2016 (4) TMI 820 - AT - Income Tax

Speculation loss by virtue of Explanation to Sec. 73 of the Act as business loss on account of holding principal business of assessee as granting loan and advance - Held that - The provisions of Explanation to Sec. 73 of the Act will not be applied where the principal business of the assessee is that of granting loans and advances and such company is also in the business of purchase and sale of shares, then the activity of purchase and sale of shares would not attract the provisions of Explanation to Sec. 73 of the Act. We have already held that the fund deployed in lending activity exceeds the fund deployed in share trading activity on a consistent basis over a period of time. Hence the principal business of assessee is that of granting loans and advances and thereby outside the ambit of Explanation to Sec. 73 of the Act. Hence, the share trading loss of claimed by the assessee cannot be construed as speculation loss and accordingly we have no hesitation in upholding the order of the Learned CIT(A) - Decided in favour of assessee. Addition on account of interest income - Held that - As per the guidelines of RBI if assessee does not pay interest for a period of exceeding six months then interest income should not be recognized in its books of account. The guideline of RBI is very much applicable to assessee as it is NBFC and governed by regulations of RBI. We also find that various courts has decided that real income should be brought to tax merely assessee has booked the income in its books of account. It does not mean that it has become the income of assessee.- Decided in favour of assessee. Accrued interest - Held that - Assessee has given loan to M/s Shaw Wallace & Co. on interest but assessee did not account for the interest income due to the dispute which then was pending in the court of law. M/s Shaw Wallace & Co. paid the interest amount after deducting TDS in AY 2003-04 and accordingly assessee has booked the income in that year. However, AO disagreed the view of assessee on the ground that the income was accrued in the AY 2001- 02 so it was to be offered for tax in that year. Before us Ld. AR submitted that this issue is already covered in favour of assessee by this Tribunal in assessee s own case - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Treatment of speculation loss as business loss.
3. Deletion of interest income from total income.

Issue-Wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The Revenue filed an appeal with a delay of 191 days. The Tribunal referred to the Supreme Court judgment in Collector Land Acquisition vs. Mst. Katiji & Ors, emphasizing that substantial justice should prevail over technical considerations. The Tribunal acknowledged that government decisions involve multiple channels and public interest could suffer if appeals are lost due to delays. Consequently, the Tribunal condoned the delay of 191 days, allowing the appeal to proceed on its merits.

2. Treatment of Speculation Loss as Business Loss:
The Revenue contested the CIT(A)’s decision to treat the speculation loss as a business loss. The assessee, a Non-Banking Finance Corporation (NBFC), reported a loss from share trading and claimed it as a business loss. The AO treated it as a speculation loss under Explanation to Section 73 of the Income Tax Act, as the share trading loss exceeded the income from other sources. However, the CIT(A) noted that the principal business of the assessee was granting loans and advances, which exempts it from Explanation to Section 73. The Tribunal upheld the CIT(A)’s decision, emphasizing that the principal business of the assessee was indeed granting loans and advances, supported by the deployment of funds over multiple years. Therefore, the share trading loss was correctly treated as a business loss.

3. Deletion of Interest Income from Total Income:
The Revenue challenged the deletion of ?3,04,18,767/- interest income from the total income of the assessee. The assessee argued that the interest income was hypothetical and never realized, as the debtor companies did not acknowledge the liability to pay interest. The CIT(A) accepted this argument, noting that the assessee followed RBI guidelines, which prohibit recognizing interest income if it remains unpaid for more than six months. The Tribunal affirmed the CIT(A)’s decision, citing the principle of real income and relevant judicial precedents, including the Supreme Court’s ruling in CIT v. Shoorji Vallabhadas and Co., which states that hypothetical income should not be taxed.

Separate Judgments Delivered by the Judges:
No separate judgments were delivered by the judges in this case.

Conclusion:
The Tribunal dismissed both appeals by the Revenue, upholding the CIT(A)’s decisions on all contested issues. The delay in filing the appeal was condoned, the speculation loss was correctly treated as a business loss, and the interest income was rightly excluded from the total income.