AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (12) TMI 1524
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.... earned the following income/incurred a loss during the previous year relevant to A.Y. 2025-26:- i) short term capital gains from sale of equity shares and units of equity oriented mutual funds on which STT (Securities Transaction Tax) was paid [STCG (STT paid)] aggregating to Rs. 7,27,88,354.28/- before 23rd July 2024 and Rs. 10,39,73,782.21/- after 23rd July 2024; ii) short term capital loss from sale of equity shares on which STT was paid [STCL (STT paid)] in the sum of Rs. 2,73,94,464.26/- before 23rd July 2024 and Rs. 10,52,70,441.02/- after 23rd July 2024; and iii) short term capital gains from sale of debt mutual funds on which STT was not paid [STCG (non-STT paid)] aggregating to Rs. 52,85,241.68/- before 23rd July 2024 and Rs. 2,06,48,196.17/- after 23rd July 2024. 4. The Petitioner was desirous of computing its total income inter-alia by first setting off the STCL (STT paid) earned by it against the STCG (non-STT paid). According to the Petitioner this was in accordance with the mandate of Section 70(2) of the IT Act. Further, according to the Petitioner the following decisions supported its case, viz., CIT v. Rungamatee Trexim Pvt. Ltd. [ITA....
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....d this Court under its extra-ordinary jurisdiction to intervene and resolve the situation. 9. At the time of hearing, counsel for the Petitioner explained that the Petitioner had earned the following capital gains: Type Before 23 July 2024 After 23 July 2024 STCG (non-STT Paid) Rs. 52,85,241.68 Rs. 2,06,48,196.17 STCG (STT paid) Rs. 7,27,88,354.28 Rs. 10,39,73,782.21 STCL (STT paid) -Rs. 2,73,94,464.26 -Rs. 10,52,70,441.02 Net gains Rs. 7,00,30,669.06 He stated that the Petitioner wanted to set-off the losses in the following manner: Type Before 23 July 2024 After 23 July 2024 STCG (non-STT Paid) Rs. 0.00 Rs. 0.00 STCG (STT paid) Rs. 7,00,30,669.06 Rs. 0.00 Net gains Rs. 7,00,30,669.06 Total tax on STCG* Rs. 1,05,04,600.36 However, the utility of the income tax portal set-off the losses in a manner which resulted in the below position: Type Before 23 July 2024 After 23 July 2024 STCG (non-STT Paid) Rs. 52,85,241.68 Rs. 1,93,51,537.36 STCG (STT paid) Rs. 4,53,93,890.02 Rs. 0.00 Net gains Rs. 7,00,30,669.06 Total tax on ....
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....s defeated. The Act contains detailed provisions enabling the income tax department to scrutinize and verify a return, and to accept or reject a claim based on established procedure. Such verification is intended to take place after the return is filed. By disallowing the making of a claim at the stage of filing the return itself, the assessment process is rendered nugatory and the validity of a claim is pre-decided unilaterally by the Department-an approach wholly alien to the scheme of the IT Act. 12. To buttress his point Counsel relied on the judgement of this Court in the case of Lupin Limited v. DCIT [WP No.3565 of 2023, 26th March 2024] and highlighted that Lupin wanted to make a claim of deduction, based on a view taken by this Court which was affirmed by the Hon'ble Supreme Court. However, the electronic mode of filing the return did not permit the assessee to do so. On a Writ Petition being filed and on a direction by this Court, a manual return was permitted to be filed for making the said claim. When the manual return was processed, Lupin's claim was accepted. Hence, it was argued that the utility cannot be designed to prevent an assessee from making a claim, the cor....
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....gainst short term capital gain without STT. According to the assessee, the chronology for the set off by the A.O. was contrary to chronology adopted by the assessee, only because the assessee's mode resulted in concessional rate of the tax being applied to higher amount of short term capital gain which resulted more tax benefit to an assessee. On perusal of the provision of section 70, I find that there is no prohibition nor the Act compels the assessee to first set off short term capital gain with STT against short term capital loss with STT and then allows set off against short term capital gain without STT. In absence of any specific mode of set off provided in the Act and in absence of any prohibition and in absence of any specific chronology for set off prescribed in the Act, the assessee was entitled to exercise his option with regard to the chronology of set off which was most beneficial to the assessee. It is settled proposition of law that when a provision of the Act gives option to the assessee, such option should be exercised which will favour the assessee and not the revenue. The A/R for the assessee was well justified in relying on the decision of the Calcutta....
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....le in the prescribed electronic form, it could be declared by the Assessing Officer as defective (if all entries are not filled) or raise a demand for tax on the basis of the declared income under Section 143(1) of the Act or if the assessment is taken to scrutiny under Section 143(3) of the Act, then the petitioner will not be entitled to raise a claim of set off under Section 72 of the Act during the assessment proceedings. This in view of the decision of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. v CIT [2006] 157 Taxman 1/284 ITR 323 wherein it has been held that if a claim is not made by the assessee in its return of income, then, the Assessing Officer would have no power to entertain a claim otherwise then by way of revised return of income. The revised return of income if the petitioner attempts to file, would result in the petitioner not being able to make the claim, for which the revised return is filed as the revised return of income would also have to be filed in the prescribed electronic form which does not provide for such an eventuality. Thus, for the purposes of the subject assessment year if the return of income is filed electronically, it would....
