ITALCOATS,ANDHERI (WEST), MUMBAI vs. ITO, WARD 24(2)(1), MUMBAI, MUMBAI

आयकर अपीलीय अिधकरण �ायपीठ मुंबईम�। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI NARENDER KUMAR CHOUDHRY, JM & SHRI ARUN KHODPIA, AM I.T.A. No. 1325/Mum/2026 (Assessment Year: 2020-21) Italcoats ITO Ward-24(2)(1), Mumbai 501/502, Samarth Prasad, Piramal Chamber, Mumbai-400012 Vs. Lokhandwala Circle, Andheri (West), Mumbai-400053 PAN: AAEFI2418L Assessee- अपीलाथ� / Appellant Revenue-��थ�/ Respondent :

Assessee by : Shri Rajesh Shah Revenue by : Shri Ajay Soneji, Sr. DR : 02.07.2026 Date of Hearing : 18.09.2026 Date of Pronouncement O R D E R Per Arun Khodpia, AM:

The present appeal is preferred by the assessee against the order of Ld. Commissioner of Income Tax Appeals Addl/ JCIT (A) – 3, Bengaluru [in short, “Ld. CIT(A)”] dated 13th January, 2026, arises against the order under section 154 r.w.s 143(1) of the Income Tax Act, 1961 [in short, “the Act”] dated 06.09.2024, wherein the assessee has sought certain rectification. However, as per order u/s 154 of the Act, the adjustments sought by the assessee does not constitute a mistake apparent from record.

ITA No. 1325/Mum/2026 Italcoats 2. The assessee preferred an appeal before the Ld. CIT(A), raised certain grounds before the him and stated that the Ld. Assessing Officer (in short, “the Ld. AO”) has wrongly enhanced the income of the assessee by making an addition in respect of business income of Rs.19,88,036/- as against Nil business income. The assessee had declared a loss of Rs.19,88,036/- from pass-through Short-Term Capital Loss, however the wrong adjustment has been made and loss has been converted into profit without any reason.

ITA No. 1325/Mum/2026 Italcoats 4. Being aggrieved with the order of Ld. CIT(A), assessee preferred an appeal before the Tribunal.

ITA No. 1325/Mum/2026 Italcoats (7) The person responsible for crediting or making payment of the income on behalf of an investment fund and the investment fund shall furnish, within such time as may be prescribed, to the person who is liable to tax in respect of such income and to the prescribed income-tax authority, a statement in the prescribed form and verified in such manner, giving details of the nature of the income paid or credited during the previous year and such other relevant details, as may be prescribed. Explanation 1.—For the purposes of this Chapter,— (a) "investment fund" means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate of registration as a Category I or a Category II Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); (b) "trust" means a trust established under the Indian Trusts Act, 1882 (2 of 1882) or under any other law for the time being in force; (c) "unit" means beneficial interest of an investor in the investment fund or a scheme of the investment fund and shall include shares or partnership interests. Explanation 2.—For the removal of doubts, it is hereby declared that any income which has been included in total income of the person referred to in sub-section (1) in a previous year, on account of it having accrued or arisen in the said previous year, shall not be included in the total income of such person in the previous year in which such income is actually paid to him by the investment fund.” 6. The aforesaid provisions, which have been discussed by the Ld. CIT(A) in his order in paras 5.1.9 to 5.1.20 are extracted as under: “5.1.9. In the instant case the Appellant has claimed set off of short term capital loss of Rs.19,88,036/- pertaining to A.Y 2018-19. This implies that to the extent the short term amounting to Ra 19,88,038/- pertaining to A.Y 2018-19, the units were held for held for less than 12 months because of which the short term capital loss arose. The provisions of section 115UB(2)(ii) specifies that only such capital loss shall be allowed wherein units are held for atleast 12 months thereby making only long term capital loss eligible to be passed on to the unit holders. 5.1.10. Section 115UB creates a restricted pass-through regime for income and losses of an investment fund to its unit holders. The provision does not permit unconditional transfer of all losses; rather, it specifically carves out categories of losses that are to be ignored. 5.1.11. Post amendment by the Finance Act, 2019, section 115UB(2) draws a clear distinction between:  business losses; and  losses under other heads (including capital gains). 5.1.12. As per amended section 115UB(2)(ii) "the loss other than the loss referred to in clause (i), if any, shall also be ignored for the purposes of sub-section (1), If such loss 4

