Case Law Details
Ambalal Sarabhai Enterprises Limited Vs DCIT (ITAT Ahmedabad)
Material Facts
The assessee appealed against the order of the Commissioner of Income Tax (Appeals)-1, Vadodara for Assessment Year 2011-12 passed under Section 143(3) of the Income-tax Act. The Tribunal had earlier disposed of the appeal on 8 July 2025. Subsequently, on the assessee’s Miscellaneous Application under Section 254(2), the Tribunal found that Ground No. 4 relating to the set-off of brought forward business loss against short-term capital gains computed under Section 50 had not been adjudicated on merits. Accordingly, by order dated 29 January 2026, the earlier order was recalled to the limited extent of deciding that ground.
Procedural History
The assessee contended that the Assessing Officer had not allowed the set-off of unabsorbed brought forward business loss against short-term capital gains arising on sale of depreciable assets computed under Section 50. It was submitted that the issue had not been adjudicated by either the CIT(A) or the Tribunal and that a similar claim had been allowed in Assessment Year 2009-10.
The Departmental Representative submitted that the matter should be restored to the Assessing Officer to verify whether the identical claim had been allowed in Assessment Year 2009-10, as the issue had not been examined during assessment.
Legal Issue
Whether unabsorbed brought forward business loss could be set off against short-term capital gains arising on sale of depreciable assets computed under Section 50 of the Income-tax Act.
Relevant Statutory Provisions
- Section 50 of the Income-tax Act
- Section 143(3) of the Income-tax Act
- Section 254(2) of the Income-tax Act
Parties’ Submissions
The assessee relied upon the decisions of the Bombay High Court in PCIT Vs. Alcon Developers and the Karnataka High Court in Nandi Steels Ltd. Vs ACIT, and also submitted that a similar set-off had been allowed in Assessment Year 2009-10.
The Revenue sought verification of the earlier allowance before granting the claim.
Tribunal’s Findings
The Tribunal noted that the CIT(A) had treated the ground as academic since, after deleting certain disallowances, the assessed income became a loss. The Tribunal had also earlier treated the issue as academic. However, after the Department’s appeal on brokerage charges was allowed, the issue required adjudication on merits.
The Tribunal observed that the Bombay High Court in Alcon Developers and the Karnataka High Court in Nandi Steels Ltd. had held that such a set-off is allowable. It also recorded the assessee’s submission that a similar claim had been allowed in Assessment Year 2009-10.
Final Ruling
Following the decisions of the Bombay High Court and Karnataka High Court, the Tribunal directed the Assessing Officer to allow the set-off of unabsorbed brought forward business loss of earlier years against short-term capital gains on sale of depreciable assets computed under Section 50, after verifying the assessee’s claim. The matter was remanded to the jurisdictional Assessing Officer for this limited purpose, and the ground of appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal filed by the assessee against the order of Commissioner of Income Tax (Appeals) – 1, Vadodara [hereinafter referred to as “CIT(A)”] dated 29.02.2016 for the Assessment Year (A.Y.) 2011-12 in the proceeding u/s 143(3) of the Income Tax Act [hereinafter referred as “the Act”].
2. This appeal was earlier decided by the Co-ordinate bench of this Tribunal vide order dated 08.07.2025. The assessee had filed a Miscellaneous Application u/s. 254(2) of the Act, stating that the Ground No.-4 taken by the assessee in the appeal was not adjudicated on merits. The submission of the assessee was found to be correct and the order dated 08.07.2025 was recalled for the limited purpose to adjudicate the Ground No. 4 taken by the assessee in this appeal. The operative part of the order of the Tribunal in MA No. 95/Ahd/2025 (in ITA No. 954/Ahd/2016) dated 29.01.2026 is as under:
“4. We have carefully considered the Miscellaneous Application filed by the assessee and perused the original order of the Tribunal in ITA No. 954/Ahd/2016. We find that in paragraphs 11 and 12 of the original order, Ground No. 4 raised by the assessee regarding set-off or brought-forward depreciation against Short-Term Capital Gains was not adjudicated on merits on the premise that the Department’s appeal on the connected grounds stood dismissed and, therefore, the issue had become academic. However, on a reading of the subsequent part of the same order, particularly paragraphs 33 to 39, it is evident that the Tribunal had in fact allowed the Department’s ground relating to brokerage charges. In such circumstances, the factual premise on which Ground No. 4 of the assessee was treated as academic no longer survives.
