2018 (10) TMI 1264 - AT - Income Tax

Disallowance set-off of Short Term Capital Loss against Long Term Capital Gain - claim rejected on the ground that assessee company did not furnish bills or vouchers in support of the sale of the said assets. Secondly, the assets which were discarded could have fetched scrap value which is not accounted by the assessee. - Held that - the lumpsum sale consideration of ₹ 60 lakhs includes value of land and electrical installation, equipment, building, furniture, etc. AO is directed to adjust the Short term capital loss being the written done value of these assets of ₹ 6,85,490/- against the Long term capital gain on the sale of the land. With these directions, we allow this ground of appeal raised by the assessee. Additions towards waiver of loan - the assessee had applied for one-time settlement to the bank whereby the principal amount of the loan was repaid and the interest on the loan amount was waived. The said interest though provided in the books was not claimed while computing income in view of sec.43B as the said interest was not paid. Therefore, the waiver of the interest amount was not offered for taxation. - No additions. Disallowing set-off of unabsorbed depreciation against income of long Term Capital Gain - belated filing of returns of income - Held that - In this respect our attention was drawn to the decision of the Appellate Tribunal, Mumbai Bench,in the case of ACIT vs. Anil Printers Ltd. 2016 (4) TMI 907 - ITAT MUMBAI wherein the Tribunal held that the condition of filing return of income within the time prescribed u/s.139(1) of the Act is not applicable for the provisions of sec.32(2) and therefore, carry forward and set off of the unabsorbed depreciation can be allowed even though the returns of those respective years were not filed within the time prescribed u/s. 139(1) of the Act. Thus we hold that brought forward unabsorbed depreciation be allowed for set off against Long Term Capital Gains and we direct accordingly. - Assessee appeal allowed.

Issues Involved:
1. Disallowance of set-off of Short Term Capital Loss against Long Term Capital Gain.
2. Disallowance of set-off of unabsorbed depreciation against income of Long Term Capital Gain.
3. Non-allowance of set-off of brought forward losses against business income.
4. Rejection of adjustment of unabsorbed depreciation due to late filing of returns.
5. Incorrect consideration of the amount of unabsorbed depreciation for A.Y. 2001-02.

Detailed Analysis:

Issue 1: Disallowance of Set-off of Short Term Capital Loss Against Long Term Capital Gain

The assessee challenged the disallowance of set-off of Short Term Capital Loss of ? 685,490/- against Long Term Capital Gain. The assessee argued that the sale of a plot of land included the sale of factory buildings, electrical installations, tools, and furniture, which resulted in a Short Term Capital Loss. The Assessing Officer (AO) disallowed the claim due to the lack of supporting documents and the non-mention of these assets in the sale deed. The Tribunal found that the sale deed did include the factory building and other assets sold along with the land for a lump sum consideration of ? 60 lakhs. Therefore, it directed the AO to adjust the Short Term Capital Loss against the Long Term Capital Gain, allowing the assessee's ground of appeal.

Issue 2: Disallowance of Set-off of Unabsorbed Depreciation Against Income of Long Term Capital Gain

The assessee contested the disallowance of set-off of unabsorbed depreciation of ? 46,29,650/- against Long Term Capital Gain. The AO and CIT(A) disallowed this set-off, interpreting that if there were no business activities in the year of claim, the brought forward losses could not be set off. The Tribunal referred to the Mumbai Tribunal's decision in Suresh Industries vs. ACIT, which held that unabsorbed depreciation can be set off against any income, not just business income. The Tribunal concluded that the brought forward unabsorbed depreciation should be treated as current year's depreciation and allowed to be set off against Long Term Capital Gain, thus allowing the assessee's appeal on this ground.

Issue 3: Non-allowance of Set-off of Brought Forward Losses Against Business Income

This ground was not pressed by the assessee and thus became infructuous.

Issue 4: Rejection of Adjustment of Unabsorbed Depreciation Due to Late Filing of Returns

The AO disallowed the set-off of unabsorbed depreciation because the returns for A.Y. 2002-03, 2004-05, and 2005-06 were not filed on time. The Tribunal cited the case of ACIT vs. Anil Printers Ltd., which held that the condition of timely filing of returns under section 139(1) is not applicable for the provisions of section 32(2) regarding unabsorbed depreciation. Therefore, the Tribunal allowed the set-off of unabsorbed depreciation despite the late filing of returns.

Issue 5: Incorrect Consideration of the Amount of Unabsorbed Depreciation for A.Y. 2001-02

The assessee argued that the CIT(A) incorrectly considered the unabsorbed depreciation amount for A.Y. 2001-02. The Tribunal, after examining the facts and the accounting entries, directed that the correct amount of unabsorbed depreciation be considered and allowed for set-off against Long Term Capital Gains.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, directing the AO to adjust the Short Term Capital Loss against Long Term Capital Gain and to allow the set-off of unabsorbed depreciation against Long Term Capital Gain, irrespective of the late filing of returns. The appeal was allowed with no order as to cost.

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