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.... are of the view that awaiting the order of the Assessing Officer under section 139(9) of the Act, declaring the return as defective, will not help as the issue would continue to remain even if a fresh return is filed. The issue raised is a fundamental issue, which needs to be addressed by the CBDT. 10. It is in these aforesaid unusual circumstances, that we have not adopted the course of directing the petitioner to first demand justice from the Authority concerned before moving this Court in its writ jurisdiction. This view of ours is also supported by the fact that Mr. Walve, learned Counsel appearing for the Revenue on instructions states that the Assessing Officer who is present in Court states that in his experience he has not come across a case like this where the return which are prescribed under section 139D of the Act r/w Rule 12 of the Rules do not take into account the situation where the assessee's claim cannot be considered. Moreover, from the facts as noted above, this situation (like the present) may not be restricted only of this petitioner but could generally arise in other cases also. 11. Therefore, it would be appropriate that the petitioner....
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....ner also relied on the decision of this Court in the case of Lupin Limited v. DCIT [WP No.3565 of 2023, 26th March 2024] wherein the Court observed as under: "1. The learned Additional Solicitor General ("ASG") appearing for Respondents states, in view of the directions given by this Court on 5th February 2024, the Revenue has processed the paper returns filed by Petitioner under Section 143(1) of the Income Tax Act, 1961 ("the Act"). 2. Mr. Pardiwalla states the Assessing Officer ("AO") has allowed Petitioner's claim and passed an order dated 21^st March 2024 giving effect to the order passed by this Court on 5th February 2024 under Section 260 read with Section 143(1) of the Income Tax Act, 1961 ("the Act") for both the years. 3. Mr. Pardiwalla states, Petitioner may have certain grievances as regards the order passed by the AO on 21st March 2024 and for that will take such steps as advised in accordance with law including filing an appeal. Mr. Pardiwalla, states, keeping open the rights and contentions of the parties, Petitions may be disposed with liberty to take such steps as advised in accordance with law. 4. We need to note that in the ord....
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....make a claim in the return of income which he believes to be bona fide would deny him to pursue his claim under any provisions of the Act because the starting point is the return of income. 57. The scheme of the Income-tax Act also guides us in the direction that a claim must be made in the return of income. Section 80AC provides for deduction not to be allowed unless the assessee furnishes the return of his income. Therefore, looking at the scheme of the Income-tax Act as a whole, the claim cannot be denied from being made by modifying utilities, which prohibits an assessee from raising a claim in the return of income at the threshold itself. 58. We may draw support based on the observations made by various courts for arriving at our aforesaid analysis and conclusions : (a) In the case of CIT v. Ranchhoddas Karsondas the Supreme Court made the following observations with respect to taking cognisance of a return filed which was below the taxable limit (page 575 of 36 ITR) : "It is a little difficult to understand how the existence of a return can be ignored, once it has been filed. A return showing income below the taxable limit can be made even ....
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....12 of the Rules. However, the form as prescribed do not provide for eventuality that has arisen in the present case and may also arise in other cases. Thus, this is an issue to be brought to the notice of the Central Board of Direct Taxes, which would in case it finds merits in this submission, issue necessary directions to cover this gap." (c) The Allahabad High Court in CIT v. N. Khan and Brothers in the context of penalty made the following observation with respect to the right of an assessee while filing the return of income (page 340 of 92 ITR) : "Now, under section 139(1) a duty is cast upon every person to file a voluntary return if his income exceeds the maximum amount which is not chargeable to Income-tax. The question arises as to which income is contemplated by this provision, the income which the assessee believes to be his income or which is finally assessed by the Income-tax Officer. It is clear that at the time when a person is required to file a voluntary return, to assessment has yet been made against him. He is thus to be guided by what he himself believes to be his income. It is possible and it happens very frequently that an assessee may not co....
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.... income during the relevant previous year exceeded the maximum amount which is not chargeable to Income-tax. In this case, the contention of the assessee was that as it had suffered loss and also ultimately filed a loss return and, accordingly, there is justification for not filing the return within the time specified under section 139(1). The income contemplated under section 139(1) which imposes a duty on a person to file a voluntary return is the income which the assessee believes to be his income and not the income which is finally assessed. In such a case, if what the assessee considers to be his income is less than the maximum not chargeable to tax, he is not required to file a voluntary return. Even if, ultimately, his income is assessed at a figure which is taxable, he may not be liable for penalty under section 271(1)(a). To that extent, the Tribunal is right in principle. The holding of a bona fide belief of an assessee that his income is less than the maximum not chargeable to tax is essentially a question of fact. Merely because the accounts disclosed a loss, it could not be a bona fide ground for not filing a return under section 139(1). According to accountancy princi....
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....General are correct since that would be something which has to be examined by the quasi-judicial authorities under the Act in the first instance and not by a writ court in its exercise of extraordinary jurisdiction." 19. On the other hand, Ms. Mamta Omle Counsel for the Respondents argued that revenue will suffer a loss if this adjustment is allowed. This is because the STCG arising from transfer of equity oriented mutual funds on which STT has been paid, the tax is charged at (15% prior to July 2024, now 20% for subsequent transactions) and is distinct from normal STCG which is taxed at the regular slab or applicable rates. Ms. Omle further stated on the Petitioner's request for either modifying the utility to permit the making of the claim or the filing of a paper return wherein the claim could be made, were not appropriate. She stated on instructions that the Petitioner's Return of Income for A.Y.2025-26 will be selected for a limited scrutiny only to decide on the legitimacy of the Petitioners claim of first setting-off STCL (STT paid) against STCG (non-STT paid). Once a decision on this issue is taken in the assessment order, then, the law can take its course. 20. In res....