Sri Uma Shankar Goenka, Kolkata V. ITO, Ward-52(4), Kolkata, Kolkata

CO 86/KOL/2012

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9746 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 9 month(s) 26 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 17-07-2014
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 21-09-2012
• Court: TRIBUNAL
• Department Lawyers: IMLIMEREN JAMIR
• Keywords: Capital asset; Business income; Speculation loss; Bad and doubtful debts
• Section: 143(3)

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE , /AND , ! ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA, AM] ' / I.T.A NO.821/KOL/2012 #$ %&/ ASSESSMENT YEAR: 2008-09 INCOME-TAX OFFICER, WD-52(4), KOLKATA. VS. SHRI U MA SHANKAR GOENKA (PAN: ADUPG1535B) (() /APPELLANT ) (*+()/ RESPONDENT ) & C.O. NO. 86/KOL/2012 IN ' ' ' ' / I.T.A NO. 821/KOL/2012 #$ %& #$ %& #$ %& #$ %&/ // / ASSESSMENT YEAR: 2008-09 SHRI UMA SHANKAR GOENKA VS. INCOME-TAX OFFICER, WD-52(4), KOLKATA (CROSS OBJECTOR) (RESPONDENT) DATE OF HEARING: 30.06.2014 DATE OF PRONOUNCEMENT: 17. 07.2014 FOR THE REVENUE: SHRI IMLIMEREN JAMIR, JCIT (SR. DR ) FOR THE ASSESSEE/CROSS OBJECTOR: SHRI MANOJ KATA RUKA, ADVOCATE / ORDER PER SHRI MAHAVIR SINGH, JM : THIS APPEAL BY REVENUE AND CROSS OBJECTION BY ASSES SEE ARE ARISING OUT OF ORDER OF CIT(A)-XXXIII, KOLKATA IN APPEAL NO. 89/CIT(A)-XXXI II/ITO WD -52(4), KOLKATA/ 2010-11 DATED 13.03.2012. ASSESSMENT WAS FRAMED BY ITO, WD-52(4), KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2008-09 VIDE HIS ORDER DATED 31.12.2010. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DIRECTING THE AO TO TREAT THE INCOME DECLARED BY THE ASSESSEE AS LONG TERM CAPITAL GAINS AND SHOT TERM CAPITAL GAINS ARISING OUT OF SHARE TRANSA CTIONS. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.1: 2 ITA NO. 821/K/2012 & CO NO. 86/K/2012 SRI UMA SHANKAR GOENKA AY 2008-09 THE LD. CIT(A) IS NOT JUSTIFIED IN CONSIDERING THE BUSINESS INCOME OF RS.43,13,388/- AS LTCG AND STCG WITHOUT HAVING DETA ILS REGARDING THE PARTICULAR TRANSACTIONS INVOLVED IN EACH TRANSACTIO N REQUIRED TO BE SPECIFIED BY THE ASSESSEE 3 . BRIEFLY STATED FACTS ARE THAT AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT ASSESSEE IS DERIVING INCOME FROM BUSINESS, SPECULATION, CAPITAL GAINS I.E. LONG TERM AND SHORT TERM AND INCOME FROM OTHER SOUR CES. THE AO ASSESSED CAPITAL GAINS DECLARED BY THE ASSESSEE I.E. LTCG AND STCG AS BUSI NESS INCOME BY OBSERVING THAT THE MAJOR PART OF EARNING OF PROFITS OR GAINS IS DERIVE D FROM CAPITAL GAINS AND THIS IS OUT OF TRANSACTIONS OF SHARES FREQUENTLY CARRIED OUT AND I N A BIG QUANTITY. THE AO HAS NOTED COMPLETE DETAILS OF TRANSACTIONS IN PAGE 3, 4 AND 5 OF THE ASSESSMENT ORDER. THE AO NOTED THE GENERAL OBSERVATIONS AND TREATED THE CAPI TAL GAINS I.E. LTCG AND STCG DECLARED BY ASSESSEE AS BUSINESS INCOME AT RS.43,13 ,388/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO CONSIDERED THE GAINS ARISING OUT OF SHARE TRANSACTIONS AS LTCG AND STCG BY OBSERVING IN PARA 3.2 AS UNDER: 3.2. I HAVE CONSIDERED FACTS OF THE CASE. IT IS SE EN THAT THE APPELLANT HAS BEEN MAINTAINING TWO PORTFOLIOS OF SHARES- ONE FOR INVES TMENT AND OTHER FOR STOCK IN TRADE, SINCE LONG AND SUCH TREATMENT HAS BEEN ACCEP TED BY THE DEPARTMENT AS WELL. IT HAS BEEN INFORMED THAT EVEN IN THE SCRUTINY ASSE SSMENT FOR THE SUBSEQUENT ASSESSMENT YEAR, THE ASSESSING OFFICER HAS ACCEPTED THIS SYSTEM. IT IS TRUE THAT IN INCOME TAX ASSESSMENT, PRINCIPLE OF RES JUDICATA IS NOT STRICTLY APPLICABLE. HOWEVER, ONCE A VIEW HAS BEEN TAKEN AND IS BEING CO NSISTENTLY FOLLOWED, THE SAME SHOULD BE NOT CHANGED UNLESS THERE ARE STRONG REASO NS FOR THE CHANGE. SO FAR AS THE FACTS IN THE CASE OF APPELLANT ARE CONCERNED, I T IS SEEN THAT INVESTMENTS ARE