Nikkamal Jewellers v. Addl. CIT

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The Tax Publishers2016 TaxPub(DT) 0284 (Chd-Trib)div class=Section1> Nikkamal Jewellers v. Addl. CIT INCOME TAX ACT, 1961 --Business deduction under section 36(1)(iii)--Interest on borrowed capital Money advanced to unrelated company to purchase property--During the course of assessment proceedings, the AO noted that assessee had given loans and advances to the extent of Rs. 6.74 Cr. From the details of these loans and advances, AO further noted that a sum of Rs. 1.85 Cr. had been given to M/s. V for purchase of property. No interest was charged on this amount. The AO was not satisfied with the explanation of the assessee and disallowed Rs. 59,013 under section 36(1)(iii). The CIT(A) did not accept contention of the assessee that AO had not proved any nexus that interest-free advances were made out of borrowed funds. It was, therefore, found that it was a case of diversion of funds for non-business purposes and accordingly, appeal of the assessee was dismissed. *Held:* The facts, clearly established on record that initially assessee had advanced a sum of Rs. 2.50 Cr. to M/s.V for purchase of property and when the said party delayed in execution of the agreement, part of the amount was returned. The substantial amount was returned after issue of the demand notice. In such a situation, it was difficult for the assessee to furnish any evidence as noted by the CIT(A), whether it was residential or commercial property to be purchased by the assessee. Since the principal amount itself remained at the stake, therefore, there was no question for the assessee to charge notional interest on the same. Nothing was brought on record if the said party was related to the assessee so as to claim that interest- free advances had been given out of the funds of the assessee. In the demand notice, assessee asked for the interest @ 12 per cent on balance amount of Rs. 1.50 Cr. Therefore, it appeared that assessee had made a claim of interest accordingly. Therefore, the facts and circumstances clearly showed that it might not be an interest-free advance or loan given to M/s. V as was stated by the authorities below. When agreement was not executed, the assessee made efforts for recovery of the amount in question and ultimately, after issuing a demand notice dated 30-3-2012 and notice dated 20-8-2011, the amount in question was returned to the assessee. Therefore, authorities below were not justified in making disallowance under section 36(1)(iii). There was justification to sustain the addition. The orders of authorities below were therefore, set aside and the addition was deleted. Income Tax Act, 1961 Section 36(1)(iii) *Relied:*CIT v. Suraj Dev Dada (2014) 367 ITR 78 (P&H), decision of the Hon'ble Punjab and Haryana High Court in the case of Bright Enterprises (P) ltd. v. CIt ITA No. 224 of 2013, dt. 15-7-2015. *REFERRED :* FAVOUR : In assessee's favour. A.Y. : 2011-12 INCOME TAX ACT, 1961 --Speculative loss--Set off of brought forward lossNon-mentioning of specultivbe loss in relevant column--The AO asked the assessee to explain why the wrong claim of set off of last years' business loss may not be disallowed. The assessee submitted that brought forward losses for assessment year 2010-11 was speculative loss amounting to Rs. 1,67,12,762. The assessee also submitted a copy of computation of income. The AO was not satisfied with the assessee's submissions. The AO reproduced the return filed by the assessee for assessment year 2010-11 in assessment order and pointed out that no speculative loss had been shown in the return of income. The AO further pointed out that assessee had not shown any speculative gain for the year under consideration against which speculative loss of any earlier year could be set off. The AO, accordingly, disallowed the claim of set off of loss of Rs. 1,42,93,116 pertaining to the earlier years. The assessee filed written submissions before CIT(A) in which it was submitted that at the time of filing of the on-line return, the speculative loss was not shown under the specific column in Schedule-BP but same was shown at point No. 22 of Schedule-BP. The CIT(A) noted that the return for preceding assessment year 2010-11 had been processed under section 143(1) and there were no carry forward of speculative loss allowed in the year. Accordingly, claim of assessee was dismissed.Held: May be the assessee has not shown the speculative loss in the proper column, the details submitted in the e-return and computation of income clearly shows that assessee has suffered speculative loss of Rs. 1,67,12,762 in assessment year 2010-11 which was also disclosed in the e-return as well as computation of income. The findings of the authorities below are, therefore, factually incorrect in this regard. Further, it is noted in the impugned order that assessing officer pointed out that assessee had not shown any speculative gain for the year under consideration against which the speculative loss for any earlier year can be set off. These findings of the authorities below are also factually incorrect. The speculative income in assessment year under appeal i.e. 2011-12 has been duly disclosed in the consolidated Profit & Loss Account. The copy of e-return for assessment year 2011-12 under appeal is filed assessee has disclosed the amount of Rs. 1,42,93,116 and assessee has shown in Schedule CFL that for assessment year 2010-11, the brought forward loss of Rs. 1,42,93,116 has been given set off and balance speculative loss has been carried forward in a sum of Rs. 24,19,646. Thus, the authorities below have wrongly observed that assessee had not shown any speculative gain for the year under consideration in the return of income. This fact is specifically disclosed in the e-return as well as computation of income filed with the authorities below. Thus, there was no requirement under this provision that speculative loss in case not noted properly in specified column of e-return, would disentitle the assessee to claim set off of brought forward losses in assessment year under appeal. Merely assessee has not disclosed speculative loss in preceding assessment year 2010-11 in specified column of the -- return would not give right to the authorities below to disallow the claim of assessee of set off of brought forward loss, particularly when complete facts were disclosed at the assessment stage which is supported by the computation of income and details furnished the e-return and before assessing officer. The Board's Circular No. 14 dt. 11-4-1955 and the decisions cited clearly support the explanation of the assessee and it was duty of the assessing officer to apply the relevant provisions of law and grant relief to the assessee instead of rejecting the claim of assessee by not mentioning the speculative loss in particular column of the e-return for assessment year 2010-11. Considering the above discussion, authorities below were not justified in not allowing the claim of set off of brought forward speculative loss of Rs. 1,42,93,116. The orders of authorities below are therefore, set aside and we direct the assessing officer to allow set off of brought forward speculative loss for assessment year 2010-11 in assessment year under appeal SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2016 TaxPub(DT) 0284 (Chd-Trib)div class=Section1>