5. Accordingly, we recall the order dated earlier passed in ITA No. 954/Ahd/2016 only to the limited extent of Ground No. 4 of the assessee’s appeal, for hearing of this ground of appeal on merits. The registry is directed to fix the appeal for hearing on this limited issue alone, after due notice to both the parties, and the remaining part of the order shall remain undisturbed”.
3. We, therefore, now proceed to adjudicate the Ground No. 4 taken by the assessee in this appeal, which was as under:
“4. Set off of unabsorbed brought forward business loss of earlier years against income from short term capital gains on depreciable assets computed u/s. 50 of the Income Tax Act.
4. Shri Bandish Soparkar, the Ld. AR of the assessee submitted that the AO did not allow the set-off of unabsorbed brought forward business loss of earlier years with the income from short-term capital gain (STCG) on depreciable assets computed u/s. 50 of the Act. He explained that this issue was neither adjudicated by the Ld. CIT(A) nor by the Tribunal. The Ld. AR submitted that the assessee was eligible to claim set-off of business loss of earlier years with STCG generated on sale of depreciable assets. In this regard he relied upon the decision of Hon’ble Bombay High Court in the case of PCIT Vs. Alcon Developers [128 taxmann.com 371(Bombay)] and also on the decision of Hon’ble Karnataka High Court in the case of Nandi Steels Ltd. Vs ACIT [128 taxmann.com 267(Karnataka)]. He further submitted that the assessee’s claim in this respect was allowed in the A.Y. 2009-10.
5. Per Contra, Shri Shramdeep Sinha, the Ld. CIT-DR submitted that the matter may be set aside to the file of the AO to verify the allowance of identical claim of the assessee in the A.Y. 2009-10. He further submitted that since this issue was not examined by the AO in the course of assessment, the claim of the assessee requires to be verified by the AO.
6. We have considered the rival submissions. It is found that the assessee had raised the ground before the Ld. CIT(A) challenging the action of the AO in not allowing set-off of unabsorbed brought forward business loss with short-term capital gain on depreciable assets. The Ld. CIT(A) vide paragraph 4.6 of his order had given the following finding:
“4.6. Vide 6th ground of appeal, the appellant has challenged the action of the AO of not allowing set off of unabsorbed brought forward business loss of earlier years against income from Short Term Capital Gain on depreciable assets computed u/s 50 of the Act. From the assessment order, it is seen that no such issue has been discussed by the AO. The appellant has submitted that such set off has been allowed in the appellate order for AY 2009-10. The appellant has also submitted that a part of depreciable assets in the form of building and plant and machinery was sold during the previous year. Since, the return income was loss, hence, no claim of brought forward business loss was made against Short Term Capital Gain earned on account of such sale. Now the appellant’s claim that since, the income has been assessed at positive income, hence, such set off should be granted. In this regard, it is seen that after deletion of disallowance made u/s 14A of the Act and of the brokerage paid to the brokers for arranging loans, the income of the appellant has again becomes loss. Hence, no such set off is to be granted in the current year and this ground of appeal becomes academic in nature.
7. The Ld. CIT(A) did not decide the ground taken by the assessee as the income assessed was positive income and the ground was academic in nature. This issue was also not decided by the Tribunal in the order dated 08.07.2025 by holding that this issue was only academic. However, since the Department’s appeal relating to brokerage charges was allowed, this issue requires to be decided on merits.
8. So far as set-off of brought forward business loss with short-term capital gain on sale of depreciable assets is concerned, the Hon’ble Bombay High Court in the Case of Alcon Developers (supra) has held that an assessee is entitled to claim such set-off. An identical view was taken by the Hon’ble Karnataka High Court in the case of Nandi Steels Limited (Supra). According to the assessee, such set-off was allowed in the A.Y. 2009-10. Following the decision of the Hon’ble High Courts on this issue, we direct the AO to allow set-off of unabsorbed brought forward business loss of the earlier years with the short-term capital gain on sale of depreciable assets as computed u/s. 50 of the Act. For this limited purpose, the matter is set aside to the file of the JAO with a direction to verify the claim of the assessee and thereafter allow set-off as per law.
9. In the result, the Ground taken by the assessee is allowed for statistical purpose.
Order pronounced in the Court on 14/07/2026 at Ahmedabad.
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