SHREYAS S. MORAKHIA, MUMBAI V. DCIT CEN CIR-22, MUMBAI

ITA 198/MUM/2009

• Counselvise Citation: 19819914 RSA 2009
• Duration Of Justice: 2 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 19-04-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 09-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJIV DUTT
• Assessee Lawyers: HIRO RAI
• Keywords: Depreciation; Wholly owned subsidiary; Bad and doubtful debts; Unabsorbed depreciation; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI, J. SUDHAKAR REDDY, ACCOUNTANT MEMBER A ND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 198/MUM./2009 (ASSESSMENT YEAR : 2002-03 ) DATE OF HEARING: 19.4.2011 SHREYAS S. MORAKHIA 706, RAHEJA CENTRE FREE PRESS JOURNAL ROAD NARIMAN POINT, MUMBAI 400 021 PAN AACPM9855F .. APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-22, AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ASSESSEE BY : MR. HIRO RAI REVENUE BY : MR. SANJIV DUTT O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL FILED BY THE ASSESSEE, IS DIRECTED AGAI NST THE IMPUGNED ORDER DATED 14 TH APRIL 2008, PASSED BY THE COMMISSIONER (APPEALS)-I V, MUMBAI, FOR ASSESSMENT YEAR 2002-03. 2. THE ASSESSEE IS AN INDIVIDUAL AND IS IN THE BUSINES S OF SHARE TRADING. HE HAS INCOME UNDER THE HEADS INCOME FROM PROFESSION AND I NCOME FROM OTHER SOURCES BEING INTEREST. THE ISSUE IN THIS APPEAL IS, ALLOW ABILITY OF THE CLAIM FOR BAD DEBTS OR IN THE ALTERNATIVE AS BUSINE SS LOSS. SHREYAS S. MORAKHIA ITA NO.198/MUM./2009 2 3. THE FACTS ARE BROUGHT OUT AT PARA-3, PAGE-2 IN THE ASSESSMENT ORDER, WHICH IS EXTRACTED BELOW FOR READY REFERENCE:- 3. BUSINESS LOSS : IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAS C LAIMED BUSINESS LOSS OF ` 50,29,896. THE SAID LOSS HAS BEEN CLAIMED ON ACCOUNT OF BALANCE OUTSTANDING IN THE ACCOUNT OF M/ S. DHAULADHAR INVESTMENTS P. LTD., NEW DLEHI. IT WAS STATED AN AM OUNT OF ` 70,29,896 WAS OUTSTANDING FROM THIS PARTY FOR ITS S HARE TRADING ACCOUNT IN ASSESSEES BUSINESS AS A BROKER WHICH WA S FINALLY SETTLED IN AUGUST 2001 BY WAY OF FINAL SETTLEMENT AMOUNT RECEI VED ` 20,00,000 AND THE BALANCE ` 50,29,896 WAS WRITTEN OFF THE BOOKS AND CLAIMED AS BUSINESS LOSS. A CONFIRMATION FROM THE SAID PARTY D ATED 2.2.2006 WAS ALSO SUBMITTED. IT IS NOTICED THAT THE ASSESSEE HAD DISCONTINUED I TS SHARE BROKING BUSINESS IN A.Y. 1997-98 WHEN THE BSE CARD WAS TRANSFERRED TO M/S. SSKI INVESTOR SERVICES PVT. LTD. THEREFORE, THE SAID BROKING BUSINESS