2023 (1) TMI 1249 - AT - Income Tax

Disallowance of business share trading loss - HELD THAT - As according to the assessee the transaction carried out by the assessee in regard to the share of M/s. SSTL are genuine and bonafide and therefore fully allowable. However according to assessee the AO/Ld. CIT(A) has not appreciated the facts in the right perspective and has disallowed the business loss of the assessee while trading in this scrip. It is found that Assessee is a trader in shares which fact has been discerned from the facts discussed - Therefore the shares traded are his stock-in-trade. And once assessee is found to be a trader the loss incurred during business need to be allowed as business loss. And therefore the AO is directed to allow the business loss. Disallowance u/s 14A r.w.r 8D - HELD THAT - As per assessee disallowance if any cannot exceed Rs.31, 200/- which was earned by the assessee and claimed as exempt. For such a preposition has relied on the decision of Maxopp Investment Ltd. ( 2018 (3) TMI 805 - SUPREME COURT . Since the assessee earned exempt income of only Rs 31, 200/- thus find force in the contention of the assessee so I restrict the disallowance to only Rs.31, 200/- and thus the AO is directed to give relief accordingly. Thus this ground of assessee is partly allowed.

Summary

Issues:
1. Disallowance of loss incurred in trading shares of a specific company.
2. Addition made under section 69C.
3. Disallowance made under section 14A.

Issue 1: Disallowance of Loss in Share Trading:
The appeal was against the disallowance of a loss claimed by the assessee in trading shares of a specific company. The Assessing Officer (AO) found the loss to be a pre-arranged method to evade taxes. The AO observed price manipulation by the appellant and operators to generate bogus long-term and short-term capital gains. The AO concluded that the company's net worth was negligible, and the share prices were artificially inflated. The appellant argued that the trading was genuine and provided evidence of transactions through a registered broker. The appellant contended that being a trader, the loss should be allowed as a business loss. The Tribunal noted the appellant's trading history and allowed the business loss, directing the AO to accept it.

Issue 2: Addition under Section 69C:
The second ground of appeal was against an addition made under section 69C, which was deemed consequential to the first ground. As the first ground regarding the disallowance of the loss was allowed, the Tribunal directed the deletion of the addition made under section 69C.

Issue 3: Disallowance under Section 14A:
The third ground of appeal was related to the disallowance made under section 14A. The AO disallowed an amount under section 14A as the assessee had investments generating exempt income. The assessee argued that the disallowance exceeded the actual exempt income earned. The Tribunal restricted the disallowance to the amount of exempt income earned, citing the decision of the Supreme Court in a relevant case. Consequently, the disallowance was reduced to match the exempt income earned by the assessee. The Tribunal partly allowed this ground of appeal.

In conclusion, the Tribunal partly allowed the assessee's appeal, allowing the claimed business loss in share trading, directing the deletion of the addition under section 69C, and reducing the disallowance under section 14A to match the actual exempt income earned by the assessee.