ISHARES CORE EMERGING MAURITIUS CO,MUMBAI vs. DCIT (INTERNATIONAL TAX)-2(2)(2), MUMBAI

During the course of hearing the ld AR brought to our attention the letters dated 23.05.2024 in 4598, 4600, 4601 & 4602/Mum/2023, letters dated 24.05.2024 ITA No. 4593, 4596 & 4597/Mum/2023 and letter 27.05.2024 in ITA No. 4596/Mum/2023 filed by these assessees withdrawing the legal grounds raised pertaining to the issue of order u/s.143(3) r.w.s.144C(13) being time barred, the Jurisdictional issue and the issue of Order passed in the name of non-existing entity. The ld AR prayed that these grounds may be disposed of accordingly. Therefore the grounds as tabulated above by all the assessees contending the legal issue are dismissed as withdrawn.

The brief facts to the assessee in is that the assessee is a fund organized as a company in Ireland and registered with the Securities and Exchange Board of India (SEBI) as a Foreign Portfolio Investor (FPI) for carrying out investment activity in Indian market. The assessee filed a return of income for AY 2021-22 on 12.03.2022 declaring a total income of Rs. 12,11,16,010/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. During the course of assessment proceedings, the AO noticed that the assessee has disclosed Short Term Capital Gain (STCG) on transactions amounting to Rs.35,50,51,487/- and after setting off of Short Term Capital Loss (STCL) of Rs.37,37,11,044 the assessee has offered net capital loss of Rs. 1,86,59,557/- as under:

The AO was of the view that the loss arising from equity transaction which is taxable at 15% cannot be set off against the gain arising out of derivative transactions which is taxed at 30% and accordingly did not allow the set off claimed by the assessee. The AO proceeded to re-compute the net STCG as under and accordingly brought to tax the STCG of Rs.6,89,621-

Aggrieved the assessee filed its objections before the DRP who confirmed the action of the AO. The assessee is in appeal before the Tribunal against the final order of assessment passed by the AO pursuant to the directions of the DRP.

The ld. AR submitted that the only reason for the AO to deny the benefit of set off of STCL to the assessee is that the STCG against which it is the set off is taxed at a different rate. The ld. AR further submitted that as per the provisions of section 70(2) of the Act there is no restriction to set off the losses arising from STCG which are taxed at different rates. The ld. AR also submitted that the that income computed under "similar computation" as contained in section 70(2) does

The ld. DR on the other hand submitted that the wordings used in section 70(2) which contains provisions with regard to set off of STCL states that the set off should be allowed for 'similar computations' which would mean that the computations which are subject to similar tax. The ld. DR therefore, argued that the STCL which is taxed at 15% cannot be allowed to be set off against the Capital Gain which is taxed at 30%.

We have heard the parties and perused the material available on record. We notice that Hon'ble Calcutta High Court in the case of Rungamatee Trexim Pvt. Ltd. (supra) has considered a similar issue and held that “In Ground Nos.5 and 6 the assessee has objected to the mode of set off adopted by the Assessing Officer in assessing income from short term capital cases. During the year under consideration the assessee earned short term capital gain of Rs.7,29,584/- in transaction in shares where security transaction tax was not 8 4595, 4596, 4597, 4598, 4600, 4601 & 4602/Mum/2023 ISHARES INDIA SC MAURITIUS COMPANY & ORS. paid and income was subject to tax at normal rate. The assessee also earned short term capital gain of Rs.2,27,564/- in transaction in shares where security transaction tax was paid and income was eligible for concessional rate of tax under section 111A. The assensee also suffered short term capital loss of Rs.7.17,660/- in transactions in shares involving payment of security transaction tax. In the impugned order the A.0. computed the capital gain in the following manner without discussing any reasons for adopting such mode of computation. Calculation of income/loss from capital gain Short term capital loss with STT (-) 7,17.660/- Short term capital gain with STT 2,27,564/- Net Short Term capital loss with STT (-) 4,90,096/- Short term capital gain without STT 7,29,584/- Net Short term capital gain 2,39,488/- Less Brokerage 5,914/- Taxable short term capital gain of normal rate 2,33,574/- Long term capital gain at 10% rate (as per computation) 1,49,431/- I have perused the assessment order and have considered submissions of the A/R. In the impugned order the A.O has not given any reasons for fleet sitting off short term capital gain with STT against short term capital STT and then allow ofset off of remaining loan of Rs.4,90,096/- against short term capital gain without STT. The mode ofset off adopted by the A.O. shown that be accepted in principle that short term capital loss with STT can be legally set off against short term capital gain without STT. According to the assessee, the chronology for the set off by the A.O. was contrary to chronology adopted by the assessee, only because the assessee's mode resulted in concessional rate of the tax being applied to higher amount of short term capital gain which resulted more tax benefit to an assessee. On perusal of the provision of section 70, I find that there is no prohibition nor the Act compels the assessee to first set off short term capital gain with STT against short term capital loss with STT and then allows set off against short term capital gain without STT. In absence of any specific mode of set off provided in the Act and in absence of any prohibition and in absence of any specific chronology for set off prescribed in the Act, the assessee wan entitled to exercise his option with regard to the chronology of set off which was most beneficial to the assessee. It is settled proposition of law that when a provision of the Act gives option to the assessee, such option should be exercised which will favour the assessee and not the revenue. The A/R for the assessee was 9 4595, 4596, 4597, 4598, 4600, 4601 & 4602/Mum/2023 ISHARES INDIA SC MAURITIUS COMPANY & ORS. well justified in relying on the decision of the Calcutta High Court and the Circular of the Board dated 7.7.1955 since the principles laid down therein appeared to be fully applicable.” The Commissioner of Income Tax (Appeals) therefore cane to the conclusion in favour of the assessee. He further came to the conclusion that the disallowance has been made on presumption. In these circumstances, the order passed by the Commissioner of Income Tax and subsequent thereto, the Commissioner of Income Tax (Appeals) had already considered the case of the department and upheld the order passed by it. We have carefully considered the said question and in our considered opinion, there i no illegality or irregularity in respect of the order so passed by the learned Tribunal. We, accordingly, find that there is no reason to interfere with the order so passed by the learned Tribunal and further the order so passed by the learned Tribunal does not suffer from any illegality or irregularity and we find that no substantial question of law is involved in this appeal. Hence, we dismiss the appeal.”

