Income Tax Dept. cannot Deny STCL Set-off against LTCG after accepting Same Claim in Factually-Identical Connected Cases: Bombay HC [Read Judgment]

The Bombay HighCourt has held that the Income Tax Department cannot deny the set-off of short-term capital loss (STCL) against long-term capital gains (LTCG) to an assessee after having accepted the same claim in connected cases involving identical facts.

The Court accordingly dismissed the Revenue’s appeal, reiterating that the principle of consistency bars the Department from adopting different stands in similar factual situations.

The instant case filed by the Revenue arose from block assessment proceedings conducted in the case of the respondent-assessee Avinash B. Jaising following a search and seizure action under Section 132 of the Income Tax Act, 1961.

In the block assessment, the Assessing Officer (AO) disallowed the assessee’s claim for set-off of STCL of ₹5.18 crore against LTCG of about ₹5.21 crore, all of which arose from share transactions. The AO contended that the losses were not genuine and were structured only to reduce the assessee’s effective tax liability; the amount was thus attributed to the assessee as undisclosed income.

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The assessee contended that claimed STCL arose from the transfer of shares of group companies pursuant to valuation reports and documented transactions and that the transactions were genuine and carried out through proper channels.

Notably, identical share transactions which led to similar STCL claims had occurred in the cases of the assessee’s father and brother where the Commissioner of Income Tax (Appeals) had allowed the set-off of STCL against LTCG, and the Revenue had accepted those orders without challenge.

In the assessee’s case, the CIT(A) had earlier allowed the STCL set-off by applying the same reasoning after noting that the facts, nature of transactions and documentation were identical to the connected cases which were already accepted by the Department.

The view was upheld by the Income Tax Appellate Tribunal (ITAT).

Aggrieved, the Revenue approached the High Court contending that each the assessment could not be deleted by merely placing reliance on similar orders passed in the cases of the assessee’s father and brother.

The Division Bench comprising Justice G. S. Kulkarni and Justice Aarti Sathe noted that both, the CIT(A) and the ITAT had recorded concurrent factual findings in respect of the set off of STCL against LTCG in the block period. The Court cited the need to maintain consistency in taxing statutes - here requiring the AO to rely on the orders passed in the factually-identical cases of the assessee’s father and brother.

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Accordingly, the High Court rejected the Revenue’s contention and held that once the Department has accepted a particular tax treatment in cases involving identical facts, it cannot arbitrarily deny the same benefit to another assessee.

Since no substantial question of law arose against the ITAT order, the Bombay High Court dismissed the Revenue’s appeal and upheld the assessee’s entitlement to set-off short-term capital loss against long-term capital gains.

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