2009 (10) TMI 634 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition out of salary expenses and subscription charges.
2. Treatment of loss declared by the assessee as business loss versus speculation loss u/s 73 of the Income-tax Act.

Summary:

Issue 1: Deletion of Addition out of Salary Expenses and Subscription Charges

The first issue pertains to the deletion of the addition of Rs. 13,63,356 out of salary expenses and Rs. 7,28,220 out of subscription charges. The assessee claimed deductions for these expenses, which were significantly higher than the previous year. The Assessing Officer (AO) compared the expenses with the turnover and restricted the allowable expenses, suspecting them to be excessive. The ld. CIT (Appeals) deleted the addition, noting that the AO did not make any enquiries to prove the expenses were not genuine or unrelated to business activities. The Tribunal upheld the CIT (Appeals)'s decision, stating that the AO's disallowance was based on mere suspicion and not supported by any material evidence.

Issue 2: Treatment of Loss as Business Loss versus Speculation Loss u/s 73

The second issue concerns the treatment of a loss of Rs. 5,78,710 declared by the assessee. The AO treated the loss as speculation loss u/s 73, arguing that the assessee's business involved trading in shares, which falls under speculative transactions as per the Explanation to section 73. The ld. CIT (Appeals) disagreed, citing that the assessee was not part of a group of companies manipulating taxable income, and treated the loss as a business loss. The Tribunal, however, reversed the CIT (Appeals)'s decision, stating that the assessee's business did not fall under the exclusions provided in the Explanation to section 73. The Tribunal held that the profit or loss from share trading should be treated as speculative business, aligning with the decisions of various High Courts and the Supreme Court. The Tribunal emphasized that explanatory notes and circulars cannot override the clear language of the statute.

Conclusion:

The appeal by the revenue was partly allowed. The Tribunal upheld the deletion of the addition out of salary expenses and subscription charges but restored the AO's treatment of the loss as speculative business loss u/s 73.