Loss arising on sale of shares wherein sales take place prior to purchase of shares without any stock being available must be treated as “Speculation loss” and not as “Contrived loss”:

AO disallowed loss on sale of shares considering it to be “Contrived loss” since he was of the view that transactions in purchase and sale of shares were merely paper transactions and the assessee had just booked the loss. Further, such transactions were off market transactions and not routed through the stock exchange. The Hon’ble ITAT observed that the transactions of sales were entered before the corresponding purchase transactions and without any stock being available with the assessee. Such transactions were evidenced by purchase and sales bills. The same were not reflected in demat account since sales transactions were effected prior to that of purchases. The shares were sold first with the intention to purchase the same when its prices fell down but since the prices of shares increased, the assessee had to purchase the shares so as to minimize the shares. The Hon’ble ITAT was of the view that the activity of first selling and then purchasing shares was a permissible and normal business activity in share transactions. Hence, it was held that loss arising thereon cannot be considered as contrived loss. However, since there were no consequential deliveries of shares, the said loss was to be treated as “Speculation loss”.

Deduction u/s 80IB(10) can be availed even if the assessee doesn’t have “Legal ownership” over the land:

Assessee is engaged in the business of construction and development of housing projects and had claimed deduction u/s 80IB(10). AO denied the said deduction merely on the counts that the land was not owned by the assessee and the certificate for eligibility of deduction was issued by the local authorities in the name of the owner of the land. The Hon’ble ITAT observed that though the land was not owned by the assessee, the development rights were with the assessee as per the agreement with the owner of the land. The assessee had all rights to develop the project and even the risk was with the assessee. Assessee was rewarded with profits arising out of such development activities and not any fixed receipt. Possession of land had been passed on to the assessee, expenses on development had been debited to the P&L a/c and the sale proceeds had been credited to the P&L a/c. In light of the above, it was held that the assessee was rightly eligible for deduction u/s 80IB(10) in light of the ratio laid down by the Hon’ble Gujarat High Court in the case of Radhe Developers.

Notional interest on NPA recorded in books and routed through Balance-sheet as per the guidelines of RBI cannot be taxed in the hands of the bank:

AO made an addition in respect of Interest on NPA (Non-performing asset) account. The Hon’ble ITAT observed that the assessee, a Co-operative bank, passed a book entry in respect of interest on NPA by debiting “Interest receivable on NPA a/c” and crediting “Muddat Viti Vyaj Anamat a/c”. Both these accounts were reflected in the Balance-sheet on the asset side and liability side respectively. Such a provision was made as per guidelines issued by RBI. The profit and loss account was not credited at all since it was a notional entry and no such interest was actually received. Even Section 43 was not applicable since the P&L account was not credited and such interest was directly shown in Balance-sheet. Hence, it was held that such interest can’t be taxed in the hands of the assessee.

Interest earned on deposits made out of grant received from Govt. for specified purposes with certain restrictions as to usage of such funds and with a condition that such interest would form part of grant can’t be taxed in the hands of the assessee:

Assessee, a Special Purpose vehicle (SPV), is engaged in the development of SEZ, Diamond Trading Institution and other such    infrastructure to promote the diamond industry to a worldwide level. During the year under consideration, assessee received certain interest on FDR from a bank which was taxed by AO in the hands of the assessee. On appeal, the Hon’ble ITAT observed that the assessee has been promoted under Industrial Infrastructure Upgradation Scheme (IIUS) of Central Government for carrying out infrastructural development in the industrial cluster. Accordingly, the Central Govt. released certain grant and such funds could have been used only for the prescribed projects. Such projects couldn’t take off as the notification for declaring SEZ was not received from Central Govt. and there were no. of hitches in allotment of land and other Govt. approvals. Hence, the said funds were kept under Escrow accounts / FDRs with bank. The assessee neither had any entitlement over such funds nor had the authority to spend the same without the approval of the Govt. Further, it was also prescribed that interest earned on such grants already released by the Govt. shall also form part of the central grant limit. Hon’ble ITAT was of the view that the assessee was merely a custodian and Govt. had prohibited grant as well as interest from any use except for the prescribed purposes. In case such project is not materialised, the same has to be repaid to the respective agencies with interest. The assessee was holding interest income as trustee of the Govt. Hence, it was held that such interest income cannot be taxed in the hands of the assessee.

“Principal” portion out of the lease rental which becomes irrecoverable can be claimed as “bad-debts”:

Assessee, engaged in the business of leasing and hire purchase of equipment, investment, trading of shares and securities, etc., claimed certain sum as “Bad-debts” during the year under consideration. AO allowed the “Interest” portion of hire and lease charges out of total bad-debts but disallowed the “Principal” portion on the count that the said amount was never offered as income. Hon’ble ITAT observed that “Interest” portion of lease rental was duly offered as income. Such interest is a part of debt and hence, part of the debt has been taken into account in computation of income. Accordingly, conditions stipulated in S.36(2) stands satisfied. Hence, the assessee was eligible for deduction in respect of such bad-debts and accordingly, the impugned disallowance was deleted.

No addition can be made in respect of on-money merely on the basis of third party’s statement recorded u/s 131(1A) and certain notings on rough papers found at third party’s premises during search:

AO made an addition in respect of on-money paid by the assessee towards purchase of a land. The Hon’ble ITAT observed that a search was conducted at the premises of a third party and certain notings on rough papers were found. AO also recorded statement of a third party u/s 131(1A). On the basis of such statement and the said notings, AO made the impugned addition. There was no material or evidence that any on-money was paid by the assessee. Further, the said land had a registered document and the value had been accepted by the registered authority for the purpose of stamp duty. AO had also not referred the matter to DVO for determining the market value of the said land as of the date of registration. Even the statement of the said third party was a self-serving statement without any supporting evidence. In light of the above, it was held that such third party evidences cannot be a base for the impugned addition. Accordingly, the impugned addition was deleted.