TaxTMI 
TaxTMI 
2022 (4) TMI 904
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....logy 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 not in dispute which has been accepted by the Revenue in all earlier years as well. (ii) The assessee also grants long term lease of such constructed spaces in lieu of which it derives lump-sum lease premium, which is reduced/adjusted from the block of 'Fixed Assets' in terms of the deeming fiction set out in Section 43(6) read with Section 50 of the Act. Accordingly, when the block of asset ceased to exist, the excess/gain arising, after adjustment of the premium received from long term lea....
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....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." Aggrieved by the aforesaid action of the Ld. Pr. CIT, the assessee is before us. 4. We have heard both the parties and perused the records. Since the assessee has challenged in the first place the very usurpation of jurisdiction by Ld. Principal CIT to invoke his revisional powers enjoyed u/s 263 of the Act, we have to first see whether the requisite jurisdiction necessary to assume revisional jurisdiction existed in this case before the Pr. CIT has exercised his revisional power....
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....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 Rs. 5,41,41,587/- was irregular and according to him this has resulted in under charge of tax of Rs.l,62,62,S37/-. Assailing the action of the Ld. Pr. CIT, the assessee had explained their entire business apparatus and modus operandi of the business and thereafter, it was specifically pointed out that this issue raised in the show cause was no longer res integra, for which the assessee relied upon the decision of the Hon'ble Supreme Court in the case of CIT Vs. Cocanada Radhaswami Bank Ltd. (57 ITR 306) along with the following judgments: (i) CIT Vs. Hickson & Dadajee P. ltd. (122 taxmann....
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....re 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 these constructed spaces viz., (a) rental income from short term leases, (b) service & maintenance charges for maintaining the properties and providing amenities therein and (c) lease premium upon grant of long term sub-leases. It is noted that, the rental income and service & maintenance charges derived by the assessee are offered and taxed as and by way of 'Business income'. This position has been accepted by the Department all along. Accordingly, the constructed spa....
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.... 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 under this Section, the loss to be carried forward has to be under the head "Profits and gains of business or profession", but the gains against which such loss can be set off, has to be profits of "any business or profession carried on by him and assessable in that assessment year". In other words, there is no requirement set out in Section 72 of the Act that the gains from any business or profession carried on by the assessee has to be taxable under ....
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.... 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 that it was being taxed under a different head of income, the brought forward business loss was liable to be set off against such profit or gain. The relevant findings of the Court is extracted hereunder: "While sub-section (1) of section 24 provides for setting off of the loss in a particular year under one of the heads mentioned in section 6 against the profits under a different head in the same year, sub-section (2) provides for the carryin....
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....h 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 Section 72(1)(i) of the Act, the loss assessed under the head 'Profits & Gains of Business or Profession' could be set-off against the profits and gains derived from any business. We find merit in this submission of the Ld. AR. On the above issue, we may also gainfully refer to the decision of the Hon'ble Bombay High Court in the case of CIT Vs Hickson and Dadajee (P) Ltd (supra). In the decided case, this same question came up for consider....
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.... 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 had proposed to deny the claim for set off of brought forward business loss claimed against capital gain arising upon sale of capital asset which was used for the purposes of business. The Hon'ble High Court following the ratio of the decision of the Hon'ble Supreme Court in the case of Cocanada Radhaswami Bank Ltd. (SC) (supra) answered the question of law in favour of assesse. The question of law framed before the Ho....
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....ived 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 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'. 20. We further note that this particular issue was specifically enquired into by th....
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....o Rs. 5,54,57,363/- and Business Loss of earlier years amounting to Rs. 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 attention that the Assessing Officer who passed the assessment order for AY 2016-17 was the same Assessing Officer who framed the income-tax assessment for the relevant AY 2017-18. It is therefore noted, that the 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 r....
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....y 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 Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken b....