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2020 (7) TMI 729 - AT - Income TaxLong Term Capital Loss on transfer of Government Securities - applying cost inflation index on transfer of assessee s government securities - HELD THAT - As decided in own case 2019 (12) TMI 958 - ITAT KOLKATA we note that as per Section 2(42A) expression 'security shall have meaning assigned to Clause 11 of Securities Contracts Regulation Act, 1956 which includes government securities. The facts of this case are squarely applicable to the present case of the assessee. Respectfully following the judgment of Sundararn Finance Limited 2017 (7) TMI 661 - ITAT CHENNAI we note that it is abundantly clear that Government Securities are entitled to Indexation Benefits. Therefore, we note that Government Securities are different from Bond and Debenture for the purpose of the 3rd proviso to Sec. 48 of the Act (4th proviso after amendment) and therefore the benefit of indexation should be granted to the assessee on the redemption of these Government Securities. - Decided in favour of assessee. Set off of brought forward long term capital loss against the short term capital gain computed u/s 50 - HELD THAT - Assessee s long term capital loss in issue arose on sale / transfer of the relevant block of assets i.e. its that building only. It had also claimed depreciation thereupon in the preceding assessment years. Its computation of the consequential capital gains came to be covered u/s 50 resulting in short term capital loss as a special provision arising on sale of depreciable assets. The Revenue s only plea during the course of hearing is that such capital gains or loss; which are computed u/s 50 of the Act are not eligible for set off against long term capital gains brought forward. We find no merit in the Revenue s instant stand. Hon'ble Bombay high court s decision in Commissioner of Income Tax vs. Ace Builders 2005 (3) TMI 36 - BOMBAY HIGH COURT as upheld in V.S.Dempo Company Ltd. 2016 (10) TMI 62 - SUPREME COURT holds that the impugned deeming fiction treating long term capital gains / losses as short once are applicable in specified circumstances only u/s 50 of the Act. And also that they are very much eligible for all other deduction provisions under the Act - Such capital gains are very much entitled to be set off against the brought forward long term capital loss as held on unabsorbed depreciation. We see no reason to interfere with the CIT(A) s findings accepting assessee s set off claim therefore. The Revenue fails in the instant second substantive ground. Disallowance u/s 14A r.w. Rule 8D(2)(ii) (iii) - HELD THAT - This tribunal s co-ordinate bench decisions right from assessment year(s) 2008-09 to 2010-11, 2013-14 and 2015-16 have consistently held that the impugned proportionate interest disallowance does not apply in case of interest free funds having been invested in exempt income yielding investments. We also reiterate that this assessee has rather earned exempt interest income as well (supra). We therefore go by judicial consistency to affirm the CIT(A) s appellate order under challenge. The Revenue s case is not is no different qua the third head of administrative expenditure as well since the CIT(A) has only directed the Assessing Officer to compute the same after considering the exempt income yielding investment only as per this tribunal s order in RIE Agro Ltd. vs. DCIT 2013 (9) TMI 156 - ITAT KOLKATA as upheld in jurisdictional high court 2013 (12) TMI 1517 - CALCUTTA HIGH COURT - We thus reject the Revenue s instant third substantive ground as well. Disallowance u/Sec.40(a)(ia) - assessee s failure in deducting TDS on payments made to various parties - HELD THAT - As from a perusal of the case file as well as in CIT(A) s appellate order s detailed discussion that the assessee s impugned payments pertain to either outright purchases of raw material or without involving any contractual relationship nor they exceeds amounts exceeding threshold limit of ₹30,000/- for deducting TDS. This tribunal s co-ordinate bench decision in assessment year 2013-14 2019 (12) TMI 1281 - ITAT KOLKATA has declined the Revenue s similar argument as well. We thus adopt judicial consistency qua this issue in absence of any distinction on facts or law pinpoint as Revenue s behest. Educational cess disallowance u/s 40(a)(ii) - Addition made in the course of assessment and deleted in the lower appellate proceedings - HELD THAT - We notice that hon'ble Bombay high court s decision in Sesa Goa Limited 2020 (3) TMI 347 - BOMBAY HIGH COURT as well as in Chambal Fertilisers and Chemicals Ltd. 2018 (10) TMI 589 - RAJASTHAN HIGH COURT hold that the clinching expression cess does not form part of sec. 40(a)(ii) of the Act so as be disallowed. We adopt the very reasoning mutatis mutandis hold the CIT(A) s appellate action deleting the impugned addition - Revenue s appeal is dismissed.
