2011 (4) TMI 475 - HC - Income Tax

Adjustment of short term capital loss with short term capital gain - It would be relevant to point out here that in the appeal filed by the assessee before the Commissioner of Income-tax (Appeals) nobody had appeared on behalf of the Department and the same was allowed ex parte - In the case of the assessee herein nothing has been brought on record to find out as to whether the assessee was also a partner in the firm - Since this aspect is totally glossed over and ignored by the Tribunal - Decided in favour of the assessee by way of remand to Tribunal

Summary

Issues:
Assessment of short-term capital gain and loss from rights issue, computation of penal interest under section 234A of the Income-tax Act, challenge to the withdrawal of benefit of carry forward of short-term capital loss due to late filing of return.

Analysis:
1. The appeal involved the assessment of short-term capital gain and loss arising from a rights issue by the respondent/assessee for the assessment year 1993-94. The assessee renounced the rights in favor of third parties, resulting in a short-term capital gain of Rs. 36 per share. Additionally, the assessee claimed a short-term capital loss due to the dilution of shareholding post the rights issue. The Commissioner of Income-tax (Appeals) allowed the claim for short-term capital loss, similar to another family member's case, Smt. Shivani Devi, for the same assessment year. The issue of penal interest under section 234A of the Act also arose due to the delayed filing of the return, which was addressed in Shivani Devi's case as well.

2. The Commissioner of Income-tax (Appeals) set aside the Assessing Officer's order regarding the computation of penal interest for Shivani Devi, stating that the return due date was October 31, 1993, as she disclosed being a partner in a firm. This decision was followed in the appeal of the present assessee, leading to the allowance of the same reliefs. The Assessing Officer deleted the addition of short-term capital gain and carried forward the short-term capital loss to the subsequent year as per the Commissioner's order.

3. However, a subsequent order by the Assessing Officer in 1997 withdrew the benefit of carrying forward the short-term capital loss, citing the late filing of the return. The assessee challenged this order before the Commissioner of Income-tax (Appeals), who upheld the Assessing Officer's decision. The Income-tax Appellate Tribunal later ruled in favor of the assessee, stating that the due date for filing the return had become final based on the Commissioner's previous order against the Assessing Officer's decision under section 143(3) of the Act.

4. The High Court analyzed whether the Tribunal's decision was correct in considering the due date final based on the Commissioner's order in Shivani Devi's case. It was noted that the Tribunal did not ascertain if the assessee was also a partner in a firm, a crucial factor in determining the due date for filing the return. As a result, the High Court set aside the Tribunal's order and remitted the case back for a proper examination of facts to determine the applicability of Shivani Devi's case to the present situation.

5. In conclusion, the High Court disposed of the appeal by remitting the case back to the Tribunal for a detailed assessment based on the specific facts of the case, particularly concerning the partnership status of the assessee in a firm, to determine the applicability of the previous decision in Shivani Devi's case.