Punita Kalpesh Patel Vs ACIT (ITAT Ahmedabad)
The appeal arises from an order confirming disallowance of ₹5,31,37,390 under section 94(7) of the Income Tax Act, 1961 for the Assessment Year 2018–19. The assessee had declared substantial long-term capital gains from sale of unlisted shares, which were set off against short-term capital losses arising from sale of listed shares and mutual fund units. The assessee also received dividend income from both shares and mutual funds, part of which was claimed exempt and part taxed at a concessional rate.
During assessment, the Assessing Officer examined transactions and found that several purchases and sales of securities and units satisfied the conditions of section 94(7), namely purchase within three months prior to the record date and sale within the prescribed period thereafter. Accordingly, the Assessing Officer disallowed short-term capital losses to the extent of dividend received from such transactions. This resulted in addition of ₹4,70,66,892 in respect of shares and ₹60,70,498 for mutual funds, aggregating to ₹5,31,37,390.
The assessee contended that section 94(7) should apply only to exempt dividend and not to dividend already taxed under section 115BBDA. It was argued that only ₹10,00,000 of dividend from shares was exempt, and therefore disallowance should be restricted accordingly. The assessee further submitted that only a limited number of transactions met the statutory conditions and quantified the disallowance at ₹32,76,735 based on detailed transaction-wise analysis.