MADE WHOLLY OUT OF OWN FUNDS AS THERE ARE NO BORROW ED FUNDS EMPLOYED AT ALL. INVESTMENT IN SHARES AND DEBENTURES AS ON 31.03.200 8 AMOUNTED TO RS. 95,86,519/- AND INVESTMENT IN MUTUAL FUND WAS OF RS .2,37,75,000/-. AS AGAINST THAT, TOTAL SALE OF SECURITIES HELD FOR SHORT TERM AMOUNTED TO RS.2,34,40,473/-. EVEN IN THESE TRANSACTIONS, PERIOD OF HOLDING, IN M AJORITY OF CASES, WAS, OF SEVERAL MONTHS. THUS, IT CANNOT BE SAID THAT THE APPELLANT WAS CONTINUOUSLY AND FREQUENTLY CHURNING THE INVESTMENT IN SECURITIES. HE WAS ALSO HAVING SUBSTANTIAL DIVIDEND INCOME OF RS.35.20 LAKHS. ALL THESE FACTS DO NOT IN DICATE THAT THE TRANSACTIONS IN THE SECURITIES HELD AS INVESTMENT WERE IN NATURE OF BUSINESS. THE POSITION OF THE APPELLANT ALSO FINDS SUPPORT FROM VARIOUS DECISIONS CITED BY THE APPELLANT AND IN PARTICULAR CIT VS. GOPAL PUROHIT (SUPRA) WHEREIN SP ECIAL LEAVE PETITION OF REVENUE HAS ALSO BEEN DISMISSED BY THE SUPREME COUR T. IT IS ALSO NOTE- WORTHY THAT EVEN IN THE SCRUTINY ASSESSMENT FOR THE SUBSEQ UENT YEAR, I.E. A.Y.2009-10, THE ASSESSING OFFICER HAS NOT DISTURBED THE CAPITAL GAI N SHOWN BY THE APPELLANT AND HEAD OF INCOME HAS NOT BEEN CHANGED. CONSIDERING AL L THESE FACTS IN ENTIRETY, I AM OF THE VIEW THAT THE SALE OF INVESTMENT MADE BY THE APPELLANT CANNOT BE CALLED 3 ITA NO. 821/K/2012 & CO NO. 86/K/2012 SRI UMA SHANKAR GOENKA AY 2008-09 BUSINESS ACTIVITY. THEREFORE, THE LONG TERM AND SHO RT TERM GAIN EARNED FROM THE SALE IS TO BE TAXED UNDER THE HEAD OF CAPITAL GAINS AND NOT AS INCOME FROM BUSINESS. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM FACTS OF THE CASE THAT ASSE SSEE IS MAINTAINING ACCOUNTS REGARDING SHARES IN TWO PORTFOLIOS I.E. (I) TRADING PORTFOLIO AND OTHER IS INVESTMENT PORTFOLIO. THE ASSESSEE HAD INCURRED LOSSES AT RS.29,45,109/- FROM PURCHASE AND SALES OF SHARES. WE HAVE GONE THROUGH THE BALANCE SHEET AND FOUND THAT THE ASSESSEE IS HAVING INVESTMENT IN MUTUAL FUNDS FOR THE SUM OF RS.2,37,75,000/- AND INVESTMENT IN SHARES AT RS.95,87,519/-. THE TOTAL INVESTMENT COMES TO RS.3 ,33,61,509/-. THE ASSESSEES TOTAL CAPITAL IS TO THE TUNE OF RS.4.89 CR., IT MEANS THA T THIS INVESTMENT IS OUT OF HIS OWN FUNDS AND NO BORROWED FUNDS WERE USED FOR THE PURPOSES OF INVESTMENT. THIS CLAIM WAS MADE BY THE ASSESSEE BEFORE THE AO AND BEFORE CIT(A) AND EVEN NOW BEFORE US. THE CLOSING STOCK OF SHARES CONSIST OF RS.1,79,853/-. FROM THE BOOKS OF ACCOUNT, IT IS CLEAR THAT THE ASSESSEE IS MAINTAINING TWO SEPARATE PORT FOLIOS, O NE IN RESPECT OF TRADING AND OTHER IN RESPECT OF INVESTMENTS. IT IS ALSO A FACT THAT THE ASSESSEE HAS DECLARED LOSSES I.E. SPECULATION LOSS AND CARRIED FORWARD IN THE COMPUTA TION AGAINST FUTURE YEARS SPECULATION INCOME AT RS.9,93,414/-. THE ASSESSEE COMPUTED LONG TERM CAPITAL GAIN AT RS.20,25,500/- AND SHORT TERM CAPITAL GAIN AT RS.21 ,55,499/- FROM SHARE TRANSACTIONS CARRIED OUT OF INVESTMENT PORT FOLIO AND DECLARED T HE SAME AS CAPITAL GAINS. IN RESPECT TO LONG TERM CAPITAL GAINS, THE ASSESSEE HAS PAID STT BUT IN RESPECT TO SHORT TERM CAPITAL GAIN STT WAS NOT PAID. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDING BY GIVING GENERAL OBSERVATIONS TREATED THE CAPITAL GAINS DECL ARED BY THE ASSESSEE AS BUSINESS PROFITS. WE FIND THAT INVESTMENT IN SHARES AND MUT UAL FUNDS AGGREGATING TO THE TUNE OF RS. 3.33 CR. IS OUT OF ASSESSEES OWN CAPITAL, WHIC H IS TO THE TUNE OF RS.4.89 CR. THE ASSESSEE IS MAINTAINING SEPARATE PORT FOLIOS FOR IN VESTMENT IN SHARES AND TRADING IN SHARES. ONCE THIS IS THE POSITION, WE ARE OF THE V IEW THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST REVENUE BY THE D ECISION OF HONBLE BOMBAY HIGH 4 ITA NO. 821/K/2012 & CO NO. 86/K/2012 SRI UMA SHANKAR GOENKA AY 2008-09 COURT IN THE CASE OF CIT VS. GOPAL PUROHIT (2010) 2 28 CTR 582 (BOM) HAS HELD AS UNDER: THE ASSESSEE IS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS NAMELY, INVESTMENT IN SHARES AND DEALING IN SHARES FOR THE PURPOSES OF BUSINESS AND HELD THAT THE DELIVERY BASED TRANSACTIONS ARE TO BE TREATED AS INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THEREFROM IS T O BE TREATED AS SHORT TERM OR LONG TERM CAPITAL GAIN DEPENDING ON THE PERIOD OF H OLDING OF SHARES AND THAT THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSI STENCY IN VARIOUS YEARS. IN VIEW OF OUR ABOVE SUBMISSIONS, YOU HONOUR IS REQ UESTED TO PLEASE DIRECT THE ASSESSING OFFICER TO ACCEPT THE PROFIT AGGREGATING TO RS.8767934 DERIVED BY THE APPELLANT ON TRANSFER OF INVESTMENTS IN SHARES AS C APITAL GAINS AND NOT SAME TO BE A BUSINESS INCOME. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE BOMB AY HIGH COURT IN THE CASE OF GOPAL PUROHIT, SUPRA, WHEREIN A PRINCIPLE IS DISCUS SED IN LARGER PERSPECTIVE AND THE FACTS ARE EXACTLY IDENTICAL IN THE PRESENT CASE ALSO. HE NCE, WE CONFIRM THE ORDER OF CIT(A). THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 5. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) IN ALLOWING BAD DEBTS WRITTEN OFF AS BUSINESS LOSS. F OR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.2: 2. THE LD. CIT(A) IS NOT JUSTIFIED IN REDIFINING T HE CLAIM OF BAD DEBT WRITTEN OFF AMOUNT OF RS.22,11,812/- AS BUSINESS LOSS WITHOUT A SSIGNING THE SPECIFIC DETAILS OF TRANSACTION OF SHARES ETC. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. BRIEFLY STATED FACTS ARE THAT THE ASSESS EE WAS IN THE BUSINESS OF SHARE TRADING AND INVESTMENT IN SHARES. THE ASSESSEE IS MAINTAIN ING TWO PORT FOLIOS ONE SET OF INVESTMENT AND OTHER TRADING IN SHARES. THIS METHO D AND BUSINESS IN SHARES IS BEING CARRIED OUT BY THE ASSESSEE FOR MORE THAN A DECADE. THE ASSESSEE WAS IN CLOSE CONTACT WITH ONE SHARE BROKER OF CALCUTTA STOCK EXCHANGE VI Z., HARISH CHANDRA BIYANI, WHO WAS HAVING HUGE CLIENTLE BASE IN KOLKATA AND ESTABL ISHED NAME IN SHARE MARKET. THE ASSESSEE WAS DOING BUSINESS WITH SHRI HARISH CHANDR A BIYANI THAT OF PURCHASE AND SALE OF SHARES AND TAKING ADVICE IN SHARE MARKET. DURIN G FY 2000-01 RELEVANT TO AY 2001- 02, ASSESSEE ADVANCED A SUM OF RS.35 LACS ON SHORT TERM BASIS TO SHRI HARISH CHANDRA 5 ITA NO. 821/K/2012 & CO NO. 86/K/2012 SRI UMA SHANKAR GOENKA AY 2008-09 BIYANI. THIS AMOUNT WAS ADVANCED FOR INTEREST AND WAS ALSO ADVANCED FOR THE REASON THAT HE WAS NEXT TO THE ASSESSEE IN ASSESSEES BUSI NESS HIERARCHY AND WAS INSTRUMENTAL IN THE BUSINESS OF THE ASSESSEE AS A BROKER AND ALSO E ARNING HUGE PROFIT IN LIEU OF THAT. THE ASSESSEE FILED ADEQUATE DETAILS IN RESPECT OF ADVAN CE MADE BY ASSESSEE TO SHRI HARISH CHANDRA BIYANI. COPIES OF SUCH LETTER OF ADVANCE IN THREE INSTALLMENTS, THE SHARE RECEIVED BY ASSESSEE, COPIES OF DEMAT ACCOUNT REFLE CTING SUCH SHARES, VALUATION OF SUCH SHARES ON THE DATES OF ADVANCE HAVE BEEN SUBMITTED DURING THE COURSE OF APPELLATE PROCEEDINGS. IT WAS CLAIMED THAT THE ASSESSEE TRIE D TO RECOVER THE AMOUNT BUT ALL EFFORTS WENT IN VAIN BECAUSE IN THE MONTH OF FEBRUARY, 2007 THERE WAS A SCAM IN THE SHARE MARKET AND HARISH CHANDRA BIYANI WAS MADE ONE OF TH E ACCUSED OF THE PARTIES TO THE SCAM FOR WHICH ACTION WAS INITIATED AGAINST HIM BY SEBI, COMPANY LAW BOARD AND CIVIL AS WELL AS CRIMINAL PROCEEDINGS BY VARIOUS PE RSONS FOR RECOVERY OF MONEY. SHRI HARISH CHANDRA BIYANI BECAME ABSCONDER AND NOT TRAC EABLE SINCE THEN. THE ASSESSEE TRIED A LOT TO RECOVER THIS MONEY BUT COULD NOT AND FINALLY THE ASSESSEE CLAIMED THE SAME AS BAD DEBT AMOUNTING TO RS.22,11,812/-. BEFORE TH E AO IT WAS CLAIMED THAT THE SAME WAS BAD DEBT AND WAS ALLOWABLE BECAUSE IT WAS RELAT ED TO BUSINESS BUT THE SAME HAS BEEN DISALLOWED BY AO ON THE REASON THAT THE PROVIS