Summary of this article
High court allowed STCL set-off against LTCG claim
Tax department failed to challenge consistent family rulings
Factual findings by ITAT and CIT(A) upheld fully
The Bombay High Court has allowed a taxpayer to set off a short-term capital loss (STCL) of Rs 5.18 crore against long-term capital gains (LTCG) of Rs 5.21 crore. The taxpayer, Jaising, had been denied the set-off by the income tax department, which had doubts about the genuineness of the losses. The decision has held that the findings by the appellate authorities are final unless there is a substantial legal question.
Block Assessment Background
Jaising, a company director with a holding company, was subjected to a search by the income tax authority in November 1999. Following this, a block assessment covering April 1989 to November 1999 was completed in January 2002. The assessment added undisclosed gains and unexplained cash credits, bringing his total assessed income to Rs 5.43 crore.
During the course of assessment, the assessing officer rejected Jaising's claim to set off STCL of Rs 5.19 crore against LTCG of Rs 5.21 crore as they viewed that the loss was not genuine, and was claimed only after Jaising had appealed to the Commissioner of Income-tax (Appeals) as well as the Income Tax Appellate Tribunal (ITAT).
Assessment Of Evidence
The appellate authorities analysed the details of Jaising's transactions, including the share transfer forms, valuation, and bank statements. Both CIT(A) and ITAT decided that the loss was real and the set-off was valid. They also believed that the revenue had not objected to similar claims in the assessments of Jaising's father and brother.
The authorities certified that the short-term loss and long-term gain were in the same block period. They also checked the date of transfer, cost of acquisition and sale consideration through valid documents. On these grounds, the set-off of loss against gains was allowed.
High Court's Ruling
The income tax department appealed to the Bombay High Court, contending that the STCL was not established and that the ITAT had erred in relying on the assessments of family members. The High Court rejected the appeal on the basis that the CIT(A) and ITAT had made a valid factual determination on the basis of evidence.
The court held that questions such as the genuineness of transactions, dates of transfer, and computation of gains were factual issues. As there was no substantial question of law involved, there was no ground for interference. The court also pointed out that the revenue cannot discriminate between family members or selectively take them to court on finalised decisions.
Consistency In Tax Treatment
The decision has held that consistency is the key to tax assessments. Once the revenue accepts a claim in one case in a family or group of assessees and allows the order to be final, it cannot thereafter challenge such a claim in another case.
The decision has also touched upon the importance of determining the correct date of transfer. The date of transfer will ultimately determine whether gains or losses are within the same assessment period. In this particular case, the date was proved by relevant documents, and therefore, the loss was put to proper use.
Legal Basis For Set-Off
Under Section 70(2) of the Income-tax Act, short-term capital losses are permitted to be set off against short-term and long-term capital gains. The court has also held that there is no legal impediment to setting off the loss provided the factual requirements are met, and the loss is properly computed.
Impact Of The Decision
The High Court decision has provided clarity to taxpayers in the case of group or family assessments. Not only has this decision restricted repetitive and inconsistent litigations by the revenue and reiterates that validly documented losses can be claimed against gains, but it also highlighted the importance of evidence and proper record keeping for capital gains transactions.
This decision is significant because it protects taxpayers from arbitrary objections and respects the finality of tax proceedings. After factual determinations are made, and similar disputes are resolved in a family group, the revenue authorities cannot take up an inconsistent stand.
The decision issued by the Bombay High Court states that the taxpayers have the right to set their short-term capital losses against their long-term gains, provided proper documentation is done. The decision maintains consistent treatment of family members as well as preventing arbitrary revenue activity.
