DY CIT(IT)-1(3)(1, MUMBAI, KAUTILYA BHAVAN vs. BNS ASIA LIMITED, MUMBAI

The assessee is a company incorporated in Singapore and is a tax resident of Singapore. The assessee is registered with Securities & Exchange Board of India (SEBI) as Foreign Portfolio Investor (FPI). For the AY 2014-15 the assessee has earned STCG of Rs. 1,20,80,326/- and a STCL of Rs. 11,12,50,756/-. The assessee while filing the return of income claimed carry forward of the net STCL of Rs. 9,91,70,430/- for the year under consideration. The assessee also claimed the carry forward of brought forward STCL from earlier years to the tune of Rs. 7,41,59,811/-. The case was selected for scrutiny and the assessment was completed under section 143(3) accepting the income returned by the assessee. Subsequently the AO passed an order under section 154 of the Act stating that the brought forward capital loss to the tune of Rs. 7,41,59,811/- cannot be allowed to be carry forward since for AY 2013-14 the same was disallowed vide order under section 154 dated 21.01.2021. Accordingly the AO denied the carry forward of brought forward loss. Aggrieved the assessee filed further appeal before the CIT(A). The CIT(A) allowed the carry forward of the brought forward losses by holding that “6.4.1 The appellant has claimed that the brought forward capital losses of prior AY’s cannot be disallowed by the learned ACIT in the year under consideration. For disallowing such losses, the rectification order should be passed for the year in which the losses were incurred. Therefore, it has been claimed that the rectification order passed for year under consideration disallowing the carry forward of capital losses of prior AY’s is prejudicial to the Appellant and against the principles of natural justice.

4.2 It is noted that as regards the claim of brought forward short term capital loss of Rs.7,41,59,811/- from A.Y.2013-14 is concerned, the A.O. has given a factual finding that the brought forward short term capital loss of Rs.7,41,59,811/- from A.Y.2013-14 has been disallowed vide order u/s.154 dated 21.01.2021 for AY 2013- 14. However , the appellant has claimed that the losses were validly carried forward from prior AY 2011-12 and 2012-13 amounting to Rs. 6,533 and Rs. 7,41,53,278 respectively and that these losses were claimed under the provisions of the Income Tax in the respective ITR’s of these years which were filed on time within the stipulated due dates applicable to these years and further that no adverse action was taken by the AO in these two AY 2011-12 and AY 2012-13 in this regard. Therefore, the claim of the appellant is that these losses were validly claimed and validly allowed to be carried forward to subsequent years and that the AO cannot disallow these losses from carry forward by passing order for AY 2013-14 i.e. the AO is required to pass order u/s 154 e.t.c. for AY 2011-12 and AY 2012-13 in this regard and not AY 2013-14, which however have not been passed , as claimed by the appellant .

4.3 Based on the above discussion, ground number 3 is considered as partly allowed.”

The revenue is in appeal against the order of the CIT(A). The ld. DR relied on the order of the AO.

The ld. AR on the other hand submitted that the denial of brought forward loss based on the order under section 154 of AY 2013-14 is not correct. The ld. AR further submitted that in the order under section 154 passed for AY 2013-14 the AO has denied the carry forward of loss pertaining to AY 2011-12 and 2012-13 and that the CIT(A) has rightly held that the AO cannot disallow these losses from carry forward by passing order for AY 2013-14. The ld. AR also submitted that the AO should have passed the rectification order for the respective AYs i.e. for AY 2011-12 and AY 2012-13 and therefore, the denial of carry forward under section 154 passed by the AO in AY 2013-14 is not sustainable. Accordingly, the ld. AR ground is not tenable.

