2010 (11) TMI 716 - AT - Income Tax

Genuineness of loss from share transactions - The tribunal referred to the decision of the coordinate bench of the tribunal dated 25.11.2009 in case of Sai Mangal Investrade, another company of the same group in which the tribunal had found the transaction genuine - The tribunal also observed there were special audit in this case report of which was not placed on record - The tribunal therefore set aside the order of CIT(A) and restored the matter to the file of AO for passing a fresh order after necessary examination and after allowing opportunity of hearing to the assessee. Disallowance - Sundry balances written off - The claim has been allowed on the ground that the assessee could not file details to show that the amounts had been taken into account in the computation of income in the earlier years - Hence, the matter requires fresh examination as CIT(A) has passed the order ex parte and has confirmed the disallowance in the absence of details and evidence. Treatment of interest income of Rs.39,50,810/- income from other sources or business income - The tribunal following the judgment of Hon ble High Court of Madras in case of CIT vs Vellore Electric Corporation Ltd. (1998 -TMI - 15293 - MADRAS High Court) held that the business had not closed and the claim of expenditure had to be allowed - Respectfully following the said decision of the tribunal hold that the business of the assessee had not been closed in the relevant year and therefoe FDRs had to be treated as pledged in connection with the business which was in existence and therefore the interest income had to be treated as incidental business income. treatment of business loss of Rs.19,08,876/- speculation loss -The dispute is regarding treatment of loss arising from valuation of closing stock of shares and due to invocation of shares by the lenders amounting to Rs.19,08,876/-. The loss has been treated as speculation loss by the authorities below applying the provisions of Explanation to section 73 - The said Explanation does not apply in case where gross total income of the assessee mainly consists of income under the head other sources , house property income etc - In this case while dealing with the earlier ground have held that interest income of Rs.39,50,810/- has to be treated as business income - Therefore gross total income of the assessee mainly consists of business income and Explanation to section 73 would apply - Since the Explanation applies loss has to be treated as speculation loss - Therefore uphold the action of CIT(A) treating the loss as speculation and allowing the same to be carried forward. Interest under section 234B - This is only consequential and therefore the AO will re-compute the interest at the time of giving effect to this order.

Summary

Issues:
Treatment of interest income, genuineness of loss from share transactions, deemed speculation loss, charge of interest under section 234B.

Genuineness of Loss from Share Transactions:
The appeals were against the orders of CIT(A) for the assessment years 2002-03 and 2003-04. The dispute related to the treatment of interest income, genuineness of loss from share transactions, deemed speculation loss, and charge of interest under section 234B. The assessee claimed losses from share transactions, but the AO disallowed them as non-genuine based on JPC report findings. The CIT(A) confirmed the AO's decision, leading to the appeal. The tribunal noted that similar issues had arisen in earlier years and had been restored to the AO for re-examination. The tribunal set aside the CIT(A)'s orders and directed the AO to reevaluate the genuineness of the transactions.

Disallowance of Sundry Balances Written Off:
In the assessment year 2002-03, a dispute arose regarding the disallowance of sundry balances written off. The AO disallowed the claim as the assessee failed to provide justification and evidence. The CIT(A) confirmed the disallowance ex parte. The tribunal set aside this issue as well, directing the AO to pass a fresh order after allowing the assessee an opportunity to be heard.

Treatment of Interest Income:
For the assessment year 2003-04, a dispute arose regarding the treatment of interest income as business income. The AO treated it as income from other sources, which the CIT(A) upheld. The assessee argued that the deposits were for business purposes, even though debarred from share trading. The tribunal found that the business had not closed and allowed the claim, treating the interest income as incidental business income.

Treatment of Business Loss as Speculation Loss:
Another issue for the same assessment year was the treatment of business loss as speculation loss. The AO did not adjust the loss against interest income and carried it forward. The tribunal upheld the CIT(A)'s decision to treat the loss as speculation loss due to the gross total income mainly consisting of business income.

Charge of Interest under Section 234B:
The charge of interest under section 234B was deemed consequential, and the tribunal directed the AO to recompute the interest at the time of giving effect to the order.

In conclusion, the appeal for the assessment year 2002-03 was allowed for statistical purposes, while the appeal for the assessment year 2003-04 was partly allowed. The tribunal's decision was pronounced on 19.11.2010.