2012 (12) TMI 82 - HC - Income Tax

Broken period interest - classification of the securities as permanent or current - allowability of interest of securities held as investments and stock in trade - held that - in view of decision in T.C.(A).No. 455 of 2008 dated 30.10.2012, decided against the assessee. Set off of carried forward losses of earlier years - held that - there is no consideration of the said question by the Tribunal - matter remanded back to AO. Valuation of securities in respect of stock-in-trade - matter remand to the Assessing Officer for his consideration on the issue in terms of the decision of the Apex Court in the case of UCO Bank Vs. CIT 1999 (9) TMI 4 - SUPREME COURT Disallowance of Interest - Assessee submitted that when the consistent case of the assessee is that they had not expended anything in making investment for the tax free securities, the Tribunal committed serious error in upholding the order of the authorities below restricting 2% of the income earned towards the estimated expenditure. Learned counsel for the assessee pointed out that when the assessee had not expended anything on the investment in securities, there is no question of proving any such expenditure in earning income from tax free securities. It is seen from the order of the assessment that the assessee earned income from investment on tax free securities as specified in Section 10(15) of the Income Tax Act. When the assessee was specifically asked as to the expenditure incurred thereon, the assessee submitted that there was no expenditure incurred or expended for earning such interest income. The Officer held that in the absence of any evidence, the claim could not be considered. We agree with the assessee s contention that there could be no evidence that could be let in, to prove the non-existent expenditure; the assessee could nevertheless have substantiated the nature of the securities in which it had invested and the source from which it had invested. Since no details are available on this - restore the assessment back to the Assessing Officer for the purpose of enabling the assessee to let in evidence, particularly, as to the source to which it made investments. Depending on the materials available, it is open to the Officer to pass orders thereon - Tax Case (Appeal) is dismissed. No costs.

Issues Involved:
1. Addition in the value of securities based on differentiation between permanent and current securities
2. Deletion of addition on account of appreciation in the value of securities
3. Disallowance of estimated expenditure apportionable to earning income from tax-free securities
4. Acceptance of claim regarding broken period interest
5. Classification of securities as permanent or current
6. Confirmation of assessment representing interest paid as undisclosed income
7. Consideration of set off of carried forward losses of earlier years

Analysis:

1. Addition in the value of securities based on differentiation between permanent and current securities:
The High Court considered whether the Income Tax Appellate Tribunal was correct in holding the addition in the value of securities based on differentiation between permanent and current securities. The Court referred to previous decisions and concluded that the Tribunal's decision was upheld against the assessee.

2. Deletion of addition on account of appreciation in the value of securities:
The Court examined whether the Tribunal should have deleted the entire addition on account of appreciation in the value of securities. Referring to past judgments, the Court held that the Tribunal's decision was appropriate, and the addition was not deleted.

3. Disallowance of estimated expenditure apportionable to earning income from tax-free securities:
Regarding the disallowance of estimated expenditure, the Court noted the assessee's argument that no expenditure was incurred in making investments for tax-free securities. The Court agreed with the assessee, stating that there was no evidence of such expenditure, and remanded the assessment back to the Assessing Officer for further consideration.

4. Acceptance of claim regarding broken period interest and classification of securities:
The Court addressed the issue of broken period interest and the classification of securities as permanent or current. Referring to previous decisions, the Court set aside the Tribunal's order and remanded the matter to the Assessing Officer for reconsideration based on relevant legal principles.

5. Confirmation of assessment representing interest paid as undisclosed income:
The Court reviewed whether the assessment of the sum representing interest paid was treated as undisclosed income. The Court upheld the Tribunal's decision confirming the assessment, in accordance with applicable legal precedents.

6. Consideration of set off of carried forward losses of earlier years:
The Court examined whether the Tribunal had considered the appellant's claim regarding the set off of carried forward losses of earlier years. Noting that the Tribunal had not addressed this issue, the Court agreed with the assessee's submission and directed the matter to be remitted back to the Assessing Officer for proper consideration.

In conclusion, the High Court dismissed the Tax Case (Appeal) and directed no costs to be awarded.

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