2014 (5) TMI 359 - HC - Income Tax

Disallowance of loss in MCX division Held that - Following Commissioner of Income-tax- III Versus Jay Enterprise 2012 (6) TMI 545 - GUJARAT HIGH COURT - the AO did not deny the fact that the assessee is a bullion merchant and has a terminal of MCX as a member - the loss arose on account of dealing in commodities ordinarily dealt in by the assessee in its business - CIT(A) was of the view that the transactions were of an integrated nature and were entered into to guard against future losses and came within the exception to Section 43(5) of the Act the CIT(A) was justified in holding that the loss could not be said to be a speculation loss Decided against Revenue. Deletion of interest on unsecured loan Held that - The Tribunal confirmed the view of CIT (A) as in the case of assessee for the year 2006-07 - it had upheld the view of the CIT (A) by deleting the addition made on account of interest on unsecured loan - Revenue is unable to point out as to whether such issue was carried to the High Court in the earlier year - the total amount diverted from the Head Office to the MCX Division under the head of unsecured loan was to the very Division of the assessee, and was for the purpose of business transaction and the said fund was not advanced to any parties for non-interest bearing activities - the amount was diverted to its own business division and in absence of any diversion outside for activities not bearing interest the addition could not have been confirmed Decided against Revenue. Deletion of penalty expenses Shortage of sum - Held that - The Tribunal on the ground that the nature of penalty was not explained by the AO held that the penalty was on the business transaction and not for violation of statute concurring with CIT(A) - The issue also does not require any consideration only on the smallness of assessment Decided against Revenue.

Summary

Issues:
1. Deletion of addition of loss disallowed in MCX Division.
2. Deletion of addition of interest on unsecured loan.
3. Deletion of addition of penalty expenses.

Analysis:

Issue 1: Deletion of addition of loss disallowed in MCX Division
The first issue revolves around the challenge to the order of the Income Tax Appellate Tribunal regarding the deletion of the addition of Rs.20,52,928 made on account of loss disallowed in the MCX Division. The Assessing Officer disallowed the loss claimed in the MCX transaction, but both the C.I.T. (Appeals) and the Tribunal ruled in favor of the assessee. The High Court, in a previous case for the assessment year 2006-07, had already considered a similar issue and held that the loss could not be considered a speculation loss. Therefore, the Tribunal was justified in upholding the decision of the C.I.T. (Appeals) to delete the addition. Consequently, the first question was answered in favor of the assessee and against the Revenue.

Issue 2: Deletion of addition of interest on unsecured loan
The second issue pertains to the deletion of the addition of interest on an unsecured loan amounting to Rs.30.42 lakhs. The assessee had diverted this amount from the Head Office to the MCX Division under the head of unsecured loan. The Assessing Officer added this amount as interest since no interest was charged to the MCX Division. However, both the C.I.T. (Appeals) and the Tribunal, following their earlier decisions, deleted this addition. The Tribunal highlighted that the amount was diverted within the assessee's own business division for business transactions and not for non-interest bearing activities. As a result, the addition of interest on the unsecured loan was not justified. Therefore, this issue did not require further consideration.

Issue 3: Deletion of addition of penalty expenses
The final issue concerns the deletion of the addition of penalty expenses amounting to Rs.51,983. The penalty was imposed on business transactions, not for violating any statute. The C.I.T. (Appeals) deleted the penalty as the nature of the penalty was not adequately explained by the Assessing Officer. The Tribunal concurred with this decision, emphasizing that the penalty was related to business transactions. Due to the smallness of the assessment and the lack of violation of any statute, the issue did not warrant any further consideration. Consequently, the Tax Appeal was dismissed.

In conclusion, the High Court upheld the decisions of the C.I.T. (Appeals) and the Tribunal in all three issues, ruling in favor of the assessee and dismissing the Tax Appeal raised by the Revenue.