2017 (6) TMI 821 - AT - Income Tax

Non setting off carried forward business loss against profit earned by the assessee on sale of depreciable asset u/s 50 - Held that - The assessee is entitled to set off of brought forward business losses against the capital gains, thus, the observation of the Ld. Commissioner of Income Tax (Appeal) that contrary decision, mentioned in the order, were not considered is of no help to the Revenue because, the coordinate Bench duly considered the decision of Hon ble Gujarat High Court in CIT vs Milind Trading Co. Pvt. Ltd. (1993 (12) TMI 22 - GUJARAT High Court ) as well as Hon ble Apex Court in CIT vs Cocanada Radhaswamy Bank Ltd. 1965 (4) TMI 11 - SUPREME Court . Even otherwise, the ratio laid down in the order of the Tribunal in the case of Nirmal Plastic Industries and Shri Padmavati Shrinivasa Cotton Ginning and Processing Factory (2009 (3) TMI 246 - ITAT VISAKHAPATNAM) further supports the case of the assessee. - Decided in favour of assessee. Disallowance of business loss/bad debt - Held that - In view of the amendment in the taxation laws with effect from 01st April, 1989, the requirement of demonstrating that the debts has become bad has been dispensed with and only requirement remains that it should be written off in books of accounts of the assessee, which has been further clarified by CBDT Circular No.551 dated 23/01/1990. Our view find support from the ratio laid down in CIT vs Brilliant Tutorials Pvt. Ltd. (2007 (1) TMI 147 - MADRAS High Court ). Hon ble Apex Court, later on, in T.R.F. Ltd. vs CIT (2010 (2) TMI 211 - SUPREME COURT ), considering the provision of section 36(1)(vii), prior to April, 1, 1989 and post amendment held that it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. Mere written off in its accounts is enough, thus, following the aforesaid we allow the ground of the assessee.

Summary

Issues Involved:
1. Set-off of carried forward business loss against profit earned on the sale of depreciable assets under Section 50 of the Income Tax Act, 1961.
2. Disallowance of business loss/bad debt claim.

Issue-wise Detailed Analysis:

1. Set-off of Carried Forward Business Loss Against Profit Earned on Sale of Depreciable Assets:

The assessee was aggrieved by the order of the First Appellate Authority, which confirmed the disallowance of setting off carried forward business loss of ?27,08,953/- against profit earned on the sale of depreciable assets under Section 50 of the Income Tax Act, 1961. The assessee's counsel argued that the issue was covered in favor of the assessee by various Tribunal decisions, including Digital Electronics Ltd. vs CIT and others. The Revenue defended the addition confirmed by the Commissioner of Income Tax (Appeal), citing contrary decisions from other Tribunal benches.

The Tribunal considered the rival submissions and material on record. The assessee declared an income of ?13,14,110/- in its return, which was assessed at ?44,90,720/-. The assessee earned short-term capital gain on the sale of depreciable assets under Section 50, which was set off against the carry forward business loss. The Assessing Officer disallowed the claim, stating that the case relied upon by the assessee was under appeal in the High Court. The Commissioner of Income Tax (Appeal) also confirmed the addition, citing contrary decisions from the Bangalore and Rajkot Benches of the Tribunal.

The Tribunal analyzed the assessment order, the impugned order, and the material on record. It reproduced a relevant portion of the order from the Digital Electronics Ltd. case, which concluded that the income earned, although not taxable as 'profits and gains from business and profession,' was in the nature of business income. Therefore, the assessee was justified in claiming the set-off of business losses against the income of capital gains. The Tribunal upheld the grievance of the assessee and directed the Assessing Officer to grant the set-off, thereby reversing the order of the Commissioner of Income Tax (Appeal).

2. Disallowance of Business Loss/Bad Debt Claim:

The next ground raised by the assessee pertained to the confirmation of the disallowance of ?1,91,280/-, claimed as business loss/bad debt. The assessee had written off bad debt amounting to ?90,35,880/-, including ?87,78,922/- in respect of M/s TATI SA, Paris, France. The assessee was asked to furnish details and supporting correspondence. The assessee replied that the advance given during the course of business could not be adjusted as the party did not supply the material or raised counterclaims. The assessee argued that the amount should be allowable as a business loss under Section 28 read with Section 37(1) or as bad debt under Section 36.

The Tribunal considered the rival submissions and material on record. It found that the case of the assessee was covered by the decision of the Tribunal in ACIT vs M/s Bank of Baroda for A.Y. 2005-06 and other supporting cases. The Tribunal noted that post the amendment in taxation laws effective from April 1, 1989, the requirement of demonstrating that the debt had become bad was dispensed with, and only the requirement of writing it off in the books of accounts remained. This was further clarified by CBDT Circular No.551 dated January 23, 1990. The Tribunal's view was supported by various court decisions, including CIT vs Brilliant Tutorials Pvt. Ltd., CIT vs Morgan Securities and Credits Pvt. Ltd., and others. Following the decision of the Hon'ble Supreme Court in T.R.F. Ltd. vs CIT, which held that mere write-off in accounts is sufficient, the Tribunal allowed the ground of the assessee.

Conclusion:

The appeal of the assessee was allowed. The Tribunal reversed the order of the Commissioner of Income Tax (Appeal) regarding the set-off of carried forward business loss against profit earned on the sale of depreciable assets and allowed the claim of business loss/bad debt.