Loss Of FD Investments Doesn't Qualify As 'Trading Loss' For Deduction From Income U/S 28 Of Income Tax Act: Telangana HC
The Telangana High Court has held that the loss of fixed deposit investments by an assessee does not qualify as a 'trading loss' for the purposes of claiming deduction from income under Section 28 of the Income Tax Act, 1961. Under Section 28, one may deduct expenses that are fully and solely incurred in the course of operating a business or practicing a profession. In the case...
The Telangana High Court has held that the loss of fixed deposit investments by an assessee does not qualify as a 'trading loss' for the purposes of claiming deduction from income under Section 28 of the Income Tax Act, 1961.
Under Section 28, one may deduct expenses that are fully and solely incurred in the course of operating a business or practicing a profession.
In the case at hand, the appellant, engaged in the business of sale of electrical goods, money lending and dealing in shares and mutual funds, suffered a loss of Rs.26,15,569/- on account of moneys deposited in Krishi Bank being lost due to liquidation of the Bank.
Assessee claimed the aforesaid amount as deduction on the ground that the same is a trading loss under Section 28 or in the alternative, bad debt under Section 36(i)(vii).
The Assessing Officer however disallowed the same on the ground that the said amount constitutes a capital loss and added it back to assessee's total income.
In its appeal, the Assessee claimed that it is engaged in the business of dealing in shares and therefore, the loss sustained by it is incidental to carrying on its business and should be deducted in computing the profits.
It relied upon Commissioner of Income-Tax, U.P. v. Nainital Bank (1964) where the Supreme Court held that a trading loss is deductible if it is incidental to the business operations.
Revenue on the other hand submitted that the loss of the assessee cannot be termed as loss in the course of business since the deposits made by the assessee were in the nature of fixed deposit investments.
The division bench of Chief Justice Alok Aradhe and Justice Sreenivas Rao agreed with the Revenue, stating, “the principles laid down in the above said judgments are not applicable to the present facts and circumstances of the case on the ground that the deposits made by the assessee were in the nature of fixed deposit investments.”
It held that the loss suffered by the assessee, when the bank went to liquidation, is only a capital loss and cannot be treated as bad debt or trading loss.
Accordingly, the appeal was dismissed.
Appearance: Advocate Duvva Pavan Kumar for Appellant; Senior Standing Counsel JV Prasad for Department
Case title: M.Vinayak vs Dy Commissioner Of Income Tax
Case no.: I.T.T.A. No.171 of 2007