2014 (7) TMI 166 - AT - Income Tax

Disallowance of damaged paper stock Held that - The AO disallowed the claim of loss observing that the assessee had given a general explanation that the paper was damaged in the rain - the purchase of the stock of paper was of the year 1996 and it was observed by the AO that by the year 2005, the paper otherwise would have become scrap - CIT(A) also was of the view that the assessee failed to prove his claim with any cogent and convincing evidence there is no infirmity in the order while making the disallowance Decided against Assessee. Diminution in value of shares held as stock in trade Held that - The shares were investments and not stock in trade - The assessee in subsequent years could not have claimed the said shares as stock in trade as per its own will - assessee after the finding of the Income Tax Authorities that the shares were investments, had not made any attempt or action to convert the shares into stock in trade - the shares are required to be held as investments only and the assessee is not entitled to claim any diminution in the value of the said shares treating the same as stock in trade Decided against Assessee. Disallowance u/s 14A of the Act Investments made for earning tax free income - Held that - The decision in Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT followed - rule 8D of the Income Tax Rules is applicable for AY 2008-09 onwards - CIT(A) observed that the assessee had earned certain exempt income, the assessee had not appropriated any expenditure for earning the exempt income - the finding of the CIT(A) in directing the AO to make a reasonable disallowance after apportionment of the expenses out of the composite expenditure for earning taxable and tax free income is in accordance with the law and does not require any interference Decided against Revenue.

Summary

Issues:
1. Condonation of delay in filing the appeal.
2. Disallowance of loss on damaged paper stock.
3. Disallowance of diminution in value of shares held as stock in trade.
4. Reasonable disallowance of expenditure under section 14A for earning tax-free income.

Condonation of Delay in Filing the Appeal:
The assessee appealed for the condonation of a three-day delay in filing the appeal, which was actually a two-day delay. The delay was attributed to the sudden departure of the chartered accountant for personal reasons. The Tribunal accepted the explanation provided and condoned the delay, considering the short duration and circumstances beyond the assessee's control.

Disallowance of Loss on Damaged Paper Stock:
The AO disallowed a claim of loss on damaged paper stock due to lack of evidence, as the paper was purchased in 1996 and would have become scrap by 2005. The CIT(A) upheld the disallowance, noting the absence of convincing evidence. The Tribunal found the AR's explanation to be general and unsupported by evidence, affirming the lower authorities' decision to disallow the claim.

Disallowance of Diminution in Value of Shares Held as Stock in Trade:
The assessee claimed a diminution in the value of shares held as stock in trade, contrary to the earlier classification of the shares as capital assets by the AO and CIT(A). Despite the previous classification as investments, the assessee continued to treat the shares as stock in trade. The Tribunal held that the finding that the shares were investments had become final as it was not challenged earlier. Consequently, the assessee was not entitled to claim diminution in value for shares treated as stock in trade, and this ground was decided against the assessee.

Reasonable Disallowance of Expenditure for Tax-Free Income:
The Revenue challenged the direction of the CIT(A) to make a reasonable disallowance of expenditure under section 14A for earning tax-free income. The Tribunal upheld the CIT(A)'s decision, citing the requirement to apportion expenses for earning taxable and tax-free income. The Tribunal found the direction in line with the law and dismissed the Revenue's appeal, resulting in the dismissal of both the Revenue's and the assessee's appeals.

In conclusion, the Appellate Tribunal ITAT Mumbai addressed various issues including the condonation of delay in filing the appeal, disallowance of loss on damaged paper stock, disallowance of diminution in value of shares held as stock in trade, and reasonable disallowance of expenditure for tax-free income. The Tribunal made decisions based on the evidence presented and legal principles, ultimately dismissing both the Revenue's and the assessee's appeals.