2010 (5) TMI 667 - AT - Income Tax

Summary

Issues Involved:
1. Depreciation on Membership Card of Stock Exchange.
2. Allowance of Trading Loss out of Bad Debts.
3. Addition under Section 68 for Unexplained Cash Credits.
4. Charging of Interest under Sections 234A, 234B, 234C, and 234D.

Detailed Analysis:

1. Depreciation on Membership Card of Stock Exchange:
The primary issue was whether depreciation could be allowed on the membership card of the Ahmedabad Stock Exchange. The Assessing Officer denied the claim, arguing that the card was acquired before 1-4-1998 and did not fall under the categories specified in section 32(1)(ii). The CIT(A) allowed the claim, referencing the Tribunal's decision in V.G. Gajjar v. Dy. CWT, which recognized the card as a property and an asset. However, the ITAT, following the Bombay High Court's decision in Techno Shares & Stocks Ltd., concluded that the stock exchange card does not qualify as a business or commercial right or intellectual property under section 32(1)(ii). Consequently, the claim for depreciation was disallowed, reversing the CIT(A)'s decision and restoring the Assessing Officer's order.

2. Allowance of Trading Loss out of Bad Debts:
The assessee claimed bad debts or trading loss amounting to Rs. 5,77,44,844. The Assessing Officer rejected the claim, stating that the conditions under section 36(2) were not met and the assessee failed to prove it as a trading loss. The CIT(A) partially allowed the claim, recognizing Rs. 4,46,18,417 as trading loss based on the details and circumstances provided by the assessee. The ITAT, referencing various judgments, including CIT v. Bonanza Portfolio Ltd. and CIT v. D.B. (India) Securities Ltd., held that the entire amount of Rs. 5,77,44,844 was allowable as a business loss under section 28 since the debts arose from business transactions and the brokerage was included in the P&L account. Thus, the ITAT dismissed the revenue's appeal on this ground and allowed the assessee's claim in full.

3. Addition under Section 68 for Unexplained Cash Credits:
The Assessing Officer added Rs. 14,07,751 under section 68 for unexplained cash credits in the names of Ms. Bharti D. Vakil and D.C. Vakil, who denied any transactions with the assessee. The CIT(A) deleted the addition, noting that the funds came from the bank accounts of these individuals, even if managed by a third party, Ramesh N. Parikh. The ITAT disagreed, stating that the onus was on the assessee to prove the nature and source of the credits. Since the creditors denied knowledge of the transactions, the assessee failed to discharge this onus. Therefore, the ITAT restored the addition made by the Assessing Officer.

4. Charging of Interest under Sections 234A, 234B, 234C, and 234D:
The assessee contested the charging of interest under sections 234A, 234B, 234C, and 234D as consequential. The ITAT rejected this ground, stating that the charging of interest is consequential and must follow the outcome of the other issues.

Conclusion:
The appeal filed by the revenue was partly allowed, disallowing the depreciation on the membership card and restoring the addition under section 68. The appeal filed by the assessee was partly allowed, granting the entire claim of trading loss and recognizing the consequential nature of interest charges.