2002 (5) TMI 214 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of capital loss on the sale of investment.
2. Disallowance of loss on account of valuation of closing stock.
3. Interest under Section 234B.

Detailed Analysis:

1. Disallowance of Capital Loss on the Sale of Investment:
The assessee, a non-banking financial company, claimed a capital loss of Rs. 71,03,862 on the sale of investments. The AO disallowed this claim, treating the loss as a revenue loss and not a capital loss, asserting that it was due to depreciation in investment value. The CIT(A) upheld this disallowance.

The Tribunal found that the lower authorities' reasons were based on misconceptions. The loss was indeed a capital loss from the sale of investments, not due to depreciation. The Tribunal directed the AO to allow the capital loss to be carried forward as per Section 73(1) of the Act, which prohibits adjusting capital loss against income from other heads.

2. Disallowance of Loss on Account of Valuation of Closing Stock:
The assessee valued its stock-in-trade at cost or market rate, whichever was lower, and claimed a loss due to a decrease in market value. The AO disallowed this, treating the shares as investments rather than stock-in-trade, alleging a change in valuation method as a tax evasion device. The CIT(A) confirmed this view, citing common management and control over H.B. Portfolio Leasing Ltd.

The Tribunal disagreed, noting that the assessee had substantial shares of H.B. Portfolio Leasing Ltd. as investments and later resolved to trade in shares. The shares acquired from debentures were treated as stock-in-trade, and the loss was due to market value depreciation, not a colorable device. The Tribunal directed the AO to accept the loss claim due to stock-in-trade depreciation.

3. Interest under Section 234B:
This issue was consequential. The Tribunal directed the AO to calculate the interest based on the revised income as per the Tribunal's order and consider the withdrawal of interest under Section 244A of the Act.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to carry forward the capital loss and accept the loss due to stock-in-trade depreciation. The interest under Section 234B was to be recalculated based on the revised income.