The Pr. Commissioner Of Income Tax-6 v. M/S Creative Textile Mills Pvt. Ltd

dik IN THE HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. INCOME TAX APPEAL NO. 1570 OF 2016 The Pr. Commissioner of Income Tax-6...Appellant vsM/s Creative Textile Mills Pvt. Ltd. ...Respondent. ..... Mr A.R.Malhotra a/w Mr N.A.Kazi for the Appellant. Mr Madhukar Agrawal I/b Atul Jasani for the Respondent. ..... CORAM : AKIL KURESHI & B.P.COLABAWALLA, JJ.FEBRUARY 13, 2019. P.C. : The Revenue is in appeal against the Judgment of the Income Tax Appellate Tribunal, raising the following question of law. “Whether, on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal has erred in cancelling the order u/s 154 of the Income Tax Act ignoring the fact the mistake being apparent from the record as per provisions of section 71 (2) of the Act has been rectifiedby the Assessing Officer?” 2The brief facts are as under. The respondent - assessee is a registered company. Thereturn filed by the assessee for the Assessment Year ("A.Y." for short)2005-06 was taken into scrutiny. The Assessing Officer ("A.O." forshort) passed an order of assessment which was carried in appeal by the assessee. The Commissioner of Income Tax (Appeals) ["CIT(A)" Pg 1 of 4 7.itxa.1570.2016.db.doc for short] passed an order consequent to which the A.O. also passedthe order giving effect to the appellate order. After that, the A.O.noticed, which he thought was an apparent error, in the assessmentof the assessee, with respect to the long term capital gain. He,therefore, after putting the assessee to notice, passed an order dated29[th] March, 2012 rectifying his original order and reduced the carryforward of business loss. This was on the basis that, according to theA.O, during the period relevant to the A.Y. in question, the assesseehad declared low tax capital gain. According to the A.O. in terms ofSection 71(2) of the Income Tax Act, 1961 (“IT Act” for short) theassessee was under compulsion to set off business loss against thecapital gain. Only thereafter the remaining sum could be carriedforward for the next year. The assessee carried the matter in appeal.The CIT(A) dismissed the appeal upon which the assessee carried thematter before the Tribunal. Before the Tribunal, the assessee mainlycontended that the issue was not free from doubt and that, therefore,the A.O. could not have exercised the rectification power which islimited in nature. The Tribunal accepted such contention andreversed the order of Revenue Authorities, upon which the Revenuehas filed this appeal. 3Having heard learned counsel for parties, we notice that Pg 2 of 4 7.itxa.1570.2016.db.docsub-section (1) of Section 71 of the Act provides that where in respectof any assessment year the net result of the computation under anyhead of income other than “capital gains' is a loss and the assesseehas no income under the head 'capital gains' he shall, subject to theprovisions of this Chapter, be entitled to have the amount of such lossset off against his income, if any, assessable for that assessment yearunder any other head. This provision came up for considerationbefore this Court in the case of Commissioner of Income Tax VsBritish Insulated Calender's Ltd.Reported in 202 ITR 354inwhich it was held that under sub-section (1) of Section 71 of the Actthe assessee has no option in setting off the business loss against theheads of other income as long as there was no capital gain during theyear under consideration. The case of the assessee does not fallunder sub-section (1) of Section 71 of the Act since the assessee haddeclared capital gain. Such a situation would be covered by sub-section (2) of Section 71 of the Act which reads as under; “(2) Where in respect of any assessment year, the net result of thecomputation under any head of income, other than “Capital gains”, is a lossand the assessee has income assessable under the head “Capital gains”, suchloss may, subject to the provisions of this Chapter, be set off against hisincome, if any, assessable for that assessment year under any head of incomeincluding the head “Capital gains” (whether relating to short-term capitalassets or any other capital assets)” Court had in respect tosub-section 2 of Section 71 observed that “ in Pg 3 of 4 7.itxa.1570.2016.db.doccase of the assessee declaring capital gain, he had an option to set offthe business loss, whereas no such option is given for sub-section(1)”. Before the High Court, of course, the provision of Sub-Section 2of Section 71 of the Act was somewhat different and the expression “or, if the assessee so desires, shall be set off only against his income, ifany, assessable under any head of income other than 'capital gains'”has since been deleted. Nevertheless, the question that would ariseis, whether even in the unamended form sub-section (2) of Section 71of the Act mandates the assessee to set off its business loss againstthe capital gains of the same year when this provision used anexpression “may” as compared to the expression “shall” used in sub-section (1). In the present case, we are not called upon to judge thecorrectness of interpretation of either the revenue or the assessee.Sufficient for us to come to the conclusion that the question was farfrom being clear. It was clearly debatable. In this position, the A.O., asper the settled law, could not have exercised the rectification powers.We find no error in the view of the Tribunal. The Income Tax Appealis dismissed. No order as to costs. (B.P.COLABAWALLA, J.) (AKIL KURESHI, J.) Pg 4 of 4