2024 (9) TMI 206 - AT - Income Tax

Characterization of the loss - Treatment to brought forward loss as business loss or capital loss - CIT(A) has considered the said amount as brought forward business loss whereas, the assessee is claiming the same to be brought forward capital loss - HELD THAT - If the claim of the assessee is correct, then assessee is eligible for set off of the brought forward loss against the current years capital gain as per the provisions of section 74 of the Act. We restore this issue back to the file of the AO for verification whether the brought forward loss is in the nature of brought forward capital loss and if so then claim of the assessee shall be allowed in accordance with law. The ground of the appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of set off of long-term capital loss against long-term capital gain.
2. Characterization of brought forward loss as business loss or capital loss.

Analysis:
1. The appeal was filed against the order of the Ld. Commissioner of Income-tax (Appeals) for the assessment year 2020-21, challenging the disallowance of the set off of long-term capital loss against long-term capital gain. The Ld. CIT(A) had treated the capital gain as business income and disallowed the set off under sections 74 and 72(1) of the Income Tax Act. The assessee contended that the capital loss was not a business loss but a capital loss. The Tribunal noted the dispute regarding the characterization of the loss and referred to section 74 of the Act which allows set off of capital losses against capital gains. The Tribunal restored the issue to the Assessing Officer for verification, directing to allow the set off if the loss is indeed a capital loss.

2. The main contention revolved around the characterization of the brought forward loss of Rs. 15,72,530 as either a business loss or a capital loss. The Ld. CIT(A) considered it a business loss, disallowing its set off against capital gains. However, the assessee argued that it was a capital loss and should be allowed as per section 74 of the Income Tax Act. The Tribunal found that the dispute was primarily about the nature of the loss. Therefore, the Tribunal remanded the issue to the Assessing Officer for verification to determine if the loss was indeed a capital loss, in which case, the assessee would be entitled to the set off against capital gains. The appeal was allowed for statistical purposes, granting relief to the assessee.

In conclusion, the judgment primarily dealt with the characterization of a brought forward loss as either a business loss or a capital loss, impacting the set off against capital gains. The Tribunal referred to relevant provisions of the Income Tax Act and remanded the issue for verification to ensure the correct treatment of the loss.