one head against income from another – Where in respect of any assessment year, the net result of the computation under any head of income, is a loss, the assessee shall subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for the assessment year under any other head. Carry forward and set off business losses. 72. (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, ….
The relevant provisions of Section 71 of the Act as substituted by Finance Act 1991 w.e.f. 1.4.1992 are reproduced as under:- Substituted by the Finance Act (No.2), 1991 w.e.f.1.4.1992 Set off of loss from one head against income from another- 71. (1) Where in respect of any assessment year the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee has no income under the head "Capital gains", he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head. (2) Where in respect of any assessment year, the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee has income assessable under the head "Capital gains", such loss may, subject to the provisions of this Chapter, be set off against his
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income, if any, assessable for that assessment year under any head of income including the head "Capital gains" (whether relating to short-term capital assets or any other capital assets). (3) Where in respect of any assessment year, the net result of the computation under the head "Capital gains" is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to have such loss set off against income under the other head.
The provisions of section 72 are also relevant, which for the sake of convenience are also reproduced below:- Carry forward and set off of business losses.
(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, if any, of any business or profession carried on by him and assessable for that 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 : ....
A perusal of the above Legislative history reveals that the assessee has always been given an option to set off his losses against the income from capital gains. However, as per the provisions of sub section (3) of section 71, the assessee is not allowed to set off capital loss against income under any other head. The above view is fortified
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by the decision of the Pune Bench of the Tribunal in ‘Coated Fabrics (P) Ltd. vs JCIT’ [2006] 285 ITR (AT) 148 (Pune).
In view of this, we do not find any justification on the part of the lower authorities in making the impugned adjustments and, therefore, the same are set aside. The Assessing officer is directed to accept the returned income /computation of the assessee, as such. In the result, the appeal of the assessee stands allowed. Order pronounced in the Open Court on 04.10.2018
Sd/- Sd/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 04.10.2018 Rkk Copy to: • The Appellant • The Respondent • The CIT • The CIT(A) • The DR
ITA No. 1650/Chd/2017- Ajay Kumar Singhiana, Ludhiana