No deduction for decrease in value of unlisted company investments: HC

Case Details: M/s Ashok Leyland Finance Limited vs. DCIT - [2023] 146 taxmann.com 340 (Madras)

Judiciary and Counsel Details

• • S. Vaidyanathan & C. Saravanan, JJ.
  • R. Vijayaraghavan for the Appellant.
  • T. Ravikumar, Standing Counsel for the Respondent.

Facts of the Case

Assessee was a non-banking financial company registered with RBI. It filed its return of income under the normal provisions of the Income-tax Act. During the relevant year, the assessee made certain investments in the shares of unlisted companies. Assessee treated it as “stock-in-trade” and claimed deduction towards the diminution of the value of investments in its Profit and Loss Account.

During the assessment proceedings, the Assessing Officer (AO) contended that the assessee invested in the shares of an unlisted company. These shares do not have any market value as they are not traded in the stock market. Thus, he issued a notice under section 143(2) and completed the assessment by enhancing the total income.

The matter reached the Madras High Court.

High Court Held

The High Court held that the share purchased by the assessee in the unlisted companies are not easily transferable and can be encashed only when contingencies arise. Thus, the investment in these securities cannot be considered as ‘circulating-capital’ or ‘stock-in-trade’. They are merely investments.

Deduction with respect to the diminution in value of the shares can only be claimed at the time of sale of the shares. Assessee can claim for the loss suffered while selling the shares but is not entitled to deduction with respect to the diminution in the value of such shares.

Therefore, the purported loss arising from the diminution of shares is not allowed.