ITAT allows set-off of business losses against STCG & treats unsecured loans as business income

The ITAT upheld the CIT (A) orders allowing set-off of carried forward business losses against STCG u/s 50 and treating unclaimed unsecured loans as business income. The Revenue's appeal was dismissed in both instances.

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Issues involved: Revenue appeal against CIT (A) orders allowing set-off of carried forward business losses against STCG u/s 50 and treating unclaimed unsecured loans as business income instead of "Income from other sources."

Issue 1 - Set-off of carried forward business losses against STCG u/s 50:

The assessee, a wholesale distributor of pharmaceutical goods, filed income return showing Rs. 12,30,400, but assessed at Rs. 76,36,740. The assessee sold a shop for Rs. 46.00 lakhs, claiming set-off of brought forward business loss of Rs. 20,20,832. However, AO allowed set-off of only Rs. 1,21,337 without discussion. Additionally, an amount of Rs. 37,84,351 credited under "other income" in the Profit & Loss A/c was treated as "other sources," affecting the set-off of carry forward business loss. CIT (A) directed AO to allow set-off of unabsorbed business loss against gain calculated u/s 50. The ITAT upheld this decision citing Section 72, allowing set-off against profits of any business assessable for that year, even if not taxable under "profits and gains from business or profession." The Revenue's appeal was dismissed.

Issue 2 - Treatment of unclaimed unsecured loans as business income:

AO treated the unclaimed unsecured loans written off as income under section 41(1) without specifying the lack of connection to the business activity. CIT (A) found a direct nexus to the business activity, concluding that the amounts were correctly treated as income from profits and gains of profession. The ITAT upheld this decision, noting that except for dividend income, the remaining amounts were liabilities returned back, interest concessions, and discounts received, all connected to the business activity. The Revenue's appeal on this ground was also rejected.

Separate Judgement: None.

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