2017 (2) TMI 1483 - AT - Income Tax

Disallowance on account of loss from stock market activity claimed as set off against the profit from money market activity - whether the transactions carried out by the assessee of trading of money market securities was speculative or non-speculative in nature? - HELD THAT - As demonstrated with the help of various evidences in the paper book in the form of contract notes and other documents to show that no deliveries were exchanged and only difference amount was settled. Our attention was drawn on the ledger account containing details of trading of money market transactions showing that in all the cases only difference amount of sale or purchase of money market securities has been credited or debited in the assessee s a/c by the broker. These evidences have not been controverted by the Ld. Special Counsel of the Revenue. Thus, the admitted facts brought on record are that no deliveries were exchanged for carrying out money market transactions by the assessee. It is noted that in the identical circumstances ITAT in the case of Group companies of the assessee namely M/s. Growmore Leasing Investment 2015 (3) TMI 1342 - ITAT MUMBAI held that such transactions would be speculated transactions. Loss/profit from shares market transactions can very well be set off/adjusted against loss/profit of money market transactions. This issue has already been decided in favour of the assessee by the Tribunal in the case of group company of the assessee namely M/s. Growmore Leasing Investment (supra) as discussed above also. No distinction has been pointed out on facts or legal position by the Ld. Special Counsel of the Revenue, therefore we find that the claim of the assessee is allowable. Therefore disallowance made by the AO is directed to be deleted. Thus, ground no.2 is allowed. Addition towards maintenance of accounts - disallowance was made by the lower authorities on the ground that the assessee was not able to prove rendering of service with regard to payment claimed to be made to one ABCD Group which refers to Account Backlog Clearance Department - HELD THAT - It is noted that the assessee has claimed that payment was made to the said ABCD group for clearing of backlog of accounting work. But, neither the assessee was able to show that payment was made nor the assessee was able to show anything to prove rendering of services by the payee. Thus, it could be substantiated by the assessee that this amount was incurred for the business purpose of the assessee; if at all this amount was genuinely paid. Therefore, in absence of proper substantiation, this claim is found to be not allowable. Therefore, we decline to interfere in the order passed by the lower authorities on this issue. This ground is rejected. Depreciation on the computer - addition on the ground that user of the computers could not be proved by the assessee during the year before us - HELD THAT - Appellant had placed order for computer system on 31.3.90 for which advance payment was made and the delivery of the System was affected on 31.3.90. In view of the above, there is no reason to reject the claim for depreciation on the computer. We agree with the Ld. CIT(A) in the order given in the first round that there was no reason to deny claim of depreciation on the computer. After taking into account overall facts and circumstances of the case, we agree with the observation and views given by the Ld. CIT(A) in the first round and therefore, delete the disallowance made by the AO in this regard. Deduction on account of interest payable to the brokerage firms - HELD THAT - As relying on own case 2015 (3) TMI 1342 - ITAT MUMBAI we send this issue back to the file of Ld. CIT(A) for fresh adjudication after giving adequate opportunity of being heard to the assessee. Ld. CIT(A) shall follow the directions as have been given in the aforesaid order. This ground may be treated as allowed for statistical purposes. Levy for interest u/s 234A, 234B, 234C - HELD THAT - We find force in the prayer made by the Ld. counsel and accordingly hold that levy of interest is consequential u/s 234A, 234B and 234C; but restore this issue back to the file of the AO for computing the interest after giving credit of amount of TDS and AO shall follow the directions as have been given by the Tribunal in the case of group company namely M/s. Harsh Estates Pvt. Ltd. 2014 (10) TMI 925 - ITAT MUMBAI . Thus, these grounds are sent back to the file of the AO with the same directions as given above and may be treated as allowed for statistical purposes.

Summary

Issues Involved:
1. Taxation of income in the hands of the appellant.
2. Disallowance of loss from stock market activity.
3. Disallowance of payment towards maintenance of accounts.
4. Disallowance of depreciation on computers.
5. Deduction on account of interest payable to brokerage firms.
6. Levy of interest under Sections 234A, 234B, and 234C.

Detailed Analysis:

1. Taxation of Income:
During the hearing, Ground No.1 was not pressed by the appellant, and therefore, it was dismissed.

2. Disallowance of Loss from Stock Market Activity:
The appellant was aggrieved by the disallowance of ?1,95,57,742/- on account of loss from stock market activity claimed as a set-off against profit from money market activity. The Assessing Officer (AO) denied the set-off on the grounds that money market activities were considered non-speculative while share market activities were speculative. The Tribunal referenced a previous decision in the case of M/s. Growmore Leasing & Investments Ltd., where it was held that transactions in money market securities without delivery were speculative and legal. Consequently, speculative losses could be set off against speculative profits. The Tribunal found that the appellant’s money market transactions involved no delivery, only settlement of differences, making them speculative. Therefore, the disallowance was directed to be deleted, and Ground No.2 was allowed.

3. Disallowance of Payment Towards Maintenance of Accounts:
The appellant contested the disallowance of ?2,50,000/- paid towards maintenance of accounts, claimed to be made to the ABCD Group. The lower authorities disallowed this payment as the appellant could not substantiate the rendering of services by the payee. The Tribunal upheld the disallowance due to the lack of evidence proving the payment and the rendering of services. Thus, Ground No.3 was rejected.

4. Disallowance of Depreciation on Computers:
The appellant challenged the disallowance of ?2,25,000/- on account of depreciation on computers purchased during the year. The lower authorities had disallowed the depreciation on the grounds that the appellant could not prove the use of the computers. However, in a previous round, the CIT(A) had allowed the depreciation based on evidence of purchase and delivery. The Tribunal agreed with the initial order of the CIT(A) that there was no reason to deny the claim for depreciation, thus deleting the disallowance. Ground No.4 was allowed.

5. Deduction on Account of Interest Payable to Brokerage Firms:
The appellant claimed entitlement to deduction on account of interest payable to brokerage firms. The Tribunal noted that this issue had been decided in favor of the appellant in previous years (A.Ys. 2006-07 and 2007-08). The Tribunal directed the CIT(A) to re-adjudicate the matter following the previous directions, giving the appellant an opportunity to be heard. Ground No.5 was allowed for statistical purposes.

6. Levy of Interest Under Sections 234A, 234B, and 234C:
The appellant argued that while the levy of interest is mandatory, the computation should be accurate, accounting for TDS credits. The Tribunal acknowledged this and directed the AO to recompute the interest liability after reducing the amount of tax deductible at source, following the precedent set in the case of M/s. Harsh Estates Pvt. Ltd. Thus, Grounds No.6 and 7 were allowed for statistical purposes.

Conclusion:
The appeal filed by the Assessee was partly allowed, with specific directions given for re-adjudication and proper computation of interest. The order was pronounced in the open court at the conclusion of the hearing.