2010 (9) TMI 1237 - AT - Income Tax

Summary

Issues Involved:
1. Claim for reduction of short-term capital gains by the amount of provision for diminution in the value of investment.
2. Non-allowance of short-term capital loss on sale of mutual funds invoking section 94(7) of the Act.

Summary:

Issue 1: Claim for Reduction of Short-Term Capital Gains

The assessee claimed that the amount of short-term capital gains should be reduced by Rs. 2,46,18,593, being the provision for diminution in the value of investment. The CIT(A) did not accept this claim, stating that the revised computation of income could not be considered due to the bar of limitation u/s 139(5) of the Act. The assessee argued that the provision for diminution was mandatory as per Accounting Standard-13 issued by ICAI and that the income under the head 'capital gains' should be computed as per section 45 read with section 48 of the Act. The assessee cited several judgments, including National Thermal Power Limited vs. CIT and CIT vs. Mahalaxmi Sugar Mills Co. Ltd., to support the claim that taxing authorities must assess the correct tax liability in accordance with the law. The Tribunal held that the claim was bona fide and should have been admitted by the CIT(A). However, the short-term capital loss claimed in the revised computation could not be carried forward as it was not made in the original return filed u/s 139(1) of the Act. Thus, the Tribunal directed the CIT(A) to grant the relief but disallowed the carry forward of the loss.

Issue 2: Non-Allowance of Short-Term Capital Loss on Sale of Mutual Funds

The CIT(A) confirmed the action of the Assessing Officer in not allowing the short-term capital loss of Rs. 2,22,87,145 arising on the sale of mutual funds, invoking section 94(7) of the Act. The CIT(A) held that the assessee had not held the mutual funds for the specified period prior to their sale. The assessee argued that the term "month" should be construed as a period of 30 days, and since the units were redeemed on 24.6.2002, the provisions of section 94(7) were not applicable. The Tribunal found that the language of section 94(7) was plain and unambiguous, providing that the period of three months after the record date should be calculated from 21.3.2002 to 21.6.2002. Since the redemption occurred on 24.6.2002, the provisions of section 94(7) were not applicable. The Tribunal set aside the order of the authorities below on this issue.

Conclusion:

The appeal of the assessee was allowed, with directions to the CIT(A) to grant the relief for the reduction of short-term capital gains but disallowing the carry forward of the short-term capital loss. The Tribunal also set aside the order of the authorities below regarding the non-allowance of short-term capital loss on the sale of mutual funds.

Order pronounced in open court on this 10th day of September, 2010.