HAD DISCONTINUED AND THEREFORE THE ALLOWAB ILITY OF LOSS ARISING DUE TO THIS BUSINESS WAS EXAMINED. THE ASSESSEE VID E LETTER DATED 28.2.2006, SUBMITTED AS FOLLOWS:- WITH REGARD TO BAD DEBT CLAIMED OF M/S. DHOLADHAR INVESTMENTS FOR A.Y. 2002-03, AMOUNTING TO ` 50,29,896, IN ADDITION TO OUR EARLIER SUBMISSION WE STATE THAT THE SAME IS CLAIMED, AS THE CLIENT WHO WAS DEALING WITH THE ASSESSEE SINCE THE YEAR 1994 COULD NOT PAY DUE TO FINANCIAL CONSTRAINS. THUS, THE SAME SHOULD BE ALLO WED AS REVENUE EXPENDITURE. IT IS UNDISPUTED FACT THAT THE DEBTS OF M/S. DHOLADHAR INVESTMENT, IS A BUSINESS DEBT. D URING A.Y. 2002-03, THE AMOUNT WAS SETTLED BY RECEIVING 20,00,000 AS AGAINST TOTAL RECEIVABLE OF ` 70,29,896 THINLY THERE IS A BUSINESS LOSS OF ` 50,29,896, WHICH TOOK PLACE IN A.Y. 2002-03 I.E., IN THE YEAR OF SETTLEME NT. ACCORDINGLY, IT IS BUSINESS LOSS OF A.Y. 2002-03 I. E., WHICH IS SET OFF AGAINST INCOME FROM BUSINESS AS WELL AS INCOME FROM OTHER SOURCE, AS PROVIDED UNDER SECTION 70 OF THE ACT. IT IS FURTHER STATED THAT YOUR ASSESSEE HAS BEEN DO ING BUSINESS OF TRADING IN SHARE EVER SINCE HE BECAME A BROKER THUS, THE TRADING BUSINESS IS AN OFF SHOOT O F THE BROKERAGE BUSINESS. THUS, IT IS STATED THAT THE BUS INESS ACTIVITY AGAINST WHICH BAD DEBTS ARE CLAIMED CONTIN UES TILL DATE.. IT MAY BE FURTHER STATED THAT EVEN THE PROVISO OF S ECTION 72(1)(1), WHICH PROVIDED THE SET-OFF OF CARRIED FOR WARD LOSS OF A BUSINESS IS DISCONTINUED HAS BEEN DONE AW AY SHREYAS S. MORAKHIA ITA NO.198/MUM./2009 3 WITH W.E.F. 1.4.2000. THEREFORE, THE BUSINESS LOSS / BAD DEBTS SHOULD BE ALLOWED TO BE SET OFF AGAINST THE I NCOME EARNED DURING THE YEAR. THE CONFIRMATION RECEIVED FROM M/S. DHOLADHAR INVESTMENT, ACCEPTING THE FACT THAT THE MONIES PAYA BLE TO YOUR ASSESSEE WAS FULLY AND FINALLY SETTLED FOR ` 20,00,000 AS AGAINST THE AMOUNT OF ` 50,29,896 HAS ALREADY BEEN SUBMITTED. THEY HAVE ALSO CONFIRMED OFF OFFERING TH E SAME AS INCOME. THUS, WE REQUEST THAT THE BUSINESS LOSS ON ACCOUNT OF BAD DEBTS SHOULD BE ALLOWED AS REVENUE EXPENDIURE, OR T HE SAME MAY BE TREATED AS LOSS FROM ONE SOURCE AGAINST INCOME FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME I.E., BUSINESS. THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE. FOR ALLOWABILITY OF ANY EXPENSE, ONE HAS TO EXAMINE WHETHER THE SAME HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. IN THIS CASE, THERE IS NO DOUBT THAT THE DEBT PERTAINED TO SHARE BROKING BUSINESS OF ASSESSEE