Trimbak Hatcheries Pvt. Ltd.,, Nashik vs Assessee

Trimbak Hatcheries Pvt. Ltd., Flat No.4 & 5, Anandkunj, Gangapur Road, Nashik. PAN : AABCT0456H .... Appellant

Vs.

Asstt. Commissioner of Income Tax, Circle-1, Nashik. .... Respondent

Appellant by : Mr. Kishor Phadke Respondent by : Mr. Rajesh Damor Date of hearing : 23-01-2015 Date of pronouncement : 25-02-2015

ORDER

PER G. S. PANNU, AM

By way of the present Miscellaneous Application, assessee has

contended that certain mistakes apparent from record within the meaning of

section 254(2) of the Income Tax Act, 1962 (in short "the Act") have crept into

order of the Tribunal dated 28.08.2014.

2. The Miscellaneous Application reads as under :-

"While coming to the aforesaid conclusion in the appellate order, certain prima-facie mistakes have crept into the order of the Honorable ITAT, Pune. The same are as follows.

a) Error in holding that Net Taxable Income is LTCG (instead STCG) The appellant submits that the set-off of current year's business loss, brought forward unabsorbed depreciation & brought forward business loss of past years ought to be made in a manner which benefits an assessee the most.

During the course of appellate proceedings before the learned CIT(A), appellant has sought to set-off the LTCG against the brought forward unabsorbed depreciation. Thereafter, the reminder income (emerging before setting-off of past years business loss) was clearly STCG (and not LTCG). The head-wise incomes worked out by the learned CIT(A) are reproduced by the Honorable ITAT at Page-8 of the appellate order. The final working given thereto is worked out in a step-wise manner as follows:

2 MA No.97/PN/2014 (Rs. in lacs) Particulars Business STCG LTCG Income Total Income from

other

sources

Head-wise income as observed in ITAT (45.30) 43.74 58.33 16.20 order at page-8

Step-1 - Set-off current year's business 16.20 (16.20) loss

Step-2 - Set-off current year's business 29.10 (29.10) loss against LTCG

Step-3 - Set-off unabsorbed depreciation (4.55) (58.33)

Sub-total NIL 10.09 NIL NIL 10.09

As such, it emerges that the final emerging income for A.Y. 2007-08 was only STCG (and not LTCG). That is why, appellant has taken ground no. 3 before the Honorable ITAT stating that the character of the STCG arising on sale of depreciable assets is business income for the purpose of section 72. As such, before the Honorable ITAT, appellant has not sought to treat the LTCG as business income for the purpose of section 72, but, sought to treat STCG as business income. However, in Para-12 of the Honorable ITAT's order, the following observation is made.

In this context, the plea of the assessee is that the aforesaid taxable income reflects surplus arising from the sale of land and other assets of it's poultry business, and thus, such surplus is in the nature of business income.

Appellant submits, the above observation of the Honorable ITAT is besides the facts and mechanism of set-off of losses & unabsorbed depreciation.

b) LTCG on sale of land in Special Bench's case as against STCG on depreciable assets in present case As per the specific Ground No. 3 (reproduced earlier), the appellant is claiming set-off of past years business losses against short term capital gains of depreciable assets specifically. As against this situation, the question before the Honorable Special Bench, stated in Para 4 therein was 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 of business.

Thus, the Honorable Special Bench was poised with the above specific question and hence, the decision of the Special Bench ought to be understood as one, given for the specific question raised before the Honorable Special Bench, as per the settled principles of interpretation. The appellant submits, the LTCG on sale of land is never eligible for set-off against the past years business losses. As per factual matrix in the Special Bench case, the gain therein was purely long term capital gain. The same will transpire from the following figures revealing the said Special Bench decision

- Consideration for sale of land, building & borewell -Rs.155.00 lacs

- Cost claimed as deduction (derived) -Rs. 13.37 lacs

- Long Term Capital gains -Rs.141.63 lacs 3 MA No.97/PN/2014

- Less : Set-off of b/f business loss & depreciation -Rs. 43.37 lacs

- Net long term capital gains offered to tax -Rs. 98.27 lacs

From the said Special bench decision, it reveals, the Honorable ITAT was dealing with an issue of long term capital gains on sale of land alone. As against, in the present case, what is involved is short term capital gain of depreciable assets, which will reveal from the Ground No. 3 reproduced earlier. The appellant has been claiming set-off of past years business losses against the STCG arising from sale of depreciable assets. This distinction is quite relevant and the same appears to have not been so considered by the Honorable ITAT while deciding the matter in Para-13 of the appellate order. As such, facts in the present case are different than facts in the Special Bench's case. This aspect remained to be so considered by the Honorable ITAT in the present case.