ITA No. 1325/Mum/2026 Italcoats has arisen in respect of a unit which has not been held by the unit holder for a period of at least twelve months. Thus, capital losses (other than business loss) are not eligible for pass-through unless the unit is held for at least 12 months. This condition is mandatory and goes to the root of eligibility. 5.1.13. A short-term capital loss, by definition, arises only when the capital asset (unit) is held for less than the prescribed long-term period which is of 12 months. In the context of section 115UB(2) (II) of the Act, short-term capital loss Inherently establishes that the unit was held for less than 12 months. Therefore, such loss squarely falls within the exclusion clause of the said section. The statute expressly mandates that such loss "shall be ignored" for pass-through purposes. Hence, short-term capital loss is statutorily barred from being passed on to unit holders. 5.1.14. The Appellant appears to rely indirectly on section 115UB(2A), which allows certain accumulated losses as on 31.03.2019 to be deemed as losses of unit holders. However, Section 115UB(2A) applies only to losses accumulated at the level of the investment fund. It does not override the specific exclusion under section 115UB(2)(ii). The carry-forward under section 115UB(2A) is subject to the nature of loss and holding conditions. Therefore, short-term capital loss remains excluded, even if accumulated prior to 31.03.2019. 5.1.15. The amendment to section 115UB effective from A.Y. 2020-21 does not create a new right to claim losses which were otherwise ineligible. It only clarifies and restricts the pass-through mechanism. Allowing short-term capital loss to be claimed by the unit holder would render section 115UB(2)(ii) of the Act redundant and defeat the clear legislative intent to restrict pass-through only to long-term capital losses for which the holding period of the units are clearly specified in the provision. 5.1.16. The legislative Intent behind amendment to section 115UB of the Act is to prevent short-term trading losses in Investment fund units from being passed through and to allow pass-through only where the investment demonstrates long-term holding and risk participation. This policy objective would be completely frustrated if short- term capital losses are allowed to be set off at the unit holder level. 5.1.17. Moreover, the short term capital loss which the Appellant is claimed as set off during the year under consideration pertains to A.Y 2018-19. The Appellant seeks to rely on the Finance Act, 2019 amendment (effective A.Y. 2020-21) to claim a past STCL. However, the amendment does not create a vested right to claim short-term losses. It restricts the scope of pass-through. Transitional relief under section 115UB(2A) applies only to eligible non-business losses, subject to the holding-period condition. Therefore, STCL remains excluded even if it relates to A.Y. 2018-19. 5.1.18. Furthermore, allowing STCL of A.Y. 2018-19 to be set off in A.Y. 2020-21 would defeat the express language "shall be ignored", override the legislative intent explained in the Finance Bill, 2019 and permit precisely what Parliament sought to prevent that is pass-through of short-term trading losses. 5.1.19. Sections 70-74 of the Act pertaining to set-off and carry-forward applies only after a loss is legally eligible to be recognised in the hands of the assessee. In the instant case, Section 115UB(2)(ii) of the Act prevents recognition of short term capital loss Itself, hence, sections 70-74 of the Act never get triggered. 5

ITA No. 1325/Mum/2026 Italcoats

5.1.20. In view of the facts mentioned above, the Appellant is not eligible to carry forward provisional short term loss on investment fund pertaining to A.Y 2018-19 to be set off in A.Y 2020-21. Therefore, the addition of Rs.19,88,036/- on account of disallowance of short term capital loss arising out of Investment Fund is hereby upheld and the appeal filed on this ground is dismissed.”

ITA No. 1325/Mum/2026 Italcoats the losses attributed on pro rata basis towards the investment made by the assessee in ‘IIFL Special Opportunities Fund (CAT II)’, as categorically mentioned by the Investment fund in their statement provided to assessee.

Order pronounced in the open court on 18-09-2026.

Sd/- Sd/- (NARENDER KUMAR CHOUDHRY) (ARUN KHODPIA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, Dated : 18-09-2026. Ankit K., Sr. PS

ITA No. 1325/Mum/2026 Italcoats

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT

BY ORDER,

(Dy./Asstt. Registrar) ITAT, Mumbai