2014 (2) TMI 1293 - AT - Income Tax

Disallowance of Set Off of brought forward Business Loss against the deemed Short Term Capital Gains earned on Sale of Building and Plant & Machinery - Held that - Assessee s appeal is squarely covered by the decision of Digital Electronics Ltd. Vs. Addl. CIT 2010 (10) TMI 722 - ITAT Mumbai allowing the claim of the assessee for set off of brought forward business losses against short term capital gain as the income earned in the relevant year although not taxable as profits and gains from business or profession was an income in the nature of income of busiess nevertheless. The assessee was therefore indeed justified in claiming set off of business losses against the income of capital gains. - Decided in favour of assessee Set off of brought forward unabsorbed depreciation against the short term capital gain - Held that - This issue is also covered in favour of the assessee by the case of General Motors India Pvt. Limited vs. Dy. CIT 2012 (8) TMI 714 - GUJARAT HIGH COURT held any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act 2001. And once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with the unabsorbed depreciation from A.Y. 1997-98 upto the A.Y. 2001-02 got carried forward to the assessment year 2002-03 and became part thereof it came to be governed by the provisions of section 32(2) as amended by Finance Act 2001 and were available for carry forward and set off against the profits and gains of subsequent years without any limit whatsoever.- Decided in favour of assessee

Summary

Issues:
1. Set off of brought forward Business Loss against Short Term Capital Gains
2. Set off of brought forward Unabsorbed Depreciation against Short Term Capital Gains
3. Deduction u/s 80G of the Income Tax Act

Analysis:

Issue 1: Set off of brought forward Business Loss against Short Term Capital Gains
The appellant, a company engaged in various businesses, filed its return of income declaring total income. The Assessing Officer (A.O.) disallowed the claim for set off of brought forward business losses against short term capital gain on the grounds that the income was chargeable to tax as short term capital gain u/s 50 of the Income Tax Act. The ld. CIT(A) upheld the A.O.'s decision. However, the Tribunal referred to a previous case and held that as per Section 72 of the Act, the loss carried forward can be set off against profits of any business or profession assessable for that year. The Tribunal emphasized that the gains against which the loss is set off need not be taxable under the head 'Profits and gains of business or profession' as long as they are of any business or profession carried on by the assessee. Therefore, the Tribunal allowed the claim for set off of brought forward business losses against the deemed short term capital gain.

Issue 2: Set off of brought forward Unabsorbed Depreciation against Short Term Capital Gains
The Tribunal considered the appellant's claim for set off of brought forward unabsorbed depreciation against short term capital gains. Referring to a decision of the Hon'ble Gujarat High Court, the Tribunal explained the treatment of unabsorbed depreciation under Section 32(2) of the Act. The High Court clarified that there was no restriction on the carry forward and set off of unabsorbed depreciation, allowing it to be set off against profits and gains of subsequent years without any limit. Following this decision, the Tribunal decided in favor of the appellant and allowed the set off of brought forward unabsorbed depreciation against short term capital gains.

Issue 3: Deduction u/s 80G of the Income Tax Act
The appellant's alternate claim for deduction u/s 80G of the Act was not pressed by the appellant's counsel during the hearing. Consequently, the Tribunal treated this ground as not pressed and dismissed the claim.

In conclusion, the Tribunal partly allowed the appeal of the assessee based on the above analysis, directing the A.O. to allow the set off of brought forward business losses and unabsorbed depreciation against the short term capital gains. The claim for deduction u/s 80G was dismissed as not pressed.