2017 (6) TMI 71 - AT - Income Tax

ITAT allows appeal, permits carry forward of business loss, treating PMS accounts as capital loss

The ITAT allowed the appeal, overturning previous decisions, and permitted the appellant to carry forward the business loss. The ITAT considered the ... Addition of loss not allow to be carried forward - books of account audited u/s. 44AB - loss incurred under the head “Business & Profession” - Held that:- In this case, assessee gave her funds to the PMS Manager as in investment and there is no involvement of assessee in day to day transaction of the funds. The result of profit and loss in the end of the year from PMS Account is a capital loss. In earlier year assessee was dealing in shares from her own firm. The same activity was also carried out during the year. Along with some share transactions were considered as part of the business activities and loss of PMS Account was also considered as part of the business activity. Whereas looking the facts and circumstances of the case such income cannot be a business income where assessee has least role to play in day-to-day transaction of funds. As assessee has filed its return after due date that cannot be sole criteria for rejecting the claim of the assessee. In our opinion assessee’s claim for carried forward of loss cannot be rejected. Therefore, we allow the appeal of assessee. Issues:- Late filing of return of income for A.Y. 2009-10 under section 139(4) of the Income Tax Act, 1961.- Classification of share trading transactions under Portfolio Management Services (PMS) as business income or capital gain.- Disallowance of carrying forward business loss.Late Filing of Return:The appellant contested the Commissioner of Income Tax (Appeals)'s conclusion that the return of income for A.Y. 2009-10 was filed late under section 139(4) of the Income Tax Act, 1961. Despite the appellant filing the return on 22/09/2009 before the due date of 30/09/2009 under section 139(1) of the Act, the CIT(A) erred in law and on facts in this regard. The appellant had audited her books of account under section 44AB and incurred losses under the head 'Business & Profession.'Classification of Share Trading Transactions:The appellant engaged in share trading transactions through various Portfolio Management Services (PMS) providers, such as HDFC PMS and Reliance PMS. The appellant argued that the PMS managers acted as agents who traded on behalf of the appellant to maximize profits. The appellant contended that the intention was not to hold shares as investments but to conduct trading activities. The appellant differentiated between investment in shares and trading of shares, maintaining separate accounts for both. The appellant highlighted the high volume and frequency of share transactions conducted through PMS, indicating a business motive rather than investment.Disallowance of Carrying Forward Business Loss:The Assessing Officer disallowed the carry forward of the appellant's business loss amounting to Rs. 41,44,710/-, which was challenged in statutory appeals. The CIT(A) also dismissed the appeal. However, the ITAT Ahmedabad, after considering the facts and circumstances, ruled in favor of the appellant. The ITAT noted that the appellant's involvement in day-to-day transactions through PMS was minimal, and the profit and loss from PMS accounts were treated as capital loss. The ITAT deemed the appellant's claim for carrying forward the loss as valid, emphasizing that late filing of the return should not be the sole criterion for rejecting the claim.In conclusion, the ITAT allowed the appeal, overturning the previous decisions and permitting the appellant to carry forward the business loss.