2014 (12) TMI 552 - AT - Income Tax

Allowability of set off of speculation losses against business income Sale and purchase of shares as speculation income - Held that - The AO denied set off of speculative losses of earlier years by holding that the business of purchase and sale of shares is not speculative business but its regular business and the income from purchase and sale of shares excluding jobbing income or speculative income should be treated as regular business income and the AO denied set off of brought forward speculative losses - explanation to section 73 clarifies that where any part of business of a company consists of purchase and sale of shares of other companies, then such company shall for the purpose of section 73 of the Act be deemed to be carrying on speculation business to the extent to which the business consists of the purchase and sale of such shares - CIT(A) was rightly of the view that the income or loss derived by the assessee company is from speculation business which was accepted by the AO in the earlier years and if there is no change of facts and circumstances in the subsequent year under consideration, then the set off of brought forward speculative losses cannot be denied for the assessee Decided against revenue. Unexplained credits u/s 68 Onus discharged by assessee or not Establishment of identity and creditworthiness of parties Held that - No addition/ disallowance can be made on suspicion, surmises and conjectures as decided in Dhirajlal Girdharilal Versus Commissioner Of Income-Tax, Bombay 1954 (10) TMI 8 - SUPREME Court - assessee during the arguments has drawn attention towards paper book wherein it has been mentioned that the assessee filed copies of the confirmation, bank statements, income tax returns along with computation of income from 2000-01 to 2003-04 of the investors of the share application money before the AO and the CIT(A) - the AO proceeded to make addition u/s 68 of the Act without any further examination and verification of the details, confirmations, Income tax returns, bank accounts of the alleged investors who contributed share application money simply keeping aside the same in COMMR. OF INCOME TAX Versus M/s LOVELY EXPORTS(PVT) LTD 2008 (1) TMI 575 - SUPREME COURT OF INDIA it has been held that if the share application is received by the assessee company from alleged bogus shareholders whose names are given to the AO, then the department is free to proceed to reopen their individual assessments of respective share application money contributing investors in accordance with law but the amount of share application money cannot be regarded or considered undisclosed income of the assessee u/s 68 of the Act thus, the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues involved:
1. Allowance of set off of brought forward speculation losses against current year income.
2. Deletion of addition made under section 68 of the Income Tax Act.
3. Admission of fresh evidence in contravention of Rule 46A of the Income Tax Rules.

Issue 1: Allowance of set off of brought forward speculation losses against current year income
The appeal was filed by the revenue against the order of the CIT(A) directing the AO to allow set off of brought forward speculation losses against the income for the assessment year. The AO had denied the set off, considering the income from purchase and sale of shares as regular business income. However, the CIT(A) allowed the set off based on the explanation attached to section 73 of the Act, which clarified that if the business consists of the purchase and sale of shares, it should be treated as speculation business. The Tribunal upheld the CIT(A)'s decision, stating that if there is no change in facts from previous years, the set off of brought forward speculative losses cannot be denied.

Issue 2: Deletion of addition made under section 68 of the Income Tax Act
The AO made an addition under section 68 of the Act, alleging that the assessee failed to establish the identity and creditworthiness of parties contributing share application money. However, the CIT(A) deleted the addition, relying on the decision of the Hon'ble Supreme Court and the Jurisdictional High Court of Delhi. The Tribunal agreed with the CIT(A), noting that the assessee provided necessary details, including income tax assessments of share applicants, and discharged the onus cast on it. The AO's failure to verify the details and reliance on suspicions led to the dismissal of the addition under section 68.

Issue 3: Admission of fresh evidence in contravention of Rule 46A of the Income Tax Rules
The Tribunal dismissed this ground as the respondent did not produce any additional evidence during the first appellate proceedings. Therefore, this ground was deemed devoid of merits and substance. The Tribunal's decision was based on the lack of additional evidence presented during the appeal, leading to the dismissal of this issue.

In conclusion, the Tribunal upheld the CIT(A)'s decision on both issues, allowing the set off of brought forward speculation losses and deleting the addition made under section 68 of the Income Tax Act. The Tribunal emphasized the importance of providing necessary details and evidence to support claims and highlighted that additions cannot be made based on suspicions alone. The appeal of the revenue was ultimately dismissed.