Nikkamal Jewellers v. Addl. CIT

INCOME TAX ACT, 1961

--Business deduction under section 36(1)(iii)--Interest on borrowed capital Money advanced to unrelated company to purchase property--During the course of assessment proceedings, the AO noted that assessee had given loans and advances to the extent of Rs. 6.74 Cr. From the details of these loans and advances, AO further noted that a sum of Rs. 1.85 Cr. had been given to M/s. V for purchase of property. No interest was charged on this amount. The AO was not satisfied with the explanation of the assessee and disallowed Rs. 59,013 under section 36(1)(iii). The CIT(A) did not accept contention of the assessee that AO had not proved any nexus that interest-free advances were made out of borrowed funds. It was, therefore, found that it was a case of diversion of funds for non-business purposes and accordingly, appeal of the assessee was dismissed. Held: The facts, clearly established on record that initially assessee had advanced a sum of Rs. 2.50 Cr. to M/s.V for purchase of property and when the said party delayed in execution of the agreement, part of the amount was returned. The substantial amount was returned after issue of the demand notice. In such a situation, it was difficult for the assessee to furnish any evidence as noted by the CIT(A), whether it was residential or commercial property to be purchased by the assessee. Since the principal amount itself remained at the stake, therefore, there was no question for the assessee to charge notional interest on the same. Nothing was brought on record if the said party was related to the assessee so as to claim that interest- free advances had been given out of the funds of the assessee. In the demand notice, assessee asked for the interest @ 12 per cent on balance amount of Rs. 1.50 Cr. Therefore, it appeared that assessee had made a claim of interest accordingly. Therefore, the facts and circumstances clearly showed that it might not be an interest-free advance or loan given to M/s. V as was stated by the authorities below. When agreement was not executed, the assessee made efforts for recovery of the amount in question and ultimately, after issuing a demand notice dated 30-3-2012 and notice dated 20-8-2011, the amount in question was returned to the assessee. Therefore, authorities below were not justified in making disallowance under section 36(1)(iii). There was justification to sustain the addition. The orders of authorities below were therefore, set aside and the addition was deleted.

Income Tax Act, 1961 Section 36(1)(iii)

Relied:CIT v. Suraj Dev Dada (2014) 367 ITR 78 (P&H), decision of the Hon'ble Punjab and Haryana High Court in the case of Bright Enterprises (P) ltd. v. CIt ITA No. 224 of 2013, dt. 15-7-2015.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12

INCOME TAX ACT, 1961
--Speculative loss--Set off of brought forward lossNon-mentioning of specultivbe loss in relevant column--The AO asked the assessee to explain why the wrong claim of set off of last years' business loss may not be disallowed. The assessee submitted that brought forward losses for assessment year 2010-11 was speculative loss amounting to Rs. 1,67,12,762. The assessee also submitted a copy of computation of income. The AO was not satisfied with the assessee's submissions. The AO reproduced the return filed by the assessee for assessment year 2010-11 in assessment order and pointed out that no speculative loss had been shown in the return of income. The AO further pointed out that assessee had not shown any speculative gain for the year under consideration against which speculative loss of any earlier year could be set off. The AO, accordingly, disallowed the claim of set off of loss of Rs. 1,42,93,116 pertaining to the earlier years. The assessee filed written submissions before CIT(A) in which it was submitted that at the time of filing of the on-line return, the speculative loss was not shown under the specific column in Schedule-BP but same was shown at point No. 22 of Schedule-BP. The CIT(A) noted that the return for preceding assessment year 2010-11 had been processed under section 143(1) and there were no carry forward of speculative loss allowed in the year. Accordingly, claim of assessee was dismissed.Held: May be the assessee has not shown the speculative loss in the proper column, the details submitted in the e-return and computation of income clearly shows that assessee has suffered speculative loss of Rs. 1,67,12,762 in assessment year 2010-11 which was also disclosed in the e-return as well as computation of income. The findings of the authorities below are, therefore, factually incorrect in this regard. Further, it is noted in the impugned order that assessing officer pointed out that assessee had not shown any speculative gain for the year under consideration against which the speculative loss for any earlier year can be set off. These findings of the authorities below are also factually incorrect. The speculative income in assessment year under appeal i.e. 2011-12 has been duly disclosed in the consolidated Profit & Loss Account. The copy of e-return for assessment year 2011-12 under appeal is filed assessee has disclosed the amount of Rs. 1,42,93,116 and assessee has shown in Schedule CFL that for assessment year 2010-11, the brought forward loss of Rs. 1,42,93,116 has been given set off and balance speculative loss has been carried forward in a sum of Rs. 24,19,646. Thus, the authorities below have wrongly observed that assessee had not shown any speculative gain for the year under consideration in the return of income. This fact is specifically disclosed in the e-return as well as computation of income filed with the authorities below. Thus, there was no requirement under this provision that speculative loss in case not noted properly in specified column of e-return, would disentitle the assessee to claim set off of brought forward losses in assessment year under appeal. Merely assessee has not disclosed speculative loss in preceding assessment year 2010-11 in specified column of the -- return would not give right to the authorities below to disallow the claim of assessee of set off of brought forward loss, particularly when complete facts were disclosed at the assessment stage which is supported by the computation of income and details furnished the e-return and before assessing officer. The Board's Circular No. 14 dt. 11-4-1955 and the decisions cited clearly support the explanation of the assessee and it was duty of the assessing officer to apply the relevant provisions of law and grant relief to the assessee instead of rejecting the claim of assessee by not mentioning the speculative loss in particular column of the e-return for assessment year 2010-11. Considering the above discussion, authorities below were not justified in not allowing the claim of set off of brought forward speculative loss of Rs. 1,42,93,116. The orders of authorities below are therefore, set aside and we direct the assessing officer to allow set off of brought forward speculative loss for assessment year 2010-11 in assessment year under appeal

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