IONS OF SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT IS NOT APPLICABLE IN THE F ACTS OF THE CASE AND, THEREFORE, IT WAS NOT A BAD DEBT WHICH CAN BE WRITTEN OFF. AGGRIEVED , ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALLOWED THE CLAIM OF THE ASSESSEE AS BU SINESS LOSS AND NOT BAD DEBT BY OBSERVING IN PARA 4.2 AND 4.3 AS UNDER: 4.2. L HAVE CAREFULLY CONSIDERED FACTS OF THE CASE . SO FAR AS THE APPELLANTS CLAIM OF BAD DEBT IS CONCERNED, IT IS SEEN THAT THE SAID AMOUNT DOES NOT SATISFY THE CONDITIONS PRESCRIBED IN SEC.36(2) FOR ALLOWING DED UCTION U/S. 36(1)(VII). IT IS CLEARLY MENTIONED THEREIN THAT IN ORDER TO QUALIFY AS BAD DEBT, THE CONCERNED AMOUNT OR PART THEREOF SHOULD HAVE BEEN ACCOUNTED F OR IN COMPUTING INCOME OF ANY PREVIOUS YEAR OR SHOULD BE ADVANCE GIVEN IN COU RSE OF BANKING OR MONEY LENDING BUSINESS. IT IS UNDISPUTED THAT THE LOAN DI D NOT RELATE TO ANY RECEIPTS TAKEN INTO ACCOUNT IN COMPUTING INCOME OF ANY EARLIER YEA R. NOR WAS THE APPELLANT ENGAGED AT ANY POINT OF TIME IN BUSINESS OF BANKING OR MONEY LENDING. INSTEAD, THE LOAN GIVEN TO SHRI BIYANI APPEARS TO BE AN ISOLATED TRANSACTION OF THIS NATURE. DESPITE THE RELAXATION MADE BY THE AMENDMENT IN THE PROVISIONS OF SECTION 36(1)(VII), THE AFORESAID BASIC CONDITION HAS TO BE MANDATORILY MET. VARIOUS DECISIONS CITED BY THE APPELLANT ALSO DO NOT ALTER THIS LEGAL POSITION, AS THEY 6 ITA NO. 821/K/2012 & CO NO. 86/K/2012 SRI UMA SHANKAR GOENKA AY 2008-09 MAINLY RELATE TO THE RELAXATION IN REQUIREMENT OF E STABLISHING YEAR IN WHEN THE DEBT BECAME BAD. THEREFORE, I AGREE WITH THE ASSESS NG OFFICER THAT THE SAID WRITE OFF DOES NOT QUALIFY FOR DEDUCTION U/S 36(1)(VII) F OR BAD DEBT WRITTEN OFF AS CLAIMED IN THE RETURN OF INCOME. 4.3. THE ALTERNATE PLEA TAKEN BY THE APPELLANT HAS ALSO BEEN CONSIDERED. IT IS WELL SETTLED THAT ANY LOSS INCIDENTAL TO BUSINESS HAS TO BE CONSIDERED FOR ALLOWANCE WHILE COMPUTING BUSINESS INCOME. IT IS SEEN FROM TH E RETURN OF INCOME FOR A.Y. 2001-02, THAT NATURE OF BUSINESS MENTIONED IN THE T AX AUDIT REPORT INCLUDED FINANCING AND THE INTEREST INCOME FROM LOAN TO SRI HARISH CHANDRA BIYANI WAS OFFERED FOR TAXATION AS BUSINESS INCOME AND ACCEPTE D IN THE SCRUTINY ASSESSMENT. SRI BIYANI WAS THE BROKER THROUGH WHOM THE APPELLAN T REGULARLY CONDUCTED HIS SHARE TRANSACTION AND DEALING IN SHARES WAS THE PRI NCIPAL BUSINESS OF THE APPELLANT. AS STATED BY THE APPELLANT IN THE COURSE OF HEARING, SHRI BIYANI WAS, IN THOSE DAYS, CONSIDERED AN EXPERT IN STOCKS AND THE APPELLANT USED TO TAKE ADVICE FROM HIM. ON PERUSAL OF THE LOAN DOCUMENT PRODUCED BY THE APPELLANT, WHICH IS A LETTER DATED 24.10.2000 FROM SHRI BIYANI IT IS SEEN THAT HE HAS STATED THAT I AM HOPEFUL OF EARNING MORE IN VIEW OF THE BOOMING SHAR E MARKET PLEASED TO GIVE MORE RETURNS TO YOU. THE REFERENCE IN THE LOAN DOC UMENT TO GIVE HIGHER RETURN INDICATES THAT THE LOAN WAS, APART FROM EARNING INT EREST, ADVANCED WITH A VIEW TO HAVE BETTER RELATIONS WITH THE BROKER LEADING TO US EFUL TIPS FOR STOCK. IT HAS ALSO BEEN STATED THAT THE MONEY ADVANCED WAS ALSO A DEPO SIT AGAINST THE MARGIN MONEY FOR FUNDING OF SHARE TRANSACTION OF THE APPEL LANT. NOT ONLY THAT, THE APPELLANT RECEIVED SHARES WITH MARKET VALUE EXCEEDI NG THE MONEY ADVANCED FROM SHRI BIYANI AS COLLATERAL AND THESE WERE TRANSFERRE D TO THE APPELLANTS DEMAT ACCOUNT WITH LIBERTY TO DEAL IN THE SAME. THIS THE LOAN APPEARS TO BE GIVEN IN COURSE OF BUSINESS OF SHARE DEALING AND NOT AS A PE RSONAL LOAN. IT CAN ALSO NOT BE CALLED AS PURE INVESTMENT TO EARN INTEREST AS IT WA S NOT IN NATURE OF A NORMAL DEPOSIT. GENERALLY, IF ANY PRUDENT PERSON WERE INTE RESTED IN MAKING INVESTMENT MERELY WITH A VIEW TO EARN INTEREST OF 12% (NOT VER Y HIGH BY STANDARDS OF INTEREST PREVAILING IN F.Y.2000-01), HE