DCIT Vs Jayajothi and Company Private Limited (ITAT Chennai)
Loss on Sale of Shares Is Capital Loss, Not Disallowable Expense – ITAT Chennai Clarifies Correct Treatment
The Chennai Bench of the ITAT partly allowed the Revenue’s appeal for AY 2014-15 and clarified the correct tax treatment of loss on sale of shares amounting to ₹6.81 crore. The Tribunal held that although the assessee had initially debited the loss to the Profit & Loss Account and adjusted it against business loss, such an accounting mistake does not alter the intrinsic nature of the loss.
The ITAT affirmed that the loss arose from the transfer of capital assets (shares) and therefore must be assessed under the head “Capital Gains” as long-term capital loss, eligible for carry forward in accordance with law. The Tribunal emphasized that incorrect classification in books or return cannot convert a capital loss into an inadmissible expenditure, and legitimate losses cannot be denied merely due to computational or presentation errors.
At the same time, the Bench clarified that the loss cannot be treated as an admissible business expenditure. Accordingly, it directed the AO to treat the amount as inadmissible business expenditure while simultaneously recognizing it as long-term capital loss for the purpose of carry forward. Thus, while the Revenue succeeded to the limited extent of correcting the terminology, the substantive relief—recognition of the loss as LTCG loss—was upheld in favour of the assessee.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal by the revenue is filed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, for the assessment year 2014-15, dated 09.06.2025.
