2014 (2) TMI 684 - AT - Income Tax

Tribunal directs fresh examination on set off issue and clarifies income treatment for future assessments

The Tribunal allowed the Revenue's appeal for statistical purposes and directed a fresh examination of the set off issue by the Assessing Officer in ... Allowability to set off unabsorbed depreciation - Income from other sources – Held that:- The Commissioner of Income Tax(A) has held that the income received in the form of penalty/damages is not an income from business but the same is income from other sources - The finding of Commissioner of Income Tax(A) has attained finality - 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 - 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. 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 - the 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 AO for examination – Decided in favour of Revenue. Issues Involved:- Interpretation of provisions regarding set off of unabsorbed depreciation against income from other sources- Determination of whether income from penalty/damages for non-execution of sale deed of land should be treated as business income or income from other sourcesAnalysis:Issue 1: Interpretation of provisions regarding set off of unabsorbed depreciation against income from other sourcesThe appeal was filed by the Revenue against the order of the Commissioner of Income Tax(A), Muzaffarnagar regarding the set off of unabsorbed depreciation against income from other sources. The Revenue contended that the Commissioner erred in allowing the set off by ignoring a previous order of the ITAT, Delhi Bench. The Commissioner held that unabsorbed depreciation/business loss could be set off against income from other sources and the balance carried forward. The Revenue argued that income from other sources cannot be set off against business loss/unabsorbed depreciation. The Tribunal referred to a judgment of ITAT, Delhi 'C' Bench, which clarified the conditions for set off of unabsorbed depreciation against income from other sources. The Tribunal set aside the impugned order and directed the Assessing Officer to re-examine the issue in line with the ITAT 'C' Bench judgment.Issue 2: Determination of whether income from penalty/damages should be treated as business income or income from other sourcesThe case involved income of Rs.2,05,20,000 from penalty/damages for not executing a sale deed of land, which the assessee claimed as business income. However, the Assessing Officer considered it as income from other sources, disallowing carried forward losses against it. The Commissioner held that the income should be assessed under the head of income from other sources and allowed set off of unabsorbed depreciation/business loss against it. The Tribunal upheld the Commissioner's decision on the nature of the income but remanded the issue of set off back to the Assessing Officer for further examination in line with the ITAT 'C' Bench judgment. The Tribunal emphasized the need for a thorough verification of the claim and directed both parties to cooperate during the proceedings.In conclusion, the Tribunal allowed the Revenue's appeal for statistical purposes and directed a fresh examination of the set off issue by the Assessing Officer in accordance with the ITAT 'C' Bench judgment. The judgment clarified the treatment of income from penalty/damages and the conditions for set off of unabsorbed depreciation against income from other sources, providing guidance for future assessments in similar cases.