2018 (10) TMI 177 - AT - Income Tax

Disallowance of commodity loss - Held that - As gone through the order of the ld CIT(A) and don t see any infirmity in his findings whereby he has disallowed setting off of the loss on commodity derivates being speculative transaction against the normal business income in accordance with provisions of Section 73 of the Act. We donot agree with the contentions of the AR that the present transaction is covered by clause (d) of section 43(5) given that clause (e) which talks about trading in commodity derivative an an eligible transaction was brought on the statue books by the Finance Act 2013 w.e.f 1.4.2014 and is thus not applicable for the impugned assessment year. In the result, ground of assessee s appeal is dismissed. Deduction U/s 54 - allowing the deduction in part - assessee filed revision in the quantum of such claim during the course of assessment proceedings- AO has not allowed the said claim holding that what has been purchased is a plot of land and not a residential house, besides other reasons -CIT(A) has however allowed the said claim of the assessee to the extent of purchase consideration and related expenses as per conveyance deed dated 7.6.2012, however he has not allowed the claim of ₹ 30,65,000/- Held that - The findings of the ld CIT(A) are based on right appreciation of the conveyance deed duly corroborated by the pictures of the constructed rooms as well as domestic electric connection taken in the name of the seller. During the course of hearing, nothing has been brought to our notice to controvert the said findings of the ld CIT(A). Hence, we hereby confirm the said findings of the ld CIT(A) that the property so purchased by the appellant was a residential house eligible for deduction under section 54 of the Act. As far as claim of ₹ 30,05,000 is concerned, nothing has been brought on record which demonstrate that such cost has been incurred towards any refurbishment/renovation of the residential house so purchased.

Issues Involved:
1. Disallowance of commodity loss of ?9,10,126/-.
2. Deduction of ?1,47,64,740/- under Section 54 of the Income Tax Act on account of capital gain.
3. Additional deduction of ?30,05,000/- under Section 54 of the Income Tax Act.

Detailed Analysis:

Issue 1: Disallowance of Commodity Loss of ?9,10,126/-

The assessee incurred a loss of ?9,10,126/- in trading commodities derivatives on recognized stock exchanges MCDX and NSC and claimed this loss as a setoff against normal business activities. The Assessing Officer (AO) disallowed this setoff, stating that commodity derivatives are considered speculative transactions unless traded on recognized stock exchanges from 01/04/2014 onwards, as per the amended definition of speculative transactions under Section 43B(d) of the Income Tax Act. The AO held that the loss from speculative business can only be set off against income from speculative business, referencing Section 73 of the Act.

The CIT(A) upheld the AO's decision, confirming that the disallowance was in accordance with Section 73. The Tribunal agreed with the CIT(A), noting that the commodity derivatives trading was speculative for the assessment year in question and thus, the loss could not be set off against normal business income. The Tribunal dismissed the assessee’s appeal on this ground.

Issue 2: Deduction of ?1,47,64,740/- Under Section 54 of the Income Tax Act

The assessee sold a residential house and claimed a deduction under Section 54 of the Income Tax Act, initially amounting to ?2,20,41,404/-. This was later revised to ?1,77,69,740/-. The AO disallowed the claim, arguing that the assessee had purchased only a plot of land, not a residential house, and had failed to deposit the amount in the capital gains account scheme.

The CIT(A) allowed the deduction to the extent of ?1,47,64,740/-, concluding that the property purchased was indeed a residential house. The Tribunal upheld the CIT(A)'s findings, agreeing that the property was a residential house as evidenced by the sale deed and photographs, and thus eligible for deduction under Section 54. The Tribunal confirmed the CIT(A)’s decision and dismissed the revenue’s appeal.

Issue 3: Additional Deduction of ?30,05,000/- Under Section 54 of the Income Tax Act

The assessee claimed an additional deduction of ?30,05,000/- for construction costs incurred up to 30/09/2012. The CIT(A) did not allow this additional deduction, despite acknowledging that the total investment of ?1.78 crores was made within the permissible time limit.

The Tribunal found no justification for the CIT(A)’s partial allowance of the deduction and noted that no evidence was presented to demonstrate that the additional cost was incurred for refurbishment or renovation of the residential house. Consequently, the Tribunal upheld the CIT(A)’s decision to disallow the additional deduction of ?30,05,000/-, dismissing the assessee’s additional ground of appeal.

Conclusion:

The Tribunal upheld the order of the CIT(A) in all respects, confirming the disallowance of the commodity loss, the partial allowance of the deduction under Section 54, and the rejection of the additional deduction claim. Both cross appeals by the assessee and the revenue were dismissed. The order was pronounced in the open court on 01/06/2018.

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