2011 (5) TMI 579 - AT - Income Tax

Disallowance of loss - transaction backed by delivery and non backed by delivery - Held that - In view of finding of fact in another group concern the A.O. should examine the nature of the transaction under taken by the assessee without getting affected/persuaded by the observations of the SEBI and JPC, unless they are applicable to the facts in assessee case. Aslo there was special audit conducted of assessee s transactions and the report was not placed on record. The A.O. is directed to consider the issues afresh - in favour of assessee by way of remand. Disallowance of interest - neither the bank has debited the assessee s loan account with interest nor the assessee has credited the bank account - Held that - The position of law is well settled that making of an entry or absence of an entry in the books of account cannot determine rights and liability of party - in view of the bank statement, the assessee is entitled to the deduction of interest as claimed by it - assessee has itself disallowed an amount of interest of Rs.4,80,00,000/- being not utilized for the purpose, the AO is directed to allow the balance amount of interest of Rs.3,65,59,646 - in favour of assessee. Carried forward of long term capital loss - Disallowance on the absence of any brokers notes and other details submitted - Held that - AO and CIT(A) despite of the furnishing the debit note by the assessee has not examined the issue properly, therefore the matter should go back to the file of the AO for reconsideration - in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance of loss in share trading transactions.
2. Disallowance of interest liability.
3. Disallowance of carried forward long term capital loss.

Issue 1: Disallowance of loss in share trading transactions:
The appellant, engaged in share broking, trading in shares and securities, declared a loss of Rs.25,75,04,370/-, but assessment was completed at a loss of Rs.5,68,53,690/-. The Assessing Officer disallowed losses of Rs.6,51,28,623/- on share trading due to lack of supporting documents like brokers bills and contract notes. The CIT(A) partly allowed the appeal, but the disallowance was upheld on appeal. The Tribunal set aside the issue for re-examination by the AO based on the lack of individual details examination and reliance on general principles from previous cases. The matter was sent back for fresh consideration by the AO.

Issue 2: Disallowance of interest liability:
The AO disallowed interest of Rs.8,47,77,146/- as the liability had not crystallized during the relevant year. The CIT(A) upheld this disallowance. However, the Tribunal noted that the bank had made entries for interest in the statement of account, indicating a crystallized liability. Following precedent, the Tribunal allowed the interest claimed by the assessee, directing the AO to allow the balance amount after considering the disallowed interest not utilized for business purposes.

Issue 3: Disallowance of carried forward long term capital loss:
The AO disallowed the long term capital loss of Rs.1,08,74,098/- due to lack of supporting documents beyond a chart showing sale and purchase of shares. The CIT(A) confirmed this disallowance without proper examination. The Tribunal found that despite the assessee providing a debit note, the issue was not adequately assessed by the revenue authorities. Therefore, the matter was remanded to the AO for fresh consideration after providing a reasonable opportunity to the assessee.

In conclusion, the Tribunal partly allowed the appellant's appeal for statistical purposes, setting aside various disallowances for re-examination by the Assessing Officer. The judgments were based on the need for proper examination of facts, supporting documents, and adherence to legal principles in determining tax liabilities.