ACIT-4(1)(1), MUMBAI, MUMBAI vs. D L TANUMAL PRIVATE LIMITED, MUMBAI

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ITA 2107/MUM/2026Status: DisposedITAT Mumbai27 July 2026AY 2017-187 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that brought forward long-term capital losses can be set off against capital gains deemed to be short-term under Section 50, following jurisdictional High Court precedents. The deeming fiction under Section 50 is limited to computation, and the gains are then treated under other provisions for set-off.

What were the facts?

The assessee transferred a depreciable residential property held for over three years, resulting in a capital gain. Section 50 deemed this gain as short-term capital gain (STCG). The assessee sought to set off brought forward long-term capital losses (LTCL) against this deemed STCG.

What were the issues?

Whether long-term capital losses can be set off against capital gains deemed to be short-term under Section 50, and the scope of Section 50 in relation to Section 74.

Which sections of the Income-tax Act were involved?

Section 50,Section 74

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES, MUMBAI

Before: SANDEEP GOSAIN & BIJAYANANDA PRUSETH

PER SANDEEP GOSAIN, JUDICIAL MEMBER:

This appeal is filed by the Department against the order of Ld. NFAC vide DIN: ITBA/NFAC/S/250/2025-26/1084273922(1) dated 31-Dec-2025 for the Assessment Year 2017-18. The Department has raised the following grounds of appeal:

1.

Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in allowing set-off of brought forward long-term capital loss against capital gains assessed as short-term capital gains under section 50 of the Income-tax Act, 1961, despite the clear provisions of section 74 which permit set- off of long-term capital loss only against long-term capital gains?

2.

Whether the deeming fiction created under section 50 of the Income-tax Act, 1961, treating capital gains arising from transfer of depreciable assets as short- term capital gains, is applicable only for the purpose of computation or is required to be given full effect for the purposes of set-off and carry forward of losses under section 74 of the Act?

3.

Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the scope of section 50 only to computation of capital gains, ignoring the legislative intent and statutory scheme governing classification and set-off of capital losses under sections 50 and 74 of the Income-tax Act, 1961?

4.

Whether on a true and correct interpretation of sections 50 and 74 of the Income- tax Act, 1961, long-term capital loss can be allowed to be set off against capital gains which are statutorily deemed to be short-term capital gains, notwithstanding the period of holding of the underlying asset?

5.

The appellant craves leave to add, amend, or alter any of the above grounds of appeal before or during the course of hearing, in the interest of justice.

2.

All the grounds raised by the Revenue are interrelated and interconnected and relates to challenging the order of the Ld. CIT(A) in allowing the set-off of brought forward LTCG loss against capital gain assessed as STCG under Section 50 of the Act. Therefore, we have decided to adjudicate these grounds through the present consolidated order.

3.

We have heard the counsel for both the parties, perused the material placed on record, the judgments cited before us, and also the orders passed by the Revenue Authorities. From the records, we noticed that during the previous year relevant to Assessment Year 2017-18, the assessee transferred a residential property forming part of its block of assets on which depreciation had been claimed.

4.

The said property was initially acquired in the month of June 1994 and was thereafter transferred in August 2016. Accordingly, the said property was held for more than three years and was considered a long-term capital asset.

5.

The said property was sold for a total consideration of Rs. 1,91,20,000, and after reducing the expenses on transfer and the opening WDV, the resultant capital gain of Rs. 1,88,23,967 was computed as per the provisions of Section 50(1) of the Act. The said capital gain was set off against the brought forward long-term capital losses, and the net taxable capital gain was computed at NIL. However, the AO denied the set-off of brought forward long-term capital losses of Rs. 1,85,55,816 against the deemed STCG arising on the sale of the long-term capital asset and accordingly passed the assessment order. Aggrieved by the said assessment order, the assessee filed an appeal before the Ld. CIT(A), which was allowed and the operative portion of the order of ld. CIT(A) is reproduced herein below:

"On the basis of the submission filed by the appellant during the appellate proceedings. AO's finding in the assessment order and judicial precedents by the Hon'ble Supreme Court, the Jurisdictional Bombay High Court and Mumbai ITAT were considered by the appellate authority. After considering all the details and relying upon the various judicial precedents, the contention of the appellant is accepted and the disallowance made by the AO is hereby deleted. Hence, the ground raised by the appellant is allowed."

The present appeal has been filed by the Revenue against the order of the CIT(A). The issue involved in the present appeal is whether the appellant is entitled to set-off the brought forward long-term capital losses against the capital gain arising on transfer of a long-term capital asset which is deemed to be a short-term capital gains as per provision of section 50(1) of the Act. The appellant submits that the issue involved is fairly covered in its favour by the decision of the honourable jurisdictional High Court, which are reproduce under.

