2013 (11) TMI 1233 - AT - Income Tax

Conversion of shares from "stock-in-trade" to "Investments" - Business loss or speculation loss - revenue contended that conversion of shares having been made to avoid application of Explanation to section 73 - Held that:- The bonafides of the assessee are demonstrated by the fact that only 1/3rd of the shares converted into investments only part of the shares so converted were sold during the previous year and even in respect of shares held as stock in trade, there was a loss on sale of such shares during the relevant previous year also. At the time of conversion of shares, the assessee could not have known that the prices would fall subsequently. - order of the Ld. CIT(A) accepting the conversion of the stock in trade into investment is upheld - Decided against the revenue.

Set off of losses - sale of shares after conversion - held that:- Income of the assessee from capital gains and house property during the relevant previous year is more than the business income and therefore, the assessee's case fall within the exclusion contained in Explanation to section 73 of the Act. In view of the aforesaid, the loss arising on the sale of shares held as stock in trade has rightly been allowed by the ld. CIT(A) - Decided against the revenue.

The order of the Ld. CIT(A) deleting the disallowance of expenditure relating to expansion of healthcare division is upheld.

Payment of Non-Compete Fee - held that:- the assessee's business interest would have suffered if the ex-employee, who was in a senior position and was well conversant with and in fact instrumental in setting up the above business initially, would have come in competition with the joint venture companies, in which the assessee had substantial interest. The assessee may also have been liable to joint venture companies. Thus, the non-compete fee was paid on account of 'commercial expediency' and was rightly allowed revenue deduction by the A.O - Decided against the revenue.

Depreciation @ 60% on medical equipment as computers - Held that:- computer controlled medical equipment can not be equated with computers - normal depreciation to be allowed - Decided in favor of revenue.

Depreciation @ 25% on building used as Nursing Home treating the same as plant and machinery - Held that:- the claim of the assessee is fully supported by the decision of the Hon'ble Supreme Court in the case of Dr. B. Venkata Rao (1999 (2) TMI 11 - SUPREME Court).

Disallowance u/s 14A - Held that:- it would be appreciated that the Assessee had substantial surplus interests free funds, which were sufficient to cover additional investments in shares made during the year and, therefore, there was no nexus of interest paid on borrowed funds with the said investments in the Assessment Year 2001-02. - there was no proximate nexus of borrowed funds with investment in shares, warranting disallowance under Section 14A. - Decided against the revenue.

Disallowance u/s 14A read with section 115JB - held that:- the amount of disallowance of other expenditure i.e. other than interest expenditure computed u/s 14A can be adopted for the purposes of addition to book profit u/s 115JB of the Act - decided partly in favor of assessee.