Share trading loss and margin funding interest: evidentiary support and accounting treatment cannot defeat business deduction claims.

Reliable evidence, including an arbitral award arising from a dispute with a stock broker, was treated as sufficient to establish the assessee's share trading loss, and the deduction was allowed. Interest paid on margin funding was also accepted as revenue expenditure because its character was not controlled by the fact that it had been capitalised in the books; the accounting entry could not override the true nature of the outlay. The analysis therefore supports deduction of the trading loss and allowance of the interest claim, with the remaining grounds not surviving for adjudication.

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Issues: (i) whether the assessee's share trading loss, including the amount supported by the arbitral award, was allowable as deduction; (ii) whether interest paid on margin funding, though capitalised in the books, was allowable as revenue expenditure.

Issue (i): whether the assessee's share trading loss, including the amount supported by the arbitral award, was allowable as deduction.

Analysis: The assessee produced an arbitral award arising out of the dispute with the stock broker. The award recorded the dispute regarding unauthorised or improper dealings and did not dispute the quantum of loss claimed. On that basis, the evidentiary material was treated as sufficient to establish the loss sustained in the course of share trading.

Conclusion: The loss was held allowable as deduction and the disallowance was deleted in favour of the assessee.

Issue (ii): whether interest paid on margin funding, though capitalised in the books, was allowable as revenue expenditure.

Analysis: The interest had been capitalised in the investment account, but the assessee contended that such treatment was erroneous and that the amount represented interest expenditure incurred for trading purposes. The Revenue authorities had denied the claim on the basis of the accounting treatment alone. The claim was accepted on the footing that accounting entry could not control the true character of the expenditure.

Conclusion: The interest was directed to be allowed as revenue expenditure in favour of the assessee.

Final Conclusion: The appeal succeeded on the substantive grounds relating to the trading loss and interest expenditure, while the remaining grounds did not survive for adjudication.

Ratio Decidendi: A claim to business deduction may be allowed on the basis of reliable evidentiary material establishing the loss, and the accounting treatment in the books does not by itself determine whether interest expenditure is capital or revenue in nature.

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