WHICH HAS SINCE BEEN DISCONTINUED AND TRANSFERRED TO M/S. SSKI INVESTOR SERVICES PVT. LTD. DURING LAST THREE YEARS THE ASSESSEE HAS NOT SHOWN ANY INCOME F ROM BROKING OR SUB-BROKING BUSINESS. THUS IT CANNOT BE HELD THAT T HE ASSESSEE STILL CONTINUES WITH THE SAID BUSINESS AGAINST WHICH THE BUSINESS LOSS ARISING OUT OF WRITE OFF OF DEBTOR CAN BE ALLOWED. IN VIEW OF THE ABOVE, THE CLAIM OF BUSINESS LOSS O F ` 50,29,896 IS HEREBY DISALLOWED AND ADDED BACK TO BUSINESS INC OME OF THE ASSESSEE. 4. ON APPEAL, THE FIRST APPELLATE AUTHORITY AGREED WIT H THE FINDINGS OF THE ASSESSING OFFICER BY HOLDING AS FOLLOWS:- 7. I HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF TH E LEARNED COUNSEL AND THE ASSESSMENT ORDER. FOR ALLOWING ANY EXPENSE AS A TRADING EXPENSE ONE HAS TO EXAMINE WHETHER IT HAS B EEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. FROM THE PERUSAL OF FACTS, IT IS ABUNDANTLY CLEAR THAT THE DEBT PERTAIN S TO SHARE BROKING BUSINESS OF THE APPELLANT WHICH HAS BEEN DISCONTINU ED IN THE YEAR 1997 AND THEREAFTER APPELLANT HAS NOT SHOWN ANY INC OME FROM BROKING OR SUB-BROKING BUSINESS. THEREFORE, THE APPELLANT C ANNOT BE SAID TO HAVE CONTINUED THE BUSINESS OF BROKING AGAINST WHIC H THE WRITE-OFF OF DEBT CAN BE ALLOWED. SHREYAS S. MORAKHIA ITA NO.198/MUM./2009 4 5. ALTERNATIVELY, THE FIRST APPELLATE AUTHORITY HELD T HAT THE CONDITIONS OF SECTION 36(2) OF THE ACT, DO NOT GET FULFILLED WHEN ASSESSEES BUSINESS, AT ONE POINT OF TIME, WAS STOCK BROKING. AGGRIEVED, THE AS SESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 6. LEARNED COUNSEL, MR.HIRU RAI, APPEARING ON BEHALF O F THE ASSESSEE, CONTENDS BEFORE US THAT THE ISSUE, WHETHER CONDITIO NS MENTIONED IN SECTION 36(2) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) ARE FULFILLED OR NOT IN THE CASE OF SHARE BROKER HAS BEEN CONSIDERED BY THE SPECIAL BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE REPORTED AS 5 ITR ( TRIB.) 01 (MUM.). HE SUBMITS THAT THOUGH THE ISSUE IS COVERED IN HIS FAV OUR, THE ASSESSING OFFICER HAS TAKEN ONE MORE GROUND WHILE DISALLOWING THE CLA IM OF THE ASSESSEE. HE SUBMITS THAT THE ASSESSEE WAS DOING A COMPOSITE BUS INESS IN SHARES, THE FIRST PART BEING DEALING IN SHARES ON HIS OWN ACCOU NT AND THE SECOND PART BEING DEALING IN SHARES ON BEHALF OF CLIENTS. HE SU BMITS THAT THE ASSESSEE WAS CONTINUING HIS OWN DEALINGS IN SHARES AND THE S ECOND LIMB OF HIS BUSINESS I.E., DEALING IN SHARES ON BEHALF OF CLIEN TS / THIRD PARTY WAS DISCONTINUED. HE SUBMITS THAT IN THE CASE BEFORE TH E SPECIAL BENCH, THIS ASPECT WAS VERY MUCH THERE. HE DREW THE ATTENTION O F THE BENCH AT PAGE-3 OF THE REPORTED DECISION WHICH CONTAINED THE ASSESSEE HAD SOLD BOMBAY STOCK EXCHANGE CARD HELD BY ME AND THE BUSINESS IN RESPECT OF WHICH THE DEBT IN QUESTION HAD ARISEN, CEASED TO EXIST IN THE YEAR UNDER CONSIDERATION. 