TaxTMI 
TaxTMI 
2011 (12) TMI 162
X X X X Extracts X X X X
X X X X Extracts X X X X
....t within the meaning of Sec.147 and issued notice u/s 148 on 8-07-2005. In response to notice u/s 148, the assessee filed its return of income on 17-04-2006 as returned in the original return of income. The assessee also requested the AO to furnish a copy of the reasons recorded for re-opening of the assessment. The AO furnished the reasons recorded for reopening of the assessment to the assessee. In the proceedings u/s 143(3) read with Sec.148 of the IT Act, the AO held that the brought forward business loss and unabsorbed depreciation cannot be set off against the income from capital gains. He observed that the assessee has sold the land situated at Tumkur road along with the building and bore well which were all used for the business. Taking note of the decision of the Hon'ble Apex Court in the case of M/s Killick Nixon & Co., v. CIT reported in 66 ITR 714 (SC), wherein it was held that only income which is earned by carrying on business is entitled to be set off, he held that the carry forward business loss cannot be set off against the income from capital gains, as it is against the provisions of law. He also observed that the assessee has admitted the profit and sale of l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed the grounds of appeal nos.5 & 6 to the Special Bench. The Hon'ble President of ITAT after considering the reference in detail u/s 255(3) made by the Division Bench of this Tribunal (vide order dated 11-12-2008 constituted a Special Bench) for disposal of the ground nos.5 & 6. We accordingly, proceed to decide the appeal. 4. Ground no.5 & 6 raised by the assessee in the appeal are as under : "Ground no.5: That the learned CIT(A) erred in law and on facts that the appellant is not entitled to set off carry forward business loss of Rs. 39,99,652/- against the long term capital gain arising on sale of land used for the purpose business". Ground no.6: That the authorities below ought to have appreciated that there is no cessation of business and the appellant is entitled to set off the carry forward business loss". 5. The learned counsel for the assessee Shri S.Ramasubramanian, submitted that during the previous year relevant to the assessment year 2003-04, the assessee sold the land, building and bore well of the assessee used for its business purposes for a consideration of Rs. 1,55,00,000/-. He submitted that the assessee had claimed depreciation in the earli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rofession". He submitted that the similar expression is used in clause-(d) of the Explanation to sec.80HHE. Thus, according to him, since sec.72 does not state that the loss can be set off only from income computed under the head "profits and gains of business or profession", it can be set off against the profits and gains of business or profession even if it is computed under any other head of income. 8. The other argument raised by the assessee is that the lower authorities have rejected the claim of the assessee mainly on the ground that the assessee has not carried on the business during the previous year ending 31-03-2002 and therefore, the decisions of the Hon'ble Supreme Court in the cases of United Commercial Bank and Cocanada Radhaswami Bank Ltd (cited supra) and that of Bangalore Bench in the case of M/s Steelcon's case are not applicable. He submitted that this finding of the lower authorities is incorrect because, the AO himself has determined the loss of Rs. 9,67,922/- under the head 'profits and gains from business or profession' and this is a pointer to the fact that the assessee had carried on the business during the year ending 31-03-2003. He the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eme Court has taken note of the fact that these securities were in fact trading assets of the assessee's therein and therefore, though the income was to be taxed under the head" Income from securities" it does not lose the character of business income and therefore, brought forward loss of earlier years can be set off against such income. He submitted that in the case before us, assets were fixed assets as shown in the balance sheet of the assessee and were undoubtedly capital assets. He submitted that the assessee even claimed depreciation on the building and bore well in the earlier years. He submitted that merely because, there is a nexus between the business carried on by the assessee and the assets sold, the gains on the sale of such assets cannot get the character of business income. Thus, according to him, the findings of lower authorities are to be upheld. 10. Having heard both the parties and having considered the rival contentions and the material on record, we find that the only question before us for consideration is whether the brought forward loss from the earlier years can be set off against the income from "capital gains" u/s 72 of the IT Act. For the purpose....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-trade or is disposed off. The income earned by the assessee by carrying on the business by use of the stock in trade only is the business income of the assessee. Likewise, any expenditure incurred by the assessee for carrying on of business and for earning the income from such business or profession is only allowable as deduction. After taking into account the receipts and payments for carrying on the business of the assessee only the profit or gain or loss from the business is computed. If the profit or loss relate to the same assessment year from one source then it can be set off from another source under the same head of income u/s 70 Act, and it can be set off against the income from any other head of income u/s 71 of the Act. Sec.72 of the Act however, permits the carry forward business loss to subsequent assessment years and allows it to be set off against profit & gains, if any, of any business or profession carried on by the assessee and assessable for the relevant assessment year. Thus, it is clear that it is only the business loss that can be carried forward u/s 72 of the Act and it can also be set off only against the business income of the assessee, be it from the same....