NOMURA INDIA INVESTMENT FUND MOTHER FUND, MUMBAI V. ADDL DIT (IT) RG 4, MUMBAI

ITA 1963/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75848 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 12-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 10-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAY SRI VASTAVA
• Assessee Lawyers: J D MISTRI; NEERAJ SETH
• Keywords: Capital asset; Earning of tax free income
• Section: 143(3); 6

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUM BAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO. 1963/MUM/2011 ASSESSMENT YEAR. 2008-09 NOMURA INDIA INVESTMENT FUND MOTHER FUND, BSR & CO., LODHA EXCELUS, 02 ND FLOOR, APOLLO MILLS COUMPOUND N.M. JOSHI MARG, MAHALAKSHMI, MUMBAI 400 011. VS. ADDITIONAL DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) RANGE -4, MUMAI B WING, ROOM NO. 23, 3 RD FLOOR, MITTAL COURT, NARIMAN POINT, MUMBAI 400038. PAN: AAAAN3240L APPELLANT RESPONDENT A SSESSEE BY SHRI J.D. MISTRI AND SHRI NEERAJ SETH RE VENUE BY SHRI AJAY SRIVASTAVA ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 15.02.2011 OF CIT(A) ARISING FROM PENALTY ORDER PAS SED U/S 271(1)(C) OF INCOME TAX ACT FOR A.Y. 2008-09. THE ASSESSEE HAS R AISED FOLLOWING GROUNDS IN APPEAL:- DATE OF HEARING 11 .02.2014 DATE OF PRONOUNCEMENT 21 - 03 - 2014 2 (I)BASED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS_-11, MU MBAI (HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED IN UPHOLDING THE VIEW OF THE ADDITIONAL DIRECTOR OF INCOME TAX(INTERNATIONAL TAXATION) 4, MUMBAI (HERE INAFTER REFERRED TO AS THE AO) IN LEVYING PENALTY U/S 271(1)(C) OF THE ACT ON THE APPELLANT. (II) THE CITA() ERRED IN THE FACTS AND IN THE CIRCU MSTANCES OF THE CASE AND WAS MISGUIDED BY PROCEEDING ON A COMPLETELY WRONG FOOTI NG BY CONCLUDING THAT THE APPELLANT HAS MADE A NON-BONAFIDE CLAIM BY FURNISHI NG INACCURATE PARTICULARS WITHOUT APPRECIATING THAT THE APPELLANT HAS NOT MAD E ANY CLAIM IN THE FIRST PLACE, BUT MERELY RESERVED ITS RIGHT. (III) THE CIT(A) ERRED IN THE FACTS AND IN THE CIRC UMSTANCES OF THE CASE IN UPHOLDING THE VIEW OF THE AO THAT NO TWO VIEWS ARE POSSIBLE IN THE MATTER AND IN IGNORING THE VIEW OF THE APPELLANT WHICH WAS BONAFI DE AND BASED ON SEVERAL JUDICIAL PRECEDENTS. (IV) THE CIT(A) ERRED IN THE FACTS AND IN THE CIRCU MSTANCES OF THE CASE IN IGNORING SEVERAL FACTUAL INACCURACIES MADE BY THE A O IN HIS ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT WHICH WERE INSTRUME NTAL IN ARRIVING AT A CONCLUSION OF LEVYING PENALTY. 2. THE ASSESSEE IS A APPROVED SUB-ACCOUNT OF THE MA STER TRUST BANK OF JAPAN, A FOREIGN INSTITUTIONAL INVESTOR (FII) REGIS TERED WITH SECURITIES EXCHANGE BOARD OF INDIA (SEBI). DURING THE YEAR UND ER CONSIDERATION THE ASSESSEE HAS EARNED LONG TERM CAPITAL GAIN ASL WELL AS LONG TERM CAPITAL LOSS ON PURCHASE AND SALE OF SHARES. WHILE COMPUTIN G THE TOTAL INCOME THE ASSESSEE DID NOT SET OFF LONG TERM CAPITAL LOSS OF RS. 80.64 CRORES FROM LONG TERM CAPITAL GAIN OF