BHAVIN PAREKH, MUMBAI V. ACIT 12(1), MUMBAI

CO 108/MUM/2008

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 5432 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 30 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-10-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 28-09-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 21-07-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: A P SINGH
• Keywords: Depreciation; Business expenditure; Additional evidence; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 6596/MUM/2005 (ASSESSMENT YEAR: 2002-03) ACIT 12(1) MR. BHAVIN PAREKH ROOM NO. 117, AAYAKAR BHAVAN 608, DALAMAL HOUSE, NA RIMAN POINT M.K. ROAD, MUMBAI 400020 VS. MUMBAI 400004 PAN - AGCPP 9010 H APPELLANT RESPONDENT CO NO. 108/MUM/2008 (IN ITA NO. 6596/MUM/2005) (ASSESSMENT YEAR: 2002-03) MR. BHAVIN PAREKH ACIT 12(1) 608, DALAMAL HOUSE, NARIMAN POINT ROOM NO. 117, AAY AKAR BHAVAN MUMBAI 400004 VS. M.K. ROAD, MUMBAI 400020 PAN - AGCPP 9010 H CROSS OBJECTOR APPELLANT IN APPEAL APPELLANT BY: SHRI A.P. SINGH RESPONDENT BY: SHRI RAJIV KHANDELWAL O R D E R PER B. RAMAKOTAIAH, A.M. REVENUES APPEAL IS AGAINST THE ORDER OF THE CIT(A) XII, MUMBAI DATED 30.08.2005 AND ASSESSEES CROSS OBJECTION IS WITH R EFERENCE TO THE ISSUES CONFIRMED BY THE CIT(A) IN HIS ORDER. THESE ARE CON SIDERED TOGETHER. ITA NO. 6596/MUM/2005 2. THE REVENUE HAS RAISED THREE GROUNDS IN THIS APPEAL . THESE ARE CONSIDERED GROUND WISE. WE HAVE HEARD THE LEARNED C OUNSEL AND THE LEARNED D.R. IN DETAIL. 3. THE GROUND NO. 1 IS AS UNDER 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE AOS ACTIO N OF TREATING THE LOSS OF RS.3,89,52,707/- AS BUSINESS LOSS IS NOT CO RRECT. HE ALSO ITA NO. 6596/MUM/2005 & CO 108 MR. BHAVIN PAREKH 2 ERRED IN ACCEPTING THE PAPER BOOK CONTAINING BIFURC ATION OF SHARES BETWEEN STOCK AND INVESTMENT WHICH WAS NOT PRODUCED BEFORE THE AO DURING ASSESSMENT PROCEEDINGS WHICH IS IN CLEAR VIOLATION OF RULE 46A. IT MAY BE NOTED THAT CIT(A) DECISION IN A SSESSMENT YEAR 2001-02 ON SIMILAR ISSUE HAS NOT BEEN ACCEPTED BY D EPARTMENT AND APPEAL HAS BEEN FILED IN ITAT. 4. IN THE YEAR AY 2001-02 THE ASSESSEE HAS CLAIMED SET OF CAPITAL LOSS AGAINST CAPITAL GAINS EARNED AND THE A.O. QUESTIONE D THE BASIS OF TREATING THE SHARES AS HELD FOR INVESTMENT OR FOR TRADING AN D CONSIDERING THAT THE ASSESSEE WAS DOING BOTH TRADING AND INVESTMENT, HE ARRIVED AT AN ARBITRARY DECISION OF TREATING THE SHARES IN INVESTMENT ACCOU NT FOR MORE THAN 90 DAYS ALONE AND PROFIT ARISING THERE ON WAS TREATED AS IN VESTMENT PROFIT. THE PROFIT OR LOSS ON SHARES HELD FOR LESS THAN 90 DAYS IN THE INVESTMENT ACCOUNT WAS TREATED AS TRADING PROFIT OR LOSS. THIS ASPECT WAS CARRIED UPTO THE ITAT AND ITAT HAS UPHELD THE ORDER OF CIT(A) WHEREIN ASSESSE ES CONTENTION WAS ACCEPTED THAT IT HAS MAINTAINED SEPARATE ACCOUNTS F OR INVESTMENT AND TRADING ACTIVITIES SEPARATELY AND A.O. WAS NOT CORR ECT IN TREATING THEM DIFFERENTLY. IN THIS YEAR THE A.O. TREATED THE ENTI RE CAPITAL LOSS AS BUSINESS LOSS THEREBY NOT ALLOWING THE ASSESSEE SET OFF OF C APITAL LOSS AGAINST SHORT TERM CAPITAL GAIN. THE CIT(A), AFTER EXAMINING THE FACTS OF THE CASE AND ALSO AFTER CONSIDERING THE ORDER IN EARLIER YEAR, UPHELD ASSESSEES CONTENTION THAT IT HAS MAINTAINED SEPARATE BOOKS OF ACCOUNT AND ACC ORDINGLY THE PROFITS AND GAINS ARISING OUT OF INVESTMENT ACCOUNT HAS TO BE T REATED AS CAPITAL GAINS OR LOSS AND PROFIT ARISING ON TRADING ACCOUNT HAS TO B E CONSIDERED AS BUSINESS LOSS. WITH THIS DIRECTION OF THE CIT(A) THE REVENUE IS AGGRIEVED AND RAISED THE GROUND. 5. WITH REFERENCE TO THE ABOVE ISSUE, AFTER CONSIDERIN G THE ARGUMENTS OF BOTH THE COUNSELS, WE ARE OF THE OPINION THAT THE C IT(A) HAS NOT ACCEPTED ANY ADDITIONAL EVIDENCE AND ASSESSEE ALSO SUBMITS T HAT WHATEVER DETAILS ARE SUBMITTED BEFORE THE A.O. WERE IN TURN PLACED BEFOR E THE CIT(A), HENCE, THE ISSUE WITH REFERENCE TO VIOLATION OF RULE 46A DOES NOT ARISE AT ALL AND REVENUE COULD NOT PIN POINT WHAT ADDITIONAL EVIDENC E THE CIT(A) HAS ACCEPTED BEFORE HIM IN DECIDING THE ISSUE. IT IS AL READY ON RECORD THAT THE CIT(A) FOR A.Y. 2001-02 HAS UPHELD ASSESSEES CONTE NTION THAT IT HAS ITA NO. 6596/MUM/2005 & CO 108 MR. BHAVIN PAREKH 3 MAINTAINED SEPARATE BOOKS OF ACCOUNT FOR INVESTMENT AND TRADING ACTIVITIES AND REFLECTED THEM SEPARATELY IN THE BALANCE SHEET AND ACCORDINGLY THE ASSESSING OFFICERS ACTION IN TREATING INVESTMENT A CCOUNT ON 90 DAYS PERIOD WAS NOT CORRECT. EVENTHOUGH THE REVENUE ALSO RAISED THE GROUND STATING THAT THE ISSUE IN A.Y. IN 2001-02 HAS NOT BEEN ACCE PTED AND APPEAL HAS BEEN FILED BEFORE THE ITAT, THIS ISSUE HAS NOW CRYS TALLISED BY THE ORDER OF THE ITAT IN ITA NO. 4772/MUM/2004 DATED 19 TH MAY 2008 WHEREIN THE CIT(A)S ORDER WAS UPHELD AFTER ELABORATELY DISCUSSING THE I SSUE VIDE PARA 13.1 OF THE ORDER WHICH IS AS UNDER: - 13.1 THE LD CIT(A) HAS DISCUSSED THE ISSUE AFTER A NALYSING THE FINDINGS OF THE AO AND THE SUBMISSIONS OF THE ASSES SEE AND THEN COME TO THE CONCLUSION THAT THERE WAS NO MATERIAL WITH T HE AO IN NOT ACCEPTING THE CLAIM OF THE ASSESSEE. THE AO HIMSELF HAS ACCEP