2021 (9) TMI 136 - AT - Income Tax

Rectification of mistake u/s 154 - application of provision of 50C on sale of an asset - set off of brought forward business loss against Technical Short Term Capital Gains arising out of the sale of depreciable business assets - AO brought to tax the brought forward business loss which was reduced from STCG - HELD THAT - As assessee itself has offered the income under the head Short Term Capital Gain and not as business income. Therefore, under the provisions of section 72(1), the brought forward business loss can be set off only from business income and cannot be set off from STCG. The assessee has not been able to controvert this find of the lower authorities. Therefore, the assessee s appeal is dismissed on merits.

Issues:
1. Set off of brought forward business loss against Short Term Capital Gains (STCG) arising from the sale of depreciable business assets.
2. Application of section 50C on the sale of an asset and set off of business loss.
3. Disallowance of set off of brought forward business loss against STCG.
4. Interpretation of provisions under section 72(1) for set off of business loss against STCG.

Analysis:
1. The appeal pertains to the set off of brought forward business loss against STCG from the sale of depreciable business assets for the Assessment Year (A.Y) 2009-10. The Assessing Officer initially allowed the set off but later rectified the mistake under section 154 of the Income Tax Act, disallowing the set off. The CIT (A) upheld this decision. The appellant contested this by arguing that the issue should not have been treated as a mistake under section 154 and that the set off should be allowed based on legal provisions and case laws supporting the claim.

2. The Assessing Officer applied section 50C on the sale of an asset and allowed the set off of business loss against STCG. However, upon realizing the error, a notice was issued under section 154 to rectify the mistake. The Tribunal observed that the Assessing Officer correctly brought forward the business loss to tax, which was earlier set off from STCG. The appellant challenged this decision before the Tribunal, emphasizing that the STCG arose from the sale of depreciable business assets and should be eligible for set off against the brought forward business losses under section 72 of the Act.

3. The appellant contended that the CIT (A) erred in upholding the order disallowing the set off of brought forward business loss against STCG. The appellant argued that the STCG was a result of the exhaustion of the block of assets, making it technically STCG but essentially a business profit. The appellant highlighted legal precedents supporting the set off claim and requested the Tribunal to direct the set off of brought forward business losses against the technical STCGs arising from the sale of depreciable business assets.

4. The Tribunal, upon examining the facts and submissions, noted that the appellant had declared the income as STCG and not as business income. As per section 72(1) of the Act, brought forward business loss can only be set off against business income, not STCG. The Tribunal found no evidence to refute this point raised by the lower authorities. Consequently, the Tribunal dismissed the appellant's appeal on both procedural and substantive grounds, upholding the disallowance of the set off of brought forward business loss against STCG.

In conclusion, the Tribunal dismissed the assessee's appeal concerning the set off of brought forward business loss against Short Term Capital Gains arising from the sale of depreciable business assets for the A.Y 2009-10, based on the provisions of section 72(1) and the factual circumstances of the case.

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