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Ashirwad Steel and Alloys (P) Ltd Vs. Department of Income Tax - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Case NumberITA No.346/Del of 2012
Judge
AppellantAshirwad Steel and Alloys (P) Ltd
RespondentDepartment of Income Tax
Excerpt:
.....of sale of land cannot be treated as business income but it is to be assessed under the head of income from other sources. on the issue of set off of income against brought forward business loss/unabsorbed depreciation, the commissioner of income tax(a) held that the unabsorbed depreciation/business loss is to be allowed for set off against income from other sources and the balance unabsorbed depreciation/business loss is to be allowed to be carried forward to the subsequent years. now, the aggrieved revenue is before this tribunal in the second appeal with the grounds as reproduced hereinabove. 5. we have heard rival arguments of both the parties and carefully perused the record placed before us. at the outset, we observe that the commissioner of income tax(a) has held that.....
Judgment:

Chandra Mohan Garg, Judicial Member

1. This appeal has been preferred by the Revenue against the order of Commissioner of Income Tax(A), Muzaffarnagar dated 11.10.2011 in Appeal No. 234/10-11/MZR for AY 2006-07.

2. The revenue has raised the following grounds of appeal:-

"1. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in law by allowing to set off unabsorbed depreciation relating to AY 2000-01 and 2001-02 against the income from other sources by ignoring the order dated 29.04.2011 of the Hon'ble ITAT, Delhi Bench "C" New Delhi in ITA No.4983/Del/2010 in the case of ACIT, Circle-I, Muzaffarnagar vs M/s HRJ Steels(P) Ltd. Muzaffarnagar where it was held that amount of current depreciation for AY 1997-98 to 2001-02 which cannot be set off shall be carried forward for a maximum period of 8 assessment years and to be set off only against the income under the head profit and gain of business or profession.

2. The order of the Commissioner of Income Tax(A) be set aside and that of Assessing Officer be restored."

3. Briefly stated the facts giving rise to this appeal are that the case was selected for scrutiny and order u/s 143(3) of the Income Tax Act was passed on 26.12.2008 by the ITO (Tech) Muzaffarnagar. Subsequently, the ITO(Tech), Muzaffarnagar moved a proposal u/s 263 of the Act on 31.03.2009 and the Commissioner of Income Tax, Muzaffarnagar vide his order dated 29.03.2010 u/s 263 of the Act directed the Assessing Officer to make fresh assessment after making appropriate inquiry. During the fresh assessment, notice u/s 143(2) and 142(1) along with questionnaire were served on the assessee. The Assessing Officer observed that the assessee has shown income of Rs.2,05,20,000 in the form of penalty/damages for not executing sale of agriculture land measuring 19 bighas situated in Sanganer, Jaipur. The assessee has shown this income as its business income. The Assessing Officer also observed that the assessee has claimed and carried forward losses and its set-off against this business income. The Assessing Officer observed that land transaction of the company which resulted in impugned income is not a business activity and the same cannot be treated as business income and the Assessing Officer considered the same as income from other sources. The AO further observed that since the income is treated as income from other sources, hence, no carried forward losses are allowable from this income. Finally, the Assessing Officer made addition of Rs.2,05,20,000 in this regard.

4. The aggrieved assessee preferred an appeal before the Commissioner of Income Tax(A), Muzaffarnagar which was partly allowed. The Commissioner of Income Tax(A) held that the income from transaction of sale of land cannot be treated as business income but it is to be assessed under the head of income from other sources. On the issue of set off of income against brought forward business loss/unabsorbed depreciation, the Commissioner of Income Tax(A) held that the unabsorbed depreciation/business loss is to be allowed for set off against income from other sources and the balance unabsorbed depreciation/business loss is to be allowed to be carried forward to the subsequent years. Now, the aggrieved revenue is before this Tribunal in the second appeal with the grounds as reproduced hereinabove.

5. We have heard rival arguments of both the parties and carefully perused the record placed before us. At the outset, we observe that the Commissioner of Income Tax(A) has held that the income of  Rs.2,05,20,000/- received in the form of penalty/damages is not an income from business but the same is income from other sources. This finding of Commissioner of Income Tax(A) has gone against the assessee and the assessee has not filed any appeal or cross objection against this finding of Commissioner of Income Tax(A) and thus, finding of Commissioner of Income Tax(A) in this regard has attained finality.

