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TMI Blog2022 (4) TMI 904X X X X Extracts X X X X X X X X Extracts X X X X ..... is the business activity of the assessee and the income, which is assessed by way of capital gain, bears the character of profits or gain derived from such leasing business. Hence, irrespective of under which head such income is taxable ( short term capital gain in the present case), we are of the view that, the loss assessed under the head Profits Gains of Business or Profession in the preceding years and brought forward to the relevant year had been rightly claimed as set off against the profits or gain derived from long term leases assessed under the head 'Short Term Capital Gain'. AO had applied his mind to this particular claim of the assessee in the earlier years and had been accepted and, therefore, when the same claim had been raised in the relevant year as well, the AO had rightly accepted it, in absence of any change of facts or position of law, which permeated through the earlier assessment years. In our view therefore, the AO could not have disturbed the aforesaid settled position. For that, we rely on the decision of Radhasoami Satsang[ 1991 (11) TMI 2 - SUPREME COURT] AO had correctly allowed the set off of brought forward business loss against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s raised in the appeal, the assessee has challenged the usurpation of jurisdiction by the Pr. C.I.T. u/s 263 of the Act, to interfere in the order dated 15.12.2019 passed by the Assessing Officer u/s 143(3) of the Act even though the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. 3. The background facts of the case which led to the impugned order of the Ld. Pr. CIT is as under: (i) The assessee company is engaged in the business of development of Software Technology Industrial Parks and related infrastructure facilities for IT, ITES and its end users. These projects have been conducted on the land parcels obtained on lease from the Government. Upon completion of the project, the entire cost so incurred for developing this business apparatus is capitalized under the head 'Fixed Asset'. The company exploits these constructed spaces by leasing them out. Accordingly, the rental income derived by the assessee from short term leases of these properties is taxed as and by way of 'Business income' and the corresponding thereto, the depreciation is claimed on such leased fixed assets u/s. 32 of the Act. This factual position is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. In the instant case, from perusal of the assessment record it was observed that there has been set off of brought forward business loss with the short term capital gain of ₹ 5,41,41,587/- which is irregular and this has resulted in under charge of tax of ₹ 1,62,62,837-. ln the submission dated 11/12/2021, the assessee already stated that the leased assets were in the nature of 'business assets' and therefore the gain derived from long term capital leases were to be computed and disclosed as deemed short term capital gain u/s.50 of the Act but the nature and character of such income/gain continued to remain profit/gain derived from the business of leasing of properties. The A.O. has passed the assessment order without making enquiries or verification which should have been made in the instant case. Clause (a) and (b) of Explanation-2 to Section 263(1) is attracted in this case. Accordingly, it is held that the assessment order is erroneous in so far as it is prejudicial to the interest of revenue. Hence, in fitness of things, there is no alternative but to set aside the case to the AO, before whom the assessee is given another chance to argue his case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law . 5. On the touch stone of the ratio laid down by the Hon ble Supreme Court in Hon ble Supreme Court in Malabar (supra), it is now required to be examined as to whether there is any merit in the appeal preferred by the assessee against the action of the Ld. PCIT to have invoked his revisional jurisdiction u/s. 263 of the Act. For that, first of all we would like to look into the facts pertaining to this case. 6. It is noted that, after going through the assessment records, the Ld. Pr. CIT had raised a specific issue that, the action of the AO allowing the set off of brought forward business loss with the short term capital gain of ₹ 5,41,41,587/- was irregular and according to him this has resulted in under charge of tax of Rs.l,62,62,S37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as prejudicial to the interest of revenue. According to him, the set off of brought forward business loss could have been done only with profits assessable under the head Business and not from Capital gain . Therefore, according to him, the Ld. Pr. CIT has rightly set aside the order of AO which needs no interference from our part. 9. Having heard both the parties and after perusal of the record as noted by us, we find that the admitted facts of the case are that, the assessee company is engaged in the business of development of Software Technology Industrial Parks and related infrastructure facilities for IT, ITES and its end users on the land parcels obtained on lease from the Government. These IT Parks developed by the assesse are leased out to various IT other companies on commercial basis. The spaces so constructed are sub-leased either on short term and long term basis. It is therefore clear that, the leasing activity is the core business activity of the assessee. The assesse develops these properties with the intent of commercially exploiting the same and derives profit therefrom. It is noted that the assesse derives primarily three streams of income from thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss as has not been so set off or, where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and- (i) it shall be set off against the profits and gains, of any, business or profession carried on by him and assessable for assessment year; (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on 11. A careful reading of the above Section shows that where for any assessment year, the net result of the computation under the head Profits and gains of business or profession is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off is to be carried forward to the following assessment year and is allowable for being set off against the profits, if any, of that business or profession carried on by him and assessable for that assessment year . Hence, for claiming set-off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by