The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) set aside the appellate order and directed the Assessing Officer(AO) to offset the loss against the long-term capital gain. It was held that the loss on sale of shares on the stock exchange could be set off against the long-term capital gain (LTCG) from sale of unlisted shares if STT duly paid.
The assessee, Rita Gupta filed a return of income declaring a total income of Rs.18,31,980/- on 31.07.2014. A search was conducted at the IRC group’s premises including the location of the assessee on 13.03.2014 under section 132 of the act and statutory notices were issued and served on the assessee. The assessee provided various information to the Assessing Officer (AO) at the time of the assessment.
The assessment added Rs. 47,90,616/- due to the non-allowance of a set-off of loss from the sale of equity shares on a recognized stock exchange with STT paid against the profit from the sale of unquoted equity shares. The AO rejected the set-off as the long-term capital gain (LTCG) on the sale of quoted shares is exempted under section 10(38) of the Act, and the incurred loss could not be set off against other taxable income.
The CIT(A) also agreed with the AO’s decision and dismissed the appeal by referring to a series of decisions namely Harprasad & Co. Pvt. Ltd. , CIT vs. J. H Gotla , CIT vs. Coin health Food Pvt. Ltd., Kishorebhai Bhikhabhai Virani vs. ACIT, f Nikhil Sawhney vs. ACIT, DDIT (International Taxation) vs. Asia Pacific Performance SICAV . The assessee filed an appeal upon being dissatisfied with the decision of the first appellate authority.
The Tribunal after considering the facts of the case found out that the assessee sustained a long-term capital loss of Rs. 47,90,616/- from selling quoted equity shares on a registered stock exchange with STT paid and earned a long-term capital gain of Rs. 50,00,000/- from selling unquoted shares of M/s IRC Infra and Realty Pvt. Ltd.
The Tribunal after reviewing the sections, mentioned by the Counsel of the assessee, found out that there is no exclusion or exception provided for LTCG from the sale of equity shares. Only the LTCG from the sale of shares/securities are exempt under Section 10(38), subject to certain conditions, not the entire source. Therefore, when only a specific type of income is excluded from taxation and not the entire source, the law must be interpreted strictly. It cannot be assumed to include any other income or loss from the same source.
The Tribunal noted that the assessee’s case is directly supported by the decision in Royal Calcutta Turf Club vs. CIT, where Section 10(27) of the Act excluded only the income from livestock breeding, poultry, or dairy farming, not the entire business Under Section 256(1) of the Act, the loss suffered by the assessee was allowed as a deduction in computing the total income.
The two-member bench of Sonjoy Sarma (Judicial Member) and Rajesh Kumar (Accountant Member) based on the facts and previous decisions allowed the set-off of the loss from selling shares on a stock exchange against the LTCG from selling unlisted section.
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