M/s ANG Securities Ltd., Ludhiana V. ITO, Ludhiana

ITA 1174/CHANDI/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8390 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 29-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1174/CHD/2010 ASSESSMENT YEAR: 2005-06 M/S ANG SECURITIES LTD., VS. THE ITO, LUDHIANA WARD VI(1), LUDHIANA PAN NO. AABCA5984A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMAR RESPONDENT BY: SMT. SARITA KUMARI ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A)-II, LUDHIANA RELATING TO ASSESSMENT YEAR 2005-06 AGAINS T THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT, 1961. 2. THE FIRST ISSUE RAISED IN THE PRESENT APPEAL IS AGA INST THE SETTING OFF OF BROUGHT FORWARD LONG TERM CAPITAL LOSS AGAINST L ONG TERM CAPITAL GAIN FOR THE YEAR UNDER CONSIDERATION, WHICH IN TURN WAS EXEMPT U/S 10(38) OF THE ACT. IN THE FACTS OF THE PRESENT CASE, THE ASS ESSEE DURING THE YEAR UNDER CONSIDERATION HAD DISCLOSED INCOME FROM LONG TERM CAPITAL GAINS AT RS. 6,17,14,300/-. THE ASSESSING OFFICER WAS OF TH E VIEW THAT BROUGHT FORWARD LOSSES ACCRUING FROM SALE OF SHARES IN THE RELEVANT ASSESSMENT YEARS TOTALING RS. 1,79,71,926/- WERE REQUIRED TO B E ADJUSTED AGAINST INCOME EARNED FROM PROFIT ON SALE OF SHARES. THE A SSESSING OFFICER 2 REQUISITIONED THE ASSESSEE WHY THE SAID ADJUSTMENT SHOULD NOT BE MADE FOR. IN REPLY, IT WAS CLARIFIED BY THE LD. AR FOR THE ASSESSEE THAT INCOME FROM LONG TERM CAPITAL GAINS ON SALE OF SHARES RELA TING TO THE PRESENT YEAR WERE EXEMPT U/S 10(38) OF THE INCOME TAX ACT AND FI RST THE SAID EXEMPTION U/S 10(38) IS TO BE ALLOWED AND BALANCE I NCOME, IF ANY, IS TO BE ADJUSTED AGAINST BROUGHT FORWARD LONG TERM CAPITAL LOSSES. THE ASSESSING OFFICER REJECTING THE EXPLANATION OF THE ASSESSEE O BSERVED THAT SECTION 10(38) OF THE INCOME TAX ACT DOES NOT BAR THE COMPU TATION OF INCOME UNDER A PARTICULAR HEAD OF INCOME AND ADJUSTMENT OF LOSS U/S 74 OF THE INCOME TAX ACT. ACCORDINGLY, THE BROUGHT FORWARD L OSSES FROM LONG TERM CAPITAL LOSS OF RS. 1.79 CRORES WERE ADJUSTED AGAI NST THE INCOME FROM LONG TERM CAPITAL GAIN OF RS. 6.17 CRORES. THE AS SESSING OFFICER THUS HELD THAT THE CARRY FORWARD OF THE SAID LOSS IS NOT TO BE ALLOWED FOR ADJUSTMENTS AGAINST INCOME OF THE NEXT ASSESSMENT Y EAR. THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. THE A SSESSEE IS IN APPEAL AGAINST THE AFORESAID ORDER OF CIT(A). 3. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT VID E WRITTEN SUBMISSIONS SUBMITTED BEFORE THE CIT(A) HIS ATTENTI ON WAS DRAWN TO THE RATIO LAID DOWN BY THE MUMBAI BENCH OF THE TRIBUNAL IN G.K. RAMAMUTRY VS. JCIT [(2010} 2 ITR (TRIB) 0139], WHEREIN IT WA S HELD THAT THE LONG TERM CAPITAL LOSS FROM REDEMPTION OF UNIT PRIOR TO APRIL, 2004 CANNOT BE SET OFF AGAINST THE EXEMPT LONG TERM CAPITAL GAIN F ROM SALE OF SHARES AFTER IST OCTOBER 2004. THE LD. DR PLACED RELIANCE ON TH E ORDER OF THE AUTHORITIES BELOW. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ASSESSEE IN THE PRESENT CASE HAD SHOWN INCOME FROM LONG TERM CAPITAL 3 GAINS AT RS. 6.17 CRORES. THE SAID INCOME WAS CLAIM ED AS EXEMPT UNDER THE PROVISIONS OF SECTION 10(38) OF THE INCOME TAX ACT, WHICH HAS BEEN ALLOWED AND UPHELD BY THE AUTHORITIES BELOW. FURTH ER, WHILE COMPUTING THE INCOME FOR THE YEAR UNDER APPEAL, THE ASSESSING OFFICER ADJUSTED THE BROUGHT FORWARD LOSSES ON ACCOUNT OF SHARES SOLD IN THE EARLIER YEARS RESULTING IN LONG TERM CAPITAL LOSS AGAINST THE AFO RESAID INCOME OF PROFIT ON SALE OF SHARES, WHICH IN TURN WAS EXEMPT U/S 10( 38) OF THE ACT THE CLAIM OF THE ASSESSEE THAT THE SAID INCOME IS EXEMP T U/S 10(38) OF THE INCOME TAX ACT HAS NOT BEEN DISPUTED BY THE AUTHORI TIES BELOW. THE SHORT DISPUTE ARISING IN THE PRESENT GROUND OF APPE AL IS ONLY IN CONNECTION WITH THE SETTING OFF OF BROUGHT FORWARD LOSSES AGAI NST THE EXEMPT PROFIT ON SALE OF SHARES. THE ASSESSEE WAS CARRYING FORWARD L OSSES ON SALE OF SHARES AMOUNTING TO RS. 1.79 CRORES, WHICH AS PER THE ASSE SSEE WERE NOT TO BE ADJUSTED AGAINST THE INCOME FROM LONG TERM CAPITAL GAINS EARNED DURING THE YEAR. CHAPTER III OF INCOME TAX ACT ENLISTS T HE INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME. SECTION 10 ENLISTS THE INCOME WHICH ARE NOT TO BE INCLUDED IN THE TOTAL INCOME AND ONE SUCH PRO VISION IS SECTION 10(38) OF THE ACT, UNDER WHICH INCOME ARISING FROM THE TRANSFER OF A LONG TERM CAPITAL GAIN ASSET, BEING A EQUITY SHARE IN A COMPANY OR A UNIT OF AN EQUITY OR FUND, IS NOT INCLUDED IN THE INCOME, WHE RE THE TRANSACTION/S OF SALE OF SHARES IS ENTERED ON OR AFTER THE FIRST DAY OF APRIL, 2004 AND SUCH TRANSACTION OF SALE IS CHARGEABLE TO SECURITY TRANS ACTION TAX UNDER CHAPTER VII OF THE FINANCE NO. 2, ACT (2004). ONCE A PARTI CULAR INCOME DOES NOT FORM PART OF THE TOTAL INCOME UNDER ANY OF THE HEAD S ENUMERATED U/S 14 OF THE ACT, THE SAME IS NOT INCLUDIBLE U/S 14 OF THE A CT AND THE SAME WOULD NOT BE AGGREGATED AS GROSS TOTAL INCOME OF THE YEAR AGAINST WHICH THE DEDUCTION UNDER CHAPTER VI OF THE ACT ARE TO BE ALL OWED OR AGAINST WHICH SETTING OF THE LOSSES IS TO BE CARRIED OUT. THE ASS ESSEE DURING THE YEAR 4 UNDER CONSIDERATION HAD CLAIMED THE INCOME FROM LO NG TERM CAPITAL GAINS ON SALE OF SHARES AS EXEMPT U/S 10(38) OF THE ACT A ND ONCE THE SAME HAS BEEN ACCEPTED AS EXEMPT UNDER THE SAID PROVISIONS O F THE ACT BY THE ASSESSING OFFICER, WE FIND NO MERIT IN THE STAND OF THE ASSESSING OFFICER AND CIT(A) THAT THE BROUGHT FORWARD LOSSES CARRIED FORWARD BY THE ASSESSEE ON SALE OF SHARES RELATBLE TO EARLIER YEAR S IS TO BE ADJUSTED AGAINST INCOME EARNED DURING THE YEAR UNDER THE HEAD LONG T ERM CAPITAL GAINS AND CONSEQUENTLY THE ASSESSEE IS NOT ENTITLED TO CARRY FORWARD THE SAME FOR ADJUSTMENT IN THE LATER YEARS. ONCE THE INCOME IS HELD TO BE EXEMPT IN THE HANDS OF THE ASSESSEE U/S 10(38) OF THE ACT, IT DOE S NOT ENTER THE MACHINERY SECTION OF COMPUTING THE TOTAL INCOME FOR THE YEAR AND IN ITS ABSENCE, WE FIND NO MERIT IN THE ORDER OF THE AUTHO RITIES BELOW IN ADJUSTING THE BROUGHT FORWARD LOSSES ON ACCOUNT OF SALE OF SHARES AGAINST THE SAID INCOME DETERMINED IN THE HANDS OF THE ASSE SSEE. 5. WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE HON'BLE MUMBAI BENCH OF THE TRIBUNAL IN G.K. RAMAMURTHY V JCIT (SU PRA), WHEREIN IT HAS BEEN HELD AS UNDER:- HELD, ALLOWING THE APPEAL, THAT UNDER THE SCHEME O F THE ACT, INCOME WHICH DOES NOT FORM PART OF THE TOTAL I NCOME