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2017 (1) TMI 1643 - AT - Income TaxDisallowing loss from sale of shares claimed to be set off against profit from sale of unit of UTI US-64 - whether the profit arising from the sale of units of UTI US-64 is speculative transaction in-term of Section 43(5) consequently the profit is speculative profit or the business profit? - HELD THAT - As decided in APOLLO TYRES LTD. VERSUS COMMISSIONER OF INCOME TAX 2002 (5) TMI 5 - SUPREME COURT the deemed provision in Section 32(3) of the Act finds only to deeming the UTI a company and income from units of dividend. In the absence of any specific deeming provisions in the UTI Act units as shares it was held that it would be erroneous to extend the provisions of Section 32(3) of the Act for the purpose of holding the units as share. Accordingly it was held that buying and selling of units by assessee cold not to be treated as speculative business and loss in buying and selling of units of UTI was business loss and not speculation loss. We find that Hon ble apex Court has decided this issue and which is binding for us. Disallowance of loss from business and profit of UTI and the disallowance was confirmed on the belief that transactions entered into by the assessee - HELD THAT - The assessee entered into an agreement for forward delivery of Govt. Securities with one set of parties through the brokers and immediately also entered into forward purchase of Govt. Securities from other set of parties through the broker but delivery of the securities never takes place. These transactions are finally settled by paying differential amount. According to special Court the transactions are speculative transactions and the assessee has shown income out of same set of transactions which is more than the loss declared by the assessee - forward transactions entered into by the assessee was not illegal and therefore loss cannot be disallowed on that ground. We are also hold the same view. However we have already held the transactions of sale/purchase of UTI unit 64 as business transaction and not speculative transactions consequently the profit arising out of the sale of UTI unit 64 is to be assessed as business income and cannot be set off against the profit arising out of sale / purchase of shares. Claim of expenses in respect to the electricity repair and maintenance and travelling telephone and cash expenses - HELD THAT - The assessee stated that due to smallness of amount leaves it to the Court to decide. It means that assessee is not interested to argue on these matters due to smallness of amounts and hence the disallowances are confirmed. These grounds of assessee s appeals are dismissed. Addition made by AO on account of disclosure under section 132(4) - HELD THAT - We direct the AO to determine the total income of the assessee either on the basis of estimation or on the basis of declaration made by the assessee. Thus we delete the addition . Charging interest under section 234A 234B 234C - HELD THAT - We direct the AO to recompute the interest liability after reducing tax deducted at source or liability of TDS and charge the interest accordingly. Charging interest under section 220(2) - HELD THAT - AO framed the impugned assessment u/s 144 r. w. s. 254 of the Act dated 23-11-2007 and in term of the ratio of Hon ble Bombay High Court in the case of Chika Overseas Pvt. Ltd. 2011 (11) TMI 118 - BOMBAY HIGH COURT the AO can demand the interest u/s 220(1) of the Act after 30 days of serving of demand notice dated 23-11-2007. We direct the AO accordingly and this issue of assessee s appeal is partly allowed.
Issues Involved:
1. Disallowance of loss from sale of shares. 2. Claim of various business expenses. 3. Addition on account of disclosure under section 132(4). 4. Charging of interest under sections 234A, 234B, 234C, and 220(2) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Disallowance of Loss from Sale of Shares: The primary contention was whether the loss from the sale of shares amounting to ?49,06,798/- could be set off against the profit from the sale of units of UTI US-64. The assessee argued that the profit from US-64 was speculative as no delivery was taken. The AO disallowed the set-off, citing that units of UTI are not treated as shares under the Companies Act, 1964, and speculative trading in US-64 units is illegal. The CIT(A) upheld this view. The Tribunal, referencing the Supreme Court decision in Apollo Tyres Ltd. vs. CIT, concluded that units of UTI cannot be deemed as shares and thus the profit from US-64 is not speculative. Therefore, the loss from shares cannot be set off against the profit from US-64. 2. Claim of Various Business Expenses: The assessee claimed deductions for expenses related to electricity, repair and maintenance, traveling, telephone, and car expenses. Due to the smallness of the amounts involved, the assessee did not press these grounds. Consequently, the Tribunal confirmed the disallowances made by the CIT(A). 3. Addition on Account of Disclosure under Section 132(4): The AO added ?3,90,000/- based on a disclosure made under section 132(4) during a search operation. The assessee argued that the declaration was an estimate and not based on actual undisclosed income. The Tribunal, referencing a similar case in Harsh Estates Pvt. Ltd., held that the AO should determine the total income either on the basis of estimation or the declaration made by the assessee but not both. Thus, the Tribunal directed the AO to delete the addition of ?3,90,000/-. 4. Charging of Interest under Sections 234A, 234B, 234C, and 220(2): The Tribunal, following its earlier decision in Harsh Estates Pvt. Ltd., directed the AO to recompute the interest liability under sections 234A, 234B, and 234C after reducing the tax liability at source. Regarding interest under section 220(2), the Tribunal relied on the Bombay High Court decision in CIT v. M/s Chika Overseas Pvt. Ltd., which held that interest under section 220(2) is chargeable only after 30 days from the service of the demand notice following a reassessment. Conclusion: The Tribunal partly allowed the appeal, confirming the disallowance of loss from share trading and various business expenses, deleting the addition under section 132(4), and directing the AO to recompute interest liabilities in accordance with the specified legal precedents.
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