East Bridge capital Master Fund I Ltd. Vs DCIT (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT), Mumbai, in its order dated July 2023, ruled in favour of the assessee, East Bridge Capital Master Fund I Ltd., regarding the set-off of short-term capital losses (STCLs) against short-term capital gains (STCGs) chargeable at a higher tax rate. The central issue in this appeal related to the method of setting off capital losses incurred from transactions liable to a lower tax rate (15%) against capital gains subject to a higher tax rate (30%).
Background:
During the financial year relevant to the Assessment Year (AY) 2020–21, the assessee earned STCGs totaling ₹238.41 crore, comprised of ₹63.14 crore taxable at 15% (u/s 111A) and ₹175.26 crore taxable at 30%. The assessee also incurred STCLs of ₹167.45 crore—of which ₹75.78 crore were under Section 111A (taxable at 15%) and ₹91.67 crore not covered under 111A. The net capital gains declared post set-off amounted to ₹70.96 crore.
However, the Assessing Officer (AO) rejected the assessee’s method of setting off losses. The AO held that STCLs under the 15% tax bracket cannot be used to offset gains taxable at 30%. Consequently, he recomputed the net gains and arrived at taxable STCG of ₹83.59 crore, significantly increasing the assessee’s tax liability.
