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2010 (2) TMI 762 - ITAT MUMBAIDepreciation - intangible asset - under section 32(1)(ii) - payment was made to retiring partners in lieu of right, title and interest in the assessee's firm - Held that:- There is nothing in the agreement that the outgoing partners cannot do any business. There is nothing in the agreement that by making payments to the partners the assessee will create any tangible or intangible asset in the books of account - Assessee has simply passed debit entry and credit entry in respective accounts in the books of account and, therefore, it is not a case where the assessee has created any asset on which depreciation in view of the provisions of section 32(1)(ii) is allowable. Disallowance under section 36(1)(ii) - interest paid on loans borrowed and utilized for payment to retiring partners - The payment of Rs. 4.50 crores was made from the funds of the firm as per clauses of agreement vide the retirement deed. The amount was not credited to the continuing partners accounts but was debited to the funds of the firm. The continuing partners have taken a conscious view that retiring partners should be paid for safeguarding the interests of the firm and for the purpose of better commercial expediency. Accordingly, the payments were made to the retiring partners out of the funds borrowed by the firm or from the funds available with the firm. Therefore, in our considered view, the payments to the partners were for the purpose of commercial expediency and therefore deduction is allowable under section 36(1)(ii) of the Act Derivatives and future option transactions - Business losses or not - Assessment year 2004-05 and assessment year 2005-06 - The Special Bench decision of the Tribunal in the case of Shree Capital Services Ltd. v. Asstt. CIT (2009 -TMI - 59828 - ITAT CALCUTTA ) has held that the term "derivatives" in which underlying asset is share will fall within the meaning of "commodity" used in section 43(5) - It has been further held that if it is to held that the transaction in derivatives does not fall in section 43(5), it may make clause (d) and the Explanation thereto below section 43(5) introduced by the Finance Act, 2005, to be redundant - The Special Bench has also held that clause (d) of proviso to section 43(5) is prospective in nature and will be effective from the date on which the legislature made it effective, i.e., 1-4-2006, and will be applicable to the assessment year 2006-07 onwards - Restore the finding of the Assessing Officer for both the years. Trading purchases made in shares during assessment year 2000-01 as sham - The Assessing Officer disallowed loss claimed on the Appellant on extinction of the shares of the above Companies as a consequence of Simple Exit System (SES) introduced under the Companies Act, 1956 - Appellant was dealer in shares including the shares in the above 4 Companies apart from shares in other unlisted Companies - These four companies having become defunct over a period of years between 1st April, 1999 and December, 2003 they availed of the scheme under Simple Exit System and became extinct during the year under appeal - This became a total loss to the Appellant on account of trading in shares and claimed a loss of Rs. 98,66,092 being the value included in opening stock of shares - Find that there is no material to show that the Company Law Department treated the Application by these Companies for SES as bogus or mala fide.n the contrary the Appellant has placed material on record that the name of these Companies were struck off - Decided in favour of assessee. Disallow notional interest - purchases of trading stock purchased has been held to be sham - The CIT(A) deleted the disallowance by holding that the same has been computed based on interest paid to Bank during the year - The CIT(A) further noted that the claim of loss in purchase of shares in 2000-01 had been held as genuine and therefore from this angle also the disallowance was not justified. Carry forward of loss - Assessee submitted that the loss was allowable to be carried forward as per provisions of law - Any loss claimed under long-term capital gain/loss cannot be set off under any other head of income as the same has to be set off against capital gain/loss and, therefore, as per provisions of law, the same is liable to be carried forward. Accordingly, confirm the finding of CIT(A) in this regard also - Therefore, the Assessing Officer was directed to allow carry forward of the loss as per provisions of law.
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