Deputy Commissioner Of Income Tax, Circle- 1(1)(2), Bangalore V. M/s. BPL Limited, Bangalore

MA 113/BANG/2022

AI Insights

The case revolves around the dispute concerning the set off of Long Term Capital Loss (LTCL) carried forward from Assessment Year 2013-14 against Long Term Capital Gain (LTCG) arising in Assessment Year 2016-17. The assessee, M/s. BPL, had approached the Kerala High Court with a scheme of arrangement that involved setting off accumulated losses against share premium in the books, which was not to affect the tax proceedings. The Assessing Officer (AO) initially accepted the LTCL for set off but later, post a rectification order, disputed its availability for set off against LTCG due to the adjustments made in the books under the scheme. The CIT(A) upheld the assessee's claim, which was later supported by the Tribunal. However, the Revenue's MP contended that the Tribunal's earlier decision was based on incomplete facts, leading to the current proceedings.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124584 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 24 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 02-01-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-12-2022
• Assessment Year: 2016-2017
• Appeal Filed On: 09-10-2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital Gains
• Section: 154; 143(3); 254(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT AND MS. PADMAVATHY S, ACCOUNTANT MEMBER MP No.113/Bang/2022 (in ITA No.1513/Bang/2019) Assessment Year : 2016-17 DCIT, Circle – 1(1)(2), Bengaluru. Vs. M/s. BPL, 11 th KM, Bannerghatta Road, Arakere, Bengaluru – 560 076. PAN : AAACB 9461 B APPELLANT RESPONDENT Assessee by :None Revenue by:Smt.Nisha Padma, Addl. CIT(DR)(ITAT), Bengaluru Date of hearing:30.12.2022 Date of Pronouncement:03.01.2023 O R D E R Per N. V. Vasudevan, Vice President: This is a Miscellaneous Petition (MP) filed by the assessee under section 254(2) of the Income Tax Act, 1961 (hereinafter called ‘the Act’), praying for alleged apparent error in the order of the Tribunal dated 04.03.2022 passed by this Tribunal. 2. One of the issues that came up for consideration in the aforesaid appeal was with regard to claim of the assessee for set off of LTCG against LTCL that was carried forward from AY 2013-14 and remained without set off. The assessee filed MP No.113/Bang/2022 (in ITA No.1513/Bang/2019) Page 2 of 6 its return of income for Assessment Year 2016-17, declaring total income of Rs.36,80,828/- under the head “Income from House Property”. The assessee had sold its properties at Delhi and Bengaluru and derived Long Term Capital Gain (LTCG) of Rs.14,88,16,483/-. The assessee had Long Term Capital Loss (LTCL) of Rs.27,55,73,246/- carried forward from Assessment Year 2013-14. The assessee set off LTCL against LTCG and claimed carried forward of LTCL remaining unabsorbed. The AO noticed that the Assessee approached the High Court of Kerala with a scheme of arrangement, whereby the accumulated loss was to be set off against share premium amount reflected in the books of accounts. Based on the order of the Hon’ble High Court, the LTCL was set off against the share premium account only in the books of accounts of the Assessee. The said arrangement whereby loss was set off will have no effect on the LTCL as far as income tax proceedings are concerned and was only relevant for the financial statements. 3. The AO was of the view that since the LTCL of Rs.27,55,73,246/- no longer exists in books of account due to its set off in the scheme of arrangement and therefore it cannot be set off consequent to the scheme of arrangement whereby accumulated losses were set off against share premium amount reflected in the books of account. The stand of the assessee was that section 74 of the Act provides for carry forward of loss on account of capital gains. There is no prohibition in the said section or any other provision in the Act that if the assessee sets off LTCL in scheme of arrangement under Companies Act, 1956, the LTCL would be consequently reduced even for the purpose of the Act. The only restriction is in section 79 and 80 where it talks of change in shareholding or delayed filing of loss return. In the case of the assessee no such change in shareholding has been effected nor has there been MP No.113/Bang/2022 (in ITA No.1513/Bang/2019) Page 3 of 6 any delay in filing of returns. The assessee submitted that there has not been any reduction of share capital either. Further, the assessee has capital loss carried forward of Rs.27,55,73,246 based on orders under section 143(3) for Assessment Year 2013-14. Therefore, the assessee submitted that the addition made of Rs.14,88,16,483 is incorrect in law and has to be deleted. 