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Shri Naresh Jain Vs. The ACIT Circle-3 Jaipur - (Income Tax Appellate Tribunal) (11 Aug 2020)

Loss arose to Assessee on sales of another assets cannot set off from capital gain of previous assets

MANU/IJ/0140/2020

Direct Taxation

The facts in brief are that, the Assessee is an individual and filed his return of total income declaring income of Rs. 74,69,570. During the year under consideration, the Assessee sold a commercial property being a showroom for a total consideration of Rs. 1,40,00,000. The indexed cost of acquisition was Rs. 36,74,643. The expenditure in connection with transfer of property was Rs. 24,165 and thus, the long term capital gain from sale of property was Rs. 1,03,01,192. The amount of sale consideration so received was transferred to capital gain account and such amount was used for purchases of flat.

The Assessee claimed deduction of Rs. 1,03,01,192 under Section 54F of the Income Tax Act, 1961 ( IT Act). During the year, the Assessee has suffered long term capital loss of Rs. 14,76,730 on sale of shares which the Assessee claimed carried forward as long term capital loss for the current year. The Assessing Officer (AO) firstly set off the long term capital loss suffered from shares from the long term capital gain from sale of commercial property and after intra-head adjustment, the AO computed net long term capital gain at Rs. 88,24,461 and from this amount, he allowed deduction under Section 54F of IT Act and disallowed the carry forward the long term capital loss of Rs. 14,76,729 for the current year on sale of shares. By the impugned order, the learned Commissioner of Income Tax (Appeal) (CIT(A)) confirmed the action of the AO against which the assessee is in further appeal.

The main issue in present appeal is whether it is lawful to first compute capital gain after doing intra head adjustments and whether the deductions under Section54F of IT Act should be allowed from the net income computed after intra head adjustments.

The scheme of Sections 45 to 55A of IT Act, provide for the computation of capital gains, and the effect has to be given first to the provision of capital gains as given under the scheme and then apply the provisions of Section 70 of IT Act. Section 70 of IT Act would come into play only when the capital gains have been computed in accordance with the provisions contained in Sections 45 to 55A of IT Act. Thus, if, after work out of deduction under Section 54F of IT Act, if the capital gain arose on sale of certain assets is not chargeable to capital gain than the loss arose to Assessee on sales of another assets cannot set off from gain of such assets. It is not necessary that one should first apply Section 70(3) of IT Act and thereafter only, the Assessee could invest the capital gain arising from the long term capital asset.

Present Tribunal set aside the orders of lower authorities and direct the AO to compute the capital gain from sale of commercial property by not doing intra-head adjustment for the loss suffered from sale of shares and allow to carry forward the long term capital loss of Rs. 14,76,729 for the current year on sale of shares. The appeal of the Assessee is allowed.

Tags : ASSESSMENT   CAPITAL GAIN   SET-OFF  

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