2014 (5) TMI 554 - AT - Income Tax

Applicability of section 94(7) of the Act Disallowance of claim of loss - Whether the amended provision of section 94(7) incorporated in the statute w.e.f. 1-4-2005 would be applicable to the assessment year for disallowing the claim of loss even in respect of units held for more than three months Held that - Under the un-amended provision, if units were sold within three months of the record date, then loss claimed to the extent of dividend income would be disallowed - in respect of units purchased prior to 3 months from the record date the provision of sec. 94(7) will not be applicable - as per the amended provisions if units are sold within the period of 9 months from the record date, then loss to the extent of dividend income will be disallowed. Relying upon Suri Sons. & others Versus Additional Commissioner Of Income-Tax 2009 (4) TMI 502 - ITAT AMRITSAR - the amended provision u/s 94(7) as brought into the statute w.e.f. 1-4-2005 would apply prospectively w.e.f assessment year 2005-06 - the amended provisions u/s 94(7) which has been brought to the statute w.e.f. 1-4-2005 will not be applicable to the impugned assessment year 2004-05 - loss from units which were held for more than three months after the record date and sold thereafter cannot be subjected to disallowance as per the amended provision of section 94(7) the matter is remitted back to the AO for verification of the details of period of holdings of units from the record date and compute the disallowance of loss u/s 94(7) of the Act as applicable for the assessment year 2004-05 Decided in favour of Assessee.

Summary

Issues Involved:
Applicability of amended provision of section 94(7) for disallowing loss in respect of units held for more than three months in assessment year 2004-05.

Analysis:

Issue 1: Applicability of Amended Provision of Section 94(7)

The appeal was against the order of CIT (A)-III, Hyderabad for the assessment year 2004-05. The Assessing Officer reopened the assessment due to escaped income, leading to an ex parte assessment under section 144 of the Act. The disallowance of loss under section 94(7) was a key contention. The CIT (A) upheld the disallowance, emphasizing the objective of section 94(7) to curb short-term losses and the impact of the amendment effective from April 1, 2005. The CIT (A) referred to the decision in CIT vs. Walfort Share and Stock Brokers Pvt. Ltd., highlighting the treatment of losses concerning dividend income. The appellant challenged this disallowance, arguing that the amended provision should not apply retrospectively to the assessment year 2004-05.

Issue 2: Judicial Interpretation and Tribunal Decision

The Tribunal analyzed the provisions of section 94(7) before and after the amendment effective April 1, 2005. It noted the extension of the restriction from three to nine months post-amendment for disallowing loss concerning dividend income. Citing precedents, including the decision in Suri Sons vs. Addl. CIT, the Tribunal held that the amended provision would apply prospectively from assessment year 2005-06. Consequently, the Tribunal directed the Assessing Officer to reexamine the period of holdings of units and compute the disallowance of loss under section 94(7) applicable for the assessment year 2004-05. Other grounds related to disallowances were deemed redundant as the appellant did not present arguments, leading to the partial allowance of the appeal for statistical purposes.

In conclusion, the Tribunal's decision clarified the non-retrospective application of the amended provision of section 94(7) to the assessment year 2004-05, impacting the disallowance of losses concerning units held for more than three months. The case highlighted the importance of statutory interpretation and the application of legal principles in tax assessments.