2024 (4) TMI 834 - AT - Income Tax

Set-off of equity share short-term capital loss against derivatives gains u/s70(2) upheld despite different tax rates

Whether s. 70(2) permits set-off of short-term capital loss on sale of equity shares subject to STT against short-term capital gains from derivatives ... Disallowance of set off - sale of equity shares (STT) - short-term capital gains (STCG) on sale of derivatives and short-term capital loss (STCL) - difference in rate of taxation - determining the tax liability without setting off of STCG loss taxable at the rate of 15% against the STCG on sale of derivatives taxable at the rate of 30% u/s 70(2) - HELD THAT:- In the case of VEMF-A, LP [2017 (4) TMI 721 - ITAT MUMBAI] wherein on identical issue and similar fact the ITAT has decided the issue in favour of the assessee. It is clearly held that under the provisions of section 70(2), STCL arising from any asset can be set off against STCG arising from any other asset under a similar computation made irrespective of different rate of tax. Therefore, the issue in appeal in the case of the assessee is squarely covered by the decision of the ITAT. Thus, we allow the appeal of the assessee. In the result, the appeal of the assessee is allowed. Issues Involved:The issues involved in the judgment are:1. Jurisdiction of the notice under section 143(2) of the Income-tax Act.2. Set-off of short-term capital loss against short-term capital gain.3. Correct determination of Total Income.4. Levying of interest under section 234A & 234B.5. Initiation of penalty proceedings under section 270A for underreporting income.Jurisdiction of Notice under Section 143(2):The appeal challenged the jurisdiction of the notice under section 143(2) of the Act issued by the Assistant Commissioner of Income Tax, National Faceless Assessment Centre. The appellant contended that the notice was without jurisdiction, rendering all subsequent proceedings void ab initio. The issue was raised before the tribunal for consideration.Set-off of Short-term Capital Loss Against Short-term Capital Gain:The main contention in this issue was the disallowance of set-off of short-term capital loss (STCL) against short-term capital gain (STCG) by the Assessing Officer (AO). The appellant argued that the differential tax rates should not prevent the set-off, citing relevant legal provisions and judicial pronouncements. The dispute arose from the AO's decision to disallow the set-off based on the nature of the gains and losses, leading to the proposed addition to the total income.Correct Determination of Total Income:The appellant raised concerns regarding the correct determination of Total Income by the Assessing Officer. It was argued that the AO erred in determining the Total Income, leading to the consequential demand and interest levied under sections 234A & 234B of the Act. The discrepancy in the computation and determination of Total Income was a key issue in the appeal.Levying of Interest under Section 234A & 234B:The appellant challenged the levy of interest under sections 234A & 234B of the Act by the AO. The contention was based on the misstatement in the determination of Total Income, which led to the erroneous calculation of interest. The issue involved the correct application of the relevant provisions and the legality of the interest levied.Initiation of Penalty Proceedings under Section 270A:The final issue raised in the appeal was the initiation of penalty proceedings under section 270A of the Act due to alleged underreporting of income. The appellant contested the penalty proceedings, highlighting the errors in the assessment and computation of income by the AO. The issue of penalty proceedings was a significant aspect of the appeal, challenging the AO's decision based on the alleged underreporting of income.In conclusion, the judgment addressed various critical issues including jurisdiction of notice, set-off of capital gains and losses, correct determination of Total Income, levying of interest, and initiation of penalty proceedings. The tribunal considered the arguments presented by both parties, examined relevant legal provisions and judicial precedents, and made a decision in favor of the appellant on the issue of set-off of short-term capital loss against short-term capital gain, citing the provisions of section 70(2) and relevant case laws to support its decision.