It is clearly held in the finding of the co-ordinate Bench of the Tribunal as referred above that under the provisions of section 70(2), STCL arising from any asset can be set off against STCG arising from any other asset under a similar computation made irrespective of different rate of tax. Therefore, the issue in appeal in the case of the assessee is squarely covered by the decision of the ITAT as referred above. Therefore following the decision of ITAT (supra), we allow the appeal of the assessee.

In the result, the appeal of the assessee is allowed.”

The facts in other assessees' pertaining to this issue in ITA.No.4595, 4596, 4597, 4598, 4600, 4601 & 4602 /Mum/2023, are identical and therefore our decision in ITA.No.4593/Mum/2023 is mutatis mutandis applicable to these assessees' case also. According we hold that in ITA.No.4595, 4596, 4597, 4598, 4600, 4601 & 4602 /Mum/2023 also the AO is not correct in denying the set off of current year STCL against the STCG to the assessees and therefore the addition made in these cases are deleted.

The assessees ITA.No.4595, 4596 & 4602/Mum/2023, is contending the issue of the AO not allowing the set off of brought forward STCL for the same reason that the STCG against which the loss is set off is taxed different rate. The ld AR in this regard drew our attention to the computation sheet to submit that the assessees in the return of income has claimed both brought forward as well as current year short term capital loss but the assessing officer while assessing the income did not consider the brought forward loss and that the DRP has also not considered the objections raised in this regard. The ld AR further submitted that the arguments presented for setting off of current year losses are applicable to brought forward loss also and that the rate of tax at which the STCG is not criteria for brought forward STCL also.

We heard the parties and perused the materials on record. We notice that the AO while assessing the income of the assessees in the order passed under section 143(3) of the Act, has considered only the current year STCL and made addition accordingly denying the set off. However it is noticed that the assessee has in the return of income has claimed both brought forward as well as current year STCL against the STCG of the year under consideration. In our considered view, even

In view of our decision with regard to setting off of current year as well as brought forward STCL against the STCG, the without prejudice grounds raised by the assessees have become academic and does not warrant any adjudication.

The next common issue contended in all appeals of the assessees in ITA.No.4593, 4595, 4596, 4597, 4598, 4600, 4601 & 4602 /Mum/2023 is with regard to arithmetic error in the computation sheet annexed to the final assessment order. The ld. AR submitted that there are certain arithmetical errors in the computation sheet and that the assessee has filed a petition under section 154 of the Act requesting for rectification of the errors before the AO. The ld. AR prayed for direction to dispose of the petition rectifying the mistakes apparent on record.

After hearing the ld. DR we direct the AO in all these assessees' case to consider the petition seeking rectification filed under section 154 of the Act by the assessees and dispose of the same in accordance with law. The AO is further directed to give an opportunity of being heard to these assessees. It is ordered accordingly.

The assessees in ITA.No.4593, 4595, 4596, 4597, 4598, 4600, 4601 & 4602 /Mum/2023 have raised ground contending the issue of levy of interest under section 234A. In this regard the ld. AR submitted that the return of income in all these cases are filed by the assessee on 12.03.2022 and that the extended timeline as given vide CBDT circular No.01/2022 (F.No.225/49/2021/ITA-II dated 11.01.2022) is 15.03.2022. Therefore the ld. AR submitted that there is no delay in filing the return of income in these cases and accordingly the AO is not correct in levying the interest under section 234A of the Act.

We have heard the ld. DR. From the perusal of the above facts and the material on record we notice that all these assessee have filed their return on the same day i.e. 12.03.2022 and that the CBDT vide above referred circular had extended the time limit for filing the return of income to 15.03.2022. Therefore there is merit in the contention that there no delay in filing the return of income. We accordingly, direct the AO to examine the evidences / materials on record and give relief to the assessees in ITA.No.4593, 4595, 4596, 4597, 4598, 4600, 4601 & 4602 /Mum/2023 in accordance with law. Needless to say that the assessee be given an opportunity of being heard. It is ordered accordingly Levy of interest under section 234B and 234C & Initiation of penalty proceedings under section 270A of the Act

The grounds raised by these assessees on the issue of levy of interest under section 234B and 234C & initiation of penalty proceedings are consequential/premature and hence they do not warrants separate adjudication.