SHRI NARESH JAIN,JAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Jh jes’k lh0 ’kekZ] ys[kk lnL; ,oa Jh fot; iky jko] U;kf;d lnL; ds le{k BEFORE: SHRI RAMESH. C. SHARMA, AM & SHRI VIJAY PAL RAO, JM vk;dj vihy la-@ITA No. 159/JP/2019 fu/kZkj.k o"kZ@Assessment Year : 2015-16 cuke Shri Naresh Jain The ACIT Vs. Circle-3 D-275-A, Todarmal Marg, Bani Park, Jaipur C-Scheme, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAWPJ 8873 A vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by: Shri Vijay Goyal, CA jktLo dh vksj ls@ Revenue by : Shri K.C. Gupta, JCIT lquokbZ dh rkjh[k@ Date of Hearing : 06/08/2020 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 11 /08/2020

vkns'k@ ORDER PER: R.C. Sharma, A.M.

This is an appeal filed by the assessee against the order of ld.

CIT(A), Alwar dated 18.12.2018 for the A.Y. 2015-16, in the matter of

order passed by the A.O. 143(3) of the Income Tax Act, 1961 (in short, the

Act). The ground taken by the assessee reads as under.

‘’On the facts and in the circumstances and in law the ld. CIT(A) erred in sustaining the action of the AO regarding disallowing the benefit of carry forward of long term capital loss of Rs.14,76,729/- on the sale of shares for the current year.’’

ITA159/JP/2019 Shri Naresh Jain vs ACIT, Circle-3, Jaipur 2.1 Rival Contentions have been heard and records perused. The facts in

brief are that the assessee is an individual and filed his return of total

income on 29-08-2015, declaring income of Rs. 74,69,570/-. During the

year under consideration, the assessee sold a commercial property being a

showroom for a total consideration of Rs. 1,40,00,000/-. The indexed cost

of acquisition was Rs. 36,74,643/-. The expenditure in connection with

transfer of property was Rs. 24,165/- and thus the long term capital gain

from sale of property was Rs. 1,03,01,192/-. The amount of sale

consideration so received was transferred to capital gain account and such

amount was used for purchases of flat. The assessee claimed deduction of

Rs. 1,03,01,192/- u/s 54F of I.T. Act. During the year, the assessee has

suffered long term capital loss of Rs. 14,76,730/- on sale of shares which

the assessee claimed carried forward as long term capital loss for the

current year A.Y 2015-16. The AO firstly set off the long term capital loss

suffered from shares from the long term capital gain from sale of

commercial property and after intra-head adjustment the AO computed net

long term capital gain at Rs. 88,24,461/- and from this amount he allowed

deduction U/s 54F and disallowed the carry forward the long term capital

loss of Rs. 14,76,729/- for the current year on sale of shares. 2

ITA159/JP/2019 Shri Naresh Jain vs ACIT, Circle-3, Jaipur 2.2 By the impugned order, the ld. CIT(A) confirmed the action of the AO

against which the assessee is in further appeal before us.

2.3 We have considered the rival contentions and carefully gone through

the orders of the authorities below. The main issue in this appeal is

whether it is lawful to first compute capital gain after doing intra head

adjustments and whether the deductions u/s 54F should be allowed from

the net income computed after intra head adjustments. The law prescribes

the computation of income in respect of each source under the head

capital gain separately which should be calculated after giving deduction

under section 48 to 55 of the Act.

2.4 The relevant provisions of Sections 45(1), 54F and 70 of the

Income-tax Act, relevant to the assessment years read as follows:-

"45(1) Capital gains.—Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54 EA, 54EA, 54 EB, 54F, 54G and 54H, be chargeable to income tax under the head "capital gains", and shall be deemed to be the income of the previous year in which the transfer took place.

“54F. (1)[Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date [constructed, a residential house] (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,— 3

ITA159/JP/2019 Shri Naresh Jain vs ACIT, Circle-3, Jaipur

(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:” “70. Set off of loss from one source against income from another source under the same head of income.—1) Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source falling under any head of income, other than "Capital gains", is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. (2) Where the result of the computation made for any assessment year under Sections 48 to 55 in respect of any short term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset. (3) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any capital asset (other than a short term capital asset) is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset not being a short term capital asset.'’

Thus as per provisions of section 54F (1) on fulfilment of certain conditions

the capital gain arose on sales of such assets will not be chargeable to

capital gain under the section 45 of the Act. The scheme of Sections 45 to

55A provide for the computation of capital gains, and the effect has to be

given first to the provision of capital gains as given under the above

scheme and then apply the provisions of Section 70. Section 70 would

come into play only when the capital gains have been computed in

accordance with the provisions contained in Sections 45 to 55A. Thus, if,

after work out of deduction u/s 54F if the capital gain arose on sale of

ITA159/JP/2019 Shri Naresh Jain vs ACIT, Circle-3, Jaipur certain assets is not chargeable to capital gain than the loss arose to

assessee on sales of another assets cannot set off from gain of such

assets. It is not necessary that one should first apply Section 70(3) and

thereafter only, the assessee could invest the capital gain arising from the

long term capital asset.

2.5 This issue is also covered by the decision of Hon’ble High Court of

Madras in the case of CIT, Circle-XIV vs Vijay M. Mahtaney [2013] 35

taxmann.com 228 (Mad) wherein it has been held that (Copy at PB 9-14):-

‘’Section 54EC, read with sections 70 and 74, of the Income-tax Act, 1961 - Capital gains - Not to be charged on investment in certain bonds [Set off of capital loss] - Assessment year 2003-04 - Whether, assessee can first compute capital gains by claiming exemption under section 54EC and then apply provisions for set off of capital loss as per sections 70 and 74 - Held, yes [Para 11] [In favour of assessee]’’

2.6 In view of the above discussions, we set aside the orders of lower

authorities and direct the AO to compute the capital gain from sale of

commercial property by not doing intra-head adjustment for the loss

suffered from sale of shares and allow to carry forward the long term

capital loss of Rs. 14,76,729/- for the current year on sale of shares.

ITA159/JP/2019 Shri Naresh Jain vs ACIT, Circle-3, Jaipur 3.0 In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 11 /08/2020.

Sd/- Sd/- ¼ jes’k lh0 “kekZ ½ ¼fot; iky jko½ (Vijay Pal Rao) (Ramesh. C. Sharma) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 11 /08/2020.

*Mishra. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Shri Naresh Jain, Jaipur 1. 2. izR;FkhZ@ The Respondent- The ACIT, Circle-3, Jaipur 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 5. 6. xkMZ QkbZy@ Guard File {ITA No. 159/JP/2019} vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेजज. त्महपेजतंत