CAPITAL LOSS ON SALE OF PROPERTY

[Mr. M. GOVINDARAJAN]

At the time of sale of any Asset, if a Short Term/ Long Term Capital Loss arise to a taxpayer, this loss is allowed to be set-off in the same year against other incomes. However, if this loss is not set-off in the same year, it is allowed to be carried forward to the next year.   A Capital Loss is allowed to be carried forward for 8 years from the end of the year in which the loss was incurred.

In PERFECT PRESS PRIVATE LIMITED VERSUS INCOME TAX OFFICER WARD 19 (4) NEW DELHI. - 2023 (2) TMI 642 - ITAT DELHI the assessee company did not carry out any business activity during the year 2015 – 16.  The assessee company filed a return 31.03.2017 declaring an income of Rs.23,16,730/-.  The case was selected for limited scrutiny through CASS to verify whether capital gain/loss on sale of property has correctly been shown in the income tax return and whether sales turnover / receipts have been offered correctly to tax.

The assessee company during the assessment proceedings submitted the documents as required by the Assessing Officer.  The Assessing Officer found that the assessee claimed a loss of 25,39,908/- during the year.  AO found that the assessee has sold immovable property for consideration of Rs. 90,00,000/- but as per sale deed the stamp value of the said property was Rs. 1,41,44,000/-. A show cause notice dated 23.11.2017 by the Assessing Officer to the assessee to show cause why said loss be not disallowed as no business activity was carried out during the year and why difference of Rs. 51,44,000/- be not added to the income of the assessee under section 50C of the Income Tax Act, 1961.  The assessee filed reply to the said show cause notice.  In the reply the assessee contended that it was engaged in the business of offset printing press till 31.02.2014 but took temporary break due to some private plan of the company.  The assessee replied that the property was sold with bona fide intention and for good reason at lesser price than the circle rate of the said property for the purpose of payment of stamp duty, thus section 50C has no application.  The Assessing Officer did not satisfy with the reply of the assessee company.  The Assessing Officer held that it is not mandatory for the Assessing Officer to refer the property for valuation of Fair Market Value (‘FMV’ for short), he made the impugned addition of Rs. 51,44,000/- to the income of the assessee under section 50C of the Act. Accordingly, the Assessing Officer completed the assessment on total income of the assessee at Rs. 1,00,00,640/- vide its order dated 12.12.2017 under section 143(3) of the Act. Being aggrieved against the order of Assessing Officer the assessee filed an appeal before Commissioner of Income Tax (Appeals).  The appellant made reference under section 144A of the Act before the Commissioner of Income Tax (Appeals) on 29.11.2017 to direct the Assessing Officer to refer the property for valuation to determine the FMV of the property. However, the Commissioner of Income Tax (Appeals) did not give any clear-cut direction to the Assessing Officer to refer the property for valuation of FMV.  The Commissioner of Income Tax (Appeals) dismissed the appeal filed by the assessee.  Therefore the assessee company filed the present appeal before the Income Tax Appellate Tribunal (‘ITAT’ for short). 

The appellant raised the following grounds before ITAT-

• The Commissioner of Income tax (Appeals) has erred in law and on the facts in confirming the disallowance of Rs. 25,39,908/- on account of expenses incurred by the assessee to keep its corporate entity intact and ignoring the submission made by the  appellant.
• The Commissioner of Income Tax (Appeals) has erred in law and on the facts in confirming disallowance of expenses incurred during the period of temporary suspension to keep business alive and revive the same at the earliest opportunity and ignoring the intention to revive by paying salary and wages to staff and other financial cost were incurred.
• The Commissioner of Income Tax (Appeals) has erred in law and on the facts ignoring the submission dated 14.11.2017 and 29.11.2017 of the appellant, considering the sale consideration as per the provisions of section 50C of the Act without being referred refereed to the valuation of the property under question.
• The Commissioner of Income Tax (Appeals) has erred in law and on the facts in confirming action of the Assessing Officer  that provision for making a reference to valuation officer though not mandatory as the word used is ‘may’ used but once the appellant seeks the reference to the valuation officer the word may should be read as ‘shall’ in the section 50C(2) of the Income Tax Act, 1961 as held in case of DY. CIT RANGE IV, LUCKNOW VERSUS M/S KAYSONS BUILDERS PVT. LTD. - 2015 (1) TMI 1479 - ITAT LUCKNOW.
• The Commissioner of Income Tax (Appeals) failed to appreciate the facts that appellant never claimed the value adopted or assessed or assessable by the stamp valuation authority exceeded the fair market value of property in order to require a reference for valuation under section 50C (2) resulting in cause of justice being defeated, thus necessary direction to be issued to the Commissioner of Income Tax (Appeals) to refer the matter regarding the ascertainment of fair market value of property as per provision of section 50C(2) of act.

The ITAT perused the assessment order as well as the order passed by the Commissioner of Income Tax (Appeals) and considered the submissions of both the parties.  The ITAT observed that the case of the assessee for its claim of loss of Rs. 25,39,908/- is that the business activity of the assessee has been temporarily suspended. The assessee incurred the expenses on account of wages and salary to staff and other financial expenses related to the business in order to keep the corporate entity intact which is a going concern.   The Revenue agreed that on the issue of addition of Rs. 51,44,000/- under section 50C due procedure prescribed for valuation of FMV has not been followed.   The ITAT observed that on interpretation of the word ‘may’ occurring in section 50C(2) of the Act ignoring that the word ‘may’ also be interpreted as ‘shall’ if the context so requires. 

The ITAT considered that a fresh look needs to be given to both the issues.  Therefore the ITAT set aside the order of the Commissioner of Income Tax (A) and restore both the issues to the file of the Assessing Officer to decide them afresh in accordance with law after allowing adequate opportunity of hearing to the assessee. This will meet the ends of justice.