ITAT rules loss from equity shares eligible as business loss deduction

ITAT rules loss from equity shares eligible as business loss deduction

The revenue department noticed that the assessee had reduced a sizable sum as interest received under the Income Tax Act

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) has held that loss from equity shares is eligible to deduct as business loss.

The assessee, Seshasayee Paper and Boards Ltd had challenged the order of the Commissioner of Income Tax (Appeals) on various grounds.

During the assessment proceedings, the assessing officer (AO) noticed from the computation of income that the assessee had reduced a sum of Rs.48,86,557 as interest received under the Income Tax Act because it was not taxable pending the final decision by the appellate authorities.

The AO and the CIT(A) noted that the assessee had incurred an expenditure of Rs.16,04,118 under extraordinary circumstances while interacting with various government departments on a day-to-day basis, spending on tea, snacks, and meals.

The assessee contended those were business expenses and the AO disallowed them by stating the expenses did not fall under any regular head of expenditure in financial accounting. Since the assessee could not substantiate its claim, the tribunal dismissed its appeal and upheld the CIT(A) order.

The tribunal observed that the assessee had made investments in Ponni Sugars & Chemicals Ltd., referring the matter to the Board for Industrial and Financial Reconstruction (BIFR) for the reconstruction of the assessee as a sick industrial unit. It viewed that the BIFR declared the assessee as a sick unit and the loss of investment claimed by the assessee as the write-off of investment could be allowed under the IT Act.

While considering various grounds in the appeal, and partly allowing the appeal, Mahavir Singh (vice president) and Manoj Kumar Aggarwal (accountant member) ruled, "The claim of loss accruing or arising as an investment in equity shares, non-convertible debentures and zero-coupon redeemable preference shares, is not a capital loss, but is eligible for deduction in the computation of business income as business loss."