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2012 (4) TMI 394 - AT - Income TaxDisallowance of long term capital loss, arising on conversion of US 64 units into 6.75% tax free bonds, after indexation of cost, as claimed by the Appellant - Exemption u/s 10(33) - held that - The provisions are not meant to enable an Assessee to claim loss by indexation for set off against other capital gain chargeable to tax. The intention of the legislature was only to restore status quo ante and not to confer any benefit of carry forward of capital loss for set off against capital gain chargeable to tax in the subsequent Assessment years. The economic reasons for insertion of Sec. 10(33) of the Act clearly shows that the source viz., transfer of capital asset being units of US 64 itself that has been excluded by the will of the Legislature and not the capital gain alone. - Decided against the assessee. Regarding deduction u/s 80HHC - The assessee had claimed a sum of ₹ 1,14,844/- as deduction u/s. 80HHC of the Act, however the AO allowed deduction of only ₹ 1,00,600/- because this was the sum specified in the report in Form 10CCAC which has to be filed by the Assessee in terms of Sec. 80HHC(4) - It is not in dispute that in Form No. 10CCAC while calculating the deduction u/s. 80HHC of the Act Excise Duty had been included as part of the total turnover - the tax liability has to be determined in accordance with law and the mistake made in the certificate of the Chartered Accountant in Form 10CCAC should not have been relied upon by the revenue for reducing a legitimate claim for deduction u/s. 80HHC of the Act made by the Assessee - Held that the claim made by the assessee for deduction u/s. 80HHC at a sum of ₹ 1,14,844/- has to be accepted - Decided in favor of the assessee
Issues Involved:
1. Disallowance of long-term capital loss on conversion of US 64 units into 6.75% tax-free bonds. 2. Deduction under section 80HHC considering total turnover inclusive of excise duty. Issue-Wise Detailed Analysis: 1. Disallowance of Long-Term Capital Loss on Conversion of US 64 Units into 6.75% Tax-Free Bonds: Background: The Assessee, a company engaged in manufacturing, claimed a long-term capital loss of Rs. 6,34,72,767 on the conversion of US 64 units into 6.75% tax-free bonds. The Assessee had acquired these units at a total cost of Rs. 7,14,42,394, and after indexation, the cost was computed at Rs. 11,69,07,617. The units were converted into bonds valued at Rs. 5,34,34,850, resulting in the claimed loss. AO's Stand: The AO disallowed the claim, arguing that: - Conversion of US 64 units into bonds does not amount to a 'transfer' under Section 45. - Section 45(6) applies, treating the difference between the repurchase price and the cost of investment as capital gains. - Indexation of cost is not allowable under Section 45(6). CIT(A)'s Findings: The CIT(A) held that: - Section 45(6) does not apply since US 64 units are not ELSS units as per Section 80CCB. - Conversion of units into bonds amounts to a transfer, resulting in capital loss. - However, the entire loss was disallowed under Section 10(33), which exempts income from US 64 units from being included in total income. Tribunal's Analysis: The Tribunal upheld the CIT(A)'s view that Section 45(6) does not apply and that conversion amounts to a transfer. However, it agreed with the CIT(A) that Section 10(33) exempts both gains and losses from US 64 units from total income computation. The Tribunal emphasized that the legislative intent behind Section 10(33) was to provide relief to small investors and not to allow carry forward of capital loss for set-off against taxable capital gains. The appeal on this ground was dismissed. 2. Deduction Under Section 80HHC Considering Total Turnover Inclusive of Excise Duty: Background: The Assessee claimed a deduction of Rs. 1,14,844 under Section 80HHC, but the AO allowed only Rs. 1,00,600 based on the auditor's report in Form 10CCAC, which included excise duty in the total turnover. CIT(A)'s Findings: The CIT(A) upheld the AO's decision, stating that the deduction must be based on the auditor's certified figures in Form 10CCAC. Tribunal's Analysis: The Tribunal noted that excise duty should not be included in the total turnover for computing the deduction under Section 80HHC, as established by judicial precedents (e.g., CIT v. Lakshmi Machine Works). The Tribunal held that the tax liability must be determined in accordance with the law, and errors in Form 10CCAC should not reduce the legitimate deduction claim. The appeal on this ground was allowed, and the Assessee's claim for Rs. 1,14,844 was accepted. Conclusion: The appeal was partly allowed. The Tribunal dismissed the claim for long-term capital loss on the conversion of US 64 units but allowed the claim for a higher deduction under Section 80HHC, excluding excise duty from the total turnover.
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