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TMI Blog2022 (9) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... ala, FCA represented the assessee and Smt. Ranu Biswas, Addl. CIT, DR represented the department. 4. Brief facts of the case are that assessee is engaged in the business of trading and investment in shares and securities, running financial consultancy services. Return of income was filed on 26.09.2014 reporting a total income of (-) Rs.69,89,990/-. In the assessment completed by the Ld. AO, he had disallowed the share of loss of Rs. 7,724/- from the partnership firm in assessing the book profit u/s 115JB of the Act. Ld. AO did not accept the explanation of the assessee and held that the share of loss from the partnership firm is liable to be added back to net profit for MAT computation u/s 115JB of the Act. 4.1 On the other issue of disallowance of long term capital loss of Rs.3,79,12,054/-, ld. AO disallowed it and also did not allow it to carry forward for subsequent years. Ld. AO observed that u/s 10(38) of the Act, any income arising from transfer of long term capital asset being equity shares where such transaction is chargeable to Securities Transaction Tax (STT), is an exempt income. Since this type of income is an exempt income therefore naturally, the loss arising from s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closed loss of Rs.3,79,12,054/- which it had incurred on sale of shares of eleven (11) companies listed on Bombay Stock Exchange. He submitted that assessee had acquired these shares in the prior years at a cost of Rs.26,56,82,551/- for which the aggregate indexed cost was Rs.36,38,85,241/-. These shares were sold by the assessee in the year under consideration in off-market transaction, realizing gross sale consideration of Rs.32,59,73,187/-. Ld. Counsel stated that full particulars in respect of purchase and sale of these shares were furnished before the ld. AO along with DMAT statement to establish that all the shares were transferred from its DMAT account to the DMAT account of the buyers. He also submitted that the sale consideration was received through proper banking channel for which bank statements were furnished. It was also brought on record in the assessment proceedings that the sale consideration realized on sale of shares of these eleven companies was within the price range which prevailed on Bombay Stock Exchange on the relevant dates of sale. Ld. Counsel thus submitted that despite all the materials placed on record, which established the genuineness of the transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred as a consequence of deduction claimed for indexed cost of acquisition in terms of section 48 of the Act. He thus explained that on monetary terms, there is a real and actual profit of Rs.6,02,90,636/- [Rs.32,59,73,187 - Rs.26,56,82,551] which is reported in the audited Profit & Loss account and taken into consideration for computing book profit u/s 115JB of the Act. However, in terms of section 48, by taking indexed cost of acquisition, there is a long term capital loss of Rs.3,79,12,054/- [Rs.32,59,73,187 - Rs.36,38,85,241] which has been claimed for carry forward and set off in subsequent years. Ld. Counsel referred to detailed working of computation of long term capital loss in the form of a chart placed in the paper book page at 28 which is reproduced as under: 6.4 By referring to the above chart, Ld. Counsel submitted that irrespective of whether the assessee sold the shares in off-market transaction or on the exchange, the price which the appellant would have realized would have been the same as was received by the assessee actually, since all the shares were sold by the assessee within the price range which prevailed in the Bombay Stock Exchange on the relevant dates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee in its P&L Account. This debit of share of loss in the P&L Account of the assessee was added back by the Ld. AO in arriving at the book profit u/s. 115JB of the Act. On this issue, the Co-ordinate bench in the assessee's own case (supra) held that in assessing the book profit u/s. 115JB of the Act, such share of loss from the partnership firm was not liable to be added to the net profit disclosed in the audited P&L Account prepared in accordance with the provisions of Companies Act, 1956. The contention of the assessee was accepted by the Co-ordinate bench by holding that the provisions of section 115JB of the Act should be construed strictly and that in interpreting the said provisions, nothing more than what is specifically stated by the legislature can be read into the Act or inferred. According to the Co-ordinate bench, merely because share of profit from partnership firm is exempt u/s. 10(2A) of the Act and is excluded from the computation of book profit if credited in the P&L Account as per clause (a) of explanation u/s. 115JB of the Act then, for this reason alone, it cannot be held that share of loss from the partnership firm when debited to the P&L Accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share of profit from partnership firm in the hands of the assessee credited to the profit and loss account, no addition for the purpose of computation of total income of the assessee u/s 115JA could be made with regard to the share of loss from the partnership firm. This stand of the assessee was not found acceptable by the A.O. By relying on the decision of Hon'ble Kolkata High Court in the case of Eastern Aviation & Industries Ltd. vs CIT 208 ITR 1023, he held that the general rule is that the 'income includes loss' and by applying the said rule, he held that the share of its loss in the partnership firm amounting to Rs. 18,91,12,786/- was liable to be added back while computing the book profit of the assessee company under section 115JB of the Act as per clause (ii) of Explanation (1) to section 115JB(2). He accordingly added the said amount while computing the book profit of the assessee company in the assessment completed under section 143(3) vide an order dated 30.03.2015. 