6. Coming to the issue of set off of carried forward business loss/unabsorbed depreciation, we observe that the CIT(A) has allowed set off of unabsorbed depreciation/business loss against the income from other sources and the balance unabsorbed depreciation/business loss have also to be allowed to be carried forward. Ld. DR submitted that the assessee has accepted the verdict of the Commissioner of Income Tax(A) that the impugned income was income from other sources and income under the head of other sources cannot be allowed to be set off against business loss/unabsorbed depreciation. The DR further contended that the Commissioner of Income Tax(A) misinterpreted the provisions of the Act and the set off was wrongly allowed for the assessee. Replying to the above, ld. counsel of the assessee submitted that as per order of ITAT, Delhi 'C' Bench in ITA No. 4983/Del/2010 for AY 2004-05 dated 29.4.2011, the assessee can claim set off of unabsorbed depreciation against income under any head other than profits and gains of business or profession, provided the same is related to the assessment year prior to 1997-98 or to the AY 2002-03 and thereafter. The relevant operative part of above judgment of ITAT 'C' Bench Delhi reads as under:-

"14. Adverting to the facts of the present case, we find that the assessee has also claimed set off of unabsorbed depreciation arose in the second period i.e. AY 197-98 to 2001-02, which was not adjusted against the income under the head "profits and gains of business or profession" prior to the AY 2004-05 under consideration. Therefore, now, the assessee cannot claim set off of unabsorbed depreciation allowance pertaining to the AY 1997-98 to 2001-02 against income under any head other than profits and gains of business or profession in the present year under consideration. However, the assessee can claim set off of unabsorbed depreciation against income under any head other than profits and gains of business or profession provided the same is related to the assessment year prior to AY 1997- 98 or to the AY 2002-03 and thereafter. It is also to be noted that depreciation pertaining upto AY 1996-97 can only be allowed to be set off against income under any head for a maximum period of eight assessment years starting from AY 1997-98. We, therefore, hold that the AO shall allow assessee's claim of set off of unabsorbed depreciation arose in the AY 1997-98 to 2001-02 only against the income under the head "profits and gains of business or profession". However, the AO shall be entitled to allow set off of unabsorbed depreciation pertaining upto the AY 1996-97 against income under any head for a maximum period of eight years starting from AY 1997-98. The AO may allow set off of unabsorbed depreciation pertaining to the AY 2002-03 onwards against income under any head. The AO shall examine the assessee's claim of unbsorbed depreciation and shall ascertain the relevant assessment years in which the unabsorbed depreciation had arisen, and then decide the matter in the light of our observation made above after following the decision of the Special Bench in the case of DCIT Vs. Times Guaranty Limited (supra). We direct accordingly."

7. From the impugned order, we observe that the Commissioner of Income Tax(A) has relied on its own judgment in the case of M/s Parijat Paper Mills Ltd., Muzaffarnagar in Appeal No. 33/09-10/MZR dated 12.08.2010 for AY 2007-08. On specific query from the Bench, ld. DR as well as counsel appearing for the assessee submitted that the above order of ITAT Delhi 'C' Bench in the case of ACIT vs M/s HRJ Steels Pvt. Ltd. has not been set aside or modified by any higher forum. Thus, we are of the considered opinion that the judgment of ITAT 'C' Bench Delhi holds the field and the issue involved in the present appeal is squarely covered by this judgment. Accordingly, we are inclined to hold that the Commissioner of Income Tax(A) was right in holding that the income shown by the assessee as damages/penalty for non-execution of sale deed of land was income assessable under the head of income from other sources. At the same time, we also hold that the claim of the assessee for set off against this income for business loss/unabsorbed depreciation requires a thorough examination and verification at the end of Assessing Officer in the light of ITAT 'C' Bench, Delhi in the case of ACIT vs M/s HRJ Steel Pvt. Ltd. (supra). Under these circumstances, the impugned order is set aside and the issue of allowability of set off of income from other sources against business losses/unabsorbed depreciation is restored to the file of Assessing Officer with a direction that the Assessing Officer shall examine and verify the issue and claim of the assessee in the light of ratio laid down by ITAT 'C' Bench Delhi in the case of ACIT vs M/s HRJ Steel (supra). Needless to mention that the Assessing Officer shall decide the issue after affording due opportunity of hearing for the assessee and assessee is also directed to cooperate with the Assessing Officer during the relevant proceedings.

8. With the above directions, the appeal of the revenue is disposed for and deemed to be treated as allowed for statistical purposes.

9. In the result, appeal of the revenue is allowed for statistical purposes. Order pronounced in the open court on 31.1.2014.


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