2021 (3) TMI 623 - AT - Income Tax

Set-off of carried forward business losses against short term capital gain raised by selling of capital assets which were not converted into stock-in-trade and computed as per section 50C in view of provisions of section 72 - HELD THAT - Following the precedents HICKSON DADAJEE PVT. LTD. VERSUS ACIT (5) (1) , MUMBAI 2014 (2) TMI 1293 - ITAT MUMBAI and EVERSHINE PHARMACEUTICALS DISTRIBUTORS PVT. LTD. 2012 (8) TMI 1188 - ITAT MUMBAI CIT(A) held that the ground of appeal is allowed and AO is directed to grant set off of carry forward loss after verification of records. Against this order the Revenue is in appeal before us. We have heard learned Departmental Representative and perused the record. We agree with the finding of learned CIT(A) that the issue is covered in favour of the assessee by the Tribunal decision cited there. Hence, we uphold the order of learned CIT(A). Revenue s appeal is dismissed.

Summary

Issues:
Allowance of set-off of carried forward business losses against short term capital gain raised by selling of capital assets.

Analysis:
The case involved an appeal by the Revenue against the order of the learned CIT(A) regarding the allowance of set-off of carried forward business losses against short term capital gains from selling capital assets for the assessment year 2013-14. The Assessing Officer initially rejected the claim of the assessee to set off the losses against the gains, citing the absence of specific provisions under the Income Tax Act for such set-off. The appellant, however, relied on Section 72 of the Income Tax Act, 1961, which allows for the carry forward and set off of losses under the head 'Profits and Gains of Business or Profession'. The appellant argued that there was no requirement for the income sought to be adjusted against the loss to be taxable only under the head 'Profits and Gains of Business', emphasizing that the gains arose from the sale of a business asset used for its business.

Furthermore, the appellant cited precedents, including judgments of the Mumbai ITAT in cases where it was held that brought forward business losses can be set off against capital gains taxable under section 50 of the Act. The Tribunal in those cases emphasized that as long as the gains are from any business or profession carried on by the assessee and assessable for that assessment year, they can be set off against the losses under the head 'Profits and Gains of Business or Profession' carried forward from earlier years. The Tribunal clarified that the nature of the gain arising from the sale of business assets remains business income, even if taxed under the head 'Capital Gains'.

Ultimately, following the precedents and considering the arguments presented, the learned CIT(A) allowed the ground of appeal, directing the Assessing Officer to grant set off of the carry forward loss after verification of records. The Appellate Tribunal upheld the decision of the CIT(A), dismissing the Revenue's appeal based on the established legal principles and precedents cited in favor of the assessee.

In conclusion, the judgment reaffirmed the applicability of Section 72 of the Income Tax Act for the carry forward and set off of business losses against capital gains arising from the sale of business assets, emphasizing the nature of the gains as business income despite being taxed under the head 'Capital Gains'. The decision was based on established legal principles and precedents from the Mumbai ITAT, providing clarity on the interpretation and application of relevant provisions in similar cases.