2021 (7) TMI 598 - HC - Income Tax

Disallowance of short term capital loss - Whether assessing authority rightly rejected the said claim as the assessee had failed to explain correctness of said claim and failed to substantiate with any materials? - HELD THAT - It is not in dispute that if against the order passed in the case of the assessee for the Assessment Year 2007-08 an appeal was preferred before this court, which was dismissed in view of the bar contained in the Circular dated 08.08.2019 pertaining to monitory limit. Thus, the order passed by the tribunal has attained finality. Therefore, in the fact situation of the case, the tribunal rightly affirmed the order of the Commissioner of Income Tax (Appeals) in setting aside the disallowance of short term capital loss. Therefore, the substantial question of law No.2 is answered in affirmative and against the revenue.

Summary

Issues:
1. Disallowance under Section 14A of the Income Tax Act, 1961
2. Disallowance of short term capital loss

Issue 1: Disallowance under Section 14A of the Income Tax Act, 1961
The appeal before the Karnataka High Court involved the disallowance made under Section 14A of the Income Tax Act for the Assessment Year 2009-10. The Commissioner of Income Tax (Appeals) directed the Assessing Officer to allow a portion of the disallowance made under Section 14 of the Act, following a judgment in the case of 'DEPUTY COMMISSIONER INCOME TAX VS. M/s BPL SANYO FINANCE LTD.'. The tribunal partly allowed the appeals of both the revenue and the assessee, leading to the current appeal. The revenue, in this case, did not press substantial question of law No.1, and the focus shifted to substantial question of law No.2, which involved the treatment of advance payment for share warrants as acquisition of a capital asset. The tribunal's decision was challenged on the basis that no right accrued to the assessee merely by making an advance payment for share warrants, unlike in the case of M/s BPL Sanyo where shares were already allotted. However, the tribunal upheld its decision based on the similarities between the cases and the precedent set in the Assessment Year 2007-08.

Issue 2: Disallowance of short term capital loss
The tribunal's decision to set aside the disallowance of short term capital loss was based on the order passed in the case of the assessee for the Assessment Year 2007-08, which had attained finality. The tribunal affirmed the order of the Commissioner of Income Tax (Appeals) in this regard. The tribunal's decision was further supported by the fact that an appeal against the order passed in the case of the assessee for the Assessment Year 2007-08 was dismissed by the High Court due to a monetary limit bar. Therefore, the Karnataka High Court concluded that the tribunal rightly set aside the disallowance of short term capital loss in the current appeal. Consequently, the appeal was dismissed as lacking merit.

In summary, the Karnataka High Court upheld the tribunal's decision regarding the disallowance under Section 14A of the Income Tax Act and the disallowance of short term capital loss, based on the precedents and factual similarities in the cases involved.