WOULD INVEST HIS FUN D WITH SAFER AVENUES SUCH AS BANKS, SMALL SAVING SCHEMES, DEPOSITS WITH PUBLIC L IMITED COMPANIES ETC. AND NOT WITH AN INDIVIDUAL SHARE BROKER, ESPECIALLY IF HE H AS NOT MADE ANY OTHER SUCH INVESTMENT. IN THE BALANCE SHEET AS ON 31.03.2001 , WAS NOT SHOWN N THE GROUPING OF INVESTMENT. IT IS ALSO NOTEWORTHY THAT INTEREST ON THE SAID LOAN WAS SHOWN BY THE APPELLANT AS BUSINESS INCOME AND NOT A S INCOME FROM OTHER SOURCES AND THE MONEY RECOVERED FROM SALE OF SHARES GIVEN A S SECURITY BY SHRI BIYANI WAS SHOWN UNDER THE HEAD SUNDRY CREDITORS. MOREOVER, SH RI BIYAN GAVE SHARES WITH MARKET VALUE (PREVAILING AT THE RELEVANT TIME) HIGH ER THAN THE LOAN AND TRANSFERRED THE SAME IN THE APPELLANTS DEMAT ACCOU NT WITH PERMISSION TO DEAL WITH THEM IN ANY MANNER. THE SAID SHARES WERE, IN F ACT, NOT ONLY TRANSFERRED TO THE APPELLANTS DEMAT ACCOUNT, BUT WERE SUBSEQUENTLY SO LD BY HIM AS WELL. AS THE APPELLANT DEALS IN SHARES, THEY ARE HIS STOCK IN TR ADE AND VIEWED FROM THIS PERSPECTIVE, THE MONEY GIVEN TO SHRI BIYANI ASSUMES CHARACTERISTIC OF TRADING ADVANCE. THESE PECULIAR FACTS AND CIRCUMSTANCES IND ICATE THAT THIS WAS AN ADVANCE, ALBEIT INTEREST BEARING, GIVEN IN REGULAR COURSE OF BUSINESS AND NOT AN INVESTMENT OR PERSONAL LOAN. FURTHER, THE ADVANCE W AS NOT MADE TO ACQUIRE ANY CAPITAL ASSET OR ADVANTAGE OF ENDURING NATURE. RATH ER, IT WAS CLOSELY CONNECTED WITH DAY TO DAY DEALING OF THE APPELLANTS STOCK IN TRADE VIZ. SHARES. IT IS ALSO 7 ITA NO. 821/K/2012 & CO NO. 86/K/2012 SRI UMA SHANKAR GOENKA AY 2008-09 UNDISPUTED THAT NO PAYMENT TOWARDS INTEREST OR PRIN CIPAL CAME AFTER THE YEAR 2000-01 DESPITE SINCERE EFFORTS AND SHRI BIYANI BEI NG A BROKER INVOLVED IN STOCK MARKET SCAM, THERE WERE PRACTICALLY NO CHANCES FOR RECOVERY. IN FACT, THE ASSESSING OFFICER HAS ALSO NOT DOUBTED THAT WRITE-O FF WAS NOT BONA FIDE. THUS, THE FACTUAL POSITION THAT EMERGES IS THAT THE APPELLANT GAVE AN ADVANCE IN REGULAR COURSE OF TRADING ACTIVITY, WHICH BECAME IRRECOVERA BLE. THE LOSS ON ACCOUNT OF ITS NON-RECOVERY THUS HAS CLOSE NEXUS WITH AND IS, IN F ACT, INCIDENTAL TO BUSINESS. THOUGH THE VARIOUS DECISIONS CITED BY THE APPELLANT ARE NOT EXACTLY ON THE SAME FACTS, THEIR RATIO, THAT ANY LOSS INCIDENTAL TO BUS INESS SHOULD BE ALLOWED AS DEDUCTION, DOES SUPPORT THE APPELLANTS CLAIM. CONS IDERING ALL THE FACTS AND CIRCUMSTANCES IN ENTIRETY I AM OF THE VIEW THAT THE CLAIM UNDER CONSIDERATION, THOUGH NOT ALLOWABLE AS BAD DEBT WRITTEN-OFF, IS AL LOWABLE AS A BUSINESS LOSS. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME ACC ORDINGLY. AGGRIEVED REVENUE CAME IN APPEAL BEFORE US. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ENTRY SHOWN BY THE ASSE SSEE IN HIS BOOKS OF ACCOUNT WAS ADVANCE MADE IN THE YEAR 2000-01 BY THE END OF DECE MBER 2000 AND ALSO SHARES IN LIEU OF PAYMENT WERE RECEIVED AS SECURITY, WHICH WERE TR ANSFERRED TO ASSESSEES DEMAT ACCOUNT. AS THERE WAS A SECURITY SCAM IN FEBRUARY, 2001, SHRI BIYANI BECAME ACCUSED AND UNTRACEABLE (AS THE FACTS ARE NOTED ABOVE IN PA RA 6). DUE TO THIS FACT THE ASSESSEE HAS TO WRITE OFF THIS AMOUNT OF RS.22,11,812/- AND CLAIMED THE SAME AS BAD DEBT. THE ENTRY SHOWN BY THE ASSESSEE MAY HAVE BEEN BAD DEBT BUT THE NOMENCLATURE IS LOSS IN RELATION TO BUSINESS AND ACTUALLY IT IS A LOSS INCI DENTAL TO THE BUSINESS. AS THE SAID PARTY DEFAULTED IN PAYMENT OF THE INTEREST AND THE LOAN A MOUNT GIVEN I.E. THE PRINCIPAL, THE ASSESSEE REQUIRED HIM TO REPAY THE LOAN DESPITE SEN DING REPRESENTATIVES AND PERSONAL FOLLOW UP HE HAS NOT PAID ANYTHING. THE ASSESSEE H AS ALSO FILED A CIVIL SUIT VIDE CS NO.18 OF 2004 BEFORE HONBLE CALCUTTA HIGH COURT, W HICH IS STILL PENDING. IT WAS BROUGHT TO OUR NOTICE THAT CONSIDERABLE AMOUNT HAS ALREADY BEEN EXPENDED BY WAY OF ADVOCATE FEES