2012 (12) TMI 323 - AT - Income Tax

Claim of share trading loss - whether the assessee had declared the rights share in assessment year 1995-96 as stock-in-trade ? - Deduction u/s 80IA - Held that - The assessee was promoter of GVMCL and shares acquired as promoter of the company had been declared as investment in the balance sheet. The company had come out with rights issue in February 95 and assessee had subscribed to rights issue only with the intention of selling the rights shares. The intention of the assessee can be gathered from the nature of entry made in the books of account at the time acquisition of rights shares in February/March, 1995. The assessee has submitted that the assessee had obtained the balance sheet of assessment year 1995-96 from CIT(A) in response to application dated 30.11.2011, a copy of which has been enclosed with the affidavit showing that the shares of GVMCL had been declared as stock-in-trade but from the perusal of the said balance sheet it is noted that the same is not the certified copy of balance sheet given by CIT(A) from his records because it neither bears the stamp of the office of CIT(A) nor there is any covering letter from CIT(A) enclosing therewith copy of balance sheet. Therefore, it is not established whether the balance sheet for the assessment year 1995-96 now being filed is copy of balance sheet filed during the assessment proceedings for the assessment year 1995-96. Thus the matter requires verification at the level of CIT(A) restore the matter back to CIT(A) for passing a fresh order - in favour of assessee for statistical purposes.

Issues Involved:
1. Disallowance of loss of Rs.66,00,000/- claimed by the assessee as share trading loss.
2. Determination of whether the shares were held as stock-in-trade or investment.
3. Validity of the evidence provided by the assessee regarding the nature of shares.

Detailed Analysis:

1. Disallowance of Loss of Rs.66,00,000/-:
The primary issue in this appeal is the disallowance of a loss amounting to Rs.66,00,000/- claimed by the assessee as a share trading loss. The assessee had initially filed a return of income declaring a total income of Rs.7,75,094/-, which was accepted under section 143(1) but later reopened under section 148. Upon reassessment, the AO disallowed the loss, treating it as a short-term capital loss instead of a business loss. This disallowance was confirmed by CIT(A) and the Tribunal, leading to the question of law: "Whether on the facts and in the circumstances of the case and in law an amount of Rs.66.00 lacs is allowable as business loss to the appellant."

2. Determination of Whether the Shares Were Held as Stock-in-Trade or Investment:
The Hon'ble High Court noted discrepancies in the findings of the AO, CIT(A), and the Tribunal regarding whether the shares were held as stock-in-trade or investment. The High Court observed that the shares were shown as trading stock in the balance sheet produced before it, contrary to the earlier findings. The matter was restored to the AO for reconsideration. During fresh assessment proceedings, the AO required the assessee to produce evidence that the shares were held as stock-in-trade. The assessee provided a recast balance sheet showing the shares as stock-in-trade, claiming a correction of an earlier mistake. However, the AO found inconsistencies and a lack of evidence supporting the conversion of shares into stock-in-trade, leading to the disallowance of the claimed trading loss and treating it as a short-term capital loss.

3. Validity of the Evidence Provided by the Assessee:
The assessee contended that shares of Good Value Marketing Co. Ltd. (GVMCL) were shown as trading stock in the balance sheet for the assessment year 1995-96 and that any errors in the 1996-97 balance sheet were corrected in the recast version. The assessee provided various documents, including balance sheets, P&L accounts, and an affidavit, to support the claim of being in the share trading business and holding the shares as stock-in-trade. However, CIT(A) and the AO found discrepancies in these submissions. CIT(A) noted that the balance sheets provided during the assessment proceedings did not show shares as stock-in-trade and that the recast balance sheet submitted later was not consistent with the original records. The Tribunal observed that the matter required further verification, particularly regarding the balance sheet for the assessment year 1995-96, which the assessee claimed showed the shares as stock-in-trade.

Conclusion:
The Tribunal concluded that the issue of whether the shares were held as stock-in-trade or investment needed further verification. Specifically, it needed to be established whether the balance sheet for the assessment year 1995-96, now being filed, was indeed the same as the one filed during the original assessment proceedings. The Tribunal set aside the order of CIT(A) and restored the matter to CIT(A) for fresh examination and a new order after allowing the assessee an opportunity for a hearing. The appeal of the assessee was allowed for statistical purposes.

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