c) STCG in the present case akin to balancing charge u/s 41(2) Appellant submits that the short-term capital gain arising from the sale of depreciable assets is akin to balancing charge arising on sale of depreciable assets and taxable u/s 41(2) as it then stood prior to it's deletion (and after introduction of section 50). Appellant submits following hypothetical example to elaborate the said proposition.

Case-1 - If cost of a machine is (say) Rs. 100 and if depreciation charged for past 4-5 years is (say) Rs. 60, then WDV will be Rs. 40. Now, if the said asset gets sold at Rs. 90, it will lead to a STCG in the nature of business income amt to Rs. 50 (i.e. Rs. 90 - Rs. 40). Case-2 - If the sale value in the above example is (say) Rs. 150, it will lead to STCG in the nature of business income of Rs. 60 and LTCG of Rs. 50 (Rs. 150 - Rs. 100 being cost of acquisition).

Appellant's case falls in Case-1 situation as stated above. In following various ITAT decisions (filed on record during the course of hearing), it has been held that such type of STCG is business income and eligible for set-off against carried forward business loss.

- J K Chemicals v. ACIT - ITA No. 8206/Bom/1989 - Shri Padmavati Srinivasa Cotton Ginning & Pressing Factory 125 TTJ 3 - ACIT v. Nirmal Plastic Industries - ITA No. 6428/Mum/2009 - ITO v. Evershine Pharmaceuticals Distributors P. Ltd. - ITA No. 4922/Mum/2011 - Rajshree Roadlines P. Ltd. v. ITO - ITA No.1627/Mum/2012 - Hickson & Dadaji P. Ltd. v. ACIT- ITA No. 5882/Mum/2012

This important distinction appears to have not been considered by the Honorable ITAT while deciding the matter in Para-13 of the appellate order. Also, all the above referred decisions do not appear to have been deliberated.

d) Test of commercial principles not applied for deciding character of receipt of Rs.43,74,300 The Honorable ITAT has observed in Para-9 to Para-12, the importance of deciding the character of any income / receipt of the current year from the aspect of business income on the test of commercial principles. However, in Para-13, the Honorable ITAT has merely relied on the decision of the Special Bench and Honorable Supreme Court decision in CIT V. Express Newspaper Ltd - 53 ITR 250 and reached the conclusion that the appellant's receipts are not in the nature of business income. It is submitted with utmost respect that the test of commercial principles remained to be applied in reality before 4 MA No.97/PN/2014

deciding the issue involved. This is also a patent error which has crept into the appellate order.

8. Considering these apparent mistakes in the appellate order, the Applicant submits that, the Honorable ITAT may be pleased to recall its order dated 28th August 2014 and pass a fresh order after consideration of all the prima facie errors / mistakes as stated above.

3. The rival counsels have been heard with respect to the Miscellaneous

Application. The Ld. Representative for the assessee has taken us through

the Miscellaneous Application and submitted that the order of the Tribunal

dated 28.08.2014 (supra) be recalled. The Ld. Departmental Representative

appearing for the Revenue has opposed the plea of the assessee and it is

contended that there is no mistake in the order of the Tribunal within the

meaning of section 254(2) of the Act.

4. The aforesaid contents of the Miscellaneous Application elucidate that

what the assessee seek is only a review of the order of the Tribunal which is

impermissible within the scope of section 254(2) of the Act. Accordingly, the

Miscellaneous Application of the assessee is dismissed.

Order pronounced on 25 th February, 2015.

Sd/- Sd/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER

Pune, Dated: 25 th February, 2015. Sujeet

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT(A)-II, Nashik; 4) The CIT-II, Nashik; 5) The DR "B" Bench, I.T.A.T., Pune; 6) Guard File.

By Order //True Copy//

Assistant Registrar I.T.A.T., Pune