RS. 697.70 CRORES WHICH WAS EX EMPT U/S 10(38) OF THE INCOME TAX ACT. THE ASSESSEE SOUGHT TO CARRY FORWAR D LONG TERM CAPITAL LOSS OF RS. 80.64 CRORES U/S 74 OF THE INCOME TAX A CT. THE AO FOUND THAT THE SAID CLAIM OF HE ASSESSEE FOR CARRY FORWARD OF LONG TERM CAPITAL LOSS IS NOT ADMISSIBLE AND ACCORDINGLY REJECTED THE SAME. T HE AO HELD THAT THE ASSESSEE CANNOT BE ALLOWED TO GIVE DIFFERENT TREATM ENT TO THE POSITIVE AND 3 NEGATIVE INCOME UNDER ONE HEAD UNLESS IT IS SPECIFI CALLY PROVIDED IN THE ACT. THE TERM INCOME USED IN SECTION 10(38) REFERS TO TH E ENTIRE RECEIPTS ARISING FROM TRANSFER OF LONG TERM CAPITAL ASSET. THE SECTI ON DOES NOT REFER TO LONG TERM CAPITAL LOSS. THE AO ALSO INITIATED PENALTY PR OCEEDINGS U/S 271(1)(C) AND LEVIED PENALTY OF RS. 17,02,90,407/-. THE ASSE SSEE CHALLENGED THE ACTION OF AO BEFORE CIT(A) BUT COULD NOT SUCCEED. 3. BEFORE US, SHRI J.D. MISTRI, LD. SENIOR COUNSEL FOR THE ASSESSEE, AT THE VERY OUTSET HAS SUBMITTED THAT THERE IS NO CLAIM T O CARRY FORWARD OR SET OFF BUT THE ASSESSEE HAS ONLY RESERVED ITS RIGHT TO CAR RY FORWARD THE LONG TERM CAPITAL LOSS ARISING FROM SALE AND PURCHSE OF SHARE S AND SECURITIES. HE HAS REFERRED THE RETURN OF INCOME AND SUBMITTED THAT ON LY BY WAY OF A NOTE THE ASSESSEE HAS RESERVED THE RIGHT TO CARRY FORWARD UN ABSORBED CAPITAL LOSS OF RS. 80.64 CRORES FOR SET OFF U/S 74 TO FUTURE ASSES SMENT YEARS. THE LD. SENIOR COUNSEL THEN SUBMITTED THAT THE ASSESSEE HAS NOT CLAIMED ANY CARRY FORWARD OF LONG TERM CAPITAL LOSS IN THE COMPUTATIO N OF INCOME BUT IT WAS ONLY BY WAY OF A NOTE, RESERVED ITS RIGHT TO CLAIM IN FUTURE YEARS. HE HAS THUS SUBMITTED THAT THE AO HAS PROCEEDED ON THE WRO NG ASSUMPTION OF FACT THAT THE ASSESSEE HAS CLAIMED CARRY FORWARD AN D SETTING OFF THE LONG TERM CAPITAL LOSS IN QUESTION. EVEN OTHERWISE THIS RESERVE OF RIGHT TO CARRY FORWARD IS REVENUE NEUTRAL AS IT WAS TO BE EXAMINED IN THE YEAR IN WHICH ACTUALLY CLAIMED FOR SET OFF. IN SUPPORT OF HIS CON TENTION HE HAS RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F COMMISSIONER OF INCOME-TAX. V. MANMOHAN DAS. (59 ITR 699) AND SUBMI TTED THAT IT IS FOR THE INCOME TAX OFFICER DEALING WITH THE ASSESSMENT IN THE SUBSEQUENT YEAR TO DETERMINE WHETHER THE LOSS OF PREVIOUS YEAR MAY BE SET OFF AGAINST THE 4 PROFIT OF THAT YEAR. THE DECISION BY THE ITO WHO CO MPUTES THE LOSS IN PREVIOUS YEAR THAT THE LOSS CANNOT BE SET OFF AGAIN ST THE INCOME OF THE SUBSEQUENT YEAR IS NOT BINDING ON THE ASSESSEE. THU S THE LD. SENIOR COUNSEL HAS SUBMITTED THAT THE PENALTY U/S 271(1)(C ) IS NOT WARRANTED WHEN THE CLAIM OF CARRY FORWARD WAS NOT ACTUALLY MA DE DURING THE YEAR AND IT WAS FURTHER SUBJECTED TO THE DECISION OF AO IN THE FUTURE YEARS. 4. ON THE OTHER HAND, LD. DR HAS SUBMITTED THAT THE INCOME UNDER A HEAD HAS TO BE COMPUTED AS A NET RESULT AND NOT THE GROSS RECEIPT. HE HAS FURTHER SUBMITTED THAT THE TERM INCOME INCLUDES POS ITIVE AS WELL AS NEGATIVE INCOME. THE NET RESULT OF LONG TERM CAPITA L GAIN HAS TO BE COMPUTED UNDER THE HEAD OF INCOME FROM CAPITAL GAIN AND THE CLAIM OF CARRY FORWARD OF LOSS WITHOUT ADJUSTING AGAINST THE CAPITAL GAINS IS NOT PERMISSIBLE UNDER THE PROVISIONS OF LAW. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS HARPRASAD AND CO. PVT. LIMITED(SC) ( 99 ITR 118). T HE LD. DR HAS FURTHER CONTENDED THAT RETURN OF INCOME IS A STATUTORY DOCU MENT AND ANY CLAUSE BY WAY OF NOTE IS A CLAIM MADE BY THE ASSESSEE IN THE RETURN OF INCOME. THIS IS AN INDIRECT WAY OF CLAIMING AN IMPERMISSIBLE AND INCORRECT CLAIM WHICH AMOUNTS TO FURNISHING INACCURATE PARTICULARS OF INC OME. THE LD. DR HAS FURTHER CONTENDED THAT WHILE MAKING THE CLAIM IT DO ES NOT INDICATE ANY BONAFIDE CLAIM ON THE PART OF THE ASSESSEE. 5 5. IN REBUTTAL THE LD. SENIOR COUNSEL HAS SUBMITTED THAT THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS HARPRAS AD AND CO. PVT. LIMITED(SC) (SUPRA) HAS BEEN CONSIDERED BY THE HON BLE CALCUTTA HIGH COURT IN THE CASE OF ROYAL CALCUTTA TURF CLUB VS. CIT (12 TAXMAN 133). HE HAS RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS LTD [2010] 322 ITR 158 (SC). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE COMPU TATION OF INCOME UNDER THE HEAD CAPITAL GAIN ARISING FROM PURCHASE AND SAL E OF SECURITIES HAS BEEN COMPUTED BY THE ASSESSEE IN A MANNER WHICH IS NOT P ERMISSIBLE UNDER THE PROVISIONS OF THE ACT. THE COMPUTATION OF INCOME UN DER THE HEAD HAS TO BE THE NET RESULT OF THE INCOME FROM A PARTICULAR SOUR CE. THERE IS NO DISPUTE THAT THE LONG TERM CAPITAL GAIN AS WELL AS LONG TER M CAPITAL LOSS HAS ARISEN FROM THE SALE OF SHARES ON WHICH STT HAS BEEN PAID AND, THEREFORE, BOTH THE RECEIPTS ARE FROM THE SAME SOURCE AND HAS TO BE COMPUTED UNDER THE HEAD CAPITAL GAINS. THE ASSESSEE HAS SHOWN THE CAPI TAL GAIN SEPARATELY AND WITHOUT REDUCING THE LONG TERM CAPITAL LOSS. THOUGH ANY INCOME ARISING FROM THE TRANSFER OF LONG TERM CAPITAL ASSET BEING EQUITY SHARE OR OTHER SECURITIES ARE EXEMPT FROM TAX U/S 10(38) OF THE IN COME TAX ACT, HOWEVER THE TERM INCOME INCLUDES POSITIVE AS WELL AS NEGATI VE, THEREFORE, THE METHOD ADOPTED BY THE ASSESSEEE IS PATENTLY WRONG A ND CONTRARY TO THE PROVISIONS OF THE INCOME TAX ACT. FURTHER SINCE THE INCOME ARISING FROM THE TRANSFER OF LONG TERM CAPITAL ASSET BEING EQUIT Y SHARE AND OTHER 6 SECURITIES AS PRESCRIBED UNDER THE PROVISIONS OF TH E ACT CLASSIFIED AS LONG TERM CAPITAL GAIN IS EXEMPT AND, THEREFORE, EVEN B Y ADOPTING SUCH A METHOD HAS NOT EFFECT ON THE TAXABLE INCOME OF THE ASSESSEE EITHER POSITIVELY OR NEGATIVELY. THE LONG TERM CAPITAL LOS S WHICH IS OTHERWISE REQUIRED TO BE TAKEN INTO CONSIDERATION FOR COMPUTA TION OF THE INCOME UNDER THE HEAD CAPITAL GAIN HAS BEEN CLAIMED BY THE ASSESSEE AS RESERVING RIGHT TO CARRY FORWARD AND SET OFF IN THE FURTHER Y EARS U/S 74 OF THE INCOME TAX ACT. THIS ACT OF THE ASSESSEE DOES NOT AFFECT T HE TAXABLE INCOME OF THE ASSESSMENT YEAR UNDER CONSIDERATION. SO FAR AS THE CLAIM OF RESERVING RIGHT FOR CARRYING FORWARD AND SETTING OFF IN THE FUTURE YEARS IS CONCERNED, IT DEPENDS UPON THE ACTUAL ALLOWANCE OF THE CLAIM IN T HE FUTURE ASSESSMENT YEAR. