2022 (9) TMI 402 - AT - Income Tax

Allowance of loss on account of share of loss of the assessee in the partnership firm while computing book profit u/s. 115JB - HELD THAT - As decided in own case 2018 (2) TMI 868 - ITAT KOLKATA Merely because share of profit from partnership firm is exempt u/s. 10(2A) of the Act and is excluded from the computation of book profit if credited in the P L Account as per clause (a) of explanation u/s. 115JB of the Act then, for this reason alone, it cannot be held that share of loss from the partnership firm when debited to the P L Account is to be added for calculating the book profit - since none of the clauses of the explanation to sec. 115JB permitted the AO to make adjustment to the net profit on account of share of loss from partnership firm debited to the P L Account, the AO was not justified in making the addition which was not specifically provide for by the legislature by way of any specific clause in the said explanation to section 115JB of the Act. We note that the Co-ordinate bench thus held that the addition made by the AO in respect of share of loss allocated by the partnership firm, was legally unsustainable. CIT(A) following the decision of the coordinate bench of ITAT, Kolkata in assessee s own case 2018 (2) TMI 868 - ITAT KOLKATA deleted the addition in the present case on account of share of loss from the partnership firm while computing the book profit u/s. 115JB of the Act. Since there is no change in the facts and law in the present case before us, we respectfully following the decision of the Co-ordinate bench of ITAT, Kolkata in assessee s own case find no reason to interfere with the finding given by the Ld. CIT(A) in deleting the addition made by the Ld. AO. Thus, no interference is called for in the relief granted by the ld. CIT(A). These grounds of appeal are thus dismissed. Ingenuine sale of shares by the assessee through off market trade - Carry forward of long term capital loss on off market sale of shares of eleven listed companies - Revenue contends that assessee by effecting off market sale of the said shares has perpetuated a mischief and the transaction is a colorable device - case of the assessee is that it has sold the shares of listed companies on the price range on Bombay Stock Exchange prevailing on the relevant dates which were sold off market on which no STT was paid and, therefore, it is not governed by section 10(38) - HELD THAT - Genuineness or otherwise of any transaction can be tested on the touch-stone of several other factors which are not exhaustive. What essentially boils down to is whether the shares were sold at a correct price or at the price which was artificially arrived at to inflate the loss. In this respect, we note that facts on record do not suggest that sale prices of shares were artificially arrived at. It is an accepted fact that shares were sold in the price range which prevailed on the Bombay Stock Exchange on the date of sale of the shares under consideration. Nothing has been brought on record to establish that the impugned transaction of off-market sale is a sham and bogus transaction. We note that ld. CIT(A) has given a finding that no material is available on record to show that either the prices were manipulated or the transactions did not take place at all. Ld. CIT(A) also gave his finding that no claim of set off was made either in the year on in the subsequent year so as to justify AO s claim that loss was artificially generated to gain unfair tax advantage. We thus hold that no interference is called for on these factual findings by the ld. CIT(A). Thus we hold that no interference is called for in the observations and findings given by the ld. CIT(A) on the issue relating to carry forward and set off of long term capital loss in subsequent years as claimed by the assessee. Accordingly, in terms of our above observations and findings, the ground of appeal is dismissed.

Summary

Issues Involved:
1. Allowance of share of loss from the partnership firm while computing book profit under Section 115JB of the Income-tax Act, 1961.
2. Allowance of long-term capital loss for carry forward and set off.

Issue-wise Detailed Analysis:

1. Allowance of Share of Loss from the Partnership Firm:
The first issue pertains to the addition of the share of loss from the partnership firm amounting to Rs. 7,724/- while computing book profit under Section 115JB of the Income-tax Act. The Assessing Officer (AO) disallowed this share of loss, arguing that it should be added back to the net profit for Minimum Alternate Tax (MAT) computation. However, the assessee contended that this issue had already been settled in their favor by the jurisdictional Co-ordinate bench of ITAT Kolkata in the assessee's own case for AY 2012-13. The Tribunal in that case had held that the share of loss from a partnership firm should not be added back to the net profit for computing book profit under Section 115JB, as none of the clauses in the explanation to Section 115JB permitted such an adjustment. The Co-ordinate bench emphasized that the provisions of Section 115JB should be construed strictly, and nothing more than what is specifically stated by the legislature can be inferred. The Tribunal, following the precedent, found no reason to interfere with the CIT(A)'s decision to delete the addition made by the AO.

2. Allowance of Long-term Capital Loss for Carry Forward and Set Off:
The second issue involves the disallowance of long-term capital loss of Rs. 3,79,12,054/- by the AO, who also did not allow it to be carried forward for subsequent years. The AO's rationale was that since the income arising from the transfer of long-term capital assets (equity shares) where STT is paid is exempt under Section 10(38), the loss from such transactions should also be ignored. The AO further argued that the manner in which the sale transactions were conducted was a colorable device to generate artificial long-term capital loss by executing off-market transactions where STT was not paid.

The assessee, however, provided full particulars of the purchase and sale of shares, including DMAT statements and bank statements, to establish the genuineness of the transactions. The sale prices were within the price range prevailing on the Bombay Stock Exchange on the relevant dates. The assessee argued that the off-market transactions were genuine and were conducted to minimize costs and expenses associated with the sale, such as STT, brokerage, service tax, and stamp duty. The Tribunal noted that off-market transactions are recognized and permissible under the law, and there was no material on record to show that the prices were manipulated or that the transactions did not take place.

The Tribunal referred to the decision of the Co-ordinate bench of ITAT, Delhi in the case of Mridu Hari Dalmia Parivar Trust, which held that off-market transactions resulting in genuine loss are not covered under Section 10(38) and thus the loss can be carried forward and set off in subsequent years. The Tribunal concluded that the AO's disallowance was based on surmises and conjectures without any concrete evidence. Therefore, the Tribunal upheld the CIT(A)'s decision to allow the carry forward and set off of the long-term capital loss.

Conclusion:
The Tribunal dismissed the appeal of the Revenue, upholding the CIT(A)'s decisions on both issues. The share of loss from the partnership firm was not to be added back while computing book profit under Section 115JB, and the long-term capital loss from off-market transactions was allowed to be carried forward and set off in subsequent years. The judgments were based on strict interpretation of the provisions and precedents set by earlier decisions.