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TMI Blog2021 (1) TMI 474X X X X Extracts X X X X X X X X Extracts X X X X ..... between short term capital loss and long term capital loss. As mentioned earlier, in Kotak Mahindra Capital Co. Ltd. [ 2012 (8) TMI 339 - ITAT MUMBAI] held inter alia (i) that provisions of section 74(1) as amended w.e.f. 01.04.2003, would apply only to long term capital loss relating to assessment year 2003-04 and onwards and (ii) that restriction imposed therein in terms of setting off long term capital loss only against long term capital gains and not against short term capital gain is applicable only in relation to long term capital loss incurred by assessee in assessment year 2003-04 and subsequent years and same is not applicable to long term capital loss relating to and brought forward from period prior to assessment year 2003-04 which shall be governed by provisions of section 74(1) - prior to amendment made w.e.f. 01.04.2003. We direct the AO to allow set off of capital loss carried forward from AY 2001-02 against capital gains earned by the appellant during the year under consideration. In the submissions filed before the Tribunal dated 30.11.2020, the appellant claims carry forward capital loss of AY 2001-02 at ₹ 90,12,331, whereas in the written submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook profit u/s 115JB of the Act. It is a non-banking public financial company engaged in investment in shares, mutual funds, securities, debentures etc. In this case, an assessment order u/s 143(3) dated 22.11.2007 was made determining the total income at ₹ 24,68,844/- and book profit u/s 115JB at ₹ 34,24,459/-. Subsequently, the assessment was reopened u/s 147 of the Act and accordingly an order u/s 143(3) r.w.s. 147 was passed on 29.11.2010. Meanwhile, the assessee filed an appeal before the Ld. CIT(A) against the original assessment order. The Ld. CIT(A) passed an order dated 08.04.2010 in appeal No. CIT(A)-19/IT-163/07-08 dismissing the assessee s appeal. The assessee filed an appeal before the Tribunal against the order of the Ld. CIT(A). The Tribunal passed an order dated 19.02.2014 in ITA No. 6550/M/2010 setting aside the order of the Ld. CIT(A) with a direction to adjudicate the issue afresh. The relevant portion of the order of the Tribunal is reproduced below: 5. Briefly stated relevant facts of the case are that the assessee filed the return of income declaring the total income of Rs. NIL under the normal provisions of the Act and ₹ 12.49 lakhs a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o deduction of provision for diminution in value of investment and provision for contingency written back in P L Account while computing book profit, when deduction was not allowed in computing the book profits of year in which provision were created. 9. On perusal of the said decision of the Tribunal, we direct the CIT (A) to examine the said decision and decide the claim of the assessee. Accordingly, ground nos.3 and 4 raised by the assessee are treated as allowed for statistical purposes. 4. The main grievance of the appellant is that the AO erred in not setting off the short term capital gain of ₹ 54,38,407/- earned by it against long term capital loss brought forward from AY 2001-02, which later on is affirmed by the Ld. CIT(A). Before the Ld. CIT(A), the counsel for the assessee pointed out that in the provisions for carry forward contained in section 74 of the Act prior to the amendment by the Finance Act, 2002 w.e.f. 01.04.2003, there was no distinction between long term capital loss and short term capital loss and therefore, the AO erred in applying the provisions of section 74 as amended by the Finance Act, 2002. Therefore, it was contended that the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hindra Capital Co. Ltd. v. ACIT 148 TTJ 393 (Mum) (SB), where in AY 2004-05, the assessee returned short term capital gain of ₹ 2.22 crore, which was set off against brought forward long term capital loss to the extent of ₹ 42.91 lacs relating to AY 2001-02. As per the AO, in view of amended provisions of section 74(1) as amended w.e.f. 01.04.2003, the assessee was not entitled to claim such set off of long term capital loss for AY 2001-02 against short term capital gain in AY 2004-05, as the amended provisions of section 74(1) were applicable to AY 2003-04. The Tribunal held that : Having accepted the first contention of the Ld. Counsel for the assessee that the provisions of sec.74(1) as amended w.e.f. 01.04.2003 apply only in respect of longterm capital loss of AY 2003-04 onwards and not in respect of long-term capital loss relating to the period prior to 2003-04, the carry forward and set off of which is governed by the pre-amended provisions of sec. 74(1), it follows that the assessee is entitled to claim set off of any brought forward long- term capital loss relating to AY 2001-02 against short-term capital gain. This is because the carry forward and set off l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hort term capital offered for taxation u/s 50 will not be taxable and assessment is to be revised accordingly. 7.1 In the order dated 08.04.2010, the Ld. CIT(A) in appeal No. CIT(A)- 19/IT-163/07-08 has held that : 4.2. It is the submission of the appellant that capital losses incurred prior to 1.4.2003 are governed by pre-amendment Act and hence all short term capital loss or long term capital loss which was actually adjustable against any type of capital gain and were available for carry forward to subsequent year do not bear any distinction between short term capital loss or long term capital loss. The capital loss carried forward up to assessment year 2002-03 whether arising out of long term capital assets or short term capital assets are capital loss and are adjustable in future years against all types of capital gains. According to the appellant the distinction provided by amendment is applicable to all capital losses assessed for assessment year 2003-04 and onwards. It is the further contention of the appellant that under pre-amended Act the assessee had acquired a vested right to adjust its capital loss against future capital gains under the provisions of law as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins. With these directions ground 2 is dismissed. 