ITAT Delhi Quashes CPC’s Rs. 25 Lakh Addition; Allows Set-Off of STCL and LTCL Against Long-Term Gains

ITAT Delhi, in a recent case, ruled that capital losses can be adjusted against capital gains even if tax rates differ. The disallowance made by CPC was wrong, and the assessee’s appeal was allowed.

The case had been filed by a taxpayer named Ira Sharma against the DCIT in the Income Tax Appellate Tribunal (ITAT) Delhi. The appeal was filed challenging an order dated February 19, 2025, passed by the CIT(A), for the assessment year 2023-24.

The taxpayer filed his Income Tax Return (ITR) for the assessment year 2023-24, declaring the total income of Rs. 1.04 lakh after claiming a brought-forward long-term capital loss of Rs. 709,283, a long-term capital loss (LTCL) for the current year from selling 1,056,001 shares, and a short-term capital loss (STCL) of Rs. 750,902 from redeeming mutual funds.

He set off all these losses against his long-term capital gains (LTCG) from NCDs and mutual funds. The CPC disallowed all these adjustments and increased the taxpayer’s income. Accordingly, the total income of the assessee was computed at Rs. 12,947,370. Meaning, a total addition of Rs. 1.25 lakh was made to the taxpayer’s income.

The aggrieved taxpayer then filed an appeal before the CIT(A). The CIT(A) also agreed with the decision of the CPC and dismissed the taxpayer’s appeal, saying that set-off cannot be allowed because the tax rates on different gains/losses are different.

The dissatisfied taxpayer then filed an appeal before the ITAT Delhi. There, the taxpayer’s representative said that “the assessee in this case should be entitled to set off brought forward long-term loss and current-year short-term capital losses against the LTCG computed under a similar head of income, i.e., ‘Income from Capital Gains’.” Further cited the term “same computation” mentioned under section 70 of the Income Tax Act clearly says that Long Term Capital Loss can be adjusted only against LTCG, and STCL can be adjusted against both STCG and LTCG. The law does not say that tax rates must be the same. To support their argument, the taxpayer also cited an earlier judgment of ITAT Bangalore titled ACIT vs MAC. Charles India Ltd. reported in [TS-105-ITAT-2015], based on the same issue.

The tribunal endorsed the arguments served by the taxpayer and held that Capital losses can be set off against capital gains regardless of the tax rate. Section 70 does not restrict set-off based on different tax rates. STCL can be set off against LTCG; LTCL can be set off only against LTCG. The tax rate on the losses claimed was higher than the tax rate on gains, so the Revenue is not losing anything.

Thus, in the final decision, the tribunal allowed the taxpayer’s appeal and quashed the CPC and CIT(A) orders. Direct the Assessing Officer (AO) to allow Brought-forward LTCL of Rs. 7,09,283, STCL on sale of shares of Rs. 10,56,001 and STCL on mutual funds of Rs. 7,50,902. Meaning, the taxpayer’s original return income is restored.