4. The AO observed that write off of investments is a colourable device. According to the AO, the Hon’ble Kerala High Court allowed the loss in the books of accounts that remained to be set off against share premium A/c and therefore the said loss will no longer be available for set off. 5. The CIT(A) upheld the plea of the assessee and he held that LTCL that was determined as per the Act in earlier Assessment Year will be available for set off and the order of Hon’ble Kerala High Court setting off the loss against share premium will not have any impact while examining a claim under section 74 of the Act. He held that the assessee’s claim of LTCL on sale of investments, had been scrutinised by the AO, year after year and for the Asst. year 2012-13, the said loss was determined consequent to the appellate order received in the case by passing an Order U/Section 143(3) r.w.s. 254 of the Act. Thus, the business loss and the Long Term capital loss determined in the case of the assessee are valid and determined by the successive AO's based on the examination of the facts in the scrutiny orders. He held that the AO, without any material evidence, has given a finding that the assessee’s claim of long-term capital loss is a colourable device to avoid payment of capital gains without taking any proper remedial action for the relevant Asst. years MP No.113/Bang/2022 (in ITA No.1513/Bang/2019) Page 4 of 6 for which the said losses pertain to. If at all the AO had any doubt about the genuineness of the said loss claim of the appellant, the proper course of action is to re-open the said assessments for the purpose of determination of the allowable losses. However, the AO, without any said due process, had simply assumed the claim to be a sham transaction, which is highly improper. The claims of losses pertaining to various years commencing from the Asst. year 2008-09 to 2013-14 are in respect of several transactions independently undertaken by the assessee, which have to be examined on record, to establish that they were sham. Accordingly, the CIT(A) directed the AO to undertake the exercise by scrutinising the final orders passed in respect of the previous years as per the available records and allow the claim of the assessee for set off. 6. On further appeal by the Revenue, the Tribunal by its order dated 4.3.2022 upheld the order of the CIT(A). 7. In this MP, the Revenue has contended as follows: “The Hon'ble ITAT vide its order in ITA No.1513/Bang/2019 dated 28-022022 upheld the order of the CIT(A) on the issue of 'claim of set off of LTCL 86 business loss against LTCG' stating that as rightly held by the CIT(A), the corporate restructuring and the consequent reduction in the accumulated losses by setting it off against share premium account reflected in the books of account will have no effect whatsoever in so far as the claim for set off of brought forward loss under the Act made by assessee. Accordingly, the Hon'ble ITAT dismissed appeal of Revenue on this ground. On verification of assessment records, it is noticed that the assessee had claimed brought forward long term capital loss from AY 2011-12, where in the assessment order dated 10.02.2014, long term capital loss of MP No.113/Bang/2022 (in ITA No.1513/Bang/2019) Page 5 of 6 Rs.141,51,35,637/- was determined. However, it is observed that the assessment order was rectified vide order u/s 154 on 29.03.2019 resulting into long term capital gain of Rs.3,88,53,209 /- and assessee's application for rectification of the order was rejected vide order dated 24.09.2019. The assessee had filed appeal against the rejection of the rectification application and the same is pending before CIT(A) vide acknowledgment no. 251422421061119. Therefore, subsequent to rectification order passed on 29.03.2019, there is no long term capital loss available to the assessee for set off against long term capital gain of Rs. 14,88,16,483/ -. This fact was, not brought to the notice of Hon'ble ITAT during appellate proceedings. Hence the order of Hon'ble ITAT is devoid of facts. The mistake being apparent from record, a miscellaneous petition is filed before the Hon'ble ITAT with a request to rectify the order.” 8. The learned DR has reiterated the stand of the Revenue as contained in the MP. We have considered the stand of the Revenue in the MP. We find that in para 10 of the order of the Tribunal in the last sentence, the Tribunal has extracted the findings of the CIT(A) and the CIT(A) has directed the AO to undertake exercise of scrutinizing the final orders passed of the previous years as per the available records and allow the claim of the assessee for set off. This direction of the CIT(A) was upheld by the Tribunal. In such a scenario, the AO has to follow directions of the CIT(A). In this MP, the Revenue seeks clarification of the order of the Tribunal without pointing out any mistake in the order of the Tribunal. We are of the view that the directions of the CIT(A) are quite clear and there is no room for confusion as is sought to be stated by the Revenue in the MP. Besides the above, the facts as set out in the MP were not brought to the notice of the Hon’ble ITAT when the appeal was heard. In these circumstances, we are of the view that there is no mistake apparent on the face of the record calling for rectification under section 254(2) of the Act. Accordingly, the MP of the Revenue is dismissed. MP No.113/Bang/2022 (in ITA No.1513/Bang/2019) Page 6 of 6 9. In the result, MP stands dismissed. Pronounced in the open court on the date mentioned on the caption page. Sd/- (S. PADMAVATHY) Sd/- (N.V. VASUDEVAN) Accountant MemberVice President Bangalore, Dated: 03.01.2023. /NS/* Copy to: 1.Appellants2.Respondent 3.CIT4.CIT(A) 5.DR 6. Guard file By order Assistant Registrar, ITAT, Bangalore.