2018 (3) TMI 886 - AT - Income Tax

Benefit of indexation to the assessee while calculating the capital loss - additional ground raised by the assessee - Held that - As decided in Pruthvi Brokers and Shareholders Ltd. (2012 (7) TMI 158 - BOMBAY HIGH COURT) AO could accept new claim only a new return was filed by an assessee. Here as stated earlier the case is of additional ground. The assessee was not aware as to how the claim made by it would be treated by the AO during the set aside proceedings. Only after receiving the order it came to know that loss has been treated as capital loss. No chance for it to claim indexation. Only remedy left was to raise an additional ground on the first opportunity available and it did so. FAA was fully empowered to admit the additional ground and to decide the same on merits without asking for comments/remand report of the AO. Assessee had also filed an application u/s. 154 of the Act in that regard. The AO should have dealt it disregarding the filing of appeal. We are of the opinion the order of the FAA allowing indexation to the assessee with regard to the capital loss does not need any interference from our side. - Decided against revenue. Applicability of the provisions of explanation to section 73 - carry forward of loss on sale of investment - Held that - As during the appellate proceedings the FAA had held that the assessee was covered by the exceptions mentioned in the explanation. He had calculated the figure of capital gains and other sources and had compared the same with the figure of business or professional loss. It was a simple arithmetic exercise. As the gross figure was more than business loss figure the FAA allowed the claim of the assessee. In our opinion there is no legal or factual infirmity in his order. Secondly in the case laws relied upon by the assessee before us the judicial forums have held that loss in share trading was not to treated as speculative loss in case of an company whose principal business was trading in shares and that the said amendment to the explanation was retrospective and clarificatory in nature. - Decided against revneue

Summary

Issues involved:
1. Treatment of loss on sale of investment and valuation of shares as capital loss or business loss.
2. Allowance of indexation benefit.
3. Applicability of the provisions of explanation to section 73 of the Act.

Issue 1: Treatment of loss on sale of investment and valuation of shares:
The Assessing Officer (AO) disallowed the loss on sale of investment during the original assessment, considering it non-genuine and as a capital loss not adjustable against other income. The AO also disallowed the loss claimed due to a change in valuation method for stock in trade. Following directions from the Tribunal, a fresh assessment was conducted, where the AO assessed the income and categorized the loss on sale of investment as capital loss and the loss on stock in trade as speculative loss. The First Appellate Authority (FAA) held that the loss on sale/valuation of stock in trade should be treated as a normal business loss, not speculative, and allowed indexation benefit for the capital loss. The FAA's decision was based on exceptions provided in the explanation to section 73, concluding that the loss on sale/valuation of shares was not speculative but a normal business loss.

Issue 2: Allowance of indexation benefit:
The FAA allowed the indexation benefit for the capital loss, despite the Departmental Representative's argument that the claim was raised as an additional ground during the appellate proceedings without giving the AO a chance to rebut. The Authorized Representative clarified that the indexation benefit was not allowed by the AO, and a rectification application was filed post-receiving the assessment order. The Tribunal upheld the FAA's decision, emphasizing that raising additional grounds before the FAA is a legal right of the assessee, and the FAA has the discretion to permit such claims. The Tribunal referred to legal precedents supporting the assessee's right to raise additional claims during appellate proceedings, especially when unaware of the AO's treatment of the claim. The Tribunal confirmed the FAA's decision to allow indexation for the capital loss.

Issue 3: Applicability of the provisions of explanation to section 73:
The FAA determined that the assessee was covered by exceptions in the explanation to section 73, allowing the claim based on a comparison of capital gains and other sources with business or professional loss. The Tribunal found no legal or factual issues with the FAA's decision and noted that previous judicial rulings supported the assessee's position that the loss in share trading should not be treated as speculative loss for a company primarily engaged in trading shares. The Tribunal also acknowledged that the amendment to the explanation was retrospective and clarificatory in nature, further supporting the assessee's case. Consequently, this issue was decided against the AO, and the appeal filed by the AO was dismissed.

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