AO computes Net STCG for Non-STT: ITAT Allows Set-Off Against Non-STT Gains for US Resident [Read Order]
The tribunal overturned the Assessing Officer’s (AO) computation of net STCG, which prioritized setting off STT losses against STT gains which resulted in a higher tax liability.
ITAT Mumbai – STCG set-off allowed – Non-STT gains India – Short-term capital gains – Taxscan
ITAT Mumbai – STCG set-off allowed – Non-STT gains India – Short-term capital gains – Taxscan
The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) allowed the set-off of short-term capital losses ( STCL ) subject to Securities Transaction Tax ( STT ) against short-term capital gains ( STCG ) not subject to STT.
The Teacher Retirement System of Texas (assessee), a US resident registered with the Securities and Exchange Board of India, faced scrutiny for the Assessment Year (AY) 2022-23. The assessee filed its return of income on 26/07/2022, declaring a total income of INR 1,392,97,42,630.
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During the assessment, the AO observed that the assessee computed net STCG of INR 312,17,86,831 by setting off STCL of INR 1,362,792,200 (subject to STT, taxable at 15%) first against STCG of INR 77,740,748 (not subject to STT, taxable at 30%) and then against STCG of INR 4,406,838,283 (subject to STT, taxable at 15%).
The AO rejected this methodology, arguing that STCL subject to STT should first be set off against STCG subject to STT, as both are taxable at 15% under Section 111A of the Income Tax Act, 1961. The AO computed the net STCG at INR 47,99,29,138, compared to INR 46,82,68,025 offered by the assessee, increasing the tax liability. The Dispute Resolution Panel (DRP) upheld the AO’s computation on 29/11/2024, citing a pending case before the Bombay High Court.
Aggrieved by the DRP and AO’s order, the assessee appealed to the ITAT. The assessee’s counsel, argued that Section 70(2) of the Act allows STCL to be set off against any capital gains computed under Sections 48 to 55, without mandating a hierarchy based on tax rates.
The two-member bench comprising Sandeep Singh Karhail (Judicial Member) and Girish Agrawal (Accountant Member) observed that Section 70(2) does not distinguish between STT and non-STT transactions for set-off purposes.
The tribunal observed that the term “similar computation” in Section 70(2) refers only to the computation mechanism under Sections 48 to 55, not the applicable tax rates under Sections 111A or 115AD of the Income Tax Act.
The tribunal observed that the AO’s approach of prioritizing STT loss set-off against STT gains lacked statutory backing. The tribunal directed the AO to accept the assessee’s methodology, allowing the set-off of STCL (STT) against STCG (non-STT).
The tribunal also addressed the levy of interest under Section 234C (INR 1,425,796), deeming it consequential and requiring no separate adjudication. The initiation of penalty proceedings under Section 270A was dismissed as premature.
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The tribunal directed the AO to recompute the capital gains as per the assessee’s methodology. The appeal of the assessee was partly allowed.
To Read the full text of the Order CLICK HERE
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