AND OTHER EXPENSES FOR FILING OF THIS CASE. EVEN THE SECURITY PROVIDED IN THE SHAPE OF SHARES AGAINST THIS LOAN, THE MARKET V ALUE IS NEGLIGIBLE OR VERY LOW. HOWEVER, IN ORDER TO SAFEGUARD AND RECOVER THE AMOU NT OF LOAN, THE SECURITIES WERE SOLD AND FETCHED MEAGRE AMOUNT OF RS.12,88,187/- AND THE BALANCE IS RS.22,11,812/-. AS ABOVE, THE FACTS DISCUSSED, IT TRANSPIRED THAT LOSS WHICH WAS INCURRED BY ASSESSEE IS A 8 ITA NO. 821/K/2012 & CO NO. 86/K/2012 SRI UMA SHANKAR GOENKA AY 2008-09 BUSINESS LOSS OR BAD DEBT. THE PROVISION OF SECTIO N 28 READ WITH SECTION 4 OF THE ACT IMPOSES A CHARGE ON PROFIT AND GAINS OF ANY BUSINES S OR PROFESSION CARRIED ON BY THE ASSESSEE. THE BUSINESS PROFIT IS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 30 TO 43(C) AND THIS SECTION DEALS WITH DED UCTION AND ALLOWANCES. THE SCHEME OF THIS PROVISION IS THAT PROFITS AND GAINS SHOULD BE COMPUTED SUBJECT TO CERTAIN EXPRESS DEDUCTION AND ALLOWANCES AND TO CERTAIN EXPRESS PRO VISIONS OF DEDUCTIONS. THE LIST OF ALLOWANCES INCURRED IN THIS SECTION IS NOT EXHAUSTI VE OR ALL ALLOWANCES WHICH CAN BE MADE IN ASCERTAINING THE PROFIT OF THE BUSINESS TAX ABLE U/S. 28 OF THE ACT AND AN ITEM OF LOSS OR EXPENDITURE INCIDENTAL TO BUSINESS MAY BE D EDUCTED IN COMPUTING PROFITS AND GAINS OF BUSINESS OR PROFESSION, EVEN IF IT IS NOT FALLING UNDER ANY OF THESE SECTIONS. HONBLE SUPREME COURT IN THE CASE OF BADRINATH DAGA VS. CIT (1958) 34 ITR 10 (SC) IS VERY AMPLY SUM UP THE SAME IN THE FOLLOWING WORD S: THESE BEING THE GOVERNING PRINCIPLES, IN DECIDING WHETHER LOSS RESULTING FROM EMBEZZLEMENT BY AN EMPLOYEE IN A BUSINESS IS ADMISS IBLE AS A DEDUCTION UNDER SECTION 10(1) WHAT HAS TO BE CONSIDERED IS WHETHER IT ARISES OUT OF THE CARRYING ON OF THE BUSINESS AND IS INCIDENTAL TO IT. VIEWING TH E QUESTION AS A BUSINESSMAN WOULD, IT SEEMS DIFFICULT TO MAINTAIN THAT IT DOES NOT. A BUSINESS ESPECIALLY SUCH AS IS CALCULATED TO YIELD TAXABLE PROFITS HAS TO BE CA RRIED ON THROUGH AGENTS, CASHIERS, CLERKS AND PEONS. SALARY AND REMUNERATION PAID TO THEM ARE ADMISSIBLE UNDER SECTION 10(2)(XV) AS EXPENSES INCURRED FOR TH E PURPOSE OF THE BUSINESS. IF EMPLOYMENT OF AGENTS IS INCIDENTAL TO THE CARRYING ON OF BUSINESS, IT MUST LOGICALLY FOLLOW THAT LOSSES WHICH ARE INCIDENTAL TO SUCH EMP LOYMENT ARE ALSO INCIDENTAL TO THE CARRYING ON OF THE BUSINESS. HUMAN NATURE BEING WHAT IT IS, IT IS IMPOSSIBLE TO RULE OUT THE POSSIBILITY OF AN EMPLOYEE TAKING ADVA NTAGE OF HIS POSITION AS SUCH EMPLOYEE AND MISAPPROPRIATING THE FUNDS OF HIS EMPL OYER, AND THE LOSS ARISING FROM SUCH MISAPPROPRIATION MUST BE HELD TO ARISE OU T OF THE CARRYING ON OF BUSINESS AND TO BE INCIDENTAL TO IT. AND THAT IS HO W IT WOULD BE DEALT WITH ACCORDING TO ORDINARY COMMERCIAL PRINCIPLES OF TRAD ING. SIMILARLY, HONBLE SUPREME COURT IN THE SAME CASE I .E. BADRINATH DAGA, SUPRA HAS FURTHER REFERRED TO AS UNDER: AT THE SAME TIME, IT SHOULD BE EMPHASISED THAT THE LOSS FOR WHICH A DEDUCTION COULD BE MADE UNDER SECTION 10(1) MUST BE ONE THAT SPRINGS DIRECTLY FROM THE CARRYING ON OF THE BUSINESS AND IS INCIDENTAL TO IT AND NOT ANY LOSS SUSTAINED BY THE ASSESSEE, EVEN IF IT HAS SOME CONNECTION WITH H IS BUSINESS. IF, FOR EXAMPLE, A THIEF WERE TO BREAK OVERNIGHT INTO THE PREMISES OF A MONEY-LENDER AND RUN AWAY WITH FUNDS SECURED THEREIN, THAT MUST RESULT IN THE DEPLETION OF THE RESOURCES AVAILABLE TO HIM FOR LENDING AND THE LOSS MUST, IN THAT SENSE, BE A BUSINESS LOSS, BUT IT IS NOT ONE INCURRED IN THE RUNNING OF THE BU SINESS, BUT IS ONE TO WHICH ALL OWNERS OF PROPERTIES ARE EXPOSED WHETHER THEY DO BU SINESS OR NOT. THE LOSS IN 9 ITA NO. 821/K/2012 & CO NO. 86/K/2012 SRI UMA SHANKAR GOENKA AY 2008-09 SUCH A CASE MAY BE SAID TO FALL ON THE ASSESSEE NOT AS A PERSON CARRYING ON BUSINESS BUT AS