Issues Involved:
1. Delay in filing the appeal. 2. Allowance of Long Term Capital Loss on Government Securities. 3. Set off of brought forward long term capital loss against short term capital gain. 4. Deletion of disallowance under Section 14A. 5. Deletion of disallowance under Section 40(a)(ia) for failure to deduct TDS. 6. Allowance of Education Cess as a deductible expense. Detailed Analysis: 1. Delay in filing the appeal: The Revenue's appeal suffered from a 30-day delay in filing. The Assessing Officer attributed the delay to the compilation of necessary papers and procedural requirements. The assessee did not dispute this, and the delay was condoned, allowing the case to proceed on merits. 2. Allowance of Long Term Capital Loss on Government Securities: The Revenue contested the CIT(A)'s decision to allow Long Term Capital Loss by applying the Cost Inflation Index to the sale of Government Securities, arguing that these should be treated as bonds or debentures. However, the tribunal referenced its prior decision in the taxpayer's case for AY 2010-11, which clarified that Government Securities are distinct from bonds and debentures and are thus eligible for indexation benefits under Section 48 of the Income Tax Act. The tribunal upheld the CIT(A)'s decision, affirming that Government Securities are entitled to indexation benefits. 3. Set off of brought forward long term capital loss against short term capital gain: The Revenue argued that capital gains or losses computed under Section 50 of the Act (pertaining to depreciable assets) should not be eligible for set off against long term capital gains brought forward. The tribunal referenced the Bombay High Court's decision in Commissioner of Income Tax vs. Ace Builders and the Supreme Court's affirmation in Commissioner of Income Tax vs. V.S. Dempo Company Ltd., which held that such gains or losses, despite being treated as short-term under Section 50, are eligible for set off against long term capital gains. The CIT(A)'s decision to allow the set off was upheld. 4. Deletion of disallowance under Section 14A: The Revenue sought to restore disallowances of proportionate interest and administrative expenditure under Rule 8D(2)(ii) and (iii). The CIT(A) found that the assessee's investments yielding exempt income were derived from its own funds, a finding that went unrebutted. The tribunal noted consistent decisions from previous years affirming that proportionate interest disallowance does not apply where interest-free funds are used for exempt income investments. The CIT(A)'s order was upheld. 5. Deletion of disallowance under Section 40(a)(ia) for failure to deduct TDS: The Revenue challenged the deletion of disallowance for failure to deduct TDS on certain payments. The CIT(A) found that these payments were either outright purchases of raw material without any contractual relationship or did not exceed the threshold limit for TDS deduction. The tribunal referenced its decision from the previous assessment year, which similarly declined the Revenue's argument. The CIT(A)'s decision was upheld. 6. Allowance of Education Cess as a deductible expense: The Revenue contested the CIT(A)'s decision to allow the deduction of Education Cess. The tribunal referenced decisions from the Bombay High Court in Sesa Goa Limited vs. Joint Commissioner of Income Tax and the Rajasthan High Court in Chambal Fertilisers and Chemicals Ltd. vs. Commissioner of Income Tax, which held that "cess" does not form part of Section 40(a)(ii) and is therefore deductible. The CIT(A)'s decision was upheld. Conclusion: The tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on all contested issues. The order was pronounced in open court on 22/07/2020.
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