Income Tax Appellate Tribunal - Mumbai
Chemito Technologies P.Ltd, Mumbai vs Acit 7(3), Mumbai on 12 April, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" Bench, Mumbai
Before Shri Jason P. Boaz, Accountant Member
and Shri Sandeep Gosain, Judicial Member
ITA No. 7052/Mum/2014
(Assessment Year: 2010-11)
Chemito Technologies P. Ltd. D C I T - 7(3)
8 Mohatta Bhavan Room No. 615, 6th Floor
Vs.
Off Dr. E. Moses Road Aayakar Bhavan, M.K. Road
Worli, Mumbai 400018 Mumbai 400020
PAN - AAACT1930B
Appellant Respondent
Appellant by: Shri Ruturaj H. Gurjar
Respondent by: Shri Chandra Vijay
Date of Hearing: 06.04.2017
Date of Pronouncement: 12.04.2017
ORDER
Per Jason P. Boaz, A.M.
This appeal by the assessee is directed against the order of the CIT(A)- 13, Mumbai dated 25.09.2014 for A.Y. 2010-11.
2. The facts of the case, briefly, are as under: -
2.1 The assessee, a company engaged in the business of manufacture of scientific and chemical engineering equipments, filed its return of income for A.Y. 2010-11 on 29.09.2010 declaring loss of (-) `16,36,296/-. The case was selected for scrutiny and the assessment was completed under section 143(3) of the Income Tax Act, 1961 (in short 'the Act') vide order dated 15.03.2013, wherein the assessee's loss was determined at `16,65,837/-. Aggrieved by the order of assessment dated 15.03.2013 for A.Y. 2010-11, the assessee preferred an appeal before the CIT(A)-23, Mumbai, challenging (i) the Assessing Officer's (AO) disallowance of `6,78,893/- out of travel expenses and (ii) the action of the AO in holding that long term capital gains (LTCG) of `17,04,000/- should be adjusted against business loss under section 71(2) of the Act. The learned CIT(A) 2 ITA No. 7052/Mum/2014 Chemito Technologies P. Ltd.
dismissed the assessee's appeal vide the impugned order dated 25.09.2014.
3. Aggrieved by the order of the CIT(A)-13, Mumbai dated 25.09.2014 for A.Y. 2010-11, the assessee has preferred this appeal, raising the following grounds: -
"1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals); CIT(A) -13 erred in confirming disallowance of expenditures of Rs.678,893/- made by the learned AO without appreciating that the expenditures were regular revenue expenses and were wholly and exclusively for the purpose of the Appellant's business.
2. On the facts and in the circumstances of the case and in law, the learned CIT(A) - 13 erred in holding that expenditure incurred on account of reimbursement of customers and consultants (being part of travelling expenditures) does not have nexus with business. Ld. CIT(A)-13 erred in not appreciating that the expenses were entirely deductible.
3. The learned CIT(A) -13 erred in holding that there is no option with the Appellant as regards setting off of business loss against capital gains. Ld. CIT(A) failed to appreciate that such an option is provided under s. 71(2) of the Act.
4. The Order of the Ld CIT(A)-13 is against the weight of evidence, equity and natural justice.
5. The Appellant craves leave to add, alter or amend the above ground of appeal."
4. Grounds No. 1&2 - Disallowance out of travel expenditure -
`6,78,893/-
4.1 In these grounds, the assessee has assailed the order of the learned CIT(A) in confirming the disallowance of travel expenditure of `6,78,893/- made by the AO; without appreciating that these expenditures were expended wholly and exclusively for the purposes of its business and were wholly deductible, being reimbursement to customers and consultants. At the outset of the hearing, the learned A.R. of the assessee fairly conceded that this very issue is squarely covered against the assessee by the decision of the Coordinate Bench of this Tribunal by its order in assessee's own case for A.Y. 2009-10.
3 ITA No. 7052/Mum/2014Chemito Technologies P. Ltd.
4.2.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. We find that the very same issue of travelling expenses, was considered and adjudicated against the assessee by a Coordinate Bench of this Tribunal in the assessee's own case for A.Y. 2009-10, wherein in its order in ITA No. 447/Mum/2013 dated 16.10.2015 at para 8 thereof, the Coordinate Bench held as under: -
"Issue No. 5: This ground which has been challenged by the assessee is in connection with disallowance of an amount of Rs.5,53,470/- on account of travelling expenses paid as reimbursement to the customers and consultant. The assessee had debited an amount of Rs.90,30,897/- as travelling expenditure and at the time assessment, the AO verified the travelling expenses and found that an amount of Rs.5,53,470/- were relating to non- employees. A notice was issued by the AO, but no plausible explanation was tendered by the assessee. Moreover it is incumbent upon the assessee to prove this fact that the said expenditure was incurred upon the employee or incurred for business purpose. Therefore, in such circumstances, the AO has rightly declined the said travelling expenses being not incurred upon the employees of the assessee firm, which has subsequently been confirmed by the learned CIT(A). Therefore, finding no force in the contentions raised by the assessee this issue is also decided against the assessee. Accordingly, the ground of appeal of the assessee is dismissed."
4.2.2 Following the aforecited decision of the Coordinate Bench in the assessee's own case for A.Y. 2009-10 in ITA Nos. 447 &768/Mum/2013 dated 16.10.2015, we find no merit in the grounds and contentions raised by the assessee on the issue of disallowance of travel expenses of `6,78,893/- and accordingly decide this issue against the assessee. Consequently, grounds 1 and 2 of the assessee's appeal are dismissed.