OWNER OF FUNDS. THIS DISTINCTION, T HOUGH FINE, IS VERY MATERIAL AS ON IT WILL DEPEND WHETHER DEDUCTION COULD BE MADE U NDER SECTION 10(1) OR NOT. 8. SIMILARLY, THE TEST FOR DETERMINATION WHETHER A PARTICULAR LOSS WILL BE DEDUCTIBLE IN COMPUTING BUSINESS PROFITS OR NOT WAS AGAIN CONS IDERED BY HONBLE SUPREME COURT IN THE CASE OF RAMCHANDRAN SHIVNARAYAAN VS. CIT (1978) 111 ITR 263, WHEREIN IT WAS SUMMED UP AS UNDER: THE PRINCIPLE APPLICABLE IN INDIA IS MORE OR LESS THE SAME. IF THERE IS A DIRECT AND PROXIMATE NEXUS BETWEEN THE BUSINESS OPERATION AND THE LOSS OR IT IS INCIDENTAL TO IT, THEN THE LOSS IS DEDUCTIBLE, AS, WITHOUT THE BUSINESS OPERATION AND DOING ALL THAT IS INCIDENTAL TO IT, NO PROFIT CAN B E EARNED. IT IS IN THAT SENSE THAT FROM A COMMERCIAL STANDARD SUCH A LOSS IS CONSIDERE D TO BE A TRADING ONE AND BECOMES DEDUCTIBLE FROM THE TOTAL INCOME, ALTHOUGH, IN TERMS NEITHER IN THE 1922 ACT NOR IN THE 1961 ACT, THERE IS A PROVISION LIKE SECTION 51(1) OF THE AUSTRALIAN ACT. THERE IS A VERITABLE ROLL-CALL OF CASES OF THE VAR IOUS HIGH COURTS IN INDIA, MOSTLY UNDER SIMILAR CIRCUMSTANCES, TAKING T HE VIEW ON THE LINES OF DAGA'S CASE [1958] 34 ITR 10 (SC) AND NAINITAL BANK 'S CASE [1965] 55 ITR 707 (SC). WE MAY JUST REFER TO SOME OF THEM. IN BASANTL AL SANWAR PRASAD V. COMMISSIONER OF INCOME-TAX [1968] 67 ITR 380 (PAT), THE LOSS OF CASH IN A BURGLARY COMMITTED AT NIGHT IN A WHOLESALE CLOTH SH OP WAS HELD TO BE ALLOWABLE. IN U. P. VANASPATI AGENCY V. COMMISSIONER OF INCOME -TAX [1968] 68 ITR 120 (ALL), MONEY ENTRUSTED TO AN EMPLOYEE FOR BEING DEP OSITED IN THE BANK BUT LOST IN THE WAY BY ROBBERY WAS HELD TO BE DEDUCTIBLE. TO TH E SAME EFFECT IS THE VIEW EXPRESSED BY THE ALLAHABAD HIGH COURT IN THE CASE O F COMMISSIONER OF INCOME- TAX V. SARYA SUGAR MILLS (P.) LTD. [1968] 70 ITR 1 09, BY THE MADRAS HIGH COURT IN COMMISSIONER OF INCOME-TAX V. K.T.M.S. MAHMOOD [1969] 74 ITR 100, BY THE MADHYA PRADESH HIGH COURT IN COMMISSIONER OF INCOME -TAX V. GANESH RICE MILL [1970] 77 ITR 889 AND THE RAJASTHAN HIGH COUR T IN CHHOTULAL AJITSINGH V. COMMISSIONER OF INCOME-TAX [1973] 89 ITR 178. THE CONTRARY VIEW EXPRESSED IN THE CASE OF BANSIDHAR ONKARMAL V. COMMISSIONER OF INCOME-TAX [1949] 17 ITR 247 (ORISSA) AND IN THE MADRAS FULL BENCH CASE OF CHETTIAR'S AIR 1930 MAD 808 [FB] IS NO LONGER GOOD LAW. THE RATIO OF DAGA' S CASE [1958] 34 ITR 10 (SC) DOES NOT SEEM TO HAVE BEEN CORRECTLY APPLIED BY THE PUNJAB HIGH COURT IN RAM GOPAL RAM SARUP V. COMMISSIONER OF INCOME-TAX [1963] 47 ITR 611. NOW, WE PROCEED TO POINT OUT THE PERSISTENTLY WRON G APPLICATION OF THE LAW LAID DOWN BY THIS COURT BY THE ANDHRA PRADESH H IGH COURT IN TWO EARLIER DECISIONS FOLLOWED IN THE DECISION UNDER APPEAL ALS O. THEY ARE : COMMISSIONER OF INCOME-TAX V. CHAKKA NARAYANA [1961] 43 ITR 249 (AP) AND MADURI RAJESWAR V. COMMISSIONER OF INCOME-TAX [1964] 51 IT R 213 (AP). IN CHAKKA NARAYANA'S CASE [1961] 43 ITR 249 (AP) THE ASSESSEE , WHO WAS A DEALER IN CLOTH AND GOVERNMENT SECURITIES, ENCASHED GOVERNMEN T SECURITIES WORTH ABOUT RS. 20,000. HE WENT TO THE MADRAS RAILWAY STATION F OR TAKING THE CASH TO HIS 10 ITA NO. 821/K/2012 & CO NO. 86/K/2012 SRI UMA SHANKAR GOENKA AY 2008-09 PLACE OF BUSINESS BUT LOST THE MONEY ON ACCOUNT OF THEFT COMMITTED. THE HIGH COURT REFERRED TO BADRIDAS DAGA'S CASE [1958] 34 IT R 10 (SC), BUT YET DISTINGUISHED IT AND PREFERRED TO FOLLOW THE MAJORI TY DECISION OF THE FULL BENCH OF THE MADRAS HIGH COURT IN RAMASWAMI CHETTIAR'S CA SE AIR 1930 MAD 808 [FB], WHICH, AS WE HAVE ALREADY POINTED OUT, WAS NO T APPROVED BY THIS COURT IN NAINITAL BANK'S CASE [1965] 55 ITR 707 (SC). THE HI GH COURT ENUNCIATED THE LAW CORRECTLY, BUT COMMITTED IN ERROR IN APPLYING T HE SAME TO THE FACTS OF THAT CASE WHEN IT SAID--SEE [1961] 43 ITR 