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. MANMOHAN DAS. (SUPRA) HAS OBSERVED AS UNDER:- THE SECOND QUESTION PRESENTS LITTLE DIFFICULTY. IN MAKING HIS ORDER OF ASSESSMENT FOR THE YEAR 1950-51, THE INCOME-TAX OFFICER DECLAR ED THAT THE LOSS COMPUTED IN THAT YEAR COULD NOT BE CARRIED FORWARD TO THE NEXT YEAR UNDER SECTION 24(2) OF THE INCOME-TAX ACT, AS IT WAS NOT A BUSINESS LOSS. THE INCOME-TAX OFFICER HAS UNDER SECTION 24(3) TO NOTIFY TO THE ASSESSEE THE A MOUNT OF LOSS AS COMPUTED BY HIM, IF IT IS ESTABLISHED IN THE COURSE OF ASSESSME NT OF THE TOTAL INCOME THAT THE ASSESSEE HAS SUFFERED LOSS OF PROFITS. SECTION 24(2 ) CONFERS A STATUTORY RIGHT (SUBJECT TO CERTAIN CONDITIONS WHICH ARE NOT MATERI AL) UPON THE ASSESSEE WHO SUSTAINS A LOSS OF PROFITS IN ANY YEAR IN ANY BUSIN ESS, PROFESSION OR VOCATION TO CARRY FORWARD THE LOSS AS IS NOT SET OFF UNDER SUB- SECTION (1) TO THE FOLLOWING YEAR, AND TO SET OFF AGAINST HIS PROFITS AND GAINS, IF ANY, FROM THE SAME BUSINESS, PROFESSION OR VOCATION FOR THAT YEAR. WHETHER THE L OSS OF PROFITS OR GAINS IN ANY YEAR MAY BE CARRIED FORWARD TO THE FOLLOWING YEAR A ND SET OFF AGAINST THE PROFITS AND AGAINST THE SAME BUSINESS, PROFESSION OR VOCATI ON UNDER S. 24(2) HAS TO BE DETERMINED BY THE INCOME-TAX OFFICER WHO DEALS WITH ,THE ASSESSMENT OF THE SUBSEQUENT YEAR. IT IS FOR THE INCOME-TAX OFFICER D EALING WITH THE ASSESSMENT IN THE SUBSEQUENT YEAR TO DETERMINE WHETHER THE LOSS O F THE PREVIOUS YEAR MAY BE SET OFF AGAINST THE PROFITS OF THAT YEAR. A DECISIO N RECORDED BY THE INCOME-TAX 7 OFFICER WHO COMPUTES THE LOSS IN THE PREVIOUS YEAR UNDER S. 24(3) THAT THE LOSS CANNOT BE SET OFF AGAINST THE INCOME OF THE SUBSEQU ENT YEAR IS NOT BINDING ON THE ASSESSEE 7. THUS IT IS CLEAR THAT THE CLAIM OF CARRY FORWARD AND SETTING OFF LOSSES ARE REQUIRED TO BE EXAMINED BY THE AO IN THE FUTURE YEARS WHEN IT IS ACTUALLY SET OFF AGAINST THE PROFITS, THEREFORE, BY NOT GIVING THE CORRECT COMPUTATION OF INCOME UNDER THE HEAD CAPITAL GAIN WHICH IS EXEMPT U/S 10(38) OF INCOME TAX ACT IS REVENUE NEUTRAL AS IT H AS NOT AFFECTED THE TAXABLE INCOME OF THE ASSESSEE FOR THE YEAR UNDER C ONSIDERATION. EVEN IT HAS ALSO NOT AFFECTED THE TAXABLE NEGATIVE INCOME O F THE ASSESSEE. ACCORDINGLY IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE WHEN THE WRONG COMPUTATION OF THE EXEMPT INCOME IS REVENUE N EUTRAL AND DOES NOT AFFECT THE TAXABLE INCOME OF THE ASSESSEE AS WELL A S TAX LIABILITY OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AND FURTH ER THE CLAIM OF CARRY FORWARD AND SETTING OFF IMPERMISSIBLE LONG TERM CAP ITAL LOSS IS REQUIRED TO BE EXAMINED IN THE FUTURE YEARS. THE PENALTY LEVIED U/S 271(1)(C) IS NOT SUSTAINABLE AND ACCORDINGLY DELETED. 8. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 /03/2 014 SD/- SD/- (D. KARUNAKARA RAO) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 21 /03/2014 SKS SR. P.S