2013 (9) TMI 532 - AT - Income Tax

Speculative loss - Setting off the Brought Forward Losses Proportionate Expenses - Whether the CIT(A) was erred in not setting off the brought forward losses on shares as per last assessment order against current year profit from share activities and in not considering the proportionate expenses out of the expenses capitalized Whether or not the activity of the assessee regarding sale and purchase of shares was similar to the activity carried on by it in respect of sale and purchase of shares with regard to assessment year 2007-08 - Held that - There being lack of clarity on facts, it would be just and proper to restore the issue to the file of AO to bring all the facts on record and give a specific finding that where or not assessee s activity of sale and purchase of shares during the year remains same as it was in respect of assessment year 2007-08 and after determining this fact the AO will determine that whether such activity is speculative in nature - If such activity is speculative in nature then set off of earlier determined speculative loss is to be granted to the assessee - With these observations the issue was restored to the file of AO. According to the provisions of the Act brought forward speculative loss can be adjusted against speculative profit only - The AO in the computation of income had not determined the profit arising out of activity of sale and purchase of shares as speculative profit - the reason given by AO for disallowance of the claim of the assessee was absence of details regarding eligible losses. In the light of the material palced, The relevant observation of AO on the issue in respect of assessment years 2004-05 and 2005-06 from respective assessment orders have already been reproduced - The department cannot take different stand on the year under consideration as principle of consistency has to be followed - However, for verification of the quantum claimed by the assessee the issue was restored to the file of AO - After verifying the quantum the AO will allow the claim of the assessee according to the stand taken by revenue in respect of A.Ys 2004-05 and 2005-06 Decided in favour of Assessee.

Summary

Issues Involved:
1. Set-off of brought forward speculative losses against current year profit from share activities.
2. Consideration of proportionate expenses out of the expenses capitalized in the assessment year 2004-05.

Issue-wise Detailed Analysis:

1. Set-off of Brought Forward Speculative Losses Against Current Year Profit from Share Activities:

The assessee's activity of sale and purchase of shares was previously considered speculative for the assessment year 2007-08, resulting in a speculative loss of Rs. 43,72,246/- carried forward to the next year. For the assessment year 2008-09, the assessee earned a profit of Rs. 33,97,223/- from similar activities and sought to set off this profit against the carried forward speculative loss. The Assessing Officer (AO) disallowed this claim, citing the absence of details regarding eligible losses and asserting that the assessee was not entitled to claim carried forward losses. The CIT(A) upheld the AO's decision without addressing the assessee's submission that the loss was ordered to be carried forward in the previous assessment year as speculative loss.

The assessee argued that the department had treated similar activities as speculative in the previous year, and the loss should be set off against the current year's speculative profit. The AO did not assess any speculative income for the current year, thus disallowing the set-off. The tribunal observed that according to the Income Tax Act, brought forward speculative loss can be adjusted only against speculative profit. The AO's disallowance was based on the absence of details, but the speculative loss was already determined and carried forward in the assessment order for 2007-08. The tribunal found that if the assessee's activities in the current year were similar to those in the previous year, the department could not treat them differently. The tribunal restored the issue to the AO to verify whether the activities were the same and, if so, to allow the set-off of the speculative loss.

2. Consideration of Proportionate Expenses Out of the Expenses Capitalized in the Assessment Year 2004-05:

For assessment year 2004-05, certain expenses claimed as revenue expenditure by the assessee were treated as capital expenditure and allowed on a proportionate basis based on the area of flats sold. The AO disallowed Rs. 34,83,547/- of the total expenses, allowing only a proportionate amount. Similar treatment was given for assessment year 2005-06, where Rs. 23,37,210/- was allowed on a proportionate basis. The assessee claimed Rs. 2,82,872/- for the current year following the same pattern, but the AO rejected this claim.

The tribunal noted that the department had consistently followed a pattern in previous years, allowing proportionate expenses. The principle of consistency should be followed, and the department cannot take a different stand for the current year. The tribunal restored the issue to the AO to verify the quantum of expenses claimed and allow the claim according to the pattern followed in assessment years 2004-05 and 2005-06.

Conclusion:

The appeal filed by the assessee was allowed for statistical purposes. The tribunal directed the AO to verify the facts and allow the set-off of speculative loss and the proportionate expenses as per the consistent treatment in previous years.