9911796707
TMI Blog2011 (12) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... which is engaged in the business of manufacture/production of Iron and Steel has filed its return of income for the relevant assessment year on 14-10-2003, declaring an income of ₹ 98,27,270/- under the head 'capital gains'. The return was processed u/s 143(1) on 20-01-2004 and a refund of ₹ 4,77,163/- was issued. Subsequently, the AO noticed that the assessee had set off the long term capital gains of ₹ 43,36,640/- against the brought forward business loss and depreciation contrary to the provisions of Sec.72 of the IT Act. In view of the same, the AO believed that the income chargeable to tax has escaped assessment within the meaning of Sec.147 and issued notice u/s 148 on 8-07-2005. In response to notice u/s 148, the assessee filed its return of income on 17-04-2006 as returned in the original return of income. The assessee also requested the AO to furnish a copy of the reasons recorded for re-opening of the assessment. The AO furnished the reasons recorded for reopening of the assessment to the assessee. In the proceedings u/s 143(3) read with Sec.148 of the IT Act, the AO held that the brought forward business loss and unabsorbed depreciation cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the capital gains are connected with the capital assets of the business and therefore, it cannot make them the profit of the business and cannot be set off against the carry forward business loss. Having observed that the Bench of the Tribunal at Bangalore in the case of M/s Steelcon Industries Ltd. (supra) has not considered the decision of the Hon'ble Supreme Court in the case of Express Newspapers Ltd., cited supra, the Division Bench felt that the decision of the Tribunal in the case of M/s Steelcon Industries Pvt. Ltd., requires re-consideration by a Special Bench constituting of three Members for a decision. Thus, they referred the grounds of appeal nos.5 & 6 to the Special Bench. The Hon'ble President of ITAT after considering the reference in detail u/s 255(3) made by the Division Bench of this Tribunal (vide order dated 11-12-2008 constituted a Special Bench) for disposal of the ground nos.5 & 6. We accordingly, proceed to decide the appeal. 4. Ground no.5 & 6 raised by the assessee in the appeal are as under : "Ground no.5: That the learned CIT(A) erred in law and on facts that the appellant is not entitled to set off carry forward business loss of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f unabsorbed loss and clause-(i) thereof permits set off of such loss from the income, if any, of any business of the assessee. Therefore, according to him, it is enough, if such profits and gains have a nexus with business. He also submitted that whenever legislature wanted to refer to a particular head, it specifically stated so. He drew our attention to the reference to the head 'profits and gains of business or profession" in the explanation (baa) to sec.80HHC, wherein while defining the profits of business it is provided that it means the profits of business as computed under the head 'profits and gains of business or profession". He submitted that the similar expression is used in clause-(d) of the Explanation to sec.80HHE. Thus, according to him, since sec.72 does not state that the loss can be set off only from income computed under the head "profits and gains of business or profession", it can be set off against the profits and gains of business or profession even if it is computed under any other head of income. 8. The other argument raised by the assessee is that the lower authorities have rejected the claim of the assessee mainly on the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttention to the provision of Sec.72 of IT Act to demonstrate that it is only business income against which the brought forward loss can be set off. He strongly relied upon the judgment of the Hon'ble Supreme Court in the case of M/s Express Newspapers Ltd., (cited supra) and submitted that the findings of the Hon'ble Supreme Court should be considered in the light of the facts and circumstances before the Hon'ble Court. He also submitted that in both the cases i.e M/s United Commercial Bank Ltd., and M/s Cocanada Radhaswami Bank Ltd., the capital gains were on account of sale of securities and the Hon'ble Supreme Court has taken note of the fact that these securities were in fact trading assets of the assessee's therein and therefore, though the income was to be taxed under the head" Income from securities" it does not lose the character of business income and therefore, brought forward loss of earlier years can be set off against such income. He submitted that in the case before us, assets were fixed assets as shown in the balance sheet of the assessee and were undoubtedly capital assets. He submitted that the assessee even claimed depreciation on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has been that they have direct nexus with the business carried on by the assessee and therefore, are business assets and any gains from the sale of such assets would also have the character of business income. We are unable to agree with this contention of the assessee that the assets sold by the assessee were business assets. Undisputedly, they were capital assets and the capital receipts are not taxable nor are the capital payments deductible from the income of the assessee. The capital is to be used for the purpose of carrying on the business of the assessee and it shall remain in the business of the assessee till it is either converted into stock-in-trade or is disposed off. The income earned by the assessee by carrying on the business by use of the stock in trade only is the business income of the assessee. Likewise, any expenditure incurred by the assessee for carrying on of business and for earning the income from such business or profession is only allowable as deduction. After taking into account the receipts and payments for carrying on the business of the assessee only the profit or gain or loss from the business is computed. If the profit or loss relate to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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