6.

After considering the order passed by the Ld. CIT(A), we find that the issue involved in the present appeal is squarely covered by the decisions of the Hon'ble Jurisdictional Bombay High Court in the following cases:

1.

CIT v. Hathway Investments Pvt. Ltd., ITA No. 405 of 2012 (Bom.) [Please refer Page Nos. 121 and 122 of the Paper Book]

The Hon'ble Bombay High Court followed its own judgment in the case of Ace Builders Private Limited and dismissed the appeal of the Revenue, holding that the deemed short-term capital gain arising from the transfer of depreciable long-term capital assets held for more than three years can be set off against brought forward long-term capital losses.

2.

Manali Investments v. ACIT (2013) 219 Taxmann 113 (Bom.) [Please refer Page Nos. 119 and 120 of the Paper Book]

The Bombay High Court held that the short-term capital gains arising from the transfer of depreciable assets held for more than 36 months under Section 50(2) of the Act can be set off against the brought forward long-term capital losses under Section 74 of the Act. Further, Section 50 of the Act is a deeming provision, and the same has to be restricted only to the computation of capital gains on depreciable assets. Once the computation part is over, the operation of Section 50 of the Act comes to an end, and the capital gains so determined shall be dealt with in accordance with the other provisions of the Act.

3.

CIT-9, Mumbai v. Pursarth Trading (2013) 217 Taxmann 113 (Bom.) [Please refer Page Nos. 117 and 118 of the Paper Book]

The Bombay High Court held that the deemed short-term capital gains arising from the transfer of depreciable assets held for more than 36 months under Section 50(2) of the Act can be set off against the brought forward long- term capital losses under Section 74 of the Act.

7.

We find that the AO had relied upon the order of the Ld. CIT(A) in the case of M/s Bharat Enterprises to deny the set-off of brought forward long-term capital losses. However, the Coordinate Bench of the ITAT, in the case of M/s Bharat Enterprises, has overturned the order of the Ld. CIT(A) and the operative portion of the order of the Coordinate Bench of the ITAT is reproduced herein below:

"14. The fourth ground of the Revenue is against the Ld. CIT(A) allowing to set off of short term capital gains arising from sale of depreciable assets u/s 50 against the brought forward long term capital loss. Here again, we are not certain as to how this ground has been raised by the Department. The CIT(A) in para 4.1 has concluded as under:

"The long term capital losses brought forward from earlier years are not eligible for set off against the short-term capital gain of the current year in view of the provisions of section 74,"

15.

Thus, the Ld.CIT(A) has held against the assessee and we do not see how the department can be aggrieved on this issue. However, we have pointed out that applying the ratio of the jurisdictional high court the carry forward long term capital losses can be set off against the gains arising from sale of depreciable asset computed u/s.50 in view of the wording of Sec. 74(1)(b). However, as the assessee has not come on appeal on this issue we dismiss the fourth ground of Revenue's appeal regarding setting off of brought forward losses against the capital gains computed u/s.50 as misconceived and does not arise out of order of Ld. CIT(A)."

8.

Considering the totality of the facts and circumstances, we find that the Ld. CIT(A) had rightly deleted the disallowance made by the AO, as the assessee was found entitled to set off the brought forward long-term capital losses against the deemed STCG arising from the transfer of the long-term capital asset.

9.

Even otherwise, no new facts, circumstances, or documents have been placed on record by the Ld. DR to controvert or rebut the lawful findings so recorded by the Ld. CIT(A). Therefore, we see no reason to interfere with or deviate from the findings so recorded by the Ld. CIT(A). Accordingly, we dismiss the grounds raised by the Revenue and uphold the order of the Ld. CIT(A) deleting the disallowance.

10.

In the result, the appeal filed by the Department stands dismissed.

Order pronounced in the open court on 27.07.2026.

Sd/- Sd/- BIJAYANANDA PRUSETH SANDEEP GOSAIN ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai Dated: 27.07.2026 RY-Sr PS Copy to: ACIT-4(1)(1), MUMBAI, R. NO. 642, 6TH FLOOR, AAYAKAR 1 BHAVAN, M.K.ROAD, MUMBAI, MUMBAI-400020, MAHARASHTRA D L TANUMAL PRIVATE LIMITED, 1107 A,C-WING BANDRA KURLA 2 COMPLEX, MUMBAI, BANDRA EAST, S.O 400051, MAHARASHTRA INDIA, MUMBAI-400051, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE

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