2014 (9) TMI 353 - AT - Income Tax

Computation of STCG on depreciable assets addition of ₹ 29,77,989.21 was made by the assessee with regard to unsold property only after the date of sale i.e. after 20/4/2006. - reduction of such addition from STCG - Held that - The addition shown by the assessee is in respect of unsold property falling in the block of assets - it cannot be an expenditure incurred wholly and exclusively in accordance with the transfer of the asset it also cannot said to be the actual cost of any asset falling within block of asset acquired during the previous year as it is related to an asset which has not been acquired during the previous year and is a brought forward asset - assessee is not entitled to get deduction while computing short term capital gain as per provisions of section 50 Decided against assessee. Entitlement of assessee to carry forward the business loss and was also entitled to get assessed capital gain separately without setting off the same against business loss Held that - there is no force in the claim made by the assessee. Firstly, sub-section (2) of section 71 does not give any option to the assessee to carry forward business loss separately despite there being income under the head capital gain. Section 71(2) contemplates a situation where in respect of any assessment year, the net result of computation under any head of income , other than capital gain is a loss and assessee has income assessable under the head capital gains , in such situation, such loss may, subject to provision of Chapter VI (section 66 to 80), be set off, for and from assessment year 1992-93, against assessee s income, if any, assessable for that assessment year under any head of income including the head capital gains (whether relating to short term capital gain asset or any other capital asset). Thus, provisions of section 71(2) cannot be construed to give option to the assessee to carry forward business loss separately without set off of income arising out of short term capital gain. Only on the basis of word may as appearing in section 71(2), such benefit cannot be granted to the assessee as has been sought by it. The language of the provision is clear. No option has been given to the assessee to carry forward loss under any other head to subsequent year without setting off of the same against short term capital gain. - Decision of Bombay High Court in the case of CIT vs. British Insulated Calender Limited 1993 (1) TMI 43 - BOMBAY High Court distinguished Decided against assessee.

Summary

Issues Involved:
1. Computation of short-term capital gains on depreciable assets.
2. Option under Section 71(2) regarding the set-off of business losses against capital gains.
3. Addition towards VAT component in closing stock (dismissed as not pressed).

Detailed Analysis:

1. Computation of Short-Term Capital Gains on Depreciable Assets:
The primary issue was whether the assessee correctly computed short-term capital gains by including an addition of Rs. 29,77,989 to the block of assets during the year. The assessee contended that this addition should reduce the sale price under Section 50(1) of the Income Tax Act, 1961. The Assessing Officer (A.O.) disagreed, leading to a higher capital gain computation.

The tribunal analyzed Section 50, which deals with the computation of capital gains for depreciable assets. According to the tribunal, the addition of Rs. 29,77,989 was related to an unsold property and not an expenditure incurred wholly and exclusively in connection with the transfer, nor was it the actual cost of an asset acquired during the previous year. Therefore, the assessee was not entitled to reduce this amount from the sale price. The tribunal upheld the A.O.'s computation of short-term capital gains at Rs. 1,11,38,056 instead of Rs. 81,60,066 as claimed by the assessee.

2. Option under Section 71(2) Regarding Set-Off of Business Losses Against Capital Gains:
The second issue was whether the assessee could carry forward business losses without setting them off against capital gains. The assessee argued that under Section 71(2), they had the option to carry forward business losses and assess capital gains separately. The A.O. and the Commissioner of Income Tax (Appeals) (CIT(A)) disagreed, stating that capital gains should be set off against business losses.

The tribunal examined Section 71(2), which allows the set-off of losses under any head of income against capital gains. The tribunal concluded that the provision does not give the assessee an option to carry forward business losses without setting them off against capital gains. The tribunal referenced the case of CIT vs. British Insulation Calendars Ltd., where it was held that business losses must be set off against other income in the same year. Thus, the tribunal dismissed the assessee's claim, affirming that the business loss should be adjusted against the capital gain.

3. Addition Towards VAT Component in Closing Stock:
The assessee did not press this ground during the hearing, and it was dismissed as not pressed.

Conclusion:
The tribunal dismissed the appeal filed by the assessee, upholding the computation of short-term capital gains by the A.O. and rejecting the claim that business losses could be carried forward without being set off against capital gains. The tribunal's decision emphasized the clear language of the Income Tax Act, which mandates the set-off of losses within the same assessment year.