The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the business loss and business expenditure are different and the same cannot be equated since the expenditure is indicative of a volition but a loss comes to as ab extra without the role of the assessee.
Allowing the appeal by the assessee, Hespera Realty Pvt. Ltd, the Tribunal held that the provisions of 115JB of the Income Tax Act, 1961 doesn’t envisage enhancement of taxable profits by adding the loss incurred in the redemption of mutual fund for the purpose of Section 115JB.
During the relevant assessment year, the Assessing Officer has made an upward adjustment of Rs.28,54,45,463 in terms of clause (f) of Explanation 1 to section 115JB of the Act, by treating the said loss as expenditure relatable to earning exempt income.
On the first appeal, the CIT (A) confirmed the addition on the grounds that as per the provisions of clause (f) of Explanation 1 to section 115JB of the Act the book profit is to be reduced by the amount of income to which any provisions of section 10 apply and increased by the amount of expenditure relatable to any income to which section 10 applies.
While deleting the orders of the lower authorities, the Tribunal observed that a straight reading of the provisions denotes that the loss on purchase and redemption of mutual funds cannot be treated as an expenditure relatable to the earning of dividends.
“The provisions relating to dividends stripping and allowability of consequent loss u/s 94(7) are different from the Clause (f) of Explanation 1 to Section 115JB. Expense is something that comes out of pocket. A loss is something different as it is not a thing that is spent or disbursed. It is a thing which comes upon him ab extra. {CIT Vs SC Kothari (82 ITR 792) (SC)}. There is a clear distinction between a business expenditure and business loss. The former is indicative of a volition but a loss comes to as ab extra without the role of the assessee,” the Tribunal observed.
While concluding, the Tribunal referred the decision in the case of CIT Vs New India Assurance Co. Ltd wherein it was held that while expenditure is voluntary, the business loss is fortuitous.
“Hence, the loss cannot be equated with expenditure. The provisions u/s 115JB doesn’t envisage the enhancement of taxable profits by adding the loss incurred in the redemption of mutual fund for the purpose of Section 115JB. Reliance is placed on the judgment of Hon’ble High Court of Gujarat in the case of CIT Vs JK Paper Ltd. 206 Taxmann 124 wherein it was held that the loss incurred by them on account of dividend stripping dealt under sub-Section 7 of Section 97 cannot be applied for the purpose of computing business profit in terms of Section 115JB. Based on the conjoint reading of the provisions of the Act and the judgments of the Hon’ble Apex Court, the appeal of the assessee on this ground is allowed,” the Tribunal added.
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