2015 (12) TMI 359 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on interest deduction & capital asset treatment

DCIT, Circle-8, Kolkata Versus Patton Developers Pvt. Ltd.

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions. The interest claimed under Section 24(b) was allowed as the subsequent loan ... Disallowance of interest claim by assessee u/s 24(b) - CIT(A) deleted the addition made by AO by observing that interest paid on any fresh loan taken to repay the earlier loan is fully covered u/s 24(b) - Held that:- The subsequent loan taken by assessee to repay his original loan is very much covered for claim the deduction u/s. 24(b) of the Act. It is also important to note that assessee has taken a loan from SBM and same loan from the same bank was enhanced as a result of restructuring of the existing loan. Therefore, in this case no third loan was obtained by assessee. Therefore, we do not find any good and justifiable reason to interfere in the order of Ld. CIT(A). - Decided against revenue. Addition on account of treating Long Term Capital Loss (LTCG for short) as Short Term Capital Gains (STCG for short) as business loss - AO has disallowed the conversion of the capital asset into stock-in-trade on the ground that there was no business activities carried on by assessee-company - CIT(A) allowed claim - Held that:- AO has disallowed the conversion of the capital asset into stock-in-trade on the ground that there was no business activities carried on by assessee-company during the relevant previous year and Ld. CIT(A) has rejected the claim of the AO on the ground that Sec.45(2) of the Act provides the assessee to convert the capital asset into stock-in-trade at any time during the year. There is no prohibition under the Act, therefore the act of the assessee for converting the capital asset into stock-in-trade is within the ambit of law. From the aforesaid Section 45, it is very clear that action done by assessee for converting the investment into stock-in-trade is within the purview of the law. - Decided against revenue. Issues Involved:1. Disallowance of interest claimed by the assessee under Section 24(b) of the Income Tax Act.2. Treatment of Long Term Capital Loss (LTCL) as Short Term Capital Gains (STCG) and business loss.Issue-wise Detailed Analysis:1. Disallowance of Interest Claimed Under Section 24(b):The first issue concerns the deletion of the addition made by the Assessing Officer (AO) of Rs. 2,11,44,914/- on account of disallowance of interest claimed by the assessee under Section 24(b) of the Income Tax Act. The assessee, a private limited company, borrowed a loan from the State Bank of Mysore (SBM) to repay a loan initially taken from its holding company, M/s Patton International Ltd. The AO disallowed the interest on the grounds that there was no provision to allow the deduction of interest on a subsequent loan taken to repay the original loan, relying on the Tribunal's decision in ITO v. Satya Co. Ltd. (1986).The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, observing that the interest paid on any fresh loan taken to repay the earlier loan is covered under Section 24(b). The Tribunal upheld this view, noting that the subsequent loan taken by the assessee to repay the original loan is indeed covered for deduction under Section 24(b). The Tribunal referenced the relevant provision, which states that interest payable on borrowed capital for acquiring, constructing, repairing, renewing, or reconstructing a property is deductible. The Tribunal found no reason to interfere with the CIT(A)'s order, thus dismissing the Revenue's appeal on this ground.2. Treatment of Long Term Capital Loss (LTCL) as Short Term Capital Gains (STCG) and Business Loss:The second issue involves the deletion of the addition made by the AO on account of treating Long Term Capital Loss (LTCL) as Short Term Capital Gains (STCG) and business loss. The assessee had purchased shares as an investment, which were later converted into stock-in-trade. The AO treated the resultant loss as LTCL, arguing that the assessee was not engaged in trading shares and thus the conversion was not in the normal course of business.The CIT(A) deleted the addition, citing CBDT Circular No. 4/2007 and Section 45(2) of the Act, which allows for the conversion of capital assets into stock-in-trade. The CIT(A) referenced several judgments supporting the view that such conversion is permissible under the law. The Tribunal upheld the CIT(A)'s decision, noting that Section 45(2) explicitly allows for the conversion of capital assets into stock-in-trade, and the AO's disallowance was not justified. Thus, the Tribunal dismissed the Revenue's appeal on this ground as well.Conclusion:In conclusion, the Tribunal dismissed the Revenue's appeal on both grounds, affirming the CIT(A)'s decisions. The interest claimed under Section 24(b) was deemed allowable, and the conversion of capital assets into stock-in-trade was found to be within the legal framework provided by Section 45(2) of the Income Tax Act. The Tribunal's order was pronounced in the open court on 24/11/2015.