Appeal granted for set-off of Long-Term Capital Loss against Gains with carry forward of losses.

The Tribunal allowed the appellant's appeal, permitting the set-off of Long-Term Capital Loss (LTCL) of Rs. 311.80 Lacs against Long-Term Capital Gains (LTCG) of Rs. 176.62 Lacs and the carry forward of unutilized losses of Rs. 135.18 Lacs. The decision was based on distinguishing between the exempt income from LTCG on equity shares and the entire source of capital gains, allowing the set-off of losses from the sale of shares against gains from the sale of properties.

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Issues Involved:
1. Disallowance of setoff and carry forward of Long-Term Capital Loss (LTCL) against Long-Term Capital Gains (LTCG).

Issue-wise Detailed Analysis:

1. Disallowance of Setoff and Carry Forward of Long-Term Capital Loss:

Facts and Background:
The appellant, a corporate entity engaged in software development, was assessed for AY 2013-14. The income was determined at Rs. 162.39 Lacs after adjustments, against the returned income of Rs. 34.72 Lacs. The appellant earned LTCG of Rs. 127.67 Lacs on the sale of properties and claimed exemption u/s 10(38) for LTCG of Rs. 48.94 Lacs on the sale of quoted equity shares. Simultaneously, the appellant incurred LTCL of Rs. 311.80 Lacs on similar transactions and sought to set off this loss against the aggregate LTCG of Rs. 176.62 Lacs, carrying forward the balance of Rs. 135.18 Lacs.

Assessment Proceedings:
The Assessing Officer (AO) denied the set-off and carry forward of LTCL, reasoning that since LTCG on quoted equity shares was exempt u/s 10(38), similar losses could not be adjusted. The AO relied on the principle that income includes losses, applying the logic that if income is exempt, so are the losses from the same source.

CIT(A) Decision:
The CIT(A) upheld the AO's decision, emphasizing that Section 10(38) excludes both income and losses from computation. The CIT(A) referenced multiple case laws, including CIT v. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118 (SC), which established that income includes losses, and thus, exempt income implies exempt losses.

Tribunal's Analysis:
The Tribunal reviewed the relevant legal provisions and case laws. It noted that the primary issue was whether LTCL on sale of quoted equity shares could be set off against LTCG on the sale of properties, given that LTCG on similar transactions was exempt u/s 10(38).

Key Judicial Pronouncements Considered:
- CIT v. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118 (SC): The Supreme Court held that income includes losses, so exempt income implies exempt losses.
- Kishorebhai Bhikhabhai Virani v. ACIT [2015] 55 taxmann.com 91 (Gujarat): The Gujarat High Court held that losses from exempt income sources are not includable in total income computation.
- Royal Calcutta Turf Club v. CIT [1983] 144 ITR 709 (Cal.): The Calcutta High Court allowed set-off of losses from exempt sources against taxable income, distinguishing between the entire source being exempt and only a part of the source being exempt.

Tribunal's Conclusion:
The Tribunal favored the appellant, distinguishing between the entire source of income being exempt and only a part of it. It concluded that Section 10(38) exempts only the income from LTCG on equity shares, not the entire source of capital gains from shares. Thus, LTCL from the sale of shares could be set off against LTCG from the sale of properties.

Final Decision:
The Tribunal allowed the appeal, permitting the set-off of LTCL of Rs. 311.80 Lacs against LTCG of Rs. 176.62 Lacs and the carry forward of unutilized losses of Rs. 135.18 Lacs.

Order Pronounced:
The appeal was allowed, and the order was pronounced in open court on December 20, 2019.

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