7. LEARNED COUNSEL FAIRLY SUBMITS THAT THIS QUESTION W AS NOT CONSIDERED BY THE SPECIAL BENCH AND NO PROPOSITION WAS LAID DO WN. HE FILED A PAPER BOOK RUNNING INTO 14 PAGES AND DREW THE ATTENTION O F THE BENCH TO PAGE-2, TO DEMONSTRATE THAT FOR THE YEAR ENDED 31 ST MARCH 1997, THE NET LOSS ON SALE OF SHARES / DEBENTURES OF ` 3,62,660. THE SALES TURNOVER FOR THE ASSESSMENT YEAR 1997-98 WAS ` 22,55,73,566 AND THE PURCHASE TURNOVER WAS ` 22,37,20,559, ON OWN ACCOUNT. THE LEARNED COUNSEL P OINTS OUT THAT IN THIS YEAR THE TOTAL PURCHASES ON OWN ACCOUNT WERE ` 45,00,000, AND THE SALES WERE ` 3,62,55,457. HE CONTENDS THAT BOTH, OWN TRADING AN D TRADING ON SHREYAS S. MORAKHIA ITA NO.198/MUM./2009 5 BEHALF OF CLIENTS, WERE DONE BY A SINGLE PERSON AND OUT OF THE COMMON FUNDS. THE ASSESSEE SUBMITS THAT THIS IS THE SAME BUSINESS AND THERE WAS UNITY OF CONTROL, AND THERE WAS COMMON MANAGEMENT AND COMMON CONTROL OF BUSINESS. HE RELIED ON THE FOLLOWING JUDICIAL PRONO UNCEMENTS IN SUPPORT OF HIS CONTENTION THAT IT IS THE SAME BUSINESS. STANDARD REFINERY & DISTILLERY LTD., (1971) 79 ITR 589 (SC); B.R. LIMITED V/S CIT, (1978) 113 ITR 647 (SC); CIT V/S PRINCIPAL OFFICER, LAXMI SURGICAL PVT. LTD. , (1993) 202 ITR 601 (BOM.); SHRI LAXMI PRINTING & DYEING WORKS PVT. LTD. V/S CI T, (1968) 70 ITR 148 (BOM.); CIT V/S V.P. JOHN, JANATHA MEDICALS, (1996) 229 ITR 475 (KER.); AND 8. WITHOUT PREJUDICE, LEARNED COUNSEL, ALTERNATIVELY, SUBMITS THAT THIS IS A BUSINESS LOSS AS THE CLAIMS AND COUNTER CLAIMS MADE BY THE ASSESSEE AND ITS CLIENTS HAVE BEEN SETTLED IN THE CURRENT YEAR. HE R ELIED ON THE RECORDINGS MADE BY THE ASSESSING OFFICER AT PAGE-2 OF ASSESSME NT ORDER, ON THE FACTUM THAT THE CLAIM HAS BEEN SETTLED IN THE CURRENT YEAR . 