2022 (2) TMI 218 - AT - Income Tax

Carry forward of long-term capital loss arising on sale of listed company shares on which STT was paid with the long term capital gain arising there from is exempt tax u/s.10(38) - HELD THAT - Mumbai Tribunal in the case of Raptakos Brett Co. Ltd. 2015 (6) TMI 529 - ITAT MUMBAI has attained finality as the appeal preferred by the department against the said decision has been dismissed by the Hon ble Jurisdictional High Court, though, due to non-prosecution. Thus, we do not find any infirmity in the order of the Ld.CIT(A) in allowing the claim of carry forward of Long Term Capital Loss arising from sale of equity shares. With regard to case law relied by the Ld. DR in the case of Apollo Tyres Ltd., v. DCIT 2021 (9) TMI 708 - KERALA HIGH COURT the issue involved in that case was whether long term capital loss incurred on which STT paid could not be set off against long term capital gain arising out of sale of land, the issue is factually distinguishable. With regard to Nikhilsawhney v. ACIT 2020 (8) TMI 508 - ITAT DELHI this case was pronounced on 17.08.2020 and subsequently Coordinate Bench has decided the issue in favour of the assessee. Aggrieved, when revenue preferred appeal before Hon'ble Jurisdictional High Court, the same was dismissed. Therefore, the issue under consideration reached finality. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee. Accordingly, grounds raised by the revenue are dismissed. Assessment u/s 153A - Disallowance u/s.14A of the Act r.w.r. 8D(2) and denial of set off of brought forward long term capital loss with long term capital gain - HELD THAT - Admittedly, the assessment for A.Y.2012-13 being unabated assessment, there cannot be any disturbance to the originally concluded assessment / appellate proceeding unless there is any incriminating material found during the course of search relatable to such assessment year. As stated earlier in the instant case, no such incriminating material has been referred by the ld. AO in his order for framing these two additions / disallowances. This issue is no longer res integra in view of the decision of the Hon ble Jurisdictional High Court in the case of Continental Warehousing Corporation 2015 (5) TMI 656 - BOMBAY HIGH COURT wherein it had been categorically held that no addition could be made in respect of assessments which have become final if no incriminating material is found during search. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the CIT(A) was justified in allowing the carry forward of long-term capital loss arising from the sale of listed company shares on which STT was paid.
2. Whether the CIT(A) was justified in allowing the set-off of long-term capital gains against long-term capital loss.
3. Whether the disallowance made under Section 14A of the Income Tax Act was valid.

Issue-wise Detailed Analysis:

1. Carry Forward of Long-Term Capital Loss:
The primary issue was whether the CIT(A) was justified in allowing the carry forward of long-term capital loss of ?8,37,59,368 arising from the sale of listed company shares on which STT was paid. The Revenue argued that such losses should not be allowed to be carried forward as the gains from such transactions are exempt under Section 10(38) of the Income Tax Act. The AO had rejected the assessee's claim to carry forward the loss, considering it a "dead loss" since the gains from such transactions are exempt from tax.

The Tribunal observed that the assessee had incurred long-term capital loss by selling shares of M/s. Core Projects Ltd, which were listed on a recognized stock exchange and subjected to STT. The Tribunal relied on the decision in the case of M/s. Raptakos Brett & Co. Ltd, Mumbai v. DCIT, where it was held that long-term capital loss on sale of equity shares could be set off against long-term capital gains arising from other sources. The Tribunal concluded that the CIT(A) was correct in allowing the carry forward of the long-term capital loss.

2. Set-Off of Long-Term Capital Gains:
The Revenue also challenged the CIT(A)'s decision to allow the set-off of long-term capital gains of ?23,11,153 arising from the sale of unlisted equity against the long-term capital loss of ?8,37,59,368 from the sale of listed equity shares. The Tribunal noted that the CIT(A) had relied on the decisions of the Pune Tribunal in the case of ACIT v. Smt. Gauri Avinash Bhosale and the Mumbai Tribunal in the case of M/s. Raptakos Brett & Co. Ltd, Mumbai v. DCIT. The Tribunal upheld the CIT(A)'s decision, stating that the facts in the cited cases were similar and the principle that long-term capital loss on listed shares could be set off against long-term capital gains from other sources was well established.

3. Disallowance under Section 14A:
For the assessment year 2012-13, the assessee challenged the disallowance made under Section 14A of the Income Tax Act, which pertains to expenditure incurred in relation to income not includible in total income. The Tribunal noted that the AO had made the disallowance without referring to any incriminating material found during the search. Since the assessment was an unabated one, the Tribunal held that no addition could be made without incriminating material, as per the jurisdictional High Court's decision in Continental Warehousing Corporation. Consequently, the Tribunal allowed the assessee's appeal on this ground.

Conclusion:
The Tribunal dismissed the Revenue's appeals for both assessment years 2011-12 and 2012-13 and allowed the assessee's appeal for the assessment year 2012-13. The Tribunal upheld the CIT(A)'s decisions regarding the carry forward and set-off of long-term capital losses and gains and ruled that the disallowance under Section 14A was not valid in the absence of incriminating material.