We heard the parties and perused the material on record. For the year under consideration the assessee has not claimed the treaty benefits and has set off the STCG against the STCL made during the year and in the return of income the net STCL is carry forward. On perusal of the ground raised by the revenue, we notice that the revenue is contending the carry forward of the current year loss on the ground that the assessee taken the benefit under DTAA between India and Singapore. However on perusal of the computation of income (page 40 of PB) we notice that the assessee during the year under consideration has not availed any Treaty benefits and has computed the net the STCL after setting off the STCG and claimed the carried forward of STCL under the Act. Hence in our view the ground raised by the revenue is based on the incorrect understanding of facts. On perusal of the rectification order under section 154 passed by the AO we notice that the brought forward loss to the tune of Rs.7,41,59,811/- was not allowed to be carried forward based on a rectification order pertaining to AY 2013-14 in which the loss of AY 2011-12 and AY 2012-13 was not allowed to be carried forward. The ld AR during the course of hearing drew our attention to the returns filed for AY 2011-12 and AY 2012-13 to substantiate the brought forward loss was incurred during the said assessment years (Page 202 and page 179 of PB). The ld DR did not controvert the submission of the ld AR that these losses were allowed to be carried forward in the respective AYs. In our view the revenue cannot deny the benefit of carry forward of loss under the head capital gains pertaining to earlier years by an order passed in the subsequent year and that the right to carry forward can be denied only in the year in which the loss is first incurred. This is so for the reason that the section 74 of the Act has a restriction eight years during which the loss loss is first computed. Therefore in our view the CIT(A) has correctly held that the right to carry forward the loss of AY 2011-12 and AY 2012-13 cannot be denied by a rectification order passed in AY 2013-14. Accordingly the basis on which the AO has denied the benefit of carry forward of loss for the year under consideration is not sustainable and the AO is directed to allow the carry forward of STCL of earlier years as claimed in the return of income. Ground No.(i) and (iii) raised by the revenue are thus dismissed.

During the course of hearing the ld DR did not present any arguments with regard to Ground No.(ii) and hence the same is dismissed as not pressed.

For AY 2015-16 the assessee filed the return of income offering interest income of Rs.1,29,00,58,505 and brought forward loss under the head capital gains of Rs.17,33,30,241 was claimed to be carried forward. During the year under consideration the assessee has earned capital gain of Rs. 211,49,98,247/- after setting up of STCL, and claimed the as exempt under Article-13 of DTAA between India and Singapore. The AO passed an order of rectification under section 154 of the Act denying the claim of carry forward of STCL of Rs.17,33,30,241 for the reason that the assessee has claimed the STCG as exempt under the treaty provisions and therefore the STCL cannot be allowed to be carried forward under the provisions of the Act. The AO further held that the carry forward of loss was denied in the order of rectification passed for AY 2014-15 and therefore same cannot be allowed for the year under consideration also. On further appeal, the CIT(A) allowed the appeal in favour of the assessee and directed the AO to allow the benefit of carry forward of STCL.

We heard the parties and perused material on record. We have while adjudicating the similar issue for AY 2014-15 have held that the AO is not correct in denying the carry forward of loss of the losses of earlier AYs and accordingly upheld the decision of the CIT(A) in allowing the carry forward. In view of the said decision, the loss which is brought forward from AY 2014-15 should also be allowed to be carried forward. Accordingly, we direct the AO to allow the carry forward loss as claimed by the assessee in the return of income.

During the year under consideration the assessee has earned STCG of Rs. 5,71,70,042/- and incurred STCL of Rs. 4,74,15,249/- resulting in the net STCG of Rs. 97,54,793/-. The assessee set off the net STCG of the current year with the brought forward STCL from earlier years. The AO while completing the assessment disallowed the set off of STCG against the brought forward from earlier years on the ground that the assessee in earlier AYs, the losses were not allowed to be carried forward. The CIT(A) on further appeal placed reliance on its own order for earlier AYs and accordingly directed the AO to examine the facts pertaining to earlier years and allow the claim accordingly

Aggrieved revenue is in appeal. We heard the parties and perused the material on record. We have while adjudicating the similar issue for AY 2014-15 have held that the AO is not correct in denying the carry forward of loss of the losses of earlier AYs and accordingly upheld the decision of the CIT(A) in allowing the carry forward. In view of the said decision, the loss brought forward under consideration. carried forward. Accordingly, we direct the AO to allow the setoff of loss as claimed by the assessee in the return of income.

In result the appeals of the revenue for AY 2014-15, AY 2015-16 and AY 2018-19 are dismissed.