9. LEARNED DEPARTMENTAL REPRESENTATIVE, MR. SANJIV DUT T, ON THE OTHER HAND, CONTROVERTED THE SUBMISSIONS MADE BY THE ASSE SSEES COUNSEL. HE CONTENDS THAT THE ISSUE, IN THIS CASE, IS DIFFERENT FROM THE ISSUE THAT WAS CONSIDERED BY THE SPECIAL BENCH IN ASSESSEES OWN C ASE FOR EARLIER ASSESSMENT YEAR. THE ISSUE, ACCORDING TO LEARNED DE PARTMENTAL REPRESENTA- TIVE, IS WHETHER BAD DEBT OF A CLOSED BUSINESS WILL BE ALLOWED OR NOT. HE CONTENDS THAT THIS IS NOT A CASE WHERE THE ASSESSEE HAS DISCONTINUED THE BUSINESS BUT A CASE WHERE HE HAS PERMANENTLY CLOSED DOWN THE BUSINESS WHERE HE WAS DEALING ON BEHALF OF THE CLIENTS. HE P OINTS OUT THAT THE ASSESSEE HAD SOLD HIS STOCK EXCHANGE CARD AND QUEST ION OF ASSESSEE ACTING AS SHARE BROKER FOR THE THIRD PARTY, SIMPLY DOES NO T ARISE. HE SUBMITS THAT SHARE TRADING ON OWN ACCOUNT AND SHARE TRADING ON B EHALF OF THIRD PARTIES ARE TOTALLY DIFFERENT BUSINESS AND ARE NOT INTER-DEPEND ENT NOR THERE IS ANY INTER- CONNECTION. HE RELIED ON THE JUDGMENT OF HON'BLE SU PREME COURT IN L.M. SHREYAS S. MORAKHIA ITA NO.198/MUM./2009 6 CHABDA & SONS V/S CIT, (1967) 65 ITR 638 (SC), FOR THE PROPOSITION THAT THE EXPENDITURE SHOULD PARTAKE OF THE VERY SOURCES OF P ROFIT I.E., THE PARTICULAR BUSINESS ACTIVITY. HE SUBMITS THAT THIS DECISION WA S FOLLOWED BY HONBLE MADRAS HIGH COURT IN I.S. & C. MACHADO V/S CIT, (19 70) 75 ITR 38 (MAD.), FOR THE PROPOSITION THAT THE EXPENDITURE OF DISCONT INUED BUSINESS CANNOT BE SET-OFF AGAINST PROFIT OF OTHER BUSINESS. HE SUBMIT S THAT THIS QUESTION WAS NEVER BEFORE THE SPECIAL BENCH AND, HENCE, THE SAME CANNOT BE CONSIDERED AS COVERED MATTER. 10. RIVAL CONTENTIONS HEARD. ON CAREFUL CONSIDERATION O F THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD, ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITE D BEFORE US, WE HOLD AS FOLLOWS:- 11. THE BUSINESS OF THE ASSESSEE IS THAT A SHARE TRADER AND WAS TRADING BOTH IN HIS OWN BEHALF AS WELL AS ON BEHALF OF THIR D PARTIES. IN EARLIER YEAR, THE ASSESSEE SOLD STOCK EXCHANGE MEMBERSHIP CARD AN D DISCONTINUED TRADING IN SHARES ON BEHALF OF THIRD PARTIES. TRADI NG IN SHARES ON OWN ACCOUNT WAS CONTINUED. ON THESE FACTS, WE HAVE TO SEE AS TO WHETHER IT CAN BE SAID THAT THE ASSESSEE IS CONTINUING WITH HIS BUSINESS. WE EXAMINED THE CASE LAWS RELIED UPON BOTH THE PARTIES. 12. THE HON'BLE SUPREME COURT IN STANDARD REFINERY & DI STILLERY LTD. (SUPRA), WAS CONSIDERING THE CASE OF A COMPANY WHIC H OWNED DISTILLERIES AND HAD ALSO ACQUIRED A SUGAR FACTORY. IT HAD A BUSINES S OF SUGAR MANUFACTURING AND DISTILLERIES AS WELL AS BUSINESS OF DEALING IN SHARES. THE ASSESSEE SOLD CERTAIN SHARES AND THE LOSS AFTER BEING SET-OFF WAS SOUGHT TO BE CARRY FORWARD AS UNABSORBED LOSS IN THE SALE OF SHARES AND SET-OF F WAS CLAIMED AGAINST INCOME FROM SUGAR MANUFACTURING AND DISTILLERIES. T HE HONBLE