Khodabhai Kalidas Patel, Ahmedabad vs Assessee

1. This appeal filed by the Assessee is against the order of CIT(A)-XI, Ahmedabad dated 18.07.2011 for A.Y. 2002-03.

2. The relevant facts as culled out from the material on record are as under.

3. Assessee is an individual having income from business, capital gains and interest. Assessee filed his return of income for A.Y. 2002-03 on 02.08.2002 declaring total income of Rs. 4,98,900/-. The case was selected for scrutiny 2 ITA No 2101/Ahd/2011 . A.Y. 2002-03 and thereafter the assessment was framed under section 143(3) vide order dated 24.01.2005 and the total income other than long term capital gains was determined at Rs. 3,77,930/- and the long term capital gains was determined at Rs. 2,15,949/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) and later on before Hon'ble Tribunal. Hon'ble Tribunal vide order dated 24.04.2009 in ITA No. 2236/Ahd/2005 restored the matter to the file of A.O to decide the issue of long term capital gains afresh in the light of the directions given therein. Pursuant to the directions of Tribunal, A.O passed order u/s. 143(3) r.w.s. 254 vide order dated 30.11.2010 and the total income was again determined at Rs. 5,93,879/- (comprising of total income other than long term capital gains at Rs. 3,77,930/- and long term capital gain at Rs. 2,15,949/-). Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 18.07.2011 dismissed the appeal of the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Assessee is now in appeal before us and has raised the following effective ground:-

1. The ld. CIT(A)-XI, Ahmedabad has erred in upholding the computation of income under the head long terms capital gain at Rs. 2,15,949/-.

4. During the course of assessment proceedings, A.O noticed that Assessee had computed long term capital loss on sale of shares and units after doing indexation by applying cost inflation index. He also noticed that Assessee had earned long term capital gains of Rs. 1,95,000/- on sale of bonus shares and the aforesaid long term capital gains were set off against the long term capital losses and thereafter on the resultant gains, the tax rate of 10% was applied by Assessee. A.O was of the view that as per the proviso to Section 112, the capital gains for listed securities or units should be calculated @ 3 ITA No 2101/Ahd/2011 . A.Y. 2002-03 10% before going to the provisions of second proviso to Section 48 and then the capital gain @ 20% should be computed as per the proviso to 2nd proviso to Section 48. He was of the view that Assessee may exercise one of the choices to the entire block of the listed securities but Assessee cannot claim capital loss by exercising the option of indexation in some listed securities against the capital gain arising by exercising the option of tax rate at 10% in some other listed securities. He accordingly worked out the long term capital gains taxable at 10% at Rs. 2,15,949/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who upheld the order of A.O by holding as under:-

2.2. I have considered the submissions made by the A. R. of the appellant and the observations of the assessing officer in the assessment order. The factual position of computation of capital gains is summarized by the appellant in submissions dated 14-07-2011 and for the sake of brevity the same is reproduced as under :-

Sr.N Particulars of Gain/loss as Indexed Income Income o. scripts. per books gain/loss computed assessed

1. Units of ULIP-71 -- (-)49,160 (-)49,160 29,699

2. Bonus shares of 1,95,000 1,95,000 1,95,000 1,95,000 Cipla Ltd.

3, Shares of APRO (-) 8,750 (-)24,870 (-)24,870 (-)8,750 Bio-Chem.

1,86,250 1,20,970 1,20,970 2,15,949 4 ITA No 2101/Ahd/2011 . A.Y. 2002-03

2.2.1As per the assessee the tax should be charged @ 10% of Rs. 1,20,970/-. He has contended that as per section 48, the option is with the assessee, whether to avail benefit of indexation while computing the capital gain. I agree with this legal position of computing capital gains ii/s. 48 of the I. T. Act. This contention is in confirmation of ITAT directions. However, I do not agree that charge of tax should be restricted to 10% of this computation specially when the assessee has taken benefit of indexation on some transactions. The Hon'ble ITAT direction is unambiguous on this issue and the same is reproduced as under:-

".......,... Thus it is seen that the legislature intended to tax the capital gains with indexation at 20% and to limit it without indexation to 10% thereof..."

Thus, as per these directions, maximum charge of tax will be 10% of capital gains without indexation. The A.O. has correctly computed capital gains of Rs. 2,15,949/- without indexation and taxed the same at 10%. In my considered view, the assessee has got the option of taking benefits of indexation, while computing the capital gain. However, if in some transactions, benefit of indexation has been taken, than income has to be taxed at the rate of 20% as per the provisions of section 112(1) and the directions of I.T.A.T, 2.2.2. In view of above, I do not find any infirmity in the assessment order and this ground of appeal fails.

5. Aggrieved by the aforesaid order of ld. CIT(A), Assessee is now in appeal before us.

6. Before us, ld. A.R. reiterated the submissions made before A.O and ld. CIT(A). She further submitted that the issue in the present case is directly covered by the decision of Bombay High Court in the case of CIT vs. Anuj A. Sheth (HUF) reported in (2010) 190 Taxman.com 330 (Bom). She further submitted that in the first round up appeal before Tribunal, hon'ble Tribunal had relied on the decision of Mumbai Tribunal in the case of Mohanlal N. 5 ITA No 2101/Ahd/2011 . A.Y. 2002-03 Shah (HUF) vs. ACIT 26 SOT 380 (Mum) and that the aforesaid decision which was relied upon by the Co-ordinate Bench has also been relied upon by the Mumbai Tribunal in the case of DCIT vs. Savla Motor Agencies Pvt. Ltd. reported in (2012) 19 Taxman.com 359 (Mum). She also placed on record the copy of the aforesaid decisions. She therefore submitted that in view of the aforesaid decision of Bombay High Court, the appeal of the Assessee deserves to be allowed. The ld. D.R. on the other hand supported the order of A.O and ld. CIT(A).

7. We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to computation of long term capital gains. In the present case, Assessee adjusted the loss on sale of shares (after considering the indexed cost) against the profit earned by the Assessee on certain shares (without indexation) and the resultant capital gains were offered to tax @ 10%. We find that the issue in the present case is covered by the decision of Hon'ble Bombay High Court in the case of CIT vs. Anuj. A Sheth (supra), the head note of which reads as under:-

Section 112, read with sections 48 and 70, of the Income-tax Act, 1961 - Capital gains - Tax on long- term capital gains - Assessment year 2001-02 - Whether for purpose of working out application of proviso to section 112, there is nothing in section which would deprive an assessee of indexation claimed on sale of shares where there is a resultant loss -Held, yes - Whether effect of proviso to section 112 is that benefit of cost inflation index or indexation would be available subject to condition that where tax on long-term capital gains, without adjustment for indexation, exceeds 10 per cent, such excess shall be ignored - Held, yes - During relevant assessment year, assessee entered into eight sale transactions of shares - In one transaction shares being bonus shares their cost of acquisition was nil and, therefore, entire sale consideration was considered as long-term capital gain - Out of remaining seven transactions, one sale resulted in long-term capital gain with indexation whereas in remaining transactions assessee reported a loss with indexation - Assessee set off long-term capital loss from long- term capital gains and paid a tax of 10 per cent on net long-term capital gain - Whether assessee's claim of computation of long-term capital gains was in consonance with proviso to section 112(1) - Held, yes 6 ITA No 2101/Ahd/2011 . A.Y. 2002-03

8. In view of the aforesaid decision of Hon'ble Bombay High Court which is applicable to the facts of the present case and in the absence of any contrary binding decision pointed out by Revenue in its support, we are of the view that the Assessee's ground deserves to be allowed and thus this ground of Assessee is allowed.

9. In the result, the appeal of Assessee is allowed.

Order pronounced in Open Court on 25 - 06 - 2015.

Sd/- Sd/- (KUL BHARAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad. TRUE COPY Rajesh

Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) - 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER

Deputy/Asstt.Registrar ITAT,Ahmedabad