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M/s Ashok Leyland Ltd. Versus ACIT judgment of Madras High Court deserve a review and appeal plus many vital points missed or not emphasised by assessee.

Income Tax - Direct Tax Code - DTC - By: - CADEV KUMAR KOTHARI - Dated:- 2-3-2016 - Section 71 (2), 72(1), 154 of Income-tax Act 1961. Important words, phrases and expressions like: Words shall , shall be shall not be and such loss may, may and such loss cannot be or is not wholly set off Provisions relating to concessional treatment of long-term capital gains in various provisions from time to time like S.45, 47, 48, 49, 54 to 55 and 80T,111,111A,112 etc. M/s Ashok Ley land Ltd. Versus The Ass .....

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al Income and Total Income on which tax was paid by assessee and assessed by the AO. Considering the above as a mistake apparent from the record, a notice for rectification was issued under Section 154 on 6.9.2004 for revision of assessment. In response to notice u/s 154 the assessee contended that Section 71(2) uses the expression 'may' indicating that they have an option either to adjust or not to adjust the business loss against capital gains. The objection was overruled and an order .....

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on this aspects but there seems no discussion in the judgment on the issue of not a mistake apparent from records. The findings being concurrent by the three authorities found correct and impressive by honourable High Court, and High Court also confirmed the same view. Observations of author on facts as available from the judgment: From facts as available in judgment, in return assessee did not set off business loss against capital gains and paid tax. This was accepted by AO and income of more .....

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re not available. The loss of ₹ 85 crore is not bifurcated, however, considering size and nature of business of Assessee Company it must mostly be in nature of depreciation. It is also possible that entire depreciation allowable may be in addition to this loss. This means that there was current loss and / or depreciation for the year. However, questions before the High Court, observations of the High Court and judgment of the High Court are silent on this aspect. Therefore, it can be presu .....

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. And the net present value of taxes to be saved in near future was more than net present value of tax paid on LTCG. The rate of tax on business profit is higher and that on LTCG is low u/s 112. Therefore, assessee company must have acted to save tax taking into account 2-3 years expected income. Tax payment offered by assessee and accepted in original assessment: From above facts it is clear that Assessee Company offered capital gains for taxation and paid tax. This payment was accepted by tax .....

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ny choose to pay tax on capital gains and the same was accepted in original assessment. The option exercised by assessee company was definitely based on opinion of experts (may be tax executives and / or tax consultants) Therefore, it can be said that the management of company (including tax experts engaged by company) as well as the Assessing Officer had same view that it is not necessary for assessee to set off business loss against capital gains. And revenue had accepted tax payment made by t .....

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es not appear that this contention was pressed forcefully before lower authorities, Tribunal and the High Court. Any judgment on this aspect and also on other aspects have also not been referred by the High Court, therefore, it can be presumed that either any judgment was not cited or the Court did not give value of precedence to the same. Even if counsels of assessee did not cite a case, the lower authorities, Tribunal and the High Court could have considered them. Section 71and 72 : Section 71 .....

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sessment 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, 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 c .....

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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.] [(4) Where the net result of the computation under the head Income from house property is a loss, in respect of the assessment years commencing on the 1st day of April, 1995 and the 1st day of April, 1996, such loss shall be first set off under sub-sections (1) and (2) and thereafter the loss referred to in section 71A sha .....

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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- xxx Words shall , shall be shall .....

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has been used. On reading of section 72 we find important words in the following terms: 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…. The sentence such loss cannot be or is not wholly set off postulates following two situations: Loss cannot be wholly set off - this can be due to there being no income or incomes being lower than loss, Loss is not wholly s .....

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only in respect of loss under head capital gains, the word may has been used. This is only for the reason that capital gains have concessional tax treatment. Therefore, on conjoint reading of S.71 and 72 both and also provisions relating to lower tax rate or tax impact in case of long-term capital gains, and purposes of such lower rate or lower tax impact in case of long-term capital gains, it is clear that assessee has an option to set off or not to set off losses under business, other sources, .....

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spect of loss under the head capital gains, it was clear understanding that short term capital loss can be set off against any type of income (now only against capital gains), but long-term capital loss can be set off only against long-term capital gains. Long-term capital gains have generally been taxed at lower rate by way of special treatment like indexation of actual cost, allowing deduction from gross gains, option to adopt fair market value as on cut-off date (01.04.1981) and lower rate of .....

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l gains were not emphasised in case of Ashok Leyland. Order of the High Court: Paragraphs 4 -6 are reproduced below with highlights: 4. Though the assessee contended that Section 71(2) uses the expression 'may' indicating that they have an option either to adjust or not to adjust the business loss against capital gains, the objection was overruled and an order was passed under Section 154 on 4.2.2005. The assessee filed a first appeal. The Commissioner dismissed the first appeal and the .....

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