SUPREME COURT HELD AS FOLLOWS:- HELD THE TRIBUNAL HAS NOW SUBMITTED THE SECOND SUP PLEMEN-TARY STATEMENT OF CASE CALLED FOR BY THIS COURT. THE FAC TS FOUND BY IT ARE AS FOLLOWS: (1) THERE IS A SINGLE TRADING AND PROFIT A ND LOSS ACCOUNT. IN SHREYAS S. MORAKHIA ITA NO.198/MUM./2009 7 THE SAME ACCOUNT THE SALES OF SPIRIT, SUGAR AND MOL ASSES AS WELL AS STOCK AND SHARES APPEAR; (2) THE SHARE TRANSACTIONS AS WELL AS THE BUSINESS HAS BEEN DEALT WITH BY A COMMON ORGANISATI ON, THOUGH THE SALE OF SHARES IS A SINGLE TRANSACTION AND THE PURC HASE OF THOSE SHARES IS ALSO MORE OR LESS OF THE SAME CHARACTER; (3) THE BUSINESS OF THE COMPANY AS WELL AS THE TRANSACTION RELATING TO THE SHARES WERE ATTENDED TO AS PART AND PARCEL OF THE ASSESSEE-COMP ANY; (4) A COMMON FUND WAS UTILISED BOTH FOR BUSINESS PURPOSES AS WELL AS FOR THE PURCHASE OF SHARES. A PART OF THE OVERDRAFT OF RS. 6,80,046 TAKEN FROM THE BANK ON 31ST DEC., 1947, HAS BEEN DISCHARG ED FROM OUT OF THE INCOME OF THE BUSINESS; AND (5) THE SHARE TRANS ACTION WORK AS WELL AS THE OTHER BUSINESS OF THE ASSESSEE- COMPANY WERE CARRIED ON IN THE SAME PLACE OF BUSINESS. FROM THE FACTS FOUND BY THE TRIBUNAL, IT IS CLEAR THAT THE SHARE TRANSACTION AS WELL AS THE OTH ER BUSINESS OF THE COMPANY WERE DEALT WITH BY A COMMON MANAGEMENT, COM MON BUSINESS ORGANIZATION, COMMON ADMINISTRATION, COMMO N FUND AND COMMON PLACE OF BUSINESS. THE BUSINESS OF THE COMPA NY OF DEALING IN SHARES AND THE BUSINESS OF MANUFACTURING SUGAR AND OTHER COMMODITIES CONSTITUTE THE SAME BUSINESS WITHIN THE MEANING OF S. 24(2). STANDARD REFINERY & DISTILLERY LTD. VS. CIT (1965) 55 ITR 139 (CAL) : TC 45 R.502 REVERSED. 13. IN B.R. LIMITED (SUPRA), THE HONBLE SUPREME COURT WAS CONSIDERING THE CASE WHERE IMPORT BUSINESS WAS CLOSED DOWN AND EXPORT BUSINESS OF COTTON TEXTILE COMMENCED IN THE NEXT YEAR AND THE A SSESSEE SOUGHT SET-OFF OF LAWS OF IMPORT BUSINESS AS AGAINST PROFIT FROM EXPO RT BUSINESS. IN SUCH A SITUATION, THE HON'BLE SUPREME COURT HELD THAT THE DECISIVE TEST FOR DETERMINING ' SAME BUSINESS ' WITHIN THE MEANING OF 24(2) OF 1922 ACT IS UNITY OF CONTROL AND NOT THE NATURE OF TWO LINES OF BUSINESS. THE FACT THAT ONE BUSINESS CANNOT CONVENIENTLY BE CARRIED ON AFTER TH E CLOSURE OF OTHER MAY FURNISH A STRONG INDICATION THAT THE TWO BUSINESSES CONSTRUED A SAME BUSINESS. WHEN THERE IS COMMON MANAGEMENT AND COMMO N CONTROL IN BUSINESS, IT WAS HELD THAT THE ASSESSEE WAS ENTITLE D TO CARRY FORWARD THE LOSS IN IMPORT