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Issues involved: Setting off of brought forward long term capital loss against long term capital gain u/s 10(38) of the Income Tax Act, 1961; Disallowance u/s 14A of the Act.
Setting off of brought forward long term capital loss against long term capital gain u/s 10(38) of the Income Tax Act, 1961: The appeal pertains to the setting off of brought forward long term capital loss against long term capital gain for the assessment year 2005-06 u/s 10(38) of the Income Tax Act. The Assessing Officer adjusted the brought forward losses against the income from long term capital gain, despite the latter being exempt u/s 10(38). The contention was that the losses should not be adjusted against the exempt profit on sale of shares. The Mumbai Bench's decision in G.K. Ramamutry Vs. JCIT was cited, emphasizing that exempt income should not be set off against losses. The Tribunal held that once income is exempt u/s 10(38), it does not form part of the total income for computation, and thus, the brought forward losses should not be adjusted against it. The Tribunal allowed the appeal, directing the Assessing Officer not to adjust the losses against the exempt income. Disallowance u/s 14A of the Act: The second issue raised was regarding the disallowance made u/s 14A of the Act. The Assessing Officer disallowed an expenditure of &8377; 2,09,953, stating it was incurred for earning exempt income. However, the Tribunal found no merit in the disallowance, as there was no evidence to support that the expenditure was incurred for earning exempt income. Therefore, the Tribunal allowed the claim of the assessee and deleted the addition of &8377; 2,09,953 made on an estimate basis.
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