5. Ground No. 3 - Set off of Business Loss against LTCG 5.1 In this ground, the assessee assails the order of the learned CIT(A) in holding that the business loss is to be set off against LTCG as per the provisions of section 71(2) of the Act. The learned A.R. of the assessee fairly conceded that this issue is squarely covered against the assessee by the decision of the Coordinate Bench of this Tribunal in the case of Sumaria Appliances Pvt. Ltd. vs. ACIT in ITA No. 2712/Mum/2012 dated 11.06.2014.
4 ITA No. 7052/Mum/2014Chemito Technologies P. Ltd.
5.2.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. We find that identical issue of set off of business loss against capital gains (whether STCG or LTCG) was considered by the Coordinate Bench in its order in the case of Sumaria Appliance Pvt. Ltd. in ITA No. 2712/Mum/2013 dated 11.06.2014 and it was held that the assessee had no option to carry forward business loss to subsequent years without setting off of the same against capital gains arising during the year. In this order, the Coordinate Bench has considered and decided the issue as under at paras 7 to 7.4 as under: -
"7. Adverting to Ground No.2 & 3, it will be relevant to reproduce the relevant portion of section 71 sub-section (1) & (2).
71. Set off of loss from one head against income from another.-
(1) Where in respect of any assessment year the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee has no income under the head "Capital gains", he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head.
(2) Where in respect of any assessment year, the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee has income assessable under the head "Capital gains", such loss may, subject to the provisions of this Chapter, be set off against his income, if any, assessable for that assessment year under any head of income including the head "Capital gains" (whether relating to shortterm capital assets or any other capital assets).
7.1 From the perusal of the aforementioned provision it is clear that section 71(1) will not be applicable to the case of the assessee as in the present case assessee has income under the head capital gain. Section 71(2) will be applicable as in the present case the assessee has computed loss under the head "income from business or profession". It is the contention of Ld. AR that word used in section 71(2) "may" gives an option to the assessee so as to whether adjust the said loss against capital gain or not. Thus, according to assessee it is entitled to carry forward business loss separately and to get assessed capital gain in the year under consideration. 7.2 In our considered opinion there is no force in the claim made by the assessee. Firstly, sub-section (2) of section 71 does not give any option to the assessee to carry forward business loss separately despite there being income under the head capital gain. Section 71(2) 5 ITA No. 7052/Mum/2014 Chemito Technologies P. Ltd.
contemplates a situation where in respect of any assessment year, the net result of computation under any head of income , other than "capital gain" is a loss and assessee has income assessable under the head "capital gains", in such situation, such loss may, subject to provision of Chapter VI (section 66 to 80), be set off, for and from assessment year 1992-93, against assessee's income, if any, assessable for that assessment year under any head of income including the head "capital gains" (whether relating to short term capital gain asset or any other capital asset). Thus, provisions of section 71(2) cannot be construed to give option to the assessee to carry forward business loss separately without set off of income arising out of short term capital gain. Only on the basis of word "may" as appearing in section 71(2), such benefit cannot be granted to the assessee as has been sought by it. The language of the provision is clear. No option has been given to the assessee to carry forward loss under any other head to subsequent year without setting off of the same against short term capital gain.
7.3 Reliance by the assessee on the decision of Hon'ble Bombay High Court in the case of CIT vs. British Insulation Calendars Ltd. (supra) is also misplaced as the said decision has not been rendered for the proposition which has been raised by the assessee in the present appeal. The issue in that case was whether or not dividend income of the assessee could be set off against business loss of the same year. Dividend income was taxable at the confessional rate. Therefore, according to assessee tax was to be charged on dividend income and business loss was to be carried forward to be set off against income of subsequent years. The Tribunal held that assessee had such option. It was held by their Lordships that Tribunal was not justified in holding that assessee has such option and it was held that business loss was rightly set off against dividend income by the ITO. Similar is the position in the present case and it has to be held that assessee has no option to carry forward business loss to subsequent years without set off of the same to capital gain arising during the year. The language of section is very clear and no such option has been given to the assessee.
7.4 In view of above discussion, we dismiss ground No.2 & 3 of the assessee."
5.2.2 Following the above cited order of the Coordinate Bench in the case of Surmaria Appliance Pvt. Ltd. in ITA No. 2712/Mum/2012 dated 11.06.2014, we hold that in view of the provisions of section 71(2) of the Act, the assessee had no option to carry forward the business loss to subsequent years without setting off the same against capital gains (i.e. in this case LTCG of `17,04,000/-) arising during the year. Finding no merit in this ground and contentions raised by the assessee, we dismiss ground No. 3.
6 ITA No. 7052/Mum/2014Chemito Technologies P. Ltd.
6. Ground No. 4 & 56.1 These grounds being general in nature and not being urged before us are rendered infructuous and are accordingly dismissed.
7. In the result, the assessee's appeal for A.Y. 2010-11 is dismissed.
Order pronounced in the open court on 12th April, 2017.
Sd/- Sd/-
(Sandeep Gosain) (Jason P. Boaz)
Judicial Member Accountant Member
Mumbai, Dated: 12th April, 2017
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) -13, Mumbai
4. The CIT - 7, Mumbai
5. The DR, "C" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.