it which was taxable under the head Income from Other Sources . The assessee had claimed set-off for the business loss from banking activities brought forward from earlier years against 'interest from securities'. The ITO denied the claim on the premise that, the brought forward 'business loss' could be set-off only against income assessed under the head Business . On appeal the Hon'ble Supreme Court examined the then provisions of 24(2) of the Indian Income-tax Act, 1922 [Section 72 of the Income-tax Act, 1961] and took note of the above discussed distinction and the implication regarding carry forward and set off of business losses. The Hon ble Apex Court held that, while the determination and carry forward of the nature of loss incurred by the assessee, gets classified on the basis of income being taxable under a particular for the purposes of computing the same, but the set off for such loss is concerned only with the nature of profit or gain and not the head under which such profit or gain is being taxed. The Court held that as long as the profit or gain bore the character of income derived from a business / trading asset, then irrespective of the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that income. A comparative study of sub-sections (1) and (2) of section 24 yields the same result. While in sub-section (1) the expression head is used, in sub-section (2) the said expression is conspicuously omitted. This designed distinction brings out the intention of the legislature. .. ..Be it noted that clause (2) of section 24, in contradistinction to clause (1) thereof, is concerned only with the business and not with its heads under section 6 of the Act. Section 24, therefore, is enacted to give further relief to an assessee carrying on a business and incurring loss in the business though the income there from falls under different heads under section 6 of the Act. (emphasis supplied) 14. The Ld. AR also brought to our notice that, the provisions of Section 24(2) of the erstwhile Income-tax Act, 1922 was akin to Section 72(1)(i) of the Act. In fact, he pointed out that the scope of set off under section 72(1)(i) of the Act was wider than Section 24(2) in as much as, earlier the loss assessed under the head Business could be carried forward and set off only against the profits and gains derived from the same business, but under the present provision of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtained. 16. In the above judgment, the Hon ble Bombay High Court took note of the decision of this Tribunal at Mumbai in the case of Digital Electronics Ltd Vs Addl. CIT (supra) wherein on similar set of facts and circumstances the Tribunal held that, there was no requirement in Section 72 of the Act that the loss determined under the head 'Business' could be carried forward and set off only against income reported under the same head viz., 'Business . Taking note of the express language used in Section 72(1)(i), the Tribunal held that irrespective as to under which head the income was being classified, but if such income bore the character of profit or gain derived in the course of any business, then the brought forward business loss can be set-off against the same. Accordingly the Tribunal allowed the set-off or brought forward business loss from the deemed short term capital gain computed u/s. 50 of the Act on sale of business assets. 17. We note that Hon ble Karnataka High court in the case of Nandi Steels Ltd. (supra) had also dealt with a similar issue. In the instant case also, the ld. Pr. CIT had exercised revisionary jurisdiction u/s 263 of the Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely applicable to the given facts of the present case. As stated earlier, the assessee is engaged in the business of developing leasing out commercial properties. The activity of leasing such constructed spaces is undeniably its core business activity. Hence, these properties constructed by the assessee are its 'business asset' reflected by way of 'Fixed Asset'. Undisputedly, the income derived from leasing these fixed assets on short term basis has all along been taxed as 'Business Income'. Under the scheme of the Act, the income from grant of long term capital leases results in deemed transfer of fixed assets, and therefore by way of operation of deeming fiction set out in Section 50 of the Act, the excess/ gain over the WDV of the fixed asset has to be taxed as 'Short Term Capital Gain'. However, it cannot be denied that the act of entering into 'long term leases is the business activity of the assessee and the income, which is assessed by way of capital gain, bears the character of profits or gain derived from such leasing business. Hence, irrespective of under which head such income is taxable ( short term capital gain in the present c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Business Loss of earlier years. Due to such restriction and technical glitch, we were compelled to disclose the same as 'Any other item of addition under section 28 to 44DA' in the item no. 23 of Schedule - BP of ITR- 6 for AY 2015-16 instead of in the items No. 16 of Schedule DPM and Schedule DOA. From the resultant income we have set off the brought forward unabsorbed depreciation amounting to ₹ 5,54,57,363/- and Business Loss of earlier years amounting to ₹ 5,07,28,544/-. Moreover, the ITR software does not allow us put any note or disclosure to set forth our treatment of the income and set off of the losses. 22. After examining the above issue, the AO had accepted the set-off for b/f business loss claimed by the assessee against the deemed short term capital gain in AY 2015-16 in the assessment order dated 18.12.2017 [Pages 43-46 of paperbook]. We note that identical explanation was also furnished by the assessee in the income-tax assessment for AY 2016- 17 which was accepted in the assessment completed u/s 143(3) on 26.12.2018. Copies of the notice, reply and the assessment is found available at Pages 47 to 62 of the paper-book. It was brought to our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... using Projects Ltd. [2012] 20 taxmann.com 587/[2013] 212 Taxman 132 (Mag.)/343 ITR 329, which is reproduced below: 19. In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that order passed by the Assessing Officer may be erroneous . The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent's computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is erroneous . The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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