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TMI Blog2013 (5) TMI 609X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed set off according to the provisions of the Act. The CIT's reliance on section 32(2) is not only misleading and wrong but also against the provisions of sections 70 & 71 which allows such set off. As decided CIT vs. RPIL Signalling Systems Ltd. [2008 (9) TMI 583 - Madras High Court] wherein held that the assessee was entitled to set off the unabsorbed depreciation brought forward against the capital gains. There is no need to discuss provisions of sections 70, 71 & 32(2) elaborately as the CIT erred in coming to the conclusion that current year's depreciation cannot be allowed to be set off against capital gains. Therefore the observations and directions of the CIT are against the provisions of law itself. Thus no hesitation in cancelling the order u/s 263 and allowing the grounds raised by the assessee. - ITA No. 3411/Mum/2010 - - - Dated:- 10-5-2013 - B. Ramakotaiah And Dr. S. T. M. Pavalan, JJ. For the Appellant : Shri D. V. Lakhani For the Respondent : Shri Pravin Varma ORDER Per B. Ramakotaiah, AM. This appeal by the assessee is directed against the order of the CIT-8, Mumbai under section 263 dated 15.03.2010. 2. Assessee has raised the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... current year's depreciation was not liable to be set off against STCG and the same is liable to be carried forward. 4. The CIT has issued a show cause letter dated 01.12.2009 and after hearing the assessee, vide letter dated 15.03.2010, he directed the AO to disallow brokerage expenses and also the depreciation. His order in paras 4 5 reads as under: - "4. As mentioned in the reasons in the show cause notice, M/s. Ovira Logistics Pvt. Ltd. is holding 99% shares of the assessee company and hence it falls in the category of specified persons u/s. 40A(2)(b). The assessee has not filed any details relating to the experience and expertise of M/s. Ovira Logistics Pvt. Ltd. in the absence of sale and purchase of immovable properties as a broker. The Assessing Officer did not call any details or reasons relating to the payment of brokerage by the assessee company to a specified person. Even during the 263 proceedings, the assessee has not brought any material which could indicate any experience/expertise possessed by M/s. Ovira Logistics Pvt. Ltd. pertaining to sale and purchase of immovable property as a broker. Mere filing of a scanty correspondence from the assessee company to M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear depreciation as well as unabsorbed carried forward depreciation against income from any other head other than income under the head 'Profits and gains of business and profession'. Sine there is a business loss during the current year, the current year depreciation has to be carried forward and cannot be set off against short term capital gains. The Assessing Officer has wrongly allowed the set off of current year depreciation of Rs.16,30,846/- and unabsorbed brought forward depreciation of Rs.1,40,00,039/- which is erroneous and prejudicial to the interest of the revenue. Therefore, the assessment made by the Assessing Officer is modified to the extent that depreciation of Rs.16,30,846/- plus Rs.1,40,00,039/- cannot be allowed to be set off against the short term capital gains from sale of property. The Assessing Officer is accordingly directed to re-compute the income after disallowing the depreciation claim allowed in the computation of income mentioned above." 5. Contesting the above findings of the CIT, it was the submission of the learned counsel that first of all this issue was enquired by the learned AO and placed on record that the replies that were given by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this issue. He submitted that there was no discussion regarding claim of brokerage or disallowance and referred to page 96 placed in the paper book to submit that the assessee simply placed an invoice on record without any evidence of service being rendered. Then he referred to page 48 of the paper book to submit that the sale deed has been enclosed without there being any separate note, which indicated that the AO has not examined the claim of brokerage. He supported the orders of the CIT. 8. We have considered the rival submissions and examined the documents placed on record. Apparently, there seems to be no discussion on the issue of claim of brokerage in the assessment order. However, this does not indicate that the AO is not aware about the claim of brokerage expenses. As seen from item No. 11 to the notes of accounts of the assessee's annual report the following were disclosed: - List of Related parties and relationships:- Information relating to Related Party Transactions as per Accounting Standard 18 issued by the Institute of Chartered Accountants of India (ICAI) is given below:- Sr. No. Party Relationship 1 Ovira Logistics Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO eventhough no specific enquiry seems to have been made. Now coming to the CIT's observations that the expenditure is not bonafide cannot be expected as the said company, eventhough a holding company, is earning its incomes as consultant/ brokerage income regularly over a period of time and there is no dispute with reference to the amount of Rs.32,00,000/- paid at 2% of Rs.16 crores of sale proceeds paid to the said company along with 10% service tax and 2% education cess, amounting to Rs.3,26,400/- on the above brokerage. There is no dispute with reference to the fact that the service tax tendered and deposited to the government and also there is no dispute to the fact that the said company has offered the income in their computation and there is no tax escapement. Eventhough the claim may, prima facie, seem erroneous in the eyes of Revenue, there is no prejudice caused as the same amount was offered as business income. Rather there seems to be an error an the part of the CIT to invoke provisions of section 40A(2)(b) in concluding that the claim of brokerage is not genuine. He has not only invoked wrong provisions applicable for business transactions for deciding the issue und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f against income of any, In the subsequent years." This indicates that the learned AO examined the claim of depreciation and allowed set off according to the provisions of the Act. The CIT's reliance on section 32(2) is not only misleading and wring but also against the provisions of sections 70 71 of the Act, which allows such set off. The Hon'ble Madras High Court in the case of CIT vs. RPIL Signalling Systems Ltd. 328 ITR 283 held that the assessee was entitled to set off the unabsorbed depreciation brought forward against the capital gains. There is no need to discuss provisions of sections 70, 71 32(2) elaborately as the CIT erred in coming to the conclusion that current year's depreciation cannot be allowed to be set off against capital gains. Therefore, without much discussion on the issue, we hold that the observations and directions of the CIT are against the provisions of law itself. 11. In view of the above discussion, we have no hesitation in cancelling the order under section 263 and allowing the grounds raised by the assessee. 12. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 10th May, 2013. - - TaxTMI - T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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