4. Against the order passed by the A.O. under section 143(3), an appeal was preferred by the assessee before the Ld. CIT(A) and a detailed submission was made on behalf of the assessee before the Ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' is untenable. I therefore hold that the AO had rightly added back the share of loss of Rs.189,112,786/- from the partnership firm under clause (ii) of Explanation (1) to Section 115JB of the Act. Ground Nos. 1 to 3 are therefore dismissed. 5. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As rightly contended by the learned counsel for the assessee, the decision of Hon'ble Supreme Court in the case of J.H. Gotla (supra) and that of Hon'ble Kolkata High Court in the case of Eastern Aviation & Industries Ltd. (supra) propounding that the term 'income' includes 'loss' was rendered in different context and not in the context of application of clause (ii) of Explanation (1) to Section 115JB of the Act, which is the bone of contention in the present case. Even the learned DR has not raised any contention to dispute this position. On the other hand, the decision of Mumbai Bench of this Tribunal in the case of Metro Exporters Ltd. (supra) cited on behalf of the assessee before the authorities below as well as before us was rendered on a similar issue wherein it was held that the case of the assessee not being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss" figure and therefore is debited to the profit and loss account of the assessee and cannot be credited to the profit and loss account of the assessee. In these facts of the case, we find that the CIT(A) has rightly observed that if any share of profit from the firm had been credited to profit and loss account the same would have to be reduced from the net profit for the purpose of computation of income under section 115JA by virtue of sub-clause (ii) to Explanation to section 115JA of the Act. This being not a case of share of profit from a firm in the hands of the assessee credited to the profit and loss account, we hold that no addition for the purpose of computation of total income of the assessee under section 115JA of the Act can be made with regard to share of loss from a registered firm of the assessee and accordingly we uphold the order of the CIT(A) that even on merits the addition made is not in accordance with law and the ground of appeal No. 2 of the revenue is dismissed." 6. Although the decision of Metro Exporters Ltd. (supra) was rendered by the Tribunal in the context of the provisions of section 115JA, we find ourselves in agreement with the contention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of section 10(38) of the Act which is reproduced as under: "10(38) Any income arising from the transfer of a long term capital asset, being an equity share in a company or a unit of an equity oriented fund where - (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and (b) such transaction is chargeable to securities transaction tax under that Chapter : Provided that the income by way of long term capital gain of a company shall be taken into account in computing the book profit and income tax payable under section 115JB." 9.1 From the perusal of the above section, we note that if a transaction of sale on or after specified date (01.10.2004) of equity shares s chargeable to STT then the provisions of sec. 10(38) of the Act are attracted which results into exempting the long term capital gain from taxability. 10. Admittedly, we note that the transaction of sale of shares listed on stock exchange can be carried out through two different modes i.e. by way of sale through stock exchange or by way of sale through off market transaction. Both the modes of sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f market trades shall be effected on receipt of a duly filled in securities transfer instruction form from the Clients for delivery as well as a securities transfer instruction form from the Clients for receipt. The specimen of these forms have been laid out in Annexure Land M respectively as specified in Rule 12.2.1 above. Alternatively, a Client may give standing instructions to its Participant to credit its account. 12.3.2 The Participant should check for the completeness of the form and validity of the signature of the Client before effecting such transfers. " 16. So, the module is provided on the NSDL platform under which any person while disposing of its security is given the option of trading the same in on market transaction and off market transaction. So the existence and acceptance of off market trades cannot be doubted. The assessee while selling the shares of listed company GGDL opted to transact on off market trade, since the said shares were of Kirloskar group concern and the group did not want the shares to be picked up by any stranger, if traded on the Stock Exchange. Such business decision taken by the assessee cannot be doubted and called as colourable devic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual findings by the ld. CIT(A). 12. From the perusal of the decision of Co-ordinate bench of Delhi ITAT in the case of Mridu Hari Dalmia Pariwar Trust (supra) on which the ld. Counsel placed his strong reliance, we note that ld. CIT(A) also relied upon it for giving his findings in favor of the assessee. However, in the said decision, we observe that a casus omissus in section 10(38) has been noted which the assessee has exploited to its advantage in the form of tax planning in respect of the issue being addressed hereunder. In our considered understanding, such a defect can be remedied only by the legislation and not by judicial interpretation since fiscal statute has to be interpreted on the basis of the language used therein and not de hors the same. Be that as it may, we find that in the present facts and circumstances before us, said decision covers the case of the assessee in its favor. Relevant extracts of the said decision from para 12 are reproduced hereunder for ease of reference: "12. Coming back to our context, we find that section 10(38) is an exemption provision. This exemption provision states that any income arising from transfer of equity shares etc., held as lo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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