Loading judgment…
Facts
The assessee claimed set off of brought forward short-term capital loss (STCL) of Rs. 13,01,749/- for AY 2018-19 against long-term capital gains in the current year. The CPC and CIT(A) rejected this claim, stating it was not claimed in the ITR for AY 2018-19 and 2019-20.
Held
The Tribunal held that the assessees' claim for set off of STCL was erroneously rejected. The amendment to Section 115UB brought in by the Finance Act, 2019, was intended to cure genuine hardships and should be treated as curative, making the technicality of non-reporting in prior ITRs irrelevant.
Key Issues
Whether the benefit of brought forward STCL under Section 115UB can be allowed for set off even if not claimed in the prior year's ITR due to a legislative change.
Sections Cited
115UB, 139(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MANU KUMAR GIRI
The captioned appeal filed by the assessee is directed against order of the Ld.Addl/Joint Commissioner of Income Tax (Appeals)-4, Kolkata [CIT(A)] dated 13.08.2024 for Assessment Year 2020-21.
The registry has noted delay of 12 days in filing the appeal. Considering the reasons stated in the affidavit by Assessee, we condone the delay and treat the reasons as ‘sufficient cause’ and admit the appeal for adjudication.
In this case, the assessee has claimed the set off of Brought Forward Short Term Capital Loss of Rs.13,01,749/- for AY 2018-19 as on 31.03.2019 from the Long Term Capital Gain of this year, which the CPC has not allowed for the set off as the same was not claimed in the ITR filed for earlier AYs of 2018-19 and 2019-20.
The issue in the present appeal relates to the rejection of the Brought Forward Short Term Capital Loss relating to pass through income in terms of Section 115UB of the Act claimed to the tune of Rs.13,01,749 u/s 115UB(2) of the Act.
The appellant filed an appeal challenging the rejection made in the intimation order and wherein the CIT(A) rejected the claim of the Appellant on the ground that there was no claim of carry forward of capital loss in the ITR filed for the assessment years 2018-19 and 2019-20.
In this regard, the Appellant submits that the said provision for allowing carry forward of loss u/s 115UB of the Act was brought in vide Finance Act (2) of 2019 and the appellant while filing the Return of Income for assessment year 2018-19 had no option to claim carry forward of capital gains and therefore the addition to the tune of Rs.13,01,749/- confirmed by the CIT(A) on such ground was incorrect, wrong, erroneous and deserves to be deleted. Further, the appellant places reliance on the Memorandum of Finance Bill, 2019 (Page 132 of the paper book) and submitted that the intent of the legislature for bringing in the legislation was discernible and it is evident from the wordings in the memorandum that the same was brought in to remove the existing genuine hardship faced by Category I and Category II AIFs. Therefore, the Appellant submits that the amendment brought in to Section 115UB of the Act should be considered as a curative amendment in view of the law laid down by the Apex Court reported in 367 ITR 466 (Vatika Township case) as the same was brought in to cure the existing hardships faced by the taxpayers. He furthermore, submitted that the technicality of not reporting in the Return of Income filed for the assessment year 2018-19 and 2019-20 is beyond the control of the appellant and the same cannot be the reason for rejecting the claim of the appellant. In such circumstances, the appellant prayed for allowing the brought forward short term capital loss claimed to the tune of Rs.13,01,749 u/s 115UB(2) of the Act.
The ld.DR for the revenue submitted that Brought Forward Short Term Capital Loss has been rightly rejected by the authorities below as the assessee has not reported in the Return of Income filed for the assessment year 2018-19 and 2019-20.
We have heard the both the parties and perused the orders of the lower authorities, the amendment brought in to Section 115UB of the Act vide Finance Act (No.2) Bill, 2019 (Page 130 of the paper book) and Memorandum of Finance Bill, 2019 (Page 132 of the paper book). The ld. CIT(A) while rejecting the appeal of the assessee held as under (Page 15 of CIT(A) ORDER): Ground No. 3:- I find that the Appellant has claimed that there is STCL of Rs.13,01,749/-from investment fund defined u/s 115UB. The Appellant has also stated that it is allowable as share of eligible loss from IIFL special opportunity funds under the pass through status u/s 115UB. The Appellant has not mentioned the date of filing of ITR in the table in reply dated 08/08/2024 reproduced above in Para G2-3, but mentioned Section 139(1) as the Section under which the ITR was filed. The Appellant has attached the acknowledgements of ITR in ITR-V. The ITRs have not been attached. I have carefully verified the ITR filed by the Appellant for AY 2018-19 on 28.06.2018 where there was no claim of carry forward of any STC Loss tor' this year or for any other AY. In the ITR for A Y 2018-19, the total loss claimed for carry forward is Rs. 1,58,514/- as LTC Loss. The same figure has been claimed in the revised ITR filed for this AY on 11.06.2019.
