2015 (12) TMI 1769 - HC - Income Tax

Claim of loss for the diminution in value of fertilizer bonds against the sale of fertilizers - Held that - The assessment order itself shows that in its books, the Assessee categorised the bonds under the head current investment assets . In that view of the matter, the diminishing value of the bonds not being held as long term investment was in the nature of a revenue loss and could have been claimed as such by the Assessee. The stand of the Revenue that this was only a notional loss and not allowable, is not tenable since bonds held as stock-in-trade can be valued at market rate or cost whichever is less. Disallowance u/s 14A - claim of the Assessee that it incurred no expenditure, other than the administrative expenses, for earning dividend income - Held that - Under Section 14A(2) of the Act read with Rule 8D of the Income Tax Rules, 1962 the Assessing Officer is required to make an enquiry if he is not satisfied with the correctness of the claim of the Assessee in respect of such expenditure in relation to income which does not form part of the total income. In the present case it has been averred by the Assessee, and not contradicted by the Revenue, that no interest expenditure has been incurred by it for earning the exempt income. There was no basis for the AO to have disallowed any part of such income on that score. No substantial question of law arises

Summary

Issues:
1. Condonation of delay in filing appeals under Section 260A of the Income Tax Act, 1961.
2. Claim of loss for diminution in value of fertilizer bonds against the sale of fertilizers.
3. Claim of no expenditure, other than administrative expenses, for earning dividend income under Section 14A(2) of the Act.

Analysis:
1. The judgment addressed the condonation of delay in filing appeals under Section 260A of the Income Tax Act, 1961. The delay was condoned based on the reasons stated in the applications, and the applications were disposed of accordingly.

2. The first issue involved the claim of loss for the diminution in value of fertilizer bonds against the sale of fertilizers. The court observed that the Assessee categorized the bonds under 'current investment assets' in their books. As the bonds were not held as long-term investments, the diminishing value was considered a revenue loss and could have been claimed as such. The Revenue's argument that it was a notional loss and not allowable was deemed untenable, as bonds held as stock-in-trade can be valued at market rate or cost, whichever is less.

3. The second issue focused on the Assessee's claim of incurring no expenditure, other than administrative expenses, for earning dividend income under Section 14A(2) of the Act. The court noted that under Rule 8D of the Income Tax Rules, the Assessing Officer is required to make an inquiry if not satisfied with the correctness of the Assessee's claim regarding such expenditure. In this case, the Assessee stated that no interest expenditure was incurred for earning exempt income, a claim not contradicted by the Revenue. Therefore, the court found no basis for the Assessing Officer to disallow any part of the income on that basis.

4. The judgment concluded that no substantial question of law arose for determination by the Court, and the appeals were dismissed accordingly.