1992 (9) TMI 127 - AT - Income Tax

Tribunal Decision: Revenue's Classification Upheld, Loss Disallowed, Directors' Remuneration Increased

NABHA INVESTMENT (P) LTD. Versus ASSISTANT COMMISSIONER OF INCOME TAX.

NABHA INVESTMENT (P) LTD. Versus ASSISTANT COMMISSIONER OF INCOME TAX. - TTJ 045, 158, Issues Involved:1. Classification of profit from the sale of shares of HMM Ltd.2. Allowability of loss on the sale of shares of M/s Durable Steels P. Ltd. and M/s Hanuman Steels P. Ltd.3. Valuation of shares of M/s Krishna Fabrics P. Ltd.4. Allowability of loss on transactions conducted through M/s L.R. Munjal.5. Disallowance of directors' remuneration.Issue 1: Classification of Profit from the Sale of Shares of HMM Ltd.The appellant, an investment company, declared the profit from the sale of HMM Ltd. shares as capital gains, while the Revenue classified it as business income. The distinction is crucial because capital gains allow deductions under s. 80T, whereas business income does not. The appellant argued that the shares were acquired as investments and not for trading, despite being reflected as stock-in-trade in previous years. The CIT(A) confirmed the Revenue's classification.The Tribunal held that the appellant had consistently treated the shares as stock-in-trade in prior years and had declared profits from their sale as business income. The Board of Directors' resolution to reclassify the shares as investments was not supported by sufficient evidence. The Tribunal concluded that the shares were held as stock-in-trade and the profit from their sale was assessable as business income.Issue 2: Allowability of Loss on the Sale of Shares of M/s Durable Steels P. Ltd. and M/s Hanuman Steels P. Ltd.The appellant claimed a loss of Rs. 49,48,000 on the sale of shares of its subsidiary companies. The Assessing Officer and CIT(A) disallowed the loss, deeming the transactions as sham and intended to offset profits from the sale of HMM Ltd. shares. The Tribunal noted the close relationship between the parties involved and the fact that the shares were sold at a significant loss to a partnership firm in which the appellant had a substantial interest. The Tribunal upheld the disallowance, concluding that the transactions were not genuine.Issue 3: Valuation of Shares of M/s Krishna Fabrics P. Ltd.The appellant reduced the value of shares of M/s Krishna Fabrics P. Ltd. by 50% due to alleged heavy losses suffered by the company. The Assessing Officer and CIT(A) rejected the claim for lack of evidence. The Tribunal found no reason to interfere with the CIT(A)'s finding, as the appellant failed to provide adequate evidence to support the reduced valuation.Issue 4: Allowability of Loss on Transactions Conducted through M/s L.R. MunjalThe appellant claimed a loss of Rs. 6,95,125 on transactions conducted through a share broker, M/s L.R. Munjal. The Assessing Officer disallowed the loss, citing discrepancies in the broker's records and the absence of actual delivery of shares. The Tribunal upheld the disallowance, noting that the appellant failed to establish the genuineness of the transactions and the burden of proof was not satisfactorily discharged.Issue 5: Disallowance of Directors' RemunerationThe Assessing Officer disallowed an increase of Rs. 6,000 in directors' remuneration. The Tribunal found the increase to be reasonable and deleted the addition, allowing the appellant's claim.Conclusion:The appeal was partly allowed, with the Tribunal upholding the Revenue's classification of profit from the sale of HMM Ltd. shares as business income, disallowance of loss on the sale of shares of subsidiary companies, and disallowance of loss on transactions through M/s L.R. Munjal. The Tribunal also upheld the rejection of the reduced valuation of shares of M/s Krishna Fabrics P. Ltd. but allowed the increase in directors' remuneration.