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ITAT held that share trading loss cannot be treated as speculative
ITAT held that share trading loss cannot be treated as speculative
Assessee was a NBFC into money lending and investment in shares. AO treated loss from shares as speculative loss. AO made addition towards interest on loan, provided by assessee to some parties without any agreement, to assessee's total income. CIT(A) upheld AO's order. But it deleted addition. ITAT held that share trading loss cannot be treated as speculative. It upheld deletion by CIT(A), as interest had not become assessee's income.-501478
1. The assessee was Non-Banking Finance Corporation (NBFC for short) engaged in the business of money lending, investment in share and dealing in share. During assessment proceedings, CIT(A) directed the AO to treat the loss of 7,30,88,822/- as speculation loss under the Explanation to s 73. The loss was from share dealing business is of 7,30,88,822/- and the assessee had income from capital gains of 41,14,395/-. Therefore, the loss from share dealing the business was treated the loss from share speculation business by the AO. Assessee had provided loans to somee parties without any agreement between the company and the debtor. There was no mentioned for charging of any interest at a specific rate for any specific period in the agreement. The loan debtor neither acknowledged its liability to pay interest nor provided any confirmation for the payment of interest. The assessee has recognized interest income unilaterally without any confirmation from the party concerned. Besides the loan debtor never deducted any TDS on the interest expenditure. The assessee submitted that this income was nothing but hypothetical income and therefore should be deleted from the total income. AO disregarded the plea of the assessee by confirming the addition of 3,04,18,767/- towards the interest on the loan in the total income of assessee.
2. CIT(A) upheld AO's order. But it deleted the addition.
3. On appeal, the ITAT held as under:
"We have already held that the fund deployed in lending activity exceeds the fund deployed in share trading activity on a consistent basis over a period of time. Hence the principal business of assessee is that of granting loans and advances and thereby outside the ambit of Explanation to Sec. 73 (of Income Tax Act, 1961). Hence, the share trading loss of claimed by the assessee cannot be construed as speculation loss and accordingly we have no hesitation in upholding the order of the Learned CIT(A).
4. We find that as per the guidelines of RBI if assessee does not pay interest for a period of exceeding six months then interest income should not be recognized in its books of account. The guideline of RBI is very much applicable to assessee as it is NBFC and governed by regulations of RBI. We also find that various courts has decided that real income should be brought to tax merely assessee has booked the income in its books of account. It does not mean that it has become the income of assessee. Following the proposition of case (supra), we have no hesitation in upholding the order of Ld. CIT(A). This ground of Revenue's appeal is dismissed.”
Case Reference - ACIT V/s. M/s Apex Enterprises (I).
IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH "A" KOLKATA
Before Shri N.V.Vasusdevan, Judicial Member and
Shri Waseem Ahmed, Accountant Member
ITA No.1796 & 285/Kol/2008
(Assessment Years :2001-02 & 2002-03)
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