2017 (4) TMI 813 - AT - Income Tax

Tribunal allows appeal on share losses & valuation, directs interest income treatment.

Classic Shares and Stock Broking Services Ltd. Versus ACIT CC-40, Mumbai

Classic Shares and Stock Broking Services Ltd. Versus ACIT CC-40, Mumbai - TMI Issues:1. Disallowance of loss arising from share transactions for A.Y. 2003-04.2. Disallowance of loss arising from valuation of shares for A.Y. 2005-06.3. Assessment of interest income under different heads.4. Assessment of prior period income.5. Disallowance of expenses.6. Applicability of Explanation 73.Issue 1: Disallowance of Loss for A.Y. 2003-04:The appeal contested the disallowance of loss of Rs. 12.27 lakhs from share transactions. The assessee, engaged in share broking and trading, claimed the loss due to the diminution in value of shares. The Assessing Officer disallowed the claim citing lack of proof of the loss's genuineness. The CIT(A) upheld the disallowance, stating insufficient details provided. The assessee argued consistent valuation methods and cited legal precedents supporting their claim. The Tribunal found the loss genuine, as it was based on the valuation of closing stock as per the consistent method followed by the assessee. The loss was allowed, setting aside the CIT(A)'s order.Issue 2: Disallowance of Loss for A.Y. 2005-06:The issue involved the disallowance of Rs. 13.70 lakhs loss from the valuation of shares of Global Trust Bank Ltd. The assessee challenged the disallowance, citing cancellation of business license by SEBI. The Tribunal considered previous decisions and held the loss allowable, as the business was deemed to continue despite license cancellation. The loss was directed to be allowed, overturning the CIT(A)'s decision.Issue 3: Assessment of Interest Income:The contention revolved around assessing interest income of Rs. 10.32 lakhs under 'Income from Other Sources' instead of 'Income from Business.' The Tribunal, following past decisions, treated the interest income as incidental business income due to deposits made for trading activities. The interest income was directed to be assessed as business income, contrary to the CIT(A)'s order.Issue 4: Assessment of Prior Period Income:The assessee accounted for interest income accrued in previous years during the current year under 'Prior period items.' The Tribunal directed the AO to assess income in respective years and allow TDS credit accordingly, modifying the CIT(A)'s order.Issue 5: Disallowance of Expenses:The CIT(A) disallowed expenses of Rs. 8,24,409, citing lack of business activities. However, following prior decisions indicating the assessee's business continuation, the Tribunal allowed the expenditure claim, setting aside the CIT(A)'s decision.Issue 6: Applicability of Explanation 73:The Tribunal considered the applicability of Explanation 73 to the assessee due to interest income assessment as business income. The matter was remanded to the AO for examination, allowing the assessee to demonstrate non-applicability of the provision if possible.In conclusion, the Tribunal allowed the assessee's appeal, addressing various issues related to loss disallowance, income assessment, prior period income, expenses, and legal provisions' applicability.---