2016 (7) TMI 335 - AT - Income Tax

Set off of brought forward business loss against deemed S.T.C.G. u/s. 50 - Held that - As decided in case of Nandi Steel Ltd., V. ACIT 2011 (12) TMI 162 - ITAT BANGALORE held that the capital gains on sale of capital assets is not to be set off against the brought forward loss of earlier years. Only the business loss can be carried forward u/s 72 of the Act and it can also be set off only against the business income of the assessee - Decided in favour of revenue

Summary

Issues:
Rejection of set off of brought forward business loss against short term capital gains arising from sale of plant and machinery.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2009-10. The assessee had claimed set off of brought forward business losses against the surplus from the sale of capital assets treated as short term capital gains. The Assessing Officer disallowed the claim, leading to the appeal. The Commissioner of Income Tax (Appeals) rejected the claim, relying on the decision of the Special Bench of the Tribunal in a similar case.

The assessee contended that the surplus from the sale of depreciable assets should be considered as business income, despite being treated as short term capital gains. The Department supported the Commissioner's decision, citing the Special Bench judgment. The Tribunal considered the arguments and the orders of the lower authorities.

The assessee raised grounds challenging the rejection of set off of brought forward business loss against short term capital gains. The Special Bench decision in Nandi Steels Ltd. case was pivotal, emphasizing that only business losses can be carried forward and set off against business income. The Tribunal found no distinction between the present case and the Special Bench decision, leading to the dismissal of the appeal.

The Tribunal upheld the Commissioner's decision, stating that the surplus from the sale of capital assets, though treated as short term capital gains, did not qualify as business income eligible for set off against brought forward business losses. The appeal was dismissed for lacking merit.

In conclusion, the Tribunal affirmed the rejection of the set off claim, following the precedent set by the Special Bench decision. The judgment emphasized the distinction between business income and capital gains, ultimately leading to the dismissal of the appeal.