UNDER CHAPTER III OF THE ACT DOES NOT ENTER THE COMPUTATION OF TOTAL INCOME UNDER ANY OF THE HEADS OF INCOME MENTIONED UNDER SECTION 14 OF THE ACT AND TH E QUESTION OF AGGREGATING THEM UNDER CHAPTER VI AND SETTING THEM OFF UNDER SECTION 70(3) DOES NOT ARISE . THEREFORE, THE RIGHT TO CARRY FORWARD LONG TERM CAP ITAL LOSS UNDER SECTION 74(1) OF THE ACT WAS NOT HIT BY THE PROVISIONS OF SECTION 70(3) OF THE ACT. SET OFF OF LONG TERM CAPITAL LOSS AGAINST LONG TERM CAPITAL GAINS W HICH IS 5 EXEMPT INCOME UNDER SECTION 10(38) IS CONTRARY OF L AW AND THE INTENTION, OBJECT AND PURPOSE OF THE LEGISL ATURE IN INTRODUCING CLAUSE (38) TO SECTION 10 OF THE ACT . 6. ACCORDINGLY, IN THE FACTS OF THE PRESENT CASE, W E HOLD THAT THE ASSESSEE IS ENTITLED TO THE BENEFIT OF CARRY FORWAR D OF LOSSES ON THE SALE OF SHARES AMOUNTING TO RS. 1.91 CRORES TO THE SUCCEEDI NG YEARS, AGAINST INCOME, IF ANY, UNDER THE SAID HEAD. WE DIRECT THE ASSESSING OFFICER NOT TO CARRY OUT ANY ADJUSTMENT OF BROUGHT FORWARD LOSS ES ON THE SALE OF SHARES AGAINST THE INCOME FROM LONG TERM CAPITAL GA IN EARNED DURING THE YEAR. THE GROUND NO.1 RAISED BY THE ASSESSEE IS AL LOWED. 7. THE ISSUE IN GROUND NO.2 RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE MADE U/S 14A OF THE ACT. THE ASSESSE E DURING THE YEAR UNDER CONSIDERATION HAD EARNED DIVIDEND INCOME OF R S. 30,754/-. THE ASSESSING OFFICER INVOKING THE PROVISIONS OF SECTIO N 14A OF THE ACT RESTRICTED THE EXPENDITURE TO RS. 30,754/- AND BAL ANCE EXPENDITURE OF RS. 2,09,953/- WAS DISALLOWED. THE CIT(A) UPHELD THE O RDER OF THE ASSESSING OFFICER. WE FIND NO MERIT IN THE SAID DISALLOWANCE BEING MADE BY THE ASSESSING OFFICER. THE DIVIDEND INCOME EARNED DURI NG THE YEAR IS TO THE EXTENT OF RS. 30,754/- AND OUT OF TOTAL EXPENDITURE INCURRED BY ASSESSEE, DISALLOWANCE OF RS. 2,09,953/- HAS BEEN MADE AFTER ALLOWING DEDUCTION OF EXPENDITURE OF RS. 30,754/-. UNDER THE PROVISIONS OF SECTION 14A OF THE ACT, THE EXPENDITURE, IF ANY WARRANTS DISALLOWANCE, IF INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME. IN THE ABSENCE O F ANY SUCH FINDINGS, WE ALLOW THE CLAIM OF THE ASSESSEE IN ENTIRETY. WE DELETE THE ADDITION OF RS. 2,09,953/- MADE ON ESTIMATE BASIS. . 6 ITA NO. 1174/CHD/2010 M/S ANG SECURITIES LTD VS. ITO 8. IN THE RESULT, GROUNDS OF APPEAL RAISED BY THE A SSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF NOVEMBER, 2010. SD/- SD/- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : NOVEMBER, 2010 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 7 THE CONTENTION OF THE REVENUE THAT DIRECTLY OR IND IRECTLY SOME EXPENDITURE IS ALWAYS INCURRED WHICH MUST BE DISALLOWED UNDER SECTION 14A AND THE IMPACT OF EXPENDITURE SO INCURRED CANNOT BE ALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME WHICH MAY NULLIFY THE M ANDATE OF SECTION 14A, CANNOT BE ACCEPTED. DISALLOWANCE U /S 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE WHERE IT IS FOUND THAT THE EARNING EXEMPTED INCOME NO EXPENDITU RE HAS BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A CANNO T STAND. IN THE PRESENT CASE FINDING ON THIS ASPECT, AGAINST THE REVENUE, IS NOT SHOWN TO BE PERVERSE. CONSEQUE NTLY, DISALLOWANCE IS NOT PERMISSIBLE.