TED THE MUTUAL FUNDS ACCOUNTS OF THE ASSESSEE WHICH WAS ON INVESTM ENT ACCOUNT AND HAS NOT ACCEPTED THE REMAINING PORTION BECAUSE OF T HESE SHARES WERE HELD LESS THAN 90 DAYS. HOLDING OF SHARES WHETHER I T IS LESS THAN 90 DAYS OR MORE THAN 90 DAYS IS NOT SOLE CRITERIA TO H OLD THAT WHICH ITEM IS UNDER WHICH PORTFOLIO. THE SYSTEM OF THE ASSESSEE H AS TO BE LOOKED INTO. THERE IS NO BAR TO MAINTAIN TWO SEPARATE ACCOUNTS O F INVESTMENT AND TRADING. THE ASSESSEE IS FREE TO DO ITS BUSINESS AC TIVITY IN MANNER IN WHICH HE LIKES. IF HE WANTS TO MAKE INVESTMENT IN S HARE HE CAN AND IF HE WANTS SIMULTANEOUS TO DO TRADING IN SHARE, HE CAN D O. BOTH ACTIVITIES CAN BE DONE AT THE SAME TIME. HOWEVER HE HAS TO KEEP SE PARATE ACCOUNT, SO THAT IT CAN BE IDENTIFIED EASILY. THIS SYSTEM HAS B EEN MAINTAINED REGULARLY. IT IS NOT A CASE THAT THE SOME SHARE TRA NSACTIONS ARE TRANSFERRED INTO ANOTHER ACCOUNT FOR THE SAKE OF PA YING LOW TAX. NOTHING HAS BEEN BROUGHT ON RECORD THAT ASSESSEE HAS MANIPU LATED THE TRANSACTIONS. IT IS ALSO NOT A CASE THAT AT ONE TIM E TRANSACTION ARE SHOWN IN TRADING ACCOUNT OR INVESTMENT ACCOUNT AND THE SA ME TRANSACTION ARE TRANSFERRED ON LATER STAGE IN ANOTHER ACCOUNT I.E. FROM INVESTMENT TO TRADING OR FROM TRADING TO INVESTMENT. 6. SINCE THE SYSTEM OF MAINTAINING TWO SEPARATE ACCOUN TS OF INVESTMENT AND TRADING WERE ESTABLISHED, WE DO NOT FIND ANY RE ASON TO INTERFERE WITH THE ORDER OF THE CIT(A) IN DIRECTING THE A.O. IN TREATI NG LOSS OF ` 3,89,52,707/- ARRIVED IN INVESTMENT TRANSACTIONS AS CAPITAL LOSS. REVENUES GROUND IS REJECTED. 7. GROUND NO. 2 IS AS UNDER, 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF BAD D EBTS AMOUNTING TO ITA NO. 6596/MUM/2005 & CO 108 MR. BHAVIN PAREKH 4 RS.74,57,100/-. WHILE ALLOWING THE CLAIM OF BAD DEB TS HE FAILED TO APPRECIATE THE FACT THAT EVEN AFTER AMENDMENT TO PR OVISIONS OF BAD DEBTS, AO STILL HAS POWER TO SEE WHETHER THE RELEVA NT DEBTS CAN BE ESTABLISHED TO HAVE BEEN BAD. FURTHER HE ALSO FAILE D TO APPRECIATE THE FACT THAT THE TRANSACTION IS NOT ROUTED THROUGH BOMBAY STOCK EXCHANGE. 8. THE ASSESSEE HAS CLAIMED BAD DEBT OF ` 74,57,100/- ON SALE OF SHARES OF TV 18 TO ANOTHER COMPANY CCL WHICH FELL INTO PRO BLEMS DUE TO SECURITY SCAM AND THE AMOUNT COULD NOT BE RECOVERED AND THE LOSS OF ` 74,57,100/- WAS CLAIMED AS BAD DEBT. THE A.O. HAS DISALLOWED TH E SAME STATING THAT THE DEBT HAS NOT BECOME BAD AND NO EXPLANATION WAS GIVE N REGARDING WRITE OFF. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE VIDE PARA 6.2 OF THE ORDER, EXAMINED WITH REFERENCE TO THE FACTS AND ALLOWED THE BUSINESS LOSS BY STATING AS UNDER: - 6.