Set-off of Brought Forward Business Loss Against Short-Term Capital Gains under Section 50: ITAT Ahmedabad Ruling Explained

1. Background of the Dispute

Ambalal Sarabhai Enterprises Limited filed an appeal before the Income Tax Appellate Tribunal, Ahmedabad Bench, challenging the order of the Commissioner of Income Tax (Appeals) – 1, Vadodara dated 29.02.2016 for Assessment Year 2011-12, passed under Section 143(3) of the Income Tax Act 1961.

The assessee’s appeal had earlier been decided by the Tribunal by order dated 08.07.2025. Subsequently, the assessee approached the Tribunal with a Miscellaneous Application under Section 254(2), pointing out that Ground No. 4—relating to set-off of brought forward business loss against short-term capital gain (STCG) computed under Section 50—had not been adjudicated on merits.

The Tribunal accepted this contention and, by order dated 29.01.2026 in MA No. 95/Ahd/2025 (in ITA No. 954/Ahd/2016), recalled its earlier decision only to the extent of Ground No. 4. The balance part of the original order was left untouched.

2. Scope of Recalled Proceedings

2.1 Limited Recall under Section 254(2)

The Tribunal noted in the Miscellaneous Application order that:

  • In the original appeal order, Ground No. 4 concerning set-off of brought forward depreciation and business loss against STCG had been treated as merely academic.
  • This conclusion was based on the assumption that the Department’s appeal on related grounds (particularly on brokerage expenditure) had been dismissed.
  • However, on a closer reading of paragraphs 33 to 39 of the same original order, it was evident that the Department’s ground challenging the disallowance of brokerage charges had actually been allowed.

Given that the factual premise for treating Ground No. 4 as academic no longer existed, the Tribunal recalled the order only for the purpose of adjudicating Ground No. 4 on merits.

Important:
The recall under Section 254(2) was restricted to Ground No. 4 alone; the rest of the findings in the original order remained valid and undisturbed.

2.2 Ground in Dispute

The ground requiring fresh adjudication was:

“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.”

Essentially, the controversy centered on whether the assessee could adjust unabsorbed brought forward business loss against STCG arising on sale of depreciable assets where gains are computed under Section 50.

3. Facts Relevant to the Ground on Set-off

3.1 Assessee’s Claim

The assessee argued that:

  • It had unabsorbed brought forward business losses from earlier years.
  • During the relevant previous year, it had earned STCG on transfer of depreciable assets, such as building and plant and machinery, computed in accordance with Section 50.
  • The Assessing Officer (AO) did not grant set-off of these brought forward business losses against the STCG so computed.
  • This specific question did not find any discussion or adjudication in the original assessment order passed under Section 143(3) or in the first appellate order.
  • A similar claim of set-off had been allowed in an earlier year, specifically Assessment Year 2009-10, in appellate proceedings.

3.2 CIT(A)’s Approach

The assessee had raised this issue before the CIT(A) as well, through the sixth ground of appeal. The CIT(A) observed: