Exemption u/s 10(38) shall be allowed where Purchase and Sale of Shares on which LTCG is earned has been Genuinely Effected: ITAT [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) held that the exemption under Section 10(38) of the Income Tax Act, 1961 shall be allowed where the purchase and sale of shares on which long-term capital gain (LTCG) is earned has been genuinely effected. The assessee filed the return of income during the year by claiming a loss on the sale of equity shares of Rs. 2,66,49,388/- as exempt. However, while processing the return the said loss was not allowed and added to the income of the assessee by stating that by computing the income this has been reduced from the business income but has not been added as income from LTCG/other sources.

The intimation under Section 143(1) of the Income Tax Act was passed and the adjustment was made without giving any opportunity to the assessee. Rectification moved thereafter was also rejected summarily.

The Commissioner of Income Tax (Appeal) [CIT(A)] without appreciating the facts in the correct perspective directed the Assessing Officer (AO) to verify the genuineness of the loss claimed by the assessee and allow the same to be set off against the income from business and capital gain in accordance with the law.

The assessee has genuinely effected the purchase and sale of shares on which it had earned LTCG of Rs. 2,66,49,388/- which was rightly claimed as exempt under Section 10(38) of the Income Tax Act. The Two-member bench comprising of Rajesh Kumar (Accountant member) and Sonjoy Sarma (Judicial member) held that the AO had wrongly computed the income from business and profession at Rs. 58,67,024/- instead of a loss of Rs. 2,00,50,550/- as filed in the return of income by the assessee.

Therefore, the issue needs to be examined at the level of the AO as this involves the verification of facts and issues concerning the business income and loss on the sale of shares. Accordingly, the bench restored to the file of the AO with the direction to examine and allow the exemption under Section 10(38) of the Income Tax Act in respect of LTCG. Thus, the order of CIT(A) was set aside and the appeal of the assessee was allowed.

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