The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that Short Term Capital Loss ( STCL ) offsettable against Short Term Capital Gain ( STCG ) across assets regardless of tax rate disparity under Section 70 (2) of Income Tax Act, 1961
The assessee was a nonresident entity registered with the Security Exchange Board of India ( SEBI ) as a Foreign Portfolio Investors ( FPI ) for carrying out investment activity in Indian capital markets. The assessee company was a tax resident in the USA. During the course of assessment the Assessing Officer (AO) noticed that the assessee has disclosed its income as Long Term Capital Loss ( LTCL ) on which STT was paid of Rs.1,30,58,60,860/- and also claimed Short Term Capital Loss (STT paid) of Rs.25,49,24,728/-, Short Term Capital Gain ( STCG ) of Rs.27,64,65,202/- on sale of derivatives and physical settlement of derivatives, dividend income of Rs.2,28,73,297/- claimed as exempt under Section 10(34) of the Income Tax Act and interest on debt securities amounting to Rs.4,99,98,090/-
The Assessing Officer noticed from the computation of income filed by the assessee in the return of income that it has set off STCG on sale of derivatives amounting to Rs.23,07,57,354/- and STCG on physical settlement of derivatives amounting to Rs.4,56,47,848/- which was taxable at the rate of 30% with current year, STCL on sale of equity on which STT was paid taxable at the rate of 15% amounting to Rs.25,49,24,728/- and has set off the above balance STCG with STCL brought forward from the A.Y. 2019-20 amounting to Rs.2,14,80,473/-.
The assessee filed objections before the Dispute Resolution Panel ( DRP ) and the DRP vide order under section 144C(5) of the Income Tax Act dated 28.06.2023 dismissed the objections filed by the assessee holding that STCG/STCL on derivative transactions were on a different footing than STCG/STCL on equity shares. Thereafter the AO passed the final assessment order under Section 143(3) read with Section 144C (13) on 26.07.2023 on the direction of the DRP after determining the tax liability without setting off of STCG loss taxable at the rate of 15% against the STCG on sale of derivatives taxable at the rate of 30% under section 70(2) of the Income Tax Act.
Mr. Hirali Desai, representing the assessee submitted that the setting off of STCL taxable at the rate of 15% under section 115AD of the Act against STCG taxable at the rate of 30% under section 111A read with Section 115AD of the Income Tax Act, cannot be disallowed and the Act does not provide for bifurcation of STCL in different categories on the basis of tax rates.
The bench have also gone through the decision of ITAT, Mumbai in the case of VEMF-A, LP (supra) wherein on identical issue and similar fact the ITAT has decided the issue in favour of the assessee
The two member bench of the tribunal comprising Amit Shukla ( Judicial member ) and Amarjith Singh ( Accountant member ) observed that the provisions of section 70(2), STCL arising from any asset can be set off against STCG arising from any other asset under a similar computation made irrespective of different rate of tax. Therefore following the decision of ITAT, the bench allowed the appeal of the assessee.
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