TaxTMI 
TaxTMI 
2014 (9) TMI 120
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....gainst the expenditure in respect of the exempt income claimed by the assessee at Rs. 63,954/-. Subsequently, the Assessing Officer reopened the assessment u/s.148 of the I.T. Act by recording the following reasons: "2. In context of above letter submitted by you, the reason of reopening the assessment in your case for A.Y. 2005-06 is provided as under : It is seen from the record that the assessee has claimed set off of brought forward capital loss of Rs. 62,15,117/- from shares against long term capital gain on sale of land. During the AY 2005-06 the assessee is having income from Short term capital gain from shares as well as Long term capital gains from sale of land. The assessee should have set off b/f short term loss against short term capital gain on shares first, whereas the assessee has taken set off against long term capital gain from the sale of land. As per the provision of sec 70 of the Income Tax Act, adjustment of loss and profit between same sources is made first and remaining loss if any is adjusted against income from another source. Being the similar nature of loss and Tax rates, b/f short term c....
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.... of the case is concerned, it was submitted that brought forward loss was in respect of the shares sold in the years prior to 01-04-2004 in which the short term capital gain was chargeable to tax @30% which can be noted from the provisions of section 111A which was introduced after section 111 by the Finance Act, 2004 w.e.f. 01-04-2005. Therefore, the reason for which the Assessing Officer has reopened the assessment was legally and factually incorrect. It was submitted that the Assessing Officer himself in para 4.1 of the assessment order has stated that loss in one head should be set off against similar head chargeable at similar rate of tax. However, he has allowed loss on brought forward short term capital loss which was chargeable @30% against the income under the head "short term capital gain" which was chargeable @10%. It was submitted that provisions of section 74 are applicable to the case of the assessee which lays down that such brought forward loss relating to short term capital asset shall be set off against income, if any, under the head "capital gains" assessable for that assessment year in respect of any other capital asset. Various decisions were also brought to th....
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....oss relates to a short term capital asset, it shall be set off against income, if any under the head "Capital Gains" assessable for that assessment year in respect of any other capital asset." 5.2.3 In view of the above provisions it is evident that the short term capital loss brought forward can be set off against any income under head 'capital gains' of the current year. This proposition of law is also supported by Circular No.8 of 2002 dated 27/8/2002 explaining and clarifying the provisions of set off of capital loss. Para 40.2 of the said circular issued by the CBDT is relevant and hence reproduced below: "40.2 Since long term capital gains are subject to lower incidence of tax, the Finance Act, 2002 has rectified the anomaly by amending the said sections to provide that while losses from transfer of short term capital assets can be set off against any capital gains, whether short term or long term, loss arising from transfer of long term capital assets, will be allowed to be set off only against long term capital gains. It is further provided that a long term capital loss shall b....
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.... be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or hi response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year": From the above provisions of section 147 it is evident that in the cases where original assessment has been completed u/s 143(3) then the notice u/s 148 can be issued after expiry of 4 years from the end of the assessment year only if there is failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. I....
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....s, the assessee had set off c/f short term capita loss of Rs. 62,15,117/- chargeable at 10% with short term capital gain chargeable at 30% and long term capital gain chargeable at 20%. He submitted that interpretation of section 74 r.w.s. 70 derives that the principle of law is well stated, even though there is no explicit compulsion but implicit principle laid down by law that as far as possible loss under one head should be setoff against similar head chargeable at similar rate of tax. If it is not possible to set-off within the same head of income and rate of tax, then only alternatives should be exercised. He submitted that the assessee in the instant case has failed to set-off this b/f short term capital loss against exactly same head of income and rate of tax without any reason. On the contrary the assessee has wrongly set-off this b/f loss to avail benefits which are not explicitly granted by the law. He submitted that the reliance placed on decision of ITAT, Pune in the case of Coated Fabrics (P) Ltd vs JCIT reported in 102 TTJ (Pune) 1053(2006) by the assessee is misplaced. The decision was regarding the business loss to be set-off against capital gain. Facts and circumsta....
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....at the short term capital gains on sale of equity shares and funds from 01-04-2004 to 30-09-2004 at Rs. 14,44,429 which suffers tax @30% prevailing during that period. Similarly, the assessee had disclosed the short term capital profit on sale of "debt funds" at Rs. 7,23,524/- which also suffers to tax @30%. He submitted that the assessee has submitted full and complete particulars of income chargeable to tax and there was no failure on the part of the assessee to disclose all material facts necessary for completion of the assessment. Referring to the order of the Tribunal in the case of Kalyani Carpenter Special Steels Ltd. Vs. Addl.CIT for A.Yrs. 2004-05, 2006-07 and 2007-08 he submitted that the Tribunal under identical circumstances, following the decision of Hon'ble Bombay High Court in the case of Titanor Components Ltd., has held that in absence of an allegation by the AO in the notice issued u/s.148 that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment, reassessment proceedings are void ab-initio. Referring to the reasons recorded u/s.148 he submitted that there is no allegation on the pa....
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....nal in the case of JCIT Vs. Montgomery Emerging Markets Fund reported in 100 ITD 218 (Mum) (SB) he submitted that the Special Bench in the said decision has held that in view of provision of law containing in section 70 which existed for period from assessment years 1988-89 to 2002-03, loss arising from one source can be set off against income from any other source under same head of income and therefore for relevant assessment years setting off of short term capital gains against long term capital losses was permissible to compute amount for taxation under head "capital gains". He also relied on the decision of the Pune Bench of the Tribunal in the case of Coated Fabrics Pvt. Ltd. Vs. JCIT reported in 101 ITD 297. 9.3 So far as the issue relating to disallowance of portfolio charges amounting to Rs. 7,49,059/- he submitted that the issue stands decided in favour of the assessee by the decision of the Tribunal in the case of KRA Trading reported in 46 SOT 90 (para 7.2.1). He accordingly submitted that the order of the CIT(A) be upheld and the grounds raised by the Revenue should be dismissed. 10. We have considered the rival arguments made by both the sides, perused the order....
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....g the same as revenue expenditure. We find the Assessing Officer while reopening the case has relied on the assessment in the case of some other company namely Kalyani Forge Ltd. where expenditure on dies amounting to Rs. 2.24 crores were disallowed and added back to business income by treating the same as capital expenditure. It is seen from the reasons recorded by the Assessing Officer that the said addition was confirmed by the CIT(A) whereas the same was deleted by the ITAT and the Revenue has preferred an appeal before the Hon'ble High Court against the order of the Tribunal deleting the addition. 7.1 We find the Hon'ble Bombay High Court in the case of Titanor Components Ltd. (Supra) has observed as under : "4. According to the learned counsel, the Revenue is entitled to issue such a notice if the AO has reason to believe that income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee (a) to make a return under s. 139 or (b) in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or (c) to disclose fully and truly all material facts necessary for that asse....
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....ts fully and truly. It is only in the latter case that the Assessing Officer would be entitled to proceed under s. 147. We are supported in this view by a decision of a Division Bench of this Court in Hindustan Lever Ltd. vs. R.B. Wadkar, Asstt. CIT (2004) 190 CTR (Bom) 166 : (2004) 268 ITR 332 (Bom) where in a similar case the Division Bench held that reason that there was a failure to disclose fully and truly that all material facts must be read as recorded by the AO and it would not be permissible to delete or add to those reasons and that the AO must be able to justify the same based on material record. The Division Bench observed as follows (page 338): "He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence." We find in the circumstances that the impugned notice is not sustainable and is liable to be quashed and set aside. Accordingly, the writ petition is allowed in terms of prayer cls. (a) a....