2012 (10) TMI 483 - AT - Income Tax

Addition on account of computation of Annual Letting Value - CIT(A) deleted the addition - Held that - The only reason given by the Assessing Officer for making the addition was his finding in the assessment year 1996- 97 which have been set aside by the CIT(A) and the findings of the CIT(A) have become final. Therefore, no basis is left with the Assessing Officer for making the enhancement in the ALP adopted by the assessee - In the light of view taken by the co-ordinate Benches in the preceding years on the identical issue, especially when the Revenue have not placed any material, controverting the aforesaid findings of the CIT(A) to enable to take a different view in the matter to interfere is required - in favour of assessee. Addition on account of expenditure not pertaining to business - CIT(A) deleted the addition - Held that - The assessee consistently followed the system of allocating direct expenses to the respective heads viz. house property and business income while indirect expenses were allocated in the ratio of 40 60 between house property and business income. Since the portion of expenses relating to house property income had already been disallowed by the assessee suo moto, keeping in view the past history and method followed by the assessee, the CIT(A) was of the opinion that the AO was not justified in making further disallowance of expenses since certain expenses were required for maintenance of the corporate structure of the assessee. In view of consistent practice followed by the assessee, especially when the Revenue have not placed any material controverting the aforesaid findings no different view in the matter is called for - in favour of assessee. Disallowance of set off of speculation loss - CIT(A) deleted the addition - Held that - The term derivatives in which underlying asset is shares, would fall within the meaning of commodity used in s. 43(5) and that cl. (d) of s. 43(5) introduced by Finance Act, 2005 w.e.f. 1st April, 2006 was prospective in nature and would be effective from the date from which the legislature made it effective, i.e. AY 2006-07 onwards. The case of the assessee relates to AY 2008- 09 and therefore, applicability of aforesaid cl. (d) of s. 43(5) of the Act is required to be examined - since neither the AO nor the CIT(A) examined the applicability of said clause (d) nor relevant facts and figures are before us it fair and appropriate to set aside the order of the CIT(A) and restore the matter to the file of the AO for deciding the aforesaid issue afresh.

Summary

Issues Involved:
1. Deletion of addition on account of computation of Annual Letting Value (ALV).
2. Deletion of addition on account of expenditure not pertaining to business.
3. Set off of speculation loss.

Detailed Analysis:

1. Deletion of Addition on Account of ALV Computation:
The Revenue challenged the deletion of Rs. 12,06,604/- added by the Assessing Officer (AO) based on his computation of the Annual Letting Value (ALV) of the assessee's property. The AO had adopted a rental value of Rs. 17,32,500/- for the property at M Block, Connaught Place, New Delhi, resulting in the addition. The CIT(A) deleted the addition, relying on the ITAT's decisions for the assessment years (AY) 2006-07, 2007-08, and earlier years. The ITAT upheld the CIT(A)'s decision, citing the principle of consistency and the absence of new material from the Revenue to challenge the CIT(A)'s findings. Consequently, the ITAT dismissed ground no. 1 of the Revenue's appeal.

2. Deletion of Addition on Account of Expenditure Not Pertaining to Business:
The AO had disallowed 75% of the administrative expenses, amounting to Rs. 57,69,977/-, on the grounds that the assessee's income was primarily from house property and not business. The CIT(A) allowed the claim, noting that the assessee was engaged in the business of trading stock futures and options, which is treated as non-speculative business under Section 43(5)(d) of the Income Tax Act. The CIT(A) found the assessee's method of allocating expenses consistent and justified, as it had been accepted in previous years. The ITAT upheld the CIT(A)'s decision, emphasizing the consistent practice followed by the assessee and the lack of contrary evidence from the Revenue. Thus, ground no. 2 of the Revenue's appeal was dismissed.

3. Set Off of Speculation Loss:
The AO disallowed the set off of speculation loss of Rs. 1,27,35,432/- claimed by the assessee, treating the loss as speculative under Section 73(1) of the Act. The CIT(A) allowed the claim, stating that the loss pertained to trading in stock futures and options, which are not speculative transactions as per Section 43(5)(d). The CIT(A) also noted that the assessee's gross total income mainly consisted of income from house property and other sources, excluding it from the purview of Explanation to Section 73. The ITAT found that neither the AO nor the CIT(A) had thoroughly analyzed the nature of the transactions. The ITAT set aside the CIT(A)'s order and remanded the matter to the AO for a fresh decision, directing the AO to clearly determine the nature of the transactions and their eligibility under Section 43(5)(d). Thus, ground no. 3 was disposed of with directions for further examination.

Residuary Ground:
No additional grounds were raised, and hence, the residuary ground no. 4 was dismissed.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions for re-examination of the set-off of speculation loss. The ITAT upheld the CIT(A)'s decisions on the ALV computation and the disallowance of expenses, emphasizing consistency and the lack of new evidence from the Revenue.