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT CAREFULLY. I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER. THE AP PELLANT CLAIMED A DEDUCTION OF BAD DEBT AMOUNTING TO RS.1,96,10,511/- WHICH COMPRISES OF BAD DEBT ON ACCOUNT OF NON RECOVERY OF AMOUNT AR ISING FROM SALE OF SHARES TO THE TUNE OF RS.74,57,100/- AND BAD DEBTS/ LOSS ON ACCOUNT OF NON RECOVERY OF SHARES LENT TO CCL, A KP GROUP OF C OMPANY AMOUNTING TO RS.1,22,19,650/-. SO FAR AS THE CLAIM OF BAD DEBT I N RESPECT OF THE AMOUNT OF RS.74,57,100/- IS CONCERNED, IT IS NOTICE D THAT THE BAD DEBT HAS BEEN INCURRED BY THE APPELLANT DURING THE COURS E OF THE BUSINESS. THE APPELLANT SOLD OUT SHARES OF TV 18 TO CCL. HOWE VER, THE SALE PROCEEDS COULD NOT BE RECOVERED. THE SAID AMOUNT WA S WRITTEN OFF BY THE APPELLANT AND CLAIMED AS BAD DEBT. I NOTICE THAT WI TH THE AMENDMENT TO I.T. PROVISIONS 36(1)(VII) AND 26(2)(III), THE APPE LLANT NEED NOT ESTABLISH THAT THE AMOUNT IN QUESTION HAS REALLY BECOME BAD D EBT. AFTER AMENDMENT IT WOULD BE SUFFICIENT TO CLAIM BAD DEBT IF THE SAID AMOUNT HAS BEEN WRITTEN OFF BY THE APPELLANT. THIS CONDITI ON HAS BEEN FULFILLED BY THE APPELLANT. AFTER THE WRITING OFF THE SAID BA D DEBT THE APPELLANT HAS NOT RECEIVED THE SAID SUM FROM THE CCL SO FAR. THE CLAIM OF BAD DEBT OF THIS AMOUNT IS THEREFORE IN ACCORDANCE WITH THE PROVISIONS OF LAW AND THEREFORE DISALLOWANCE OF THE SAME IS NOT JUSTIFIED . ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF BAD DEBT AMOUNTING TO RS.74,57,100/-. WITH REGARD TO THE CLAIM OF BAD DEB T/BUSINESS LOSS OF RS.1,22,19,560/-, IT IS NOTICED THAT THE APPELLANT HAS LENT SHARES OF SATYAM COMPUTERS NUMBERING 50,000 AND HFCL NUMBERIN G 1,45,000 TO CCL AS PER THE PREVALENT PRACTICE IN THIS LINE OF B USINESS. THE APPELLANT HAS ALSO RECEIVED LENDING CHARGES OF RS.63,000/-, R S.7,12,327/- AND RS.10,94,989/- FOR THE PERIOD ENDING ON 31 ST MARCH, 2003, 31 ST MARCH, 2004 & 31 ST MARCH, 2005 RESPECTIVELY, WHICH HAS BEEN OFFERED F OR ITA NO. 6596/MUM/2005 & CO 108 MR. BHAVIN PAREKH 5 TAXATION IN THE RESPECTIVE ASSESSMENT YEAR. THE REC EIPT OF LENDING CHARGES PROVES THE FACT THAT LENDING OF SHARES IS A RECOGNISED BUSINESS TRANSACTION. THE APPELLANT HAS LENT THE SAID SHARES WITH A VIEW TO EARN INCOME BY WAY OF LENDING CHARGES. THUS INTENTION BE HIND LENDING THE SHARES WAS TO UTILISE THE STOCK OF SHARES AVAILABLE WITH THE APPELLANT AND LYING IDLE. WITH THIS INTENTION THE SHARES WERE LENT TO KP GROUP OF CONCERN. DUE