2018 (11) TMI 378 - AT - Income Tax

Carry forward of unabsorbed business depreciation as per computation of income filed alongwith original return u/s 139(1)- Business loss set off against income from short term capital gain - Held that - As observed that assessee has paid 10% tax on long-term gain on which STT has not been paid per provisions of section 112 of the Act. Thus subsection 2 of section 71 is applicable to the facts of the present case as assessee has a positive income under the head capital gains (including long term and short term capital gains). Is on a careful reading of sub section 2 of section 71, it is apparent that there is no restriction imposed on exercising option of setting off of business loss against income under the head capital gains (either long term capital gain or short term capital gain). The facts of the present case assessee has also exercised its right under section 112 of the act and has paid 10% tax on the long term capital gains, and therefore what remains to be adjusted against the business loss is the short term capital gains amounting to ₹ 10,58,675/-. The balance unabsorbed business loss amounting to ₹ 1,29,10,486/- has been carried forwarded by assessee. We do not find any infirmity in the above computation and carry forward of business loss which is in consonance with the provisions of the act We therefore do not agree with computation adopted by Ld.AO - we direct AO to allow carry forward of unabsorbed business depreciation as per computation of income filed alongwith original return under section 139(1) of the Act. - Decided in favour of assessee

Summary

Issues involved:
1. Adjustment of capital gains against business losses by the Assessing Officer.
2. Interpretation of section 71(2) of the Income Tax Act regarding the option of setting off business losses against capital gains.

Analysis:
1. The case involved an appeal by the assessee against the order passed by the Ld. CIT (A) for the assessment year 2008-09. The Assessing Officer had adjusted the long term capital gains and short term capital gains against the declared business loss of the assessee. The assessee contended that this adjustment was unjustified as they had the option of not setting off business losses against capital gains. The Ld. CIT (A) upheld the AO's decision, leading to the appeal before the ITAT Delhi.

2. The assessee argued that as per section 71(2) of the Income Tax Act, they had the discretion to choose whether to set off business losses against capital gains or carry them forward. They cited relevant case laws to support their interpretation of the provision. On the other hand, the Senior DR contended that the set off of losses must comply with sections 70 to 80 as part of the procedural requirement. The assessing officer's decision was supported by the authorities below, stating that the assessee opted to carry forward the business loss to avoid Minimum Alternate Tax (MAT) provisions.

3. The ITAT Delhi analyzed the submissions of both parties and reviewed the records. They observed that the business loss had been set off against short term capital gains, and the assessee had paid tax on long-term gains as per section 112 of the Act. Upon a detailed examination of section 71(2), the ITAT concluded that the provision did not restrict the assessee from choosing not to set off business losses against capital gains. The ITAT found no fault in the computation and carry forward of the unabsorbed business loss by the assessee, in compliance with the Act.

4. Consequently, the ITAT disagreed with the computation adopted by the Assessing Officer and directed them to allow the carry forward of the unabsorbed business depreciation as per the original return filed under section 139(1) of the Act. As a result, the grounds raised by the assessee were allowed, and the appeal filed by the assessee was deemed successful. The order in favor of the assessee was pronounced in court on 10/08/2018.