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2017 (6) TMI 821 - ITAT MUMBAI

2017 (6) TMI 821 - ITAT MUMBAI - TMI - Non setting off carried forward business loss against profit earned by the assessee on sale of depreciable asset u/s 50 - Held 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 decision of H .....

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- Disallowance of business loss/bad debt - Held that:- 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. (2007 (1) T .....

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icial Member, And Shri Ramit Kochar, Accountant Member For The Assessee : Shri Shankarlal Jain For The Revenue : Shri Suman Kumar-DR ORDER 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 ₹ 27,08,953/- against profit earned by the assessee on sale of depreciable asset u/s 50 of the .....

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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 con .....

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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 Tr .....

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ench 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 Ass .....

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sessment 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 ₹ 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 assess .....

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t 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 .....

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income realized on the sale of business asset has to be treated as forming part of business income. 4. 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 pr .....

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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 .....

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t off as per the provision of section 72 of the Income tax Act. 7. 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 ₹ 39,85,596/- against the profit realised on sale of business assets viz Factory building/plant and machinery/furniture and fixture. 8. The Assessing officer, however, w .....

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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 s .....

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lding 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. 9. We have heard the rival contenti .....

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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 an .....

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sment 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 pro .....

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e 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 .....

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e 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 S .....

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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. 10. 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 .....

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, 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 .....

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5,880/- (including the bad debt written off amounting to ₹ 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 ₹ 1,91,280/- in respect of certain parti .....

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losed herewith. The said amount of ₹ 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 sq .....

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