I have also verified the ITR filed for AY 2019-20 filed on 25.10.2019. Here the Appellant has claimed carry forward of LTC Loss with STT of Rs.17,64,102/-. There was STCG of Rs. 68,21,243/-. There was no claim of carry forward of any STC Loss. In view of the above, as the STC Loss claimed by the Appellant for AY 2018-19 for set off with the capital Gain for this year, was never claimed for carry forward in the ITR filed for that AY. The CPC has rightly not allowed the set-off of such claim of loss. In view of the above; the Ground No. 3 is DISMISSED.
Amendment of Section 115UB in Finance Act (No.2) Bill, 2019 (Page 130 of paper book) is as under: 38. In section 115UB of the Income-tax Act, in sub-section (2), with effect from the 1st day of April, 2020,- (a) for clauses (i) and (ii), the following clauses shall be substituted, namely:- '(1) out of such loss, the loss arising to the investment fund as a result of the computation under the head "Profit and gains of business or profession", if any, shall be,- (a) Allowed to be carried forward and it shall be set off by the investment fund in accordance with the provisions of Chapter VI; and
Relevant portions of the Memorandum of Finance Bill, 2019 (Page 132 of the paper book) are as under: Provide for pass through of losses in cases of Category I and Category II Alternative Investment Fund (AIF) Section 115UB of the Act, inter alia, provides for pass through of income earned by the Category I and II AIF, except for business income which is taxed at AIF level. Pass through of profits (other than profit & gains from business) has been allowed to individual investors so as to give them benefit of lower rate of tax, if applicable. Pass through of losses are not provided under the existing regime and are retained at AIF level to be carried forward and set off in accordance with Chapter VI. In order to remove the genuine difficulty faced by Category I and II AIFs , it is proposed to amend section 115UB to provide that (i) the business loss of the investment fund, if any, shall be allowed to be carried forward and it shall be set-off by it in accordance with the provisions of Chapter VI and it shall not be passed onto the unit holder;
(ii) the loss other than business loss, if any, shall also be ignored for the purposes of pass through to its unit holders, if such loss has arisen in respect of a unit which has not been held by the unit holder for a period of atleast twelve months; (iii) the loss other than business loss, if any, accumulated at the level of investment fund as on 31st March, 2019, shall be deemed to be the loss of a unit holder who held the unit on 31st March, 2019 in respect of the investments made by him 18 in the investment fund and allowed to be carried forward by him in the investment fund and allowed to be carried forward by him for the remaining period calculated from the year in which the loss had occurred for the first time taking that year as the first year and it shall be set-off by him in accordance with the provisions of Chapter VI; (iv) the loss so deemed in the hands of unit holders shall not be available to the investment fund for the purposes of chapter VI. These amendments will take effect from the 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years. [Clause 38] 11. In the present facts and circumstances of the case as discussed above, we are of the considered view that the CPC and that of ld. CIT(A) have erred in rejecting the set off of loss claimed by the assessee in the light of amended provisions of section 115UB(2)(i) w.e.f. 01.04.2020. The technicality of not reporting in the Return of Income filed for the assessment year 2018-19 and 2019-20 was beyond the control of the assessee for the reason that while filing the Return of Income for assessment year 2018-19 had no option to claim carry forward of capital gains. The CPC and the ld.CIT(A) cannot compel the assessee to do impossible. Therefore, we are directing the AO to allow the set off of losses as claimed by the assessee subject to verification of return of income filed before the prescribed date u/s 139(1) of the Act for the AY 2017-18 wherein the loss has been shown as carried forward to set off in future years. Our order is also fortified by the curative amendment of the Section 115UB(2) and Memorandum of Finance Bill, 2019 referred supra.
In result, appeal of the assessee is allowed in terms of our above order. Order pronounced in the open court on 20th May, 2025.