ITAT Allows Set-Off of Brought Forward Business Loss Against Section 50 Capital Gains:

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) held that unabsorbed brought forward business loss can be set off against short-term capital gains arising on the sale of depreciable assets computed under Section 50 of the Income Tax Act, 1961, subject to verification by the Assessing Officer. A Bench comprising Judicial Member Suchitra Kamble and Accountant Member Narendra Prasad Sinha restored the matter to the Assessing Officer with directions to grant the claim in accordance with law.

The dispute arose after the Tribunal recalled its earlier order under Section 254(2) of the Income Tax Act for the limited purpose of adjudicating a ground that had remained undecided. The assessee had challenged the Assessing Officer's action in not allowing the set-off of unabsorbed brought forward business loss against short-term capital gains arising from the sale of depreciable assets.

Before the Tribunal, the assessee submitted that the issue had neither been adjudicated by the Commissioner of Income Tax (Appeals) nor by the Tribunal in its earlier order. It relied on the decisions of the Bombay High Court in PCIT v. Alcon Developers and the Karnataka High Court in Nandi Steels Ltd. v. ACIT, contending that such set-off was legally permissible. The assessee also pointed out that an identical claim had been allowed in its own case for AY 2009-10.

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The Revenue submitted that the issue had not been examined during the assessment proceedings and requested that the matter be remanded to the Assessing Officer for verification of the assessee's claim.

The Tribunal observed that the CIT(A) had treated the ground as academic since, after granting relief on other additions, the assessed income had again resulted in a loss. However, as the Department's appeal on brokerage charges had subsequently been allowed, the issue now required adjudication on merits. “This issue requires to be decided on merits.”

The Tribunal noted that both the Bombay High Court in Alcon Developers and the Karnataka High Court in Nandi Steels Ltd. had recognised the assessee's entitlement to set off brought forward business losses against short-term capital gains computed under Section 50.

Following the binding judicial precedents, the Tribunal directed the Assessing Officer to verify the assessee's claim and allow the set-off of unabsorbed brought forward business loss against the short-term capital gains on sale of depreciable assets in accordance with law.

“We direct the AO to allow set-off of unabsorbed brought forward business loss of the earlier years with the short-term capital gain on sale of depreciable assets as computed under Section 50 of the Act.”

Thus, the Tribunal restored the matter to the jurisdictional Assessing Officer for limited verification and allowed the assessee's ground for statistical purposes.