2018 (6) TMI 275 - AT - Income Tax

Disallowance of loss on sale of shares of associated concern - speculation loss - Held that - The loss is not speculative loss in terms of explanation to section 73 as the assessee is not engaged in the sale and purchase of shares of other companies - Following the judgement in case of CIT VERSUS STANDIPACK PVT LTD 2012 (10) TMI 131 - CALCUTTA, HIGH COURT wherein it has been held that only the loss resulting from the activity of sale and purchase of shares of other companies which is a part of the business of the assessee could be treated as speculation loss - the ground of revenue is dismissed. Depreciation on intangible assets being business and commercial rights - compensation paid by the assessee to land owners for acquiring the mining rights in the land - Held that - Following the decision of Hon ble Delhi High Court in the case of Areva T AND D India Ltd. vs. DCIT & CIT vs. Jai Parabolic Spring Ltd. 2012 (4) TMI 79 we are of the considered view that expression Business or commercial rights of similar nature specified in section 32(1)(ii) of the Act, includes other intangible assets also which is not mentioned as it is not possible to specify each item - thus payment made by the assessee in the form of compensation for acquiring mining rights in the land is intangible assets and hence depreciation is allowed - the ground of revenue is dismissed. Addition being royalty paid in financial year 2001-02 - Held that - A perusal of the order of appellate authority reveals that the assessee paid advance in the March 2002 in respect of the next financial year which was duly adjusted and claimed by the assessee in the assessment year 2003-04. The issue has been discussed at length by the Ld. CIT(A) and only thereafter allowed the appeal of the assessee. We, therefore, do not find any infirmity in the order of the Ld. CIT(A) Invisible loss in the raw material - Held that - Percentage of yield and invisible wastage depend on several factors as has been mentioned hereinabove such as quality of cotton, fly generated during manufacturing process, moisture contents in the cotton etc. and the percentage of invisible waste cannot be standardized as the inputs in the textile division depends on the various factors - AO has not pointed out any defects and deficiencies in the books of account and simply relying on the percentage of invisible gain in the earlier year disallowed the invisible waste during the year which is not correct and can not be sustained. - Decided against revenue

Summary

Issues Involved:
1. Allowance of loss on sale of shares of an associated concern.
2. Depreciation on compensation paid for acquiring mining rights.
3. Deductibility of royalty paid in a prior financial year.
4. Disallowance of invisible loss in raw material.

Issue-wise Detailed Analysis:

1. Allowance of Loss on Sale of Shares of an Associated Concern:
The Revenue challenged the allowance of a ?53,28,000/- loss on the sale of shares, arguing it was a speculation loss per section 73 and not allowable as a business expense. The Assessing Officer (AO) disallowed the loss, deeming it speculative and not genuine. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the loss, referencing the Bombay High Court's decision in CIT vs. Colgate Palmolive (India) Ltd., which classified such losses as business losses. The Income Tax Appellate Tribunal (ITAT) upheld CIT(A)'s decision, noting the assessee was not in the business of trading shares, thus the loss was not speculative under section 73. The ITAT referenced the Calcutta High Court's decision in Standipack (P.) Ltd. vs. CIT, asserting that losses from non-trading activities in shares are not speculative.

2. Depreciation on Compensation Paid for Acquiring Mining Rights:
The Revenue contested the deletion of disallowance of ?6,37,034/- depreciation on compensation paid for mining rights, arguing it was a tangible asset. The AO viewed the rights as akin to leasing property, thus not intangible. CIT(A) allowed the depreciation, classifying the compensation as intangible under section 32(1)(ii). The ITAT upheld CIT(A)'s decision, citing the Delhi High Court's ruling in Areva T AND D India Ltd. vs. DCIT, which included business or commercial rights of similar nature under intangible assets. The ITAT concluded that mining rights are intangible assets, thus eligible for depreciation.

3. Deductibility of Royalty Paid in a Prior Financial Year:
The Revenue argued that the ?70,50,772/- royalty paid in March 2002 should have been claimed in the 2002-03 assessment year under section 43B. The AO disallowed the claim, but CIT(A) allowed it, noting the payment was an advance for the next financial year. The ITAT upheld CIT(A)'s decision, confirming the advance payment was allowable in the 2003-04 assessment year. The ITAT referenced the ITAT Chandigarh Special Bench's decision in DCIT vs. Glaxo Smithkline Consumer and the Andhra Pradesh High Court's ruling in Gopi Krishna Granites India Ltd. vs. DCIT.

4. Disallowance of Invisible Loss in Raw Material:
The Revenue disputed the deletion of disallowance of invisible loss in raw material, citing a prior year's invisible gain. The AO disallowed ?74,57,220/- of invisible loss, doubting its genuineness. CIT(A) allowed the loss, noting the AO failed to disprove the claim or show stock suppression. The ITAT upheld CIT(A)'s decision, emphasizing that invisible losses depend on factors like moisture and quality of raw material, and the AO did not reject the books of accounts or show defects. The ITAT found no basis for disallowing the loss based on prior year's gains.

Conclusion:
The ITAT dismissed both appeals by the Revenue, affirming CIT(A)'s decisions on all issues. The judgments were pronounced in the open court on 28.05.2018.