2013 (12) TMI 630 - AT - Income Tax

Tribunal denies carry-forward of losses on STT-exempt transactions under tax rule

The tribunal upheld the decisions of the Assessing Officer and CIT(A), ruling that carry-forward losses on transactions with STT income exempt under ... Re-opening of assessment u/s 147 – The assessee has carried forward long term capital loss on sale of shares which were subjected to STT - Held that:- The AO was justified in reopening the case on account of wrongly allowing carry forward of long term capital losses on account of transaction with STT which are exempted under section 10(38) – Decided against assessee. Issues:1. Reopening of assessment and carry-forward of long-term capital loss on sale of shares subjected to Securities Transaction Tax (STT).Analysis:1. The appeal was filed by the assessee against the Order of the CIT(A)-3, Mumbai for the assessment year 2006-2007, objecting to the confirmation of the reopening of the assessment and the subsequent confirmation of the Order of the Assessing Officer regarding the carry-forward and set off of long-term capital loss on the sale of shares subjected to STT payment.2. The assessment was initially completed under section 143(3) of the I.T. Act, accepting the return of income of the assessee. However, it was later discovered that the claim of carry-forward and set off of long-term capital loss on the sale of shares subjected to STT was erroneously allowed. The Assessing Officer issued a notice under section 148 of the I.T. Act, leading to the reopening of the assessment. The CIT(A) upheld the reopening, stating that the income from transactions subjected to STT is exempt under section 10(38) of the Act, thus disallowing the carry-forward of losses on these transactions.3. The CIT(A) found that the Assessing Officer's decision to withdraw the carry-forward losses was valid as the income from transactions with STT was exempt under section 10(38) of the Act. The CIT(A) also rejected the assessee's claim for carry-forward of long-term capital loss, emphasizing that if the income is exempt, then the loss on the same transaction cannot be carried forward. The appeal before the tribunal challenged these findings.4. The tribunal upheld the decisions of the Assessing Officer and CIT(A), agreeing that the carry-forward losses on transactions with STT income, exempt under section 10(38), cannot be allowed. The tribunal found no error in the reopening of the assessment or in disallowing the carry-forward of long-term capital loss on shares exempt under section 10(38). It was affirmed that any income exempt from tax cannot generate a loss to be carried forward for set off.5. Ultimately, the tribunal dismissed the appeal of the assessee, affirming the decisions of the lower authorities regarding the reopening of assessment and the disallowance of carry-forward of long-term capital loss on shares subjected to STT.