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Income Tax Appellate Tribunal, “J”, BENCH, MUMBAI
Before: SHRI RAJENDRA, AM & SHRI RAM LAL NEGI, JM
आदेश / O R D E R
PER RAM LAL NEGI, JM These are the appeal and cross objection filed by the revenue and the assessee respectively against order dated 30/11/2015 passed by the Ld. CIT CO No. 128/Mum/2016 Assessment Year: 2005-06 (A)-24, Mumbai pertaining to the Assessment Year 2005-06, whereby the Ld. CIT (A) partly allowed the appeal filed by the assessee against assessment order passed u/s 154 of the Income Tax Act, 1961 (for short ‘the Act’).
Brief facts of the case are that the assessee company engaged in the business of manufacturing of generic pharmaceuticals and other nutritional products, filed its return of income for the assessment year 2005-06 declaring the total income of Rs. 12,21,74,987/-. Assessment was completed u/s 143 (3) of the Act determining the total income of Rs. 38,29,29,330/-. Later on, vide rectification order passed u/s 154 the Act, AO computed the total income of the assessee at Rs. 14,64,61,665/-.
3. During the financial year 2004-05, the appellant sold a portion of the investment in BDH Industries Ltd. for a total consideration of Rs. 32,89,686/-. The said transaction was subject to Securities Transaction Tax (STT). The appellant reported a loss of Rs. 1,19,32,012/- on account of disposal of such investment in the books of account. The said loss was mentioned in the computation of total income. The AO examined the same and granted the benefit of carry forward of said loss. However, the AO in its order u/s 154 rejected the claim of carry forward holding that since any income arising from sale of equity shares on which STT has been paid is exempt from tax u/s 10(38) of the Act, therefore loss incurred on sale of said shares would not be eligible for set off and carry forward. Aggrieved by the order passed by the AO u/s 154 of the Act, the assessee challenged the impugned order inter alia on the ground that the AO has erred in law and facts in not allowing the claim of carry forward of Long Term Capital Loss on sale of shares, which was subjected to STT.
CO No. 128/Mum/2016 Assessment Year: 2005-06
4. The Ld. CIT (A) after hearing the assessee allowed the said ground of the appeal following the decision of Mumbai Bench of the Tribunal in the case of Raptakos Becott & Company Ltd. vs. DCIT (TS-326-ITAT-2015-Mum) and further holding that the AO has allowed the loss arising on sale of shares chargeable to STT in original assessment order. The revenue has filed the present appeal against the impugned order passed by the Ld. CIT (A).
The revenue has challenged the impugned order passed by the Ld. CIT(A) by raising the following effective ground of appeal:
“On the facts and in the circumstances of the case and in law, the Ld. CIT (A) was justified in directing to allow the Long Term Capital Loss of Rs. 1,19,32,012/- to be carried forward on the ground that the transaction is covered with purview of provision of section 10(38) of the Act.”
Before us, Departmental Representative (DR) submitted that the impugned order passed by the Ld. CIT(A) is contrary to the expressed provisions of law and the judgment of the Hon’ble Gujarat High Court passed in Kishorebhai Bhikhabhai Virani vs. ACIT 367 ITR 261 (Guj). The Ld. DR further submitted that the Hon’ble Court has decided the identical issue against the assessee holding that loss arising on sale of capital assets covered u/s 10 (38) would not be available for set off as the loss would not be includible in computation of assessee’s income. The Ld. DR further submitted that since the assessee’s case is directly covered by the judgment aforesaid, in favour of the revenue, the finding of the Ld. CIT(A) is erroneous and the same is liable to be set aside.
On the other hand, the Ld. counsel for the assessee relying on the findings of the Ld.CIT (A) submitted that the long term capital loss was CO No. 128/Mum/2016 Assessment Year: 2005-06 the part of the computation of total income for the relevant assessment year and the AO had granted the benefit of carry forward of loss in original assessment order passed u/s 143(3) of the Act, after taking into consideration all the necessary facts. The Ld. Counsel further the provisions pertaining to computation of total income/capital gains and set off of losses in this case are governed by section 2(14), 2(29A), 45-51, 70-71 and section 10(38) of the Act. Each of the above provisions is independent and is not interlinked. The provisions relating to computation of capital gains and set off / carry forward of losses do not contain any exception for income from sale of shares. Therefore, there is no exception to equity shares or gain from sale of equity shares on which STT has been paid. The only exception is that if the income falls within the provisions of section 10(38) of the Act, it would be exempt on satisfying certain conditions. Accordingly, any income from sale of shares is required to be included in computation of taxable income and if it falls under the provisions of section 10(38) of the Act, it would be exempt, however, there is no provision which states that loss from similar transaction should also be carved out. The Ld. counsel further submitted that the ITAT, Bombay in the case of Raptakos Becott & Company Ltd. Vs. DCIT (TS-326-ITAT-2015-Mum) has decided the similar issue in favour of the assessee. Since, the decision of the Mumbai Tribunal is based on the judgment of the Hon’ble Kolkata High Court passed in the case of Royal Calcutta Tuff Club vs. CIT 144 ITR 709, there is no infirmity in the order of the Ld. CIT(A) to interfere with the same.
