2018 (6) TMI 1188 - AT - Income Tax

Appellate Authority Upholds Carry Forward of Capital Loss, Rejects Revenue's Challenge

The appellate authority upheld the allowance of carry forward of short term capital loss by the Ld. CIT(A), rejecting the Revenue's challenge. The A.O. ... Claim of short term capital loss - claim of carry forward of short term capital loss denied as no revised return have been filed - Held that:- It is well settled law that even if A.O. could not have considered the claim of assessee but there is no bar on the powers of the appellate authority to consider the claim of assessee as per law. The powers of the CIT(A) are co-terminus powers to that of the A.O. Therefore, being the first appellate authority, Ld. CIT(A) correctly directed the A.O. to consider the claim of carry forward of the short term capital loss. The assessee is, therefore, not legally barred from making such claim. Ld. CIT(A), therefore, correctly directed the A.O. to consider the claim of assessee for carry forward of short term capital loss. Directions of the CIT(A) are modified to that extent that the A.O. shall verify the claim of assessee of carry forward of the short term capital loss as per law and shall pass the order accordingly, by giving reasonable, sufficient opportunity of being heard to the assessee Issues:1. Allowance of carry forward of short term capital loss contrary to Section 80 of the IT Act.2. Claim of short term capital loss made during assessment proceedings without filing a revised return.3. Validity of claim of short term capital loss due to forfeiture of amount paid towards convertible warrants.4. Consideration of claim for carry forward of short term capital loss by the appellate authority.Analysis:1. Issue 1 - Allowance of carry forward of short term capital loss contrary to Section 80 of the IT Act:The Revenue challenged the order of the Ld. CIT(A) regarding the allowance of the claim of carry forward of short term capital loss. The A.O. contended that the claim was not permitted as it was made during assessment proceedings and not in the original return of income. However, the assessee argued that the loss was incurred due to the forfeiture of the amount paid for the allotment of share warrants, which constitutes a capital loss. The Ld. CIT(A) held that the assessee is not legally barred from making a fresh claim even without filing a revised return, citing relevant case laws. The appellate authority directed the A.O. to carry forward the short term capital loss as per law after verifying the claim made by the assessee.2. Issue 2 - Claim of short term capital loss made during assessment proceedings without filing a revised return:The assessee incurred a short term capital loss on the acquisition of share warrants but did not claim it in the original return of income. The claim was made during assessment proceedings, and the A.O. disallowed it on the basis of non-filing of a revised return. However, the assessee argued that the A.O. should assess the correct income and grant reliefs/refunds even without a revised return, as per CBDT Circular No. 114 XL-35 of 1955. The Ld. CIT(A) agreed with the assessee, stating that the A.O. should consider the claim of carry forward of the short term capital loss, even without a revised return, and directed the A.O. to verify the claim as per law.3. Issue 3 - Validity of claim of short term capital loss due to forfeiture of amount paid towards convertible warrants:The assessee suffered a loss due to the forfeiture of the amount paid for share warrants, which was treated as a capital loss. The Ld. CIT(A) referred to relevant judgments and held that the appellant is not legally barred from making a fresh claim, even without filing a revised return. The appellate authority directed the A.O. to allow the carry forward of the short term capital loss after verifying the claim made by the appellant.4. Issue 4 - Consideration of claim for carry forward of short term capital loss by the appellate authority:The Ld. CIT(A) considered the explanation of the assessee and relevant case laws to support the claim of carry forward of short term capital loss. The appellate authority held that there is no impediment under the law for the A.O. to consider the claim made by the appellant during assessment proceedings, even without a revised return. The Ld. CIT(A) directed the A.O. to allow the carry forward of the short term capital loss after verifying the claim made by the appellant.In conclusion, the Departmental Appeal was dismissed, and the A.O. was directed to verify the claim of carry forward of the short term capital loss as per law and pass the order accordingly, providing the assessee with a reasonable opportunity to be heard.