Excess Share of Profit claimed can’t be treated as ‘Income from Other Sources’: ITAT

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) has held that excess share of profit claimed can’t be treated as ‘Income from other sources’.

The assessee filed an original returndeclaring total income at Rs.9,66,360/-, which was revised on 31-07-2016 with total income at Rs.11,66,360/- in which the assessee claimed exempt income of his 10% share in the profit of the partnership firm, namely, M/s. Nirman Reality at Rs.49,97,480/-. The Assessing Officer (AO) held that the excess share of profit claimed by the assessee to the tune of Rs.4,12,074/- was like ‘Income from other sources’.

It was observed that the change in the share in the profit of the partnership firm took placewith a corresponding increase in the assessee’s salary at Rs.3.00 lakh which was raised to Rs.5.00 lakh. The assessee increased his taxable income by the additional salary of Rs.2.00 lakh but omitted to give effect to the figure of exempt share in the partnership firm which got reduced to Rs.45,85,406/- from the original share declared in the return.

It was observed that all relevant financial statements of the partnership firm indicate the assessee’s share in the profit at Rs.45,85,406/- was submitted. Mere mistake in not lowering the share in the profit of the firm cannot lead to the treatment of the differential amount as ‘Income from other sources.

The Coram consists of Shri R SSyal, vice president and ShriS S Viswanethra Ravi, Judicial Member observed no reason to treat the difference in the share of profit of the firm as ‘Income from other sources’ and directed to delete the addition made by AO. The appeal filed by the assessee was allowed. The appellant was represented by Shri Krishna Gujarathi and the revenue was represented by Shri M.G. Jasnani.

Amendment on Sec.36(1)(va) has a Prospective Effect: ITAT quashes Order of Disallowance

The Raipur bench of the Income Tax Appellate Tribunal ( ITAT ) has held that amendment on Section 36(1)(va) of the Income Tax Act has a prospective effect and quashes the order confirming disallowances of Rs. 18,12,622/- out of employment contribution towards EPF/ESIC.

The assessee is a company engaged in the business of manufacturing & selling sponge iron, ingots, billets and generation of power. The assessee company filed a return electronically on 28.09.2012 declaring total income at Rs. Nil and the assessment proceedings were completed u/s. 143(3) of the Act by order dated 31.03.2015 after making disallowance.

The appellant submitted that the assessee-company deposited the employee’s contribution of PF/ESI though with a delay of a few days from the due dates mentioned in the Acts and deposited the amount before the due date of filing of return of income The assessee had collected employees’ contribution to ESI and PF from its employees and deposited before the due date of filing of return of income u/s 139(1) of the Act.

In contra, revenue contended that the explanation added to Section 36(1)(va) of the Act by the Finance Act, 2021 is clarificatory in nature. The assessee contended that the clarification will take effect from 1st April 2021 and will apply from the assessment year 2021-22 and subsequent assessment years and not to the impugned assessment year.

It was observed that the assessee actually deposited the entire amount and adduced evidence regarding such deposit on or before the return of income under sub-section (1) of Section 139 of the IT Act. Further observed that the PF and/or EPF, CPF, GPF, etc paid after the due date under the respective Act but before the filing of the return of income under Section 139(1), cannot be disallowed under Section 43B or under Section 36(1)(va) of the IT Act.

The Coram consisting of Shri Ravish Sood, JM and Shri Rathod Kamlesh Jayantbhai, AM held that the amendment is prospective and not retrospective and allowed the claim of the assessee for Rs. 18,12,622/- being the employee’s contribution towards EPF/ESIC and direct the AO to delete the disallowance. The appeal filed by the assessee was allowed. The assessee was represented by Sh. Bikram Jain and the revenue was represented by Shri G.N Singh.

Income Tax: Currency Derivative can be treated as an Eligible Transaction u/s 43 (5), rules ITATRe

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) comprising Shri Saktijit Dey, JM & Shri Pradip Kumar Kedia, AM has held that currency derivatives can be treated as eligible transactions u/s 43(5) of the Income Tax Act.

The appellant assessee engaged in the share broking business and is also indulging in currency trading and other non-currency business in the derivative segment. The assessee claimed an amount of Rs.24,67,704/- as a loss due to trading in currency transactions through a share and stockbroker registered with SEBI; namely PEE AAR Securities Ltd. on BSE platform in the currency derivatives segment. The assessee claimed the losses arising from currency derivatives as non-speculative business and consequently claimed set-off on such losses incurred against other non-speculative business income declared by the assessee.

The Assessing Officer (AO) held that such losses arising from currency derivatives do not fall with the exceptions stipulated in Section 43(5) of the Act which defines the expression ‘Speculative transaction’ and denied the set-off.

It was observed that the proviso (d) u/s 43(5) states that any ‘eligible transaction’ in respect of trading in derivatives referred to in clause (ac) of Section 2 of Securities Contracts (Regulation) Act, 1956 that has been carried out in a recognized stock exchange shall not be treated as speculative transaction.

The Tribunal viewed that the assessee has complied with all the conditions of clause (d) and can treat currency derivative transactions as eligible transactions for the purposes of exclusion from the ambit of speculative transaction defined under Section 43(5) of the Act. The Tribunal while allowing the appeal, set aside the order of AO and directed to restore the claim of the assessee to be non-speculative in nature.

Shri Amit Goel appeared on behalf of the appellant and Shri Vijay Kataria appeared on behalf of the revenue.