DCIT CIR 3(3), MUMBAI V. RELIANCE CHEMICALS (P) LTD, MUMBAI

ITA 2198/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1932 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2010
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 19-04-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 08-04-2009
• Court: TRIBUNAL
• Department Lawyers: T T JACOB
• Assessee Lawyers: SHEELA CHITALANGIA
• Keywords: Earning of tax free income; Set aside; Capital Gains
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D BEFORE SHRI N.V. VASUDEVAN (JM) & B. RAMAKOTAIAH (A M) I.T.A.NO. 2198/MUM/2009 (ASSESSMENT YEAR : 2006-07 ) DCIT CIRCLE 3(3) ROOM NO. 609, 6 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. VS. M/S. RELIANCE CHEMICALS P LTD. 3 RD FLOOR, MAKER CHAMBERS IV 222, NARIMAN POINT MUMBAI-400 021. APPELLANT RESPONDENT PAN/GIR NO. : AAACR1879B ASSESSEE BY : MS. SHEELA CHITALANGIA DEPARTMENT BY : SHRI T.T. JACOB ORDER PER N.V. VASUDEVAN, JM :- THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 9.2.2009 OF LEARNED CIT(A)-III, MUMBAI RELATING TO A.Y. 2006 -07. 2. GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS FOLLOWS :- 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, LEARNED CIT(A) ERRED IN TREATING THE LONG TERM CAPI TAL GAIN AS EXEMPT U/S. 10(38) AND DIRECTED THE ASSESSING OF FICER NOT TO SET OFF THE SAME AGAINST LONG TERM CAPITAL L OSS U/S. 48. 2) THE APPELLANT PRAYS THAT THE ORDER OF LEARNED CIT(A ) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSIN G OFFICER BE RESTORED. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF INVESTMENT IN SECURITIES. DURING THE PREVIOUS YEAR, THE ASSESS EE RECEIVED DIVIDEND INCOME OF RS. 10,92,62,790/- AND INTEREST INCOME OF RS. 19,90,708/-. DURING THE PREVIOUS YEAR, THE ASSESSEE EARNED LONG TERM CAPITAL GAINS OF RS. 8,24,01,47,078/- AND HAD PAID SECURITY TRANSAC TIONS TAX THEREON. M/S. RELIANCE CHEMICALS P LTD. 2 LONG TERM CAPITAL GAIN WAS EXEMPT INCOME U/S. 10(38 ) OF THE ACT. THE ASSESSEE INCURRED LONG TERM CAPITAL LOSS OF RS. 12, 42,55,833/-, WHICH THE ASSESSEE WANTED TO CARRY FORWARD FOR BEING SET OFF IN ACCORDANCE WITH LAW AGAINST INCOME OF SUBSEQUENT A.Y.S. ACCORDING TO TH E ASSESSING OFFICER, LONG TERM CAPITAL LOSS OUGHT TO HAVE BEEN SET OFF A GAINST LONG TERM CAPITAL GAIN, WHICH WAS EXEMPT U/S. 10(38) OF THE ACT. IN R EPLY, THE ASSESSEE POINTED OUT THAT LONG TERM CAPITAL GAIN BEING EXEMP T U/S. 10(38) OF THE ACT DOES NOT FORM PART OF THE TOTAL INCOME; AND THE REFORE, LONG TERM CAPITAL LOSS CANNOT BE ADJUSTED AGAINST LONG TERM C APITAL GAIN. IN SUPPORT OF ITS CONTENTION, THE ASSESSEE RELIED ON THE DECIS ION OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF RANJILAL RAIS VS. CIT, 58 ITR 181(ALL); WHEREIN IT WAS HELD THAT ADJUSTMENT OF LOSS AGAINST PROFIT CAN BE MADE ONLY WHERE LOSS OR PROFITS ARE TAXABLE. THE ASSESSING OFFICER, HOWEVER, RELIED ON THE PROVISIONS OF SECTION 70(3) OF THE ACT AND WAS OF THE VIEW THAT IT WAS MANDATORY THAT LONG TERM CAPITAL LOSS OUGHT TO BE A DJUSTED AGAINST LONG TERM CAPITAL GAIN. THE ASSESSING OFFICER ACCORDINGL Y SET OFF LONG TERM CAPITAL LOSS AGAINST LONG TERM CAPITAL GAIN. AS A R ESULT, OF THE ASSESSING OFFICERS ACTION, THE ASSESSEES CLAIM FOR CARRY FO RWARD OF LONG TERM CAPITAL LOSS OF RS. 12,42,55,833/- WAS NOT ALLOWED. 4. ON APPEAL BY THE ASSESSEE, LEARNED CIT(A) FOLLOW ING THE DECISION RENDERED BY HIM ON AN IDENTICAL ISSUE IN THE CASE O F RELIANCE POLYOLEFINS PVT. LTD. FOR A.Y. 2006-07 HELD THAT LONG TERM CAPI TAL LOSS CANNOT BE ADJUSTED AGAINST LONG TERM CAPITAL GAIN EXEMPT U/S. 10(38) OF THE ACT. AGGRIEVED BY THE ORDER OF LEARNED CIT(A), REVENUE H AS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT WAS BROU GHT TO OUR NOTICE THAT THE MUMBAI BENCH OF THE TRIBUNAL IN ITA NO. 24 80/MUM/2009 & 2565/MUM/2009 IN THE CASE OF DCIT VS. RELIANCE ENER GY & PROJECT DEVELOPMENT (P) LTD. & RELIANCE AROMATICS & PETROCH EMICALS PVT. LTD. BY ORDER DATED 23.3.2010 UPHELD THE VIEW TAKEN IN THE CASE OF RELIANCE POLYOLEFINS PVT. LTD. (SUPRA). IN DOING SO, THE TRI BUNAL FOLLOWED THE M/S. RELIANCE CHEMICALS P LTD. 3 DECISION RENDERED BY THE ITAT MUMBAI IN THE CASE OF G.K. RAMAMURTHY VS. JCIT (2010) 2 ITR 139 (MUM). TRIBUNAL IN THE AF ORESAID DECISION HELD AS FOLLOWS :- INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOM E UNDER CHAPTER III OF THE ACT DOES NOT ENTER THE COMPUTATI ON OF TOTAL INCOME UNDER ANY OF THE HEADS OF INCOME MENTIONED U NDER SECTION 14 OF THE ACT AND THE QUESTION OF AGGREGATING THEM UNDER CHAPTER VI AND SETTING THEM OFF UNDER SECTION 70(3) DOES NO T ARISE. THEREFORE, THE RIGHT TO CARRY FORWARD LONG TERM CAP ITAL LOSS UNDER SECTION 74(1) OF THE ACT WAS NOT HIT BY THE PROVISI ONS OF SECTION 70(3) OF THE ACT. SET OFF OF LONG TERM CAPITAL LOSS AGAINST LONG TERM CAPITAL GAIN WHICH IS EXEMPT INCOME UNDER SECTION 1 0(38) IS CONTRARY TO LAW AND THE INTENTION, OBJECT AND PURPO SE OF THE LEGISLATURE IN INTRODUCING CLAUSE (38) TO SECTION 1 0 OF THE ACT. 6. IN VIEW OF THE AFORESAID DECISION, WE ARE OF THE VIEW THAT THE APPEAL BY THE REVENUE IS WITHOUT ANY MERITS. CONSEQUENTLY, THE SAME IS DISMISSED. ORDER HAS BEEN PRONOUNCED ON 30 TH DAY OF APRIL, 2010. SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER DATED : 30 TH APRIL, 2010 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS