Set-off of Capital Losses Allowed Despite Differing Tax Rates; “Similar Computation” refers to Head of Income
Issue
Whether an assessee can set off Short-Term Capital Loss (STCL) and brought-forward Long-Term Capital Loss (LTCL) against current year Long-Term Capital Gains (LTCG) under Section 70(2), even if the tax rates applicable to the gains and losses are different (e.g., 15% vs. 10% or 20%).
Facts
Assessment Year: 2023-24.
The Claim: The assessee sought to set off:
Brought-forward Long-Term Capital Loss (LTCL).
Current-year Short-Term Capital Loss (STCL) from shares and mutual funds.
Against: Current-year Long-Term Capital Gains (LTCG).
Revenue’s Objection: The Department denied the set-off, arguing that the tax rates on the losses (had they been gains) were different from the tax rate applicable to the LTCG. They interpreted “similar computation” to mean that set-off requires parity in tax rates.
Decision
Section 70(2) Interpretation: The Tribunal clarified that Section 70(2) explicitly permits the set-off of Short-Term Capital Loss against any income computed under the head “Capital Gains,” whether it is Short-Term or Long-Term.
Meaning of “Similar Computation”: The phrase “similar computation” refers to the computation mechanism under the head “Capital Gains” (Sections 45 to 55A). It does not imply that the tax rates must be identical.
No Prejudice to Revenue: The Tribunal noted that since the losses (STCL) were potentially taxable at a higher rate (e.g., 15% or 30%) than the gains being offset (LTCG at 10% or 20%), the Revenue was not prejudiced. In fact, the assessee was using a “high-value” loss to wipe out a “low-tax” gain.
Ruling: The Assessing Officer was directed to allow the set-off of both the brought-forward LTCL and current-year STCL against the LTCG.
Key Takeaways
Golden Rule of Set-off:
Short-Term Loss: Can be set off against Both Short-Term and Long-Term Gains.
Long-Term Loss: Can be set off Only against Long-Term Gains.
Tax Rate Irrelevance: You can set off a Short-Term loss (from shares, usually 15%) against a Long-Term gain (from property, usually 20%). The difference in rates does not block the set-off.
IN THE ITAT DELHI BENCH ‘C’
Ira Sharma
v.
Deputy Commissioner of Income-tax, CPC*
Sudhir Kumar, Judicial Member
and Manish Agarwal, Accountant Member
and Manish Agarwal, Accountant Member
IT Appeal No.1402 (Delhi) of 2025
[Assessment year 2023-24]
[Assessment year 2023-24]
NOVEMBER 18, 2025
Vipin Jain, AR for the Appellant. Om Parkash, Sr. DR for the Respondent.
ORDER
Manish Agarwal, Accountant Member.- The present appeal is filed by assessee against the order dated 19.02.2025 of Ld. Commissioner of Income Tax (A),/ADDL /JCIT(A)-3, Chennai [“Ld. CIT(A)”] in Appeal No. ADDL/JCIT(A)-3, Chennai/10020/2022-23 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of intimation order u/s 143(1) of the Act dated 28.02.2024 pertaining to Assessment Year 2023-24.
2. Brief facts of the case are that assessee is an individual and filed his return of income on 05.07.2023 declaring total income of INR 1,04,31,185/- after claiming set off of brought forward Long term capital loss of INR 7,09,283/- and further claimed set off of current year Long Term Capital loss on sale of 10,56,001 shares and short term capital loss of INR 7,50,902/- from redemption of mutual funds out of the Long Term Capital Gains (LTCG) from sale of shares and mutual funds. The CPC while processing the return of income in terms of order dated 16.01.2024 proposed variation and asked the assessee as to why set off of such loss should be allowed against the long-term capital gains. In reply, assessee filed his submission on 27.01.2024 however, the CPC without assigning any reasons, made the adjustment to the total income of the assessee. Accordingly, total income of the assessee was computed at INR 1,29,47,370/- as against INR 1,04,31,190/- declared by the assessee by disallowing unabsorbed brought forward capital loss as well as current years capital loss claimed against the Long terms capital gains declared.
3. Aggrieved by the said intimation order, assessee filed an appeal before ld. CIT(A) who vide impugned order dt. 19.02.2025, dismissed the appeal of the assessee by observing that set off of the capital loss claimed by the assessee against the capital gains are not from the same computation i.e. tax rates applicable on both the gains and losses are different and therefore, Ld. CIT(A) has not allowed the set off of losses against the LTCG declared by the assessee.
4. Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before the Tribunal by taking following grounds of appeal:-
| 1. | That on the facts and in the circumstances of the case, and in law, the Ld. DCIT, CPC Bengaluru, has erred in computing the Income of the assessee at Rs. 1,29,47,370, u/s 143(1) of the Income Tax Act 1961, vide intimation dated 28.02.2024, as against return filed shown income at Rs. 1,04,31,190, by making additions / disallowance totaling Rs. 25,16,180 to income declared. That addition made to income is incorrect, is against law, is without jurisdiction, and is required to be deleted. |
| 2. | That the Ld. CPC Bengaluru has erred in law in not setting off the brought forward Long Term capital loss on sale of property at Rs. 7,09,283 against current year Long term capital gain of Rs 25,92,655 on sale of NCD AND against long term capital gain of Rs. 58,47,157/- on redemption/sale of mutual fund and shares, allowable u/s 70 of the I Tax Act, 1961. |
| 3. | That the Ld. CPC Bengaluru has erred in law in not setting off the current year short term capital loss of Rs 10,56,001 on sale of shares (STT paid) AND short term capital loss on redemption of mutual funds (STT paid) at Rs. 7,50,902 against current year Long term capital gain of Rs 25,92,655 on sale of NCD AND against long term capital gain of Rs. 58,47,157/ on redemption/sale of mutual fund and shares, allowable u/s 70 of the Income Tax Act, 1961. |
| 4. | That variation made to income in proceedings u/s 143(1) despite objections filed by the assessee is against law and without jurisdiction. |
5. Before us, Ld. AR of the assessee filed written submission and submits that as per section 70 of the Act, the assessee is entitled to set off of brought forwards long term loss and current years short term capital losses against the LTCG computed under similar head of incomei.e. “Income from Capital Gains”. Ld. AR submits that the term “same computation” referred in section 70 of the Act is with respect to the computation of LTCG & STCG. To be specific, Long Term Capital Loss can be adjusted only against LTCG and Short Term Capital Losses can be adjusted against STCG and LTCG both. He thus, submits that term used “similar computation made for the AY” refers for computation under the head “Income from Capital Gain” which include both STCG & LTCG and there is no intention of the Legislature to segregate STCG and LTCG on the basis of the tax rate charged on different types of gains. He, therefore, requested for the set off of losses as claimed be allowed.
6. Ld. AR further placed reliance on the judgement of Co-ordinate Bench of Bangalore Tribunal in the case of ACIT v. MAC Charles India Ltd. [TS-105-ITAT-2015 (Bang)] wherein Co-ordinate Bench has allowed STCL on sale of capital assets taxable at a concessional rate of tax to be set off against STCG arising from transfer of other capital assets taxable at normal rate of tax notwithstanding the fact that the taxpayer also had STCG on sale of capital assets taxable at a concessional tax rate.
7. Ld.AR further placed reliance on the judgment of Co-ordinate Bench of Mumbai Tribunal in the case of Keshav S. Phansalkar v. ITO [2009] 126 TTJ 892 (Mum-Trib)/ in ITA No. 3261/Mum/2007 dated 03.06.2009.
8. On the other hand, Ld. Sr. DR for the Revenue vehemently supported the order of the lower authorities and requested for the confirmation of the same.
9. We have heard the rival contentions and perused the material available on record. In the present case, the dispute is with respect to the allowability of set off of brought forward long term capital loss and further set off of current years short terms capital loss against LTCG declared under the head “Income from Capital Gains”. The contention of the Revenue is that tax rate on the STCG, loss of which is claimed set off against the LTCG is different than the tax rate applicable on the STCG / LTCG against which set-off of brought forward/current year loss is claimed. Here it is relevant to mention that the tax rate on the Short term capital loss claimed by the assessee is higher than the tax rate on the LTCG against which set off is claimed by the assessee. Section 70(2) provides the set off short term loss to be adjusted/set off against the income under the similar computation made for the AY in respect of any other capital assetsi.e. short terms capital loss can be set off against STCG as well as LTCG. In plain words, here the Legislature used the word “similar computation” for making specific reference of the head under which the income is computed i.e. The “Income from Capital Gain” and nowhere it is provided that short term / long term capital loss can only be set off from the STCG/LTCG having same rate of tax.
10. Similarly, sub-section (3) of section 70 provides the set off of long term capital loss against LTCG only and here also, the term “similar computation for AY” refers the computation under the head “Income from Capital Gains” irrespective of the different rate of tax charged on various types of LTCG. This view is supported by the judgement of Co-ordinate Bench of the Bangalore Tribunal in the case of Mac Charles India Ltd. (supra) and Co-ordinate Bench of Mumbai Tribunal in the case of Keshav S. Phansalkar (supra) wherein Co-ordinate bench has even allowed the set off of brought forwards/current year loss under the head “capital gains from current years” and long terms capital gains chargeable at the rate of higher rate of tax as compared to tax rate chargeable on the losses.
11. As observed above, the tax rate chargeable on the short term/long term capital loss is more than the tax rate chargeable on the Long Term Capital Gains against which such losses are claimed to be set off. Thus, even otherwise, there is no loss to the Revenue, as income taxable at the higher rate of tax is claimed to be adjusted against the income taxable at the lower rate.
12. In view of the above facts, we find that the claim of the assessee of set off of brought forward long term capital loss and current years short terms capital losses against the current year Long terms capital gain is in accordance with the provisions of section 70 of the Act and therefore, CPC and Ld. CIT(A) has wrongly disallowed the same which order is hereby, quashed. Accordingly, the AO is directed to allow the set off of brought forward long terms capital loss of INR 7,09,283/-and also current year short terms capital loss from the sale of shares of INR 10,56,001/- and short terms capital loss of INR 7,50,902/- on redemption of mutual funds as claimed. Therefore, all the three grounds of appeal raised by the assessee are allowed.
13. In the result, appeal of the assessee is allowed.