2024 (12) TMI 389 - HC - Income Tax

Disallowance of loss on sale of HTM securities (Held till Maturity Securities, being securities which are held till maturity) - HELD THAT - We consider it apposite to remand the proceedings to the AO to consider the Assessee s alternate claim for loss arising out of the HTM securities, as loss under the head income from business and profession . The finding of the ITAT to the effect that no material had been supplied by the Assessee to substantiate the claim is clearly unsustainable. Assessee fairly states that as far as the question of treating the profits from the sale of HTM securities as capital gains is concerned, the same stands concluded by the learned ITAT, and the Assessee accepts the same.

Summary

Issues:
1. Appeal under Section 260A of the Income Tax Act, 1961 against order of the Income Tax Appellate Tribunal (ITAT) for assessment year 2006-07.
2. Questions of law raised regarding the treatment of profit on sale of securities, determination of business income vs. capital gain, and treatment of losses incurred.
3. Disallowance of loss on sale of Held Till Maturity (HTM) securities and conversion of capital asset into stock-in-trade.

Analysis:
The Punjab National Bank filed an appeal under Section 260A of the Income Tax Act against the order of the ITAT for the assessment year 2006-07. The questions raised included whether the ITAT's order was a speaking order, the treatment of profit on sale of 'Held To Maturity' securities as business income or capital gain, and the determination of business income vs. capital gain based on trading transactions frequency. The Assessee contended that the main issue was the disallowance of loss on sale of HTM securities.

The Assessee argued that the HTM securities were held till maturity and gains/losses were declared under the head 'capital gains'. However, the AO, CIT(A), and ITAT rejected this view. The Assessee also claimed that if profits were taxed as business income, losses should be allowed as deduction under the same head. The claim for loss deduction was rejected due to lack of substantiation of cost details.

The CIT(A) upheld the disallowance of business loss on conversion of capital asset into stock-in-trade, stating that the Assessee failed to substantiate the claim. The Assessee's argument that capital gains and business income originated from the same transaction was dismissed. The ITAT confirmed the disallowance of loss due to lack of details on cost of acquisition and selling price.

The Assessee later provided documents supporting the claim during assessment proceedings, which were not considered earlier. The Court remanded the proceedings to consider the Assessee's alternate claim for loss on HTM securities under 'income from business and profession'. The Assessee accepted the treatment of profits from sale of HTM securities as capital gains, and the appeal was disposed of without addressing other questions of law raised.