BUSINESS AND SET IT OFF AGAINST THE PROFI TS OF EXPORT BUSINESS IN THE SUBSEQUENT YEAR. 14. THE HON'BLE JURISDICTIONAL HIGH COURT IN PRINCIPAL OFFICER, LAXMI SURGICAL PVT. LTD. (SUPRA), WAS CONSIDERING THE CAS E OF AN ASSESSEE WHICH MANUFACTURE A SURGICAL COTTON. THE MANUFACTURER, ON OWN ACCOUNT, WAS DISCONTINUED BY THE ASSESSEE BUT THE PRODUCTION OF SURGICAL COTTON WAS SHREYAS S. MORAKHIA ITA NO.198/MUM./2009 8 CONTINUED ON JOB BASIS FROM AN ANOTHER MANUFACTURER . THE HONBLE COURT HELD THAT THE SAME BUSINESS CONTINUES AND LOSS AND DEPRECIATION OF THE EARLIER YEAR CAN BE CARRY FORWARD AND SET-OFF. 15. THE HONBLE JURISDICTIONAL HIGH COURT IN SHRI LAXMI PRINTING & DYEING WORKS PVT. LTD. (SUPRA) WAS CONSIDERING THE CASE OF AN ASSESSEE WHICH WAS CARRYING ON THE BUSINESS OF PROCESSING OF CLOTH WIT H THE AID OF HIS OWN MACHINERY. FOR THE YEAR ENDED 1957-58, THERE WAS CA RRY FORWARD UNABSORBED DEPRECIATION. IN THE YEAR 1956, THE ASSE SSEE COMPANY ENTERED INTO AN AGREEMENT WITH B LIMITED FOR PROCESSING T HE GOODS OF THE LATTER ON CERTAIN TERMS AND CONDITIONS AND BY USE OF SPECIAL KIND OF MACHINERY. B LIMITED IMPORTED THIS MACHINERY AND INSTALLED THE S AME IN THE BUSINESS PREMISES OF THE ASSESSEE COMPANY. DUE TO WANT OF SP ACE, THE ASSESSEE COMPANY SOLD ITS MACHINERY. THEREAFTER, THE ENTIRE SHARE CAPITAL OF THE ASSESSEE COMPANY WAS PURCHASED BY B LIMITED AND, HENCE, THE ASSESSEE COMPANY BECAME THE WHOLLY OWNED SUBSIDIARY OF B L IMITED, THE ISSUE WAS WHETHER THE ASSESSEE IS ENTITLED TO CLAIM OF SET-OF F OF CARRY FORWARD DEPRECIATION. THE HONBLE COURT HELD THAT THE ACTIV ITY CARRIED ON BY THE ASSESSEE NAMELY THE ACTIVITY OF PROCESSING REMAINED THE SAME AND THE BUSINESS IS THE SAME BUSINESS. 16. THE HONBLE KERALA HIGH COURT IN V.P. JOHN, JANATHA MEDICALS (SUPRA), HELD THAT THE ASSESSEE WAS HAVING A COMPOSITE BUSIN ESS AND MERE DISCONTINUANCE OF ONE ACTIVITY WILL NOT DISENTITLE THE ASSESSEE TO THE BENEFIT OF SET-OFF OF CARRY FORWARD LOSS. 17. NOW, COMING TO THE JUDGMENT OF HON'BLE SUPREME COUR T IN L.M. CHABDA & SONS (SUPRA) RELIED UPON BY THE LEARNED DE PARTMENTAL REPRESENTATIVE, WHEREIN THE COURT HELD THAT FOR THE PURPOSE OF ASCERTAINING OF PROFIT, IF AN ASSESSEE CARRIES ON SEVERAL DISTIN CT AND INDEPENDENT BUSINESSES, AND ONE OF SUCH BUSINESSES IS CLOSED BE FORE THE PREVIOUS YEAR HE CANNOT CLAIM ALLOWANCE UNDER S. 10, OF AN OUTGOING ATTRIBUTABLE TO THE BUSINESS WHICH IS CLOSED, AGAINST THE INCOME OF HIS OTHER BUSINESSES IN THAT