Tribunals
Summary and Review of Case Laws Decided by Income Tax Appellate Tribunals
Friday, 10 June 2016 16:04

Section 71(2) - Adjustment of Business Loss - The Section Does Not States that the Business Loss has to be Adjusted First with particular Head of Income - Delhi Tribunal

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Adjustment of Loss Adjustment of Loss

Sequence of Business Loss to be Adjusted

Section 71(2) makes it clear that in respect of any assessment year, when the net result of the computation under any head of income, other than ‘Capital gains’, is a loss and the assessee’s income is assessable under the head ‘Capital gains’, the assessee would be entitled to the set off such loss against his income, assessable for that assessment year under any other head including income assessable under the head Capital gains’ 

Facts

1. Solitary ground raised by the Assessee is -

"The Learned Assistant Commissioner of Income Tax, Circle 13(1), New Delhi has erred in law as well as on facts of the case while allowing the adjustment of business loss against the Long Term Capital Gains only, as against the contention of the assessee company for adjustment of business loss first against the interest Income and then against the Long Term Capital, thereby leaving only LTGC to be taxed at 20% as applicable on it."

2. The assessee company is in the business of Property Development and Share Trading, beside this assessee company also earned interest income under the income from other sources

3. The assessee filed return of income declaring Rs. 1,12,19,604/-

4. The assessee declared loss from business amounting to Rs. 70,32,63,487/-, income from long term capital gains of Rs. 70,43,33,287/- and income from other sources in the form of interest received on FDR of Rs. 1,01,49804/- in his return of income

5. Assessment in this case for the A.Y. 2009-2010 was made on 15.12.2011 u/s 143(3) of Act at total income of Rs. 2,20,27,670/- after making disallowance u/s. 14A for Rs. 7,68,500/- and disallowance of professional fee for Rs. 1,00,39,564/-

6. The Assessing Officer held that business loss has to be set off against long term capital gain first and the remaining loss, if any, can then be set off against interest income

7. Thus income computed and Assessing Officer after set off of Business loss against LTCG, the held that net result remains is long term capital gains of Rs. 1,18,77,864/- which has to be taxed @20% plus applicable surcharge and education cess and the interest income of Rs. 1,01,49,804/- is to be taxed at normal rate

8. The assessee filed appeal before the CIT(A) on the ground that AO erred while allowing the adjustment of business loss against the Long Term Capital Gains only, as against the contention of the assessee company for adjustment of business loss first against the Interest Income and then against the Long Term Capital, thereby leaving only LTGC to be taxed at 20% as applicable on it

9. The CIT (A) held that the AO is justified in allowing the set off of business loss against long term capital gain first and the remaining loss, if any, against interest income

10. Assessee moved to the Tribunal and decided in favour of Assessee 

Adjudication

Section 71(2) makes it clear that in respect of any assessment year, when the net result of the computation under any head of income, other than ‘Capital gains’, is a loss and the assessee’s income is assessable under the head ‘Capital gains’, the assessee would be entitled to the set off such loss against his income, assessable for that assessment year under any other head including income assessable under the head Capital gains’. The Section does not states that the business loss has to be adjusted first with particular head of income. In respect of any assessment year, when the net result of the computation under any head of income, other than ‘Capital gains’, is a loss and the assessee’s income is assessable under the head ‘Capital gains’, the assessee would be entitled to set off such loss against his income which is assessable for that assessment year under any other head including income assessable under the head ‘Capital gains’.

Cases Referred to

Coated Fabrics (P.) Ltd. Vs. JCIT (2006) 101 ITD 297 (Pune)

Additional Info

Read 10884 times Last modified on Friday, 10 June 2016 16:34
Anil B.

A practicing Chartered Accountant Anil B. acquired CA, CS and LL.B degrees with over 12 years of rich and diverse management experience across Banking & Financial Services, Insurance and the Logistics industry spanning various markets and geographies globally.

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