Nikesh Bhagwandas Mehta Vs ITO (ITAT Mumbai)
The Mumbai Income Tax Appellate Tribunal (ITAT) allowed the assessee’s appeal against the order of the Addl. CIT/Jt. CIT (A), Surat, relating to AY 2022-23. The dispute concerned denial of carry forward of long-term capital loss amounting to ₹37.72 lakh by the Central Processing Centre (CPC) while processing the return under Section 143(1) of the Income Tax Act.
The assessee had filed a return declaring total income of ₹49.53 lakh. During the relevant year, the assessee earned long-term capital gain of ₹69.84 lakh from sale of equity shares and claimed exemption under Section 54F. The assessee had also incurred long-term capital loss of ₹37.72 lakh on sale of another set of equity shares and claimed carry forward of such loss.
While processing the return, the CPC denied carry forward of the long-term capital loss. The CIT(A) upheld the action of the CPC by holding that long-term capital loss must first be adjusted against long-term capital gain under Section 70(3), and only the resulting net capital gain could thereafter qualify for exemption under Section 54F. On this basis, the long-term capital loss of ₹37.72 lakh was adjusted against the long-term capital gain of ₹69.84 lakh, leaving net capital gain of ₹32.11 lakh, which alone was allowed exemption under Section 54F.