SHREYAS S. MORAKHIA ITA NO.198/MUM./2009 9 YEAR. IT IS HELD THAT THE HEAD OF INCOME MAY BE ONE I.E., BUSINESS , WHEREAS THE COMPONENTS ARE DIFFERENT. IT HELD THAT THAT THE EXPENDITURE IS A COMPONENT INHERENT IN THE PROCESS OF ASCERTAINING T HE PROFITS REFERABLE TO A PARTICULAR INDEPENDENT ACTIVITY OF BUSINESS. THE HO NBLE MADRAS HIGH COURT IN I.S. & C. MACHADO (SUPRA) WAS CONSIDERING A CASE WH ERE THE ASSESSEE HAD TWO DIFFERENT BUSINESSES AND WHEN ONE BUSINESS WAS CLOSED, IT HELD THAT EXPENDITURE OF DISCONTINUED BUSINESS CANNOT BE SET- OFF AGAINST PROFITS OF ANOTHER BUSINESS. 18. THE JUDGMENT RELIED UPON BY THE LEARNED DEPARTMENTA L REPRESENTA- TIVE, DOES NOT APPLY TO THE FACTS OF THE CASE, AS T HE FINDING OF THE TRIBUNAL WAS THAT TWO DIFFERENT BUSINESS WAS CARRIED ON BY T HE ASSESSEE AND THE ONE WHICH WAS DISCONTINUED IN THE YEAR 1947 HAD NOTHING TO DO WITH EACH OTHER AND THERE WAS NO INTER-DEPENDENCE BETWEEN THEM. APP LYING TO THE PROPOSITION LAID DOWN IN THE OTHER CASES DISCUSSED ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEES BUSINESS OF TRADING IN SHARES IS A COMPOSITE BUSINESS WHICH HAD TWO LIMBS, (I) TRADING ON OWN ACCOUNT AND (II) TRADING ON ACCOUNT OF THIRD PARTIES. DISCONTINUING OF TRADING IN SHARES ON BEHALF OF THIRD PARTIES, IN OUR OPINION, CANNOT BE CONSIDERED DISCONTINUANCE OF BUSINESS OF SHARE TRADING. THE TEST OF UNITY OF CON TROL AND COMMON MANAGEMENT ARE FULFILLED IN THIS CASE, AS THIS IS A CASE OF AN INDIVIDUAL. THE TEST TO DETERMINE WHETHER TWO DIFFERENT VENTURES CA N BE CONSIDERED TO CONSTITUTE THE SAME BUSINESS ARE NOT IS TO SEE WHET HER THERE WAS ANY INTER- CONNECTION, INTER-LACING, INTER-DEPENDENCE, EMBRACI NG THE VENTURES AND WHETHER DIFFERENT VENTURES WERE SO INTER-LACED AND SO DOVETAILED INTO EACH OTHER AS TO MAKE THEM INTO THE SAME BUSINESS. 19. IN OUR VIEW, THE TEST IS FULFILLED IN THIS CASE AND , HENCE, THE CLAIM OF THE ASSESSEE OF BAD DEBTS FROM BROKERING BUSINESS IS TO BE ALLOWED. COMING TO THE SECOND LIMB OF DISALLOWANCE, ADMITTEDLY, THE IS SUE WHETHER THE CONDITIONS UNDER SECTION 36(2) ARE FULFILLED OR NOT , IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF MUMBAI SPECIAL BENCH IN ASSESSEES OWN CASE FOR SHREYAS S. MORAKHIA ITA NO.198/MUM./2009 10 EARLIER ASSESSMENT YEAR. RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THE ORDER OF THE COMMISSIONER (APPEALS) AND ALLOW THIS GROUND OF APPEAL. 20. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.5.2011 SD/- VIJAY PAