Tribunal Allows Fresh Evidence and Carry Forward of Long-Term Capital Loss in Tax Dispute Resolution.

The Tribunal remanded the first issue concerning disallowance under Section 40(a)(ia) to the AO for verification, allowing the assessee to present fresh evidence. For the second issue, the Tribunal directed the AO to allow the carry forward of the long-term capital loss on listed securities, concluding that the appeal was allowed for statistical purposes.

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Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act.
2. Denial of carry forward of long-term capital loss on listed securities.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Income Tax Act:

The first ground of appeal concerns the disallowance of Rs. 4,48,776/- out of the total addition of Rs. 23,70,602/- made by the Assessing Officer (AO) under Section 40(a)(ia) for non-deduction of TDS under Section 194C. The assessee argued that the payment to the Royal Calcutta Turf Club was a reimbursement and not subject to TDS. The AO, after an enquiry under Section 133(6), determined that the payment was made under a works agreement, necessitating TDS. Consequently, the AO disallowed the entire expenditure. On appeal, the CIT(A) found that Rs. 19,21,824/- was not in the nature of 'works' and thus not subject to Section 194C, reducing the disallowance to Rs. 4,48,776/-.

Upon review, the Tribunal noted that if the payee (Royal Calcutta Turf Club) had included the receipts in their income and paid taxes, the disallowance under Section 40(a)(ia) would not apply. The Tribunal remanded the issue back to the AO for verification, allowing the assessee to present fresh evidence. Thus, Ground No.1 was allowed for statistical purposes.

2. Denial of Carry Forward of Long-Term Capital Loss on Listed Securities:

The second ground of appeal was against the denial of carry forward of a long-term capital loss of Rs. 6,05,425/- incurred on the sale of listed securities. The assessee, engaged in horse racing and acting as a commission agent, had sold listed shares resulting in a long-term capital gain of Rs. 77,330/- and a long-term capital loss of Rs. 6,05,425/-. The AO denied the carry forward due to the lack of proper details. The CIT(A) held that the gain was exempt under Section 10(38) and thus the loss should be ignored.

The Tribunal examined whether the long-term capital loss from the sale of listed shares could be set off and carried forward. The Tribunal found that Section 10(38) exempts only the positive income from tax and does not exclude the entire source. The Tribunal cited the judgment of the Calcutta High Court in Royal Calcutta Turf Club v. CIT, which allowed the set-off of losses even if the income from the same source was exempt. The Tribunal also referenced the decision of the ITAT Mumbai in Raptakos Brett & Co. Ltd Vs DCIT, which supported the assessee's claim for set-off.

The Tribunal concluded that the long-term capital loss on the sale of listed shares should be assessed and allowed to be carried forward, directing the AO to follow this ruling. Consequently, Ground No.2 was allowed.

Conclusion:

The appeal was allowed for statistical purposes, with the Tribunal remanding the first issue to the AO for verification and directing the AO to allow the carry forward of the long-term capital loss on listed securities. The order was pronounced in the open court on 01 July 2019.

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