The Kolkata Bench of Income Tax Appellate Tribunal ( ITAT ) in Gouranga Cement Pvt. Ltd vs. DCIT recently held that Unabsorbed brought forward business loss should be set off against the business income first and the balance of such business loss, if any, should be set off against Long Term Capital Gains.
The assessee engaged in the business of civil construction and broker activities. The assessee filed return of income disclosing a Business Income to the tune of Rs.13.36 Lacs, Long Term Capital Gains (LTCG) to the tune of Rs.86.30 Lacs and Unabsorbed Brought Forward Business Loss to the tune of Rs. 16.64 Lacs. The assessee in the return set off the business profit against the brought forward of unabsorbed loss. The assessee had offered the tax on LTCG at special rate of Rs. 20% for Rs. 17,26,100.00 (20% of Rs. 86,30,498.00) which transpires that the assessee has not set off the remaining brought forward business loss of Rs. 3,27,763.00 (16,64,542.00 – 13,36,761.00) against the LTCG. Thus, the balance amount of unabsorbed brought forward business loss of Rs.3,27,763/- was carried forward to the subsequent year by the assessee.
However, the Assessing Officer set off the brought forward unabsorbed business loss against the LTCG income. AO levied tax on the business of Rs.13,36,761/- as well as charged LTCG tax @ 20% on the remaining amount of LTCG income i.e. Rs.69,65,974.00 (Rs. 86,30,498.00 – 16,64,542.00). Assessee appealed to the Commissioner of Income Tax (Appeals) (CIT(A)). He submitted that setting off the brought forward business loss against the LTCG income is contrary to the Section 72 of the Income Tax Act,1961. CIT(A) rejected the contentions of the assessee and confirmed the A. O’s order. The assessee approached the Tribunal for relief.
The bench comprising of Judicial Member S.S. Viswanethra Ravi and Accountant Member Waseem Ahmed observed that Section 72 of the Income Tax Act,1961 made it clear that the unabsorbed brought forward business loss needs to be set off against the business income declared by assessee for the year under consideration. They held that the assessee was very much entitled to claim the set off of the brought forward unabsorbed business loss against the income declared under the head “business”.
Relying on the decision of the Mumbai Tribunal in Digital Electronics Ltd. vs. ACIT the bench further held that the amount which has not been set off against the business income of the assessee could be set off against the LTCG income of the assessee.
“In view of above, we direct the AO to set off the business loss of Rs.13,36,761.00 against the business income and the remaining loss of Rs. 3,27,763.00 should be set off against the LTCG as discussed above. This ground of assessee’s appeal is partly allowed.” ordered the bench.
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