2019 (2) TMI 1141 - HC - Income Tax

NBFC's Business Loss Disallowed on Share Diminution Value

M/s. Twenty First Century Management Services Ltd. Versus The Income-tax Officer (OSD)

The Tax Case involved an NBFC's claim for business loss on shares due to diminution value, which was disallowed by the Income Tax Appellate Tribunal. ... Allowability of busniss loss on the purchase of Shares on account of diminution value in the Shares - said loss to the extent of about 50% of the purchase value of the Shares by the Assessee Company was deducted by the Appellant/Assessee claiming it as business loss to the Assessee Company - HELD THAT:- we are of the clear opinion that the findings arrived at by the Tribunal and the Authorities below are essentially the findings of fact and business loss in question as claimed by the Assessee by merely devaluing the book value of the Shares purchased by them, during the year in question could not have been claimed by the Assessee as business loss in the year in question. Tribunal, therefore, was justified in disallowing the same and therefore, the Tax Case filed by the assessee has no merit and it deserves to be dismissed. Issues Involved:1. Disallowance of business loss claimed by an NBFC on the purchase of shares due to diminution value.Analysis:The judgment pertains to a Tax Case filed by an NBFC against the order of the Income Tax Appellate Tribunal disallowing a loss claimed on the purchase of shares due to diminution value. The Assessee contended that the loss, amounting to about 50% of the purchase value of the shares, should be considered a business loss. However, the Tribunal and lower authorities held against the Assessee, stating that the method of accounting and stock valuation could not be relied upon. They emphasized that the claim of loss was not justified, as the system of accounting was unreliable and lacked credibility. The Commissioner of Income Tax (Appeals) also rejected the Assessee's claim, highlighting the inconsistencies in the accounting practices and the lack of evidence supporting the loss claimed.The Tribunal's decision was based on the premise that the Assessee's method of devaluing the book value of shares purchased during the year could not be considered a legitimate basis for claiming business loss. The Tribunal upheld the findings of the lower authorities, emphasizing that the Assessee's accounting practices were not reliable, and the claimed loss could not be substantiated. The Tribunal concluded that the Assessee's claim lacked merit and dismissed the Tax Case filed by the Assessee.The Assessee raised substantial questions of law regarding the allowability of the loss representing the diminution of share valuation and the timing of the loss occurrence. However, the Assessee did not pursue the second question during the proceedings. After considering the arguments presented by both parties, the Court affirmed the Tribunal's decision, stating that the findings were primarily factual in nature. The Court agreed with the Tribunal's reasoning and upheld the disallowance of the claimed business loss by the Assessee. Consequently, the Tax Case was dismissed, and the first question of law was answered in favor of the Revenue, with no costs awarded to either party.