2001 (1) TMI 221 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of claim of capital loss amounting to Rs. 1,66,59,280 for the assessment year 1995-96.
2. Addition of Rs. 65,609 under Section 69B of the IT Act for the assessment year 1996-97.
3. Charging of surcharge at 15% under Section 113 of the IT Act.

Issue-wise Detailed Analysis:

1. Disallowance of Claim of Capital Loss:

The appellant, a company of the Modi group, had a search conducted under Section 132 of the IT Act on 21st November 1996. The AO issued a notice under Section 158BC, directing the appellant to file a return of undisclosed income for the block period from 1st April 1987 to 21st November 1996. The appellant declared nil undisclosed income, but the AO assessed the undisclosed income at Rs. 1,67,24,889, primarily disallowing a capital loss claim of Rs. 1,66,59,280 related to the assessment year 1995-96. The AO concluded that the transactions were sham and a colorable device to reduce tax liability. However, the Tribunal found that the appellant had disclosed all transactions in its regularly maintained books of accounts and no incriminating evidence was found during the search to prove the transactions were non-genuine. The Tribunal held that the loss suffered on the sale of shares was genuine and could not be regarded as undisclosed income under Chapter XIV-B of the IT Act.

2. Addition of Rs. 65,609 under Section 69B:

The AO made an addition of Rs. 65,609 as unexplained investment in the renovation of the residence of the chairman of the Modi group. The appellant argued that the total cost of renovation was Rs. 23,70,405, but the Valuation Officer estimated it at Rs. 29,82,600, resulting in a difference of Rs. 5,24,874, which was divided among the co-owners. The Tribunal found that the books of accounts maintained by the appellant regarding the renovation expenses were not rejected by the AO and the difference in estimation was marginal. Therefore, the Tribunal held that no addition could be made on this account.

3. Charging of Surcharge:

The AO charged a surcharge at 15% of the tax under Section 113 of the IT Act. The Tribunal referred to the Bangalore Bench's decision in Microland Ltd. vs. Asstt. CIT, which held that no separate surcharge could be levied in respect of search and seizure assessments under Chapter XIV-B of the IT Act. Consequently, the Tribunal ruled that no surcharge was leviable, especially since the additions were deleted.

Conclusion:

The Tribunal allowed the appeal, holding that the disallowance of the capital loss claim and the addition under Section 69B were unjustified. The Tribunal also ruled that no surcharge was leviable. The appellant's transactions were found to be genuine, and the losses were correctly set off against the gains.