TO THE COLLAPSE KP GROUP THE APPELLANT COULD NOT RECEIVE BACK THE SAID SHARES. THE APPELLANT HAS THEREFORE C LAIMED THE LOSS SUFFERED BY HIM ON THIS ACCOUNT. AFTER VERIFYING TH E FACTS, I FIND THAT THE SAID TRANSACTIONS HAVE BEEN DONE DURING THE COURSE OF THE BUSINESS AND THE SAME IS A RECOGNISED BUSINESS PRACTICE IN THE L INE OF SHARE TRADING. ANY LOSS ARISING FROM SUCH TRANSACTIONS IS THEREFOR E AN ALLOWABLE DEDUCTION TO THE APPELLANT. THE ONLY ISSUE WHICH IS TO BE DECIDED WHETHER THE SAID LOSS IS A BUSINESS LOSS OR A BAD D EBT. IN MY OPINION, THE SAID LOSS CANNOT BE CLAIMED AS BAD DEBT DUE TO THE FACT THAT THE PRIMARY CONDITIONS FOR CLAIMING BAD DEBT HAVE NOT B EEN FULFILLED AS THE SAID TRANSACTIONS HAVE NOT ENTERED INTO THE P&L A/C OF THE APPELLANT. HOWEVER, THE SAID LOSS IS AN ALLOWABLE DEDUCTION ON ACCOUNT OF BUSINESS LOSS DUE TO THE FACT THAT THE TRANSACTIONS HAVE BEE N DONE AS A BUSINESS TRANSACTION AND THE APPELLANT HA SUFFERED THE LOSS DUE TO UNFORESEEN CONDITIONS PREVAILING IN THE MARKET. THE RECOVERY O F THE SHARES SEEMS TO BE DIFFICULT. THE LOSS SO INCURRED ACCORDING TO MY OPINION IS AN ALLOWABLE DEDUCTION AS A BUSINESS LOSS. THE ASSESSING OFFICER IS THEREFORE DIRECTED TO ALLOW THE SAID LOSS OF RS.1,22,19,650/- AS BUSIN ESS LOSS. ACCORDINGLY, THE LOSS OF RS.74,57,100/- IS TO BE ALLOWED AS BAD DEBT AND THE LOSS OF RS.1,22,19,650/- IS TO BE ALLOWED AS BUSINESS LOSS. 9. AFTER HEARING THE LEARNED D.R. AND LEARNED COUNSEL WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) TO THE EXTENT OF BAD DEBT AMOUNTING TO ` 74,57,100/-. MOREOVER, THE HON'BLE SUPREME COURT AL SO IN THE CASE OF TRF LIMITED 323 ITR 397 HAS UPHELD THE CONTENTION THAT AMOUNTS CAN BE CLAIMED AFTER THEY WERE WRITTEN OFF IN THE BOOKS OF ACCOUNT AND ESTABLISHING THAT THE DEBT HAS BECOME BAD WAS N OT NECESSARY. IN VIEW OF THIS THE ORDER OF THE CIT(A) IS UPHELD. REVENUES G ROUND IS REJECTED. 10. GROUND NO.3 IS AS UNDER 3A. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF BAD D EBTS OF RS.1,22,19,640/- AS A BUSINESS LOSS WHICH AROSE DUE TO LENDING F SHARES AND WHICH IS IN CLEAR VIOLATION OF RULE AND PROCEDURES OF SEBI AND BSE. 3B. FURTHER WHILE ALLOWING THE SAME AS BUSINESS LOS S CIT(A) HAS DISREGARDED THE FACT THAT ASSESSEE HAS NEITHER INDU LGED IN THE ACTIVITY EITHER IN THE PAST OR IN THE SUBSEQUENT YE AR. ITA NO. 6596/MUM/2005 & CO 108 MR. BHAVIN PAREKH 6 11. REGARDING GROUND NO. 3, AS CAN BE SEEN FROM THE ORD ER OF THE CIT(A) EXTRACTED WHILE CONSIDERING THE EARLIER GROUND, THE ISSUE IS WITH REFERENCE TO THE CLAIM OF ` 1,22,19,640/-. THE A.O. DISALLOWED THE SUM AS NOT H AVING BECOME BAD WHEREAS THE CIT(A) HAS ALLOWED IT AS BUS INESS LOSS. THE FACTS WERE THAT THE ASSESSEE LENT SHARES OF SATYAM COMPUT ERS LTD. OF 50,000/- AND HFCL OF 1,45,000/- TO CLASSIC CREDIT LTD. (CCL) , A COMPANY BELONG TO KP GROUP. THE ASSESSEE HAS LENT 50,000 SHARES OF SA TYAM COMPUTER LTD. TO CCL ON 4 TH MAY 2000, I.E. IN THE EARLIER PREVIOUS YEAR ON A S HORT TERM LOAN BASIS WITHOUT TRANSFER. IN SUPPORT OF THE CLAIM THE ASSESSEE SUBMITTED INSTRUCTION SLIPS, DEMAT STATEMENT FOR TRANSFER AND RECORDING OF THE FACT IN THE BALANCE SHEET AND ALSO THE PURPOSE OF LENDING A S THAT OF OPTIMUM UTILISATION AND THERE BY EARNING LENDING CHARGES IN THE COURSE OF CARRYING ON LENDING BUSINESS. THE REASON FOR WRITING OFF ALSO H AS BEEN EXPLAINED AS THE SAID KP GROUP HAS SUFFERED MAJOR SETBACK IN 2001 DU E TO INCOME TAX SEARCH AND CONSEQUENT PROCEEDINGS AND SECURITY SCAM. ACCOR DINGLY IT WAS THE SUBMISSION THAT THE WRITE OFF WAS CORRECT AND CLAIM ED AS BUSINESS LOSS. AS CAN BE SEEN FROM THE ORDER IN PARA 6.2 EXTRACTED IN EARLIER GROUND THE CIT(A) HAS CONSIDERED THE LOSS AS BUSINESS LOSS AND ALLOWE D THE SAME. 12. THE LEARNED COUNSEL SUBMITTED THAT THE GROUND RAISE D BY THE REVENUE AT 3(B) WAS NOT CORRECT AS THE ASSESSEE HAS INCOME FROM LENDING BUSINESS IN LATER YEARS AND REFERRED TO PAPER BOOK PLACED BEFOR E THE AUTHORITIES FROM PAGE 1 TO 106 WITH REFERENCE TO SHARE LENDING CHARG ES (PG. 50) RECEIVED IN VARIOUS YEARS. IT WAS SUBMITTED THAT EVENTHOUGH THE ASSESSEE HAS NOT RECEIVED ANY LENDING CHARGES DURING THE YEAR UNDER CONSIDERATION THE ASSESSEES SHARE LENDING ACTIVITIES CAN BE CONSIDER ED BY THE INCOMES OFFERED IN SUBSEQUENT YEARS. 13. THE LEARNED D.R., HOWEVER, SUBMITTED THAT IT WAS TH E ASSESSEE TO ESTABLISH THAT THE AMOUNT HAS BECOME BAD AND RELIED ON THE JUDGEMENT OF THE THIRD MEMBER IN THE CASE OF DCIT VS. PASUPATI N EW TEC. LTD. 7 SOT 107 (DEL) (TM) DATED 16.03.2006. ITA NO. 6596/MUM/2005 & CO 108 MR. BHAVIN PAREKH 7 14. IT WAS SUBMITTED BY THE LEARNED COUNSEL THAT ON PRI NCIPLES OF CONSISTENCY ASSESSEES CLAIM SHOULD BE ALLOWED AS A .O. ACCEPTED THE LENDING BUSINESS VIDE ORDER FOR A.Y. 2005-06 PLACED IN PG. 122. HE RELIED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. V.S. GAITONDE, INCOME-TAX OFFICER, AND ANOTHER 206 ITR 2 91 AND THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF MINDA ( HUF) LTD. VS. JCIT 101 ITD 191 (DEL). IT WAS HIS SUBMISSION THAT THIS LOSS AROSE IN THE COURSE OF BUSINESS AND THE CIT(A) HAS CORRECTLY ALLOWED. 15. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE FACT S OF THE CASE THE ASSESSEE HAS LENT THE SHARES OF SATYAM COMPUTERS LT D. AS WELL AS HFCL AND THERE SEEMS TO BE SOME ADJUSTMENT OF MONIES RECEIVE D AS DEPOSIT TOWARDS SHARES OF HFCL ALONE. IN THE COURSE OF ARGUMENT THE LEARNED COUNSEL SUBMITTED THAT THE A.O. HAS NOT EXAMINED THE FACTS AND AS ASSESSEE HAS ADVANCED THE SHARES IN EARLIER YEARS, RECEIVED CERT AIN DEPOSITS TOWARDS LENDING ACTIVITY AND DURING THE YEAR THE BALANCE WA S WRITTEN OFF AFTER ADJUSTING THE DEPOSITS. SINCE THESE ASPECTS ARE NOT EXAMINED BY THE A.O. WE ARE OF THE OPINION THAT THE FACTS ARE TO BE EXAMINE D BEFORE ALLOWING THE AMOUNT AS BUSINESS LOSS. NEEDLES TO SAY THAT THE CL AIM DISALLOWED BY THE A.O. WAS THAT OF BAD DEBTS WHEREAS THE CIT(A) HAS C ONSIDERED IT AS BUSINESS LOSS. THE PARAMETERS OF ALLOWING BUSINESS LOSS ARE ENTIRELY DIFFERENT FROM THE CLAIM OF BAD DEBTS. IT IS ENOUGH IF THE AMOUNT OF B AD DEBT IS WRITTEN OFF IN THE BOOKS OF ACCOUNT WHEREAS IN CONSIDERING LOSS IT HAS TO BE ESTABLISHED THAT THE LOSS INCURRED DURING THE YEAR UNDER CONSID ERATION. THE QUANTUM OF LOSS IS ALSO TO BE EXAMINED. SINCE THESE ASPECTS AR E NOT EXAMINED, WE ARE OF THE OPINION THAT THE ISSUE IS TO BE RESTORED TO THE FILE OF THE A.O. TO EXAMINE THE NATURE OF TRANSACTION AND THE AMOUNT OF LOSS IN CURRED. NEEDLESS TO SAY THAT IF THE LOSS IS SUFFERED DURING THE YEAR THE SA ME HAS TO BE ALLOWED TO THE ASSESSEE AS BUSINESS LOSS. WITH THIS DIRECTION, THE ISSUE IN GROUND NO. 3(A) IS RESTORED TO THE FILE OF THE A.O. AND GROUND NO. 3(B ) IS REJECTED AS THE ASSESSEE IS IN THE BUSINESS OF LENDING AND THE REVE NUE HAS ACCEPTED THE LENDING CHARGES IN LATER YEARS. WITH THIS DIRECTION REVENUES APPEAL IS CONSIDERED PARTLY ALLOWED. ITA NO. 6596/MUM/2005 & CO 108 MR. BHAVIN PAREKH 8 CO NO. 108/MUM/2008 16. ASSESSEE HAS RAISED THE FOLLOWING CROSS OBJECTIONS: - 1. THE COMMISSIONER OF INCOME-TAX (APPEALS) XII, MUMBAI (HEREINAFTER REFERRED TO AS THE CIT(A)) ERRED IN UPHOLDING THE A CTION OF THE ASSESSING OFFICER IN DISALLOWING A SUM OF RS.1,57,7 81, BEING BUSINESS PROMOTION EXPENSES ON THE GROUND THAT APPE LLANT HAS NOT BEEN ABLE TO ESTABLISH THAT THE EXPENSES HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS. THE APPELLANT CONTENDS THAT ON THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT NOT TO HAVE UPHEL D THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE SAID EXPEN SE INASMUCH AS THE SAID EXPENSE IS A NECESSARY BUSINESS EXPENDITUR E AND HENCE, THE IMPUGNED DISALLOWANCE REQUIRED TO BE DELETED. 2. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING A SUM OF RS.24,628/-, BEING ONE-FOURTH OF MOTOR CAR EXPENSES AND RS.40,767, BEING ONE-FOURTH OF DEPRECI ATION ON MOTOR CAR ON THE GROUND THAT THE EXPENDITURE IS INCURRED FOR PERSONAL PURPOSE. THE APPELLANT CONTENDS THAT ON THE FACTS AND CIRCU MSTANCES AND IN LAW, THE CIT(A) OUGHT NOT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE AFORESAID EXPOSES AND TH E DISALLOWANCE REQUIRES TO BE DELETED. 17. WITH REFERENCE TO THE BUSINESS PROMOTION EXPENSES T HE A.O. HAS DISALLOWED AN AMOUNT OF ` 1,57,781/- BEING BUSINESS PROMOTION EXPENDITURE ON THE GROUND THAT THE EXPENDITURES ARE PERSONAL IN NATURE AND NOT INCURRED FOR BUSINESS PURPOSES. THE CIT(A) HAS CONCURRED WIT H THE ABOVE OPINION. IT WAS THE CONTENTION OF THE LEARNED COUNSEL THAT IN T HE YEAR 201-02 THE ITAT HAS ALLOWED 50% OF THE EXPENDITURE AS PERTAINING TO BUSINESS EXPENDITURE VIDE PARA 19.1, 20 AND 20.1 OF THE ORDER. CONSISTEN T WITH THE VIEW TAKEN IN ITA NO. 4772/MUM/2004 THE AO IS DIRECTED TO ALLOW 5 0% OF THE AMOUNT AS BUSINESS EXPENDITURE. THE GROUND IS PARTLY ALLOWED. 18. GROUND NO. 2 PERTAINS TO DISALLOWANCE OF A SUM OF ` 24,628/- BEING OF MOTORCAR EXPENSES AND ` 40,767/- BEING OF DEPRECIATION ON MOTORCAR INCURRED FOR PERSONAL PURPOSES. THE CIT(A), AFTER E XAMINING THE ISSUE, HAS CONFIRMED THE DISALLOWANCE STATING AS UNDER: - 9.1 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT. I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER. IT IS A KNOWN FA CT THAT VEHICLES OF THE BUSINESS ARE ALSO USED OCCASIONALLY FOR PERSONA L PURPOSES. THE ITA NO. 6596/MUM/2005 & CO 108 MR. BHAVIN PAREKH 9 DISALLOWANCE @ 25% OF CAR EXPENSES AND DEPRECIATION AMOUNTING TO RS.24,628/- & RS.40,767/- RESPECTIVELY ARE REASONAB LE AND THEREFORE UPHELD. 19. CONSIDERING THE FACTS OF THE CASE AND NATURE OF EXP ENDITURE IT CANNOT BE STATED THAT THE ENTIRE CLAIM PERTAINS TO BUSINES S EXPENDITURE. SINCE THERE IS A POSSIBILITY OF USING THE MOTORCAR FOR PERSONAL PURPOSES, DISALLOWANCE OF 25% IS CONSIDERED REASONABLE AND ORDER OF THE CIT(A ) DOES NOT REQUIRE ANY INTERFERENCE. ACCORDINGLY GROUND NO. 2 IS REJECTED. 20. CROSS OBJECTION IS PARTLY ALLOWED. 21. IN THE RESULT, THE APPEAL OF THE REVENUE AND THE CR OSS OBJECTION OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH OCTOBER 2010. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 20 TH OCTOBER 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XII, MUMBAI 4. THE CIT XII, MUMBAI CITY 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.