We have heard the rival submissions and also gone through the entire material on record including the orders passed by the authorities below and the cases relied upon by the said authorities. The only issue to be determined in this case is whether the Ld. CIT (A) has erred in directing the AO to allow the Long Term Capital Loss of Rs. 1,19,32,012/- to carry CO No. 128/Mum/2016 Assessment Year: 2005-06 forward the same ignoring the fact that the transaction is covered within the provisions of section 10(38) of the Act. We notice that the Ld. CIT (A) has decided the issue in favour of the assessee relying on the decision of the Co- ordinate Bench of the ITAT rendered in the case of Raptakos Becott & Company Ltd. vs. DCIT (supra). In Kishorebhai Bhikhabhai Virani Vs. ACIT the Hon’ble Gujarat High Court has decided the identical issue against the assessee and dismissed the appeal of the assessee holding as under:-
“7. The fact that the capital asset in question, namely, the shares of Suashish Diamond Ltd. was covered under section 10(38) of the Act was not in dispute. That being the position, by virtue of section 10(38) of the Act, in computing the total income of the previous year, any income covered by the said clause would not be included. If that be so, the loss also arising out of such an asset and covered by the said clause would likewise be not includable in computation of the income of the assessee for the year under consideration. The contention of the learned counsel for the assessee that for the purpose of section 10(38) of the Act term “income” would not include “loss” cannot be accepted and rightly rejected by the Tribunal. If this is available for set off the Tribunal rightly relied on the decision in the case of Harprashad & Co. (P.) Ltd. (supra) to come to a conclusion that the term “income” under section 10(38) of the Act would also include the loss. In the said decision, the apex court observed that the concept of carry forward of loss does not stand in vacuo. It involves the notion of set off it postulates permissibility and possibility of the carried forward loss being absorbed or set off against the profits and gains profit to reduce the tax demand. It was held that if such set off is not permissible or possible owing to the income or profits of the subsequent year being from a non-taxable source, there would be no point in allowing loss to be “carried forward”. Conversely, if the loss arising in the previous year was under a head not chargeable to tax, it could not be allowed to be carried forward and absorbed against income in a subsequent year, from a taxable source.”
Since, the Hon’ble Gujarat High Court has decided the identical issue in favour of the revenue in the case discussed above, we do not find merit in CO No. 128/Mum/2016 Assessment Year: 2005-06 the appeal of the assessee. Hence, respectfully following the judgment of the Hon’ble Gujarat High Court aforesaid, we hold that the assessee is not entitled to carry forward the long term capital loss of Rs. 1,19,32,012/-. Accordingly, we set aside the decision of the Ld. CIT(A) and allow the sole ground of the revenue’s appeal.
CO No. 128/MUM/2016 (Assessment Year: 2005-06)
The assessee has filed this cross objection against the appeal of the revenue on the following grounds:
“On the facts of the case, the commissioner of Income Tax (Appeals)-24, Mumbai (‘the CIT (A)’ was justified in granting the benefit of carry forward of long term capital loss of Rs. 11,932,012/- to the Respondent by virtue of the provisions of section 2(14) and section 70, 71 and 74 r.w.s. 10(38) of the Act.
2. The Deputy Commissioner of Income, Circle 15(3)(2) (‘Ld. AO’) ought to have appreciated the distinction between a source which does not enter the computation of income and an income under a source which is excluded in the computation of income. The exemption provided under section 10(38) of the Act relates to a specific category of income under a source and not the source or the head of income itself.
The Ld. AO failed to appreciate that pursuant to insertion of section 10 (38) of the Act, no exception has been provided in section 2(140 of the Act for excluding such equity shares from the definition of a capital asset. Further, under section 70, 71 and 74 of the Act which deals with the set-off and carry forward of losses, no exception has been made with regard to long term capital gains/losses arising on sale of equity shares on which Security Transaction Tax has been paid.
CO No. 128/Mum/2016 Assessment Year: 2005-06
The Respondent prays such Long Terms capital loss Rs. 11,932,012/- should be allowed to be carried forward fro set-off in the subsequent years.” 2. The Ld. counsel for the assessee reiterated the arguments advanced in revenue’s appeal aforesaid to substantiate the grounds of cross appeal. Similarly, the Ld. DR also reiterated his arguments made in revenues appeal aforesaid. 3. Since, we have allowed the appeal of the revenue, the present cross objection has become infructuous. We, therefore, dismiss the present cross objection as infructuous.
In the result, appeal filed by the revenue for assessment year 2005-06 is allowed and the cross objection filed by the assessee for assessment year 2005-06 is dismissed.
Order pronounced in the open court on 3rd November, 2017.