7.3 In view of the reply dated 19.10.2007 filed by the assessee before the AO and the order of the Ld. CIT(A) in appeal No. CIT(A)-19/IT 125/9(1)/10- 11 dated 06.09.2011, there is no merit in the observation of the Ld. CIT(A) in the impugned order dated 11.09.2018 that the assessee could not establish the fact that plant machinery which were sold were in fact purchased in 1996-97 as claimed. 7.4 We may examine here the order of the Tribunal dated 19.02.2014 wherein a direction has been given to examine the applicability of the decisions cited therein. In Ace Builders (P.) Ltd. (supra), the assessee, a private limited company had a flat which were shown as capital asset in the books of account. It claimed depreciation thereon from year-to-year. The resulting written down value as on 31.03.1999 was ₹ 1.43 lacs. In the previous year relevant to the assessment year 1992-93, it sold the said flat for ₹ 5.20 lacs and invested the net sale proceeds in the units of UTI capital gain scheme with a view to claim deduction u/s 54E and, accordingly, in the return of income, it declared Nil income under the head Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be set off against the short term capital gain and that Finance Act and law as on 1st April of that year is applicable. After careful considerations, the Tribunal held that : 9. The undisputed fact in this case is that the long term capital loss in question was incurred prior to the assessment year 2003-04. In fact it was incurred in the assessment year 2002-03. The law that applies to the long term capital loss incurred in the assessment year 2002-03, was pre-amended law. The Income Tax Act as it then stood, stated that if the net result of the computation under the head Capital Gains is a loss, the same shall be actually carried forward for the following assessment year and shall be set off as income, if any, under the head Capital Gains assessable for that assessment year and to the extent it could not be set off, the same shall be carried forward to the following assessment year. 10. The issue before us is whether the law that has come into effect with effect from 01-04-2003, can be applied to the long term capital losses that have been incurred by the assessee prior to 01-04-2003. In our humble opinion, the new law cannot be made applicable. The law as amended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Meters Transformers for a total consideration of ₹ 1,45,99,988/-. The gain on the same was shown as long term capital gain, which was set off against the brought forward loss from long term capital assets. The core of controversy was about the determination of the character of ₹ 145.99 lacs for the purpose of section 74, as to whether it is a short term capital gain or long term capital gain. The Tribunal by following the decision of the Hon ble Bombay High Court in the case of Ace Builders (supra) held that there cannot be any rejection of any benefit which is associated with the character of otherwise long term capital gain notwithstanding the fact that capital gain on its transfer has been computed u/s 50 by deeming it as a short term capital gain . Thus the Tribunal held that the assessee was entitled to such set off in terms of section 74 of the Act. On appeal by the Revenue, the Hon ble Bombay High Court held that short term capital gain computed u/s 50 on long term depreciable assets can be set off against long term capital loss u/s 74 of the Act. 7.5 In Kotak Mahindra Capital Co. Ltd. (supra), for the AY 2003-04, the assessee declared short term capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned by the provisions of section 74(1) as stood prior to amendment made with effect from 1-4-2003. The words used in the amended provisions of section 74(1) clearly indicate this position and it appears to be the intention of the legislature. If that was not the intention of the legislature, nothing would have prevented the legislature from employing the appropriate language. Having regard to the language used in the provisions of section 74(1) amended with effect from 1-4-2003, it seems clear that the intention was that the said provisions would deal with the carry forward and set off of longterm capital loss relating to assessment year 2003-04 and onwards. As a result of aforesaid discussion, it follows that the assessee is entitled to claim set off of any brought forward long-term capital loss relating to assessment year 2001- 02 against short-term capital gain. This is because the carry forward and set off of long-term capital loss relating to assessment year 2001-02 would be governed by the provisions of section 74(1) as existed prior to 1-4-2003. In the present case, the provisions of section 74(1) as amended with effect from 1-4- 2003 have been relied upon by the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , being electric meters which were disposed off during the year giving rise to capital gain taxable u/s 50 of ₹ 39,99,990/-. Total capital gain earned during the year amounted to ₹ 54,38,407/-, balance capital gain was short term capital gain on mutual funds. Said capital gain was set off against carry forward capital loss for AY 2001-02 of ₹ 90,12,331/-. There is merit in the contentions of the appellant that prior to amendment to section 70 74 by the Finance Act, 2002, the carry forward capital loss was not bifurcated between short term capital loss and long term capital loss. As mentioned earlier, in Kotak Mahindra Capital Co. Ltd. (supra), the Special Bench of the Tribunal held inter alia (i) that provisions of section 74(1) as amended w.e.f. 01.04.2003, would apply only to long term capital loss relating to assessment year 2003-04 and onwards and (ii) that restriction imposed therein in terms of setting off long term capital loss only against long term capital gains and not against short term capital gain is applicable only in relation to long term capital loss incurred by assessee in assessment year 2003-04 and subsequent years and same is not applic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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