249, 251 (AP) : 'IT COULD NOT BE POSITED THAT IT WAS ABSOLUTELY NE CESSARY FOR THE ASSESSEE TO CASH THE CHEQUE ISSUED AND TO CARRY THE MONEY ON HAS PERSON. IT IS ONLY WHEN IT COULD BE POSITED THAT IT WAS PART OF HIS BUSINES S TO TAKE MONEY WITH HIM THAT IT COULD BE SAID THAT THE LOSS WAS INCIDENTAL TO HIS BUSINESS.' WE DO NOT APPROVE OF THIS DISTINCTION. SIMILARLY, THE ANDHRA PRADESH HIGH COURT TOOK A NARROW VIEW IN MADURI RAJESHWAR'S CASE [1964] 51 ITR 213 ALSO. THERE, A STRANGER CAME TO THE ASSESSEE'S SHOP DURING BUSINESS HOURS AND, WHEN THE ASSESSEE HAD GONE INTO ANOTHER ROOM TO TAL K ON THE TELEPHONE, THE STRANGER REMOVED THE CASH BOX AND DISAPPEARED. CHAN DRA REDDY C.J., WHO HAD DELIVERED THE LEADING JUDGMENT IN THE EARLIER CASE AS ALSO IN THIS CASE, IF WE MAY POINT OUT WITH RESPECT, COMMITTED THE SAME MISTAKE WHEN HE SAID AT PAGE 216 : 'IT CANNOT BE POSTULATED THAT THE LOSS SUSTAINED B Y THE ASSESSEE RESULTING FROM THE THEFT COMMITTED BY THE STRANGER SPRINGS DI RECTLY FROM HIS BUSINESS OR IS INCIDENTAL TO THE CARRYING ON OF IT. THE ONLY CONNE CTION THAT COULD BE ESTABLISHED IN THIS CASE IS THAT AT THE TIME THEFT WAS COMMITTE D MONEY WAS IN THE BUSINESS PREMISES AND IT WAS DURING BUSINESS HOURS. THERE I S NO OTHER CONNECTION BETWEEN THE THEFT OF THE MONEY AND THE BUSINESS OF THE ASSESSEE.' 9. ACCORDING TO US, CONSIDERING THE ABOVE LEGAL PRO POSITIONS, FACTS OF THE CASE AND PRINCIPLE LAID DOWN IN VARIOUS CASES CITED ABOVE, W E ARE OF THE VIEW THAT THE ASSESSEE WHO WAS IN THE BUSINESS OF TRADING AND INVESTMENT I N SHARES, HAD ADVANCED A SUM OF RS.35 LACS TO A SHARE BROKER WITH WHOM THE ASSESSEE HAS REGULAR DEALINGS IN EARLIER YEARS AND THE ADVANCE MADE WERE DURING THE COURSE OF ASSE SSEES BUSINESS AGAINST WHICH ASSESSEE HAD GIVEN SHARES, WHICH ARE MORE THAN THE VALUE OF THE ADVANCE GIVEN AS ON THAT DATE. BUT DUE TO SCAM IN THE MARKET THERE WAS A LOSS TO THE ASSESSEE WHICH WAS DIRECTLY CONNECTED TO THE ASSESSEES BUSINESS. ACC ORDING TO US, HERE IT IS IMMATERIAL WHETHER THE ASSESSEE CLAIMS THE SAME AS BAD DEBT OR BUSINESS LOSS, IT IS A FACT THAT THE ASSESSEE LENT THIS MONEY TO A STOCK BROKER WHO IS A CLOSE FINANCE ASSOCIATES, THE MONEY IS ADVANCED IN THE DIRECT AND PROXIMATE CONNECTION OF THE BUSINESS AND THERE IS A NEXUS BETWEEN BUSINESS OPERATION OF THE ASSESSEE AND THIS LOSS. ACCORDINGLY, THE SAME SHOULD 11 ITA NO. 821/K/2012 & CO NO. 86/K/2012 SRI UMA SHANKAR GOENKA AY 2008-09 HAVE BEEN ALLOWED AS BUSINESS LOSS BY THE AO. WE C ONFIRM THE ORDER OF CIT(A) BUT FOR DIFFERENT REASONING AS NOTED ABOVE. APPEAL OF REVE NUE IS DISMISSED. 10. AS REGARDS THE CROSS OBJECTION OF ASSESSEE, WHI CH IS BARRED BY LIMITATION BY 15 DAYS, THE ASSESSEE HAS FILED CONDONATION PETITION A LONG WITH THIS CROSS OBJECTION. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED THAT THE ASSESSEE IS NOT INTERESTED IN PROSECUTING THIS CROSS OBJECTION AND HE PRAYS FOR WITHDRAWAL OF THE SAME. ON BEING ASKED, LD. SR. DR HAS NOT RAISED ANY OBJEC TION TO THE PRAYER OF THE ASSESSEE. SINCE LD. SR. DR HAS NOT OBJECTED TO THE WITHDRAWAL OF THE SAME, WE PERMIT THE WITHDRAWAL AND DISMISS THE SAME AS WITHDRAWN. CROS S OBJECTION OF THE ASSESSEE IS, THEREFORE, DISMISSED BEING WITHDRAWN. 11. IN THE RESULT, APPEAL OF REVENUE AND CROSS OBJE CTION OF ASSESSEE, BOTH ARE DISMISSED. 12. ORDER IS PRONOUNCED IN THE OPEN COURT ON 17.07. 2014 SD/- SD/- , ! , (SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 17TH JULY, 2014 -. #/0 1 JD.(SR.P.S.) 2 *3 4 3%5- COPY OF THE ORDER FORWARDED TO: 1 . () / APPELLANT ITO, WARD-52(4), KOLKATA. 2 *+() / RESPONDENT SHRI UMA SHANKAR GOENKA, 84, ELLORA A PPTT. 2, GARIAHAT ROAD, (SOUTH), KOLKATA-68. 3 . # ( )/ THE CIT(A), KOLKATA 4. 5. # / CIT KOLKATA 3:; *# / DR, KOLKATA BENCHES, KOLKATA +3 */ TRUE COPY, #