2011 (10) TMI 663 - AT - Income Tax

Tribunal rules on share trading loss treatment and interest levy under section 220(2).

M/s. Narad Investments & Trading Pvt. Ltd., Versus Dy. Commissioner of Income Tax, Circle 2 (2), Mumbai

The Tribunal upheld the treatment of the loss from share trading as speculation loss but ruled in favor of the assessee on the issue of the levy of ... Treatment to loss - Held that:- No infirmity in the order of CIT(A) treating the loss from share trading as speculation loss and the same is therefore upheld. Levy of interest u/s. 220(2) - Held that:- The original assessment order has been set aside by the Tribunal and matter restored to the Assessing Officer for fresh assessment and therefore in view of the circular of CBDT No.334 Dt.3.4.1982 , the interest can be levied only from the date of default of the demand notice issued in pursuance of the fresh assessment order. The order of CIT(A) holding that interest under section 220(2) has to be levied from the date of default as per the original assessment order therefore cannot be sustained. Issues Involved:1. Treatment of loss from purchase and sale of shares as speculation loss.2. Levy of interest under section 220(2) of the Income Tax Act, 1961.Issue 1: Treatment of Loss from Purchase and Sale of Shares as Speculation LossThe first dispute concerns the Assessing Officer's (A.O.) decision to treat the loss from the purchase and sale of shares as a speculation loss instead of a business loss as declared by the assessee. The A.O. noted that the assessee had incurred a loss of Rs. 1,37,83,962 from trading in shares, which was declared as a business loss. The A.O. asked the assessee why this loss should not be treated as a speculation loss under the provisions of Explanation to section 73. The assessee argued that their income mainly consisted of dividend, profit on sale of investment, and other income, thus the provisions of Explanation to section 73 were not applicable. However, the A.O. observed that the main activity of the assessee was trading in shares, given a total turnover of Rs. 9.37 Crores in share trading, and concluded that the provisions of Explanation to section 73 were applicable.In appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the A.O.'s decision. The Tribunal, in a previous appeal, had restored the issue to the A.O. for fresh examination in light of relevant case laws. In the fresh assessment, the A.O. again treated the loss as speculation loss, which was upheld by the CIT(A). The CIT(A) noted that the loss from share trading was significantly higher than income from other sources, thus Explanation to section 73 was applicable. The Tribunal, upon reviewing the records and contentions, upheld the CIT(A)'s order, confirming that the loss from share trading should be treated as speculation loss.Issue 2: Levy of Interest under Section 220(2)The second dispute involves the levy of interest under section 220(2) of the Income Tax Act, 1961. The A.O. levied interest from the date of the original demand notice, even though the original assessment was set aside by the Tribunal and a fresh assessment was conducted. The assessee argued that, as per CBDT Circular No.334 Dt.3.4.1982, interest should be charged only from the date of the fresh assessment order. The CIT(A) did not accept this contention, relying on various judgments that supported the levy of interest from the date of the original assessment order.The Tribunal examined the issue in light of the CBDT Circular No.334 Dt.3.4.1982, which states that if an assessment order is set aside and a fresh assessment is made, interest under section 220(2) should be charged from the date of the fresh assessment order. The Tribunal found the judgments cited by the CIT(A) to be distinguishable and not applicable to the present case. It concluded that interest under section 220(2) should be levied from the date of the demand notice issued pursuant to the fresh assessment order, not the original assessment order. Thus, the Tribunal set aside the CIT(A)'s order on this issue and allowed the assessee's claim.Conclusion:The appeal of the assessee was partly allowed. The Tribunal upheld the treatment of the loss from share trading as speculation loss but ruled in favor of the assessee on the issue of the levy of interest under section 220(2), stating that interest should be charged from the date of the fresh assessment order.