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TMI Blog2011 (3) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act, 1961 is at the instance of an assessee and is directed against an order dated 27th June, 2002 passed by the Income-tax Appellate Tribunal, E Bench, Kolkata, in I.T.A. No. 2600(Cal) of 1997 relating to the Assessment Year 1990-91 thereby partly allowing the appeal filed by the appellant and affirming the order of the Commissioner of Income-tax (Appeals) upholding the disallowance of loss on account of purchase and resale of UTI units. The Tribunal, however, made it clear that the allowance of loss should be restricted to the extent of dividend brought to tax by the Assessing Officer and consequently, to that extent, the appeal was allowed. 2. Being dissatisfied, the assessee has come up with the present appeal: 3. At the time of admission of this appeal, a Division Bench of this Court formulated the following questions of law: This appeal will be heard on the substantial question of law as to whether the Learned Tribunal was justified in upholding the findings of the Assessing Officer and whether the findings of the learned Tribunal were contrary to the materials on record and/or were based on no material and were therefore perverse. The appeal will also be hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a loss in advance. This aspect of the case has not been enquired into by not making enquiry with the Peerless General Finance Investment Co. Ltd. and the bank. Therefore, the AO made an assessment which was both erroneous and prejudicial to the interest of revenue. *** *** *** *** In view of the above legal position discussed in the preceding paragraphs based on decided cases of several High Courts, I have no hesitation in coming to the conclusion as I have done. The AO will make a fresh assessment and in doing so shall offer reasonable opportunity of being heard to the assessee. He would also make enquiries as are necessary to come to a finding in this case. (g) After the matter was restored to the file of the Assessing Officer, he came to the conclusion that the explanation furnished by the assessee regarding the loss incurred was vague and without substance. It was further observed that the fact remained that the assessee agreed to sell the units at a loss and thus, the loss was known right from the time when the purchases were made and therefore, the loss was a pre-determined loss. The Assessing Officer also was not satisfied about the assessee s explanation that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR (SC), has contended that the Tribunal below erred in law in treating the transaction as a colourable device. Dr. Paul, in this connection, relies upon the following observations of the Supreme Court in the said decision as quoted below: The next point which arises for determination is whether the loss pertaining to exempted income was deductible against the chargeable income. In other words, whether the loss in the sale of units could be disallowed on the ground that the impugned transaction was a transaction of dividend stripping. The Assessing Officer in the present case has disallowed the loss of Rs.1,82,12,862 on the sale of 40 per cent tax-free units of the mutual fund. The Assessing Officer held that the assessee had purposely and in a planned manner entered into a pre-meditated transaction of buying and selling units yielding exempted income with the full knowledge about the guaranteed fall in the market value of the units and the payment of tax-free dividend, hence, disallowance of the loss. In the lead case, we are concerned with the assessment years prior to insertion of section 94(7) vide the Finance Act, 2001 with effect from April 1, 2002. We are of the vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee could be ignored by the Assessing Officer in view of section 94(7). The object of section 94(7) is to curb the short-term losses. Applying section 94(7) in a case for the assessment year(s) falling after April 1, 2002, the loss to be ignored would be only to the extent of the dividend received and not the entire loss. In other words, losses over and above the amount of the dividend received would still be allowed from which it follows that Parliament has not treated the dividend stripping transaction as sham or bogus. It has not treated the entire loss as fictitious or only a fiscal loss. After April 1, 2002, losses over and above the dividend received will not be ignored under section 94(7). If the argument of the Department is to be accepted, it would mean that before April 1, 2002 the entire loss would be disallowed as not genuine but, after April 1, 2002, a part of it would be allowable under section 94(7) which cannot be the object of section 94(7) which is inserted to curb tax avoidance by certain types of transactions in securities. There is one more way of answering this point. Sections 14A and 94(7) were simultaneously inserted by the same Finance Act, 2001. A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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