2021 (6) TMI 838 - AT - Income Tax

Appellate Tribunal affirms Commissioner's decisions on income tax disallowances and losses.

Income Tax Officer Ward–13 (3) (3), Mumbai Versus Manoj Vasudev Wadhwa

Income Tax Officer Ward–13 (3) (3), Mumbai Versus Manoj Vasudev Wadhwa - TMI Issues Involved:1. Disallowance of finance brokerage and stamp duty expenses2. Disallowance under Section 14A of the Income Tax Act3. Treatment of credit balances with firms in disallowance calculation4. Disallowance of derivatives loss under Section 43(5)(d)Issue 1: Disallowance of Finance Brokerage and Stamp Duty Expenses:The assessing officer disallowed finance brokerage and stamp duty expenses as capital in nature under Section 37(1) of the Income Tax Act. The Commissioner of Income Tax (Appeals) (CIT(A)) allowed the deduction under Section 37(1) based on detailed evidence submitted by the assessee, showing that the expenses were incurred for the purpose of share and derivative trading business. The Appellate Tribunal upheld the CIT(A)'s decision, stating that the assessing officer had access to the details submitted earlier and there was no violation of Rule 46(A)(3).Issue 2: Disallowance under Section 14A of the Income Tax Act:The assessing officer disallowed certain expenses under Section 14A, which was challenged by the assessee before the CIT(A). The CIT(A) directed the AO to exclude certain credit balances with firms from the disallowance calculation, as they were liabilities of the partner and not investments. The Appellate Tribunal remitted the issue back to the AO to determine the actual investment made by the assessee in the partnership firm for the calculation of disallowance under Rule 8D.Issue 3: Treatment of Credit Balances with Firms in Disallowance Calculation:The AO included credit balances with firms as part of investments in the disallowance calculation under Section 14A. The CIT(A) observed that these balances were liabilities of the partner and not investments, directing the AO to exclude them. The Appellate Tribunal agreed with the CIT(A) but remitted the issue back to determine the actual investment in the partnership firm for the disallowance calculation.Issue 4: Disallowance of Derivatives Loss under Section 43(5)(d):The AO disallowed derivatives loss under Section 43(5)(d), which was challenged by the assessee before the CIT(A). The CIT(A allowed the loss related to actual delivery of shares, stating that the provision of Section 43(5)(d) applies only to derivative trading, not actual delivery of share trading. The Appellate Tribunal upheld the CIT(A)'s decision, noting that the loss from actual delivery of shares cannot be part of speculative transactions.In conclusion, the Appellate Tribunal partly allowed the revenue's appeal for statistical purposes, dismissing various grounds raised by the revenue related to disallowances and treatment of expenses and losses under the Income Tax Act.