2022 (11) TMI 842 - AT - Income Tax

CIT(A) admitting the additional evidence during the first appellate stage under Rule 46A of the Income Tax Rules 1962 - HELD THAT - During the appellate stage of proceedings the assessee pleaded before the ld. CIT(A) that the AO did not ask the assessee to furnish the required documents for the purpose of proving the transaction in question. CIT(A) accordingly accepted the documents on record relating to the transaction of sale of shares (the issue relating to which we will discuss in later part of this order). Since the opposite documents were necessary for going through the transaction in question and to determine the genuineness of the claim of loss made by the assessee therefore in our view the ld. CIT(A) did not commit any error in taking on record the aforesaid documents. Ground No.1 of the revenue s appeal is therefore dismissed. Disallowance of loss on sale of shares being stock in trade - AO had made the impugned addition for want of verification of the transactions in question - CIT(A) considering submissions of the assessee allowed the claim of the assessee holding that the expenditure/loss claimed by the assessee was an allowable expenditure u/s 36(1)(vii)/36(2) of the Act by way of a non-speaking order - HELD THAT - The transactions in question in our view is not bonafide transaction of sale of shares being stock in trade as alleged by the assessee. The facts speak itself that the underlying transactions is relating to the sale of immovable property i.e. land. Another fact on the file is that the assessee is neither in the business of purchase and sale of shares nor in the business of purchase and sale of immovable property land etc. Therefore the assessee in our view has treated the said shares as stock in trade for the purpose of evasion of due tax. The transaction in question since was not related to the business activity of the assessee therefore the said land/shares cannot be said to be a stock in trade. Even if for the sake of argument it is assumed that the transaction was of sale of shares the said shares cannot be treated as stock in trade of the assessee. Even otherwise the said transaction of shares would be hit by the provision of Section 73 of the Act and this loss claimed by the assessee being speculation loss could not be adjusted against the business income of the assessee. So far as the claim of the ld. A/R that if the transaction has to be treated as that of sale of capital asset then the aforesaid loss may be treated as short-term capital loss we in this respect are of the view that the entire transaction requires examination/verification at the end of the AO. We therefore restore this issue to the file of the Assessing Officer for the purpose of examining the entire transaction and to find out the real facts and intent pertaining to the transaction and also to find out the tax evasion method if any adopted by the assessee and to decide the limited issue by way of a speaking order as to whether the assessee is entitled to claim short-term capital loss in this case or not. Accordingly these grounds of the revenue are allowed for statistical purposes. Disallowance u/s 14A on account of expenditure incurred towards tax exempted income - CIT-A deleted the disallowance made by the Assessing Officer - HELD THAT - As relying on various Hon ble High Courts decisions as unanimous to hold that where the assessee has not derived any tax exempt income from investments then no disallowance is attracted u/s 14A - Decided against revenue.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Admission of new documentary evidence by CIT(A) in violation of Rule 46A.
3. Deletion of addition on account of bogus loss claimed on sale of unquoted shares.
4. Allowance of the bogus loss claimed on sale of unquoted shares.
5. Deletion of disallowance under Section 14A of the Income Tax Act.

Detailed Analysis:

1. Condonation of Delay:
The revenue's appeal was time-barred by 198 days due to restrictions imposed by the Covid-19 pandemic. Both sides were heard, and it was found that there was reasonable cause for the delay. Hence, the delay was condoned, and the appeal was admitted for hearing.

2. Admission of New Documentary Evidence (Ground No. 1):
The revenue contested the CIT(A)'s action of admitting additional evidence during the appellate stage under Rule 46A. The assessee had claimed a loss on the sale of shares but did not furnish supporting documents initially. The CIT(A) accepted the documents during the appeal, stating that the Assessing Officer (AO) did not request these documents during the assessment. The Tribunal found no error in CIT(A)'s decision to admit the documents, dismissing this ground of appeal.

3. Deletion of Addition on Account of Bogus Loss (Ground Nos. 2, 3 & 4):
The revenue challenged the deletion of the addition of Rs. 3,02,57,500/- made by the AO due to lack of verification of transactions. The assessee claimed the loss as a bad debt written off under Section 36(1)(vii) and 36(2). The CIT(A) allowed the claim, but the Tribunal found that the transaction was not bona fide and related to the sale of immovable property rather than shares. The Tribunal noted that the assessee was not in the business of trading shares or property and suggested the transaction was structured to evade taxes. The Tribunal restored the issue to the AO for re-examination to determine the real nature of the transaction and whether the loss could be claimed as a short-term capital loss.

4. Allowance of Bogus Loss (Ground Nos. 2, 3 & 4):
The Tribunal found that the assessee's business did not involve trading in shares or property, and the transaction was likely a sham. The Tribunal highlighted that the transaction would be deemed speculative under Section 73, and the loss could not be set off against business income. The Tribunal directed the AO to re-examine the transaction and decide if the loss could be considered a short-term capital loss.

5. Deletion of Disallowance under Section 14A (Ground No. 5):
The revenue contested the deletion of disallowance made by the AO under Section 14A. The CIT(A) relied on various High Court decisions, which held that no disallowance is attracted if no tax-exempt income is derived. The Tribunal considered the newly inserted explanation to Section 14A, which the revenue argued was retrospective. However, the Tribunal followed the Delhi High Court's decision in PCIT Vs. Era Infrastructure (India) Ltd., which held the explanation to be prospective. Consequently, the Tribunal dismissed this ground of appeal.

Conclusion:
The appeal was partly allowed. The Tribunal condoned the delay, dismissed the ground on the admission of new evidence, and restored the issue of the bogus loss claim to the AO for re-examination. The Tribunal also upheld the deletion of disallowance under Section 14A, following the Delhi High Court's interpretation of the law.