2007 (1) TMI 199 - AT - Income Tax

Summary

Issues:
1. Disallowance of interest paid to National Stock Exchange.
2. Disallowance of short-term capital loss on the sale of shares of Panchmahal Cement.

Issue 1: Disallowance of Interest Paid to National Stock Exchange:

The assessee appealed against the disallowance of Rs. 3,58,963 as interest paid to National Stock Exchange, treated as a payment on capital account. The Assessing Officer disallowed the interest expenses, considering it as a payment related to the initial security deposit necessary to commence business. The assessee argued that the interest was paid after commencing business and should be allowed as a business expense under section 36(1)(iii) of the Income-tax Act, 1961. The appeal to the CIT(A) did not provide relief. The counsel for the assessee cited legal precedents to support the argument that the interest should be treated as a business expense. However, the tribunal upheld the disallowance, emphasizing that the interest payment was linked to the initial security deposit for commencing business, and the concession by the National Stock Exchange was part of the security deposit. The tribunal distinguished the cited legal cases, stating that the facts were not analogous to the current case. Therefore, the appeal on this ground was rejected.

Issue 2: Disallowance of Short-Term Capital Loss on Sale of Shares:

The assessee claimed a short-term capital loss of Rs. 36,613 from the sale of shares of Panchmahal Cement. The Assessing Officer raised doubts about the transaction as none of the companies involved transferred the shares in their name. The tribunal, after reviewing the findings of the Assessing Officer and CIT(A), found no merit in the appeal. The tribunal concluded that the assessee failed to substantiate the loss in the share transaction, leading to the rejection of this ground of appeal.

In conclusion, the appellate tribunal upheld the disallowance of interest paid to National Stock Exchange, considering it a capital expense, and rejected the claim for short-term capital loss on the sale of shares of Panchmahal Cement due to lack of evidence supporting the transaction. Consequently, the appeal of the assessee was dismissed in its entirety.