COMMISSIONER OF INCOME TAX Vs. KARNATAKA STATE ELECTRONICS

JUDGEMENT

(1.) THE Revenue has preferred this appeal under Section 260-A of the Income Tax Act, ('the Act' for short) being aggrieved by the order dated 20th January 2006 made in ITA No.1218/Bang/2003 passed by the Income Tax Appellate Tribunal, Bangalore Bench-'B', partly allowing the appeal and setting aside the order passed by the Commissioner of Income Tax (Appeals) (hereinafter referred to as CIT (Appeals)) and the Assessing Authority for the assessment year 1996-97.

(2.) THE respondent-Corporation filed the return of income tax on 20- 11-1996 for the assessment year 1996-97 declaring total loss of Rs.15,57,948/-, which after set off of brought forward loss from the earlier years is shown at NIL. The return of income was duly accompanied by the audited profit and loss account. The return of income was processed under Section 143(1)(a) on 21-02-1997 accepting NIL income return. Thereafter the case was selected for scrutiny and notice was issued to the assessee under Section 143(2) of the Act. The authorised representative of the assessee appeared and produced necessary documents. The Assessing Authority after scrutinizing the returns completed the scrutiny assessment on 31-03-1999 holding NIL income after setting off of unabsorbed losses of earlier years. The notice was issued to the assessee under Section 154 of the Act for rectification of mistake stating that some mistake has been crept in, in computation of income chargeable under Capital gain, set-off of loss, calculation of allowable depreciation and non-disallowance under Section 43(B) of the Act on 05-10-2000. The assessee has filed reply to the said notice on 20-12-2000. The Assessing Authority on recomputation of capital gain held that the assessee-Corporation has sold four industrial sheds along with land appurtenant to it, furniture, electrical fittings and fans attached to the sheds for Rs.72,00,000/- and claimed the value of land amounting to Rs.5,03,019/- and written down value of other assets, such as building, machinery, furniture and fittings amounting to Rs.43,19,071/- as deduction and a sum of Rs.23,77,910/- was offered as a short term capital gain. In the scrutiny of returns, the deduction claimed on account of written down value of other assets was confined only to industrial shed amounting to Rs.21,42,442/- and though the gain on sale of land was considered as long term capital gain, no deduction on cost of indexation was allowed. The assessee noticed that originally four industrial sheds and appurtenant land was obtained by the assessee on lease-cum-sale from the KSSIDC on 25-10-1980. After completion of the lease period, the assessee got the absolute ownership over the property on 23-10-1993. The said property was sold on 25-09-1995 i.e. within 3 years period. The assessee was in absolute ownership only for a period of one year and 11 months. Hence, it cannot be termed as long term capital asset. Further the Assessing Authority held that disallowance made under Section 43B is also not correct and that the business loss cannot be set off from the capital gain. The depreciation has to be made at 50% and accordingly reassessed the tax liability and issued demand notice for payment of Rs.61,04,823/-. Being aggrieved by the reassessment order, the respondent preferred an appeal before the CIT (Appeals). The CIT (Appeals) by its order dated 11-07-2003 dismissed the appeal holding that setting off of brought forward business loss against the capital gain and income from other sources is against the provisions of Section 72(1). So the mistake has been correctly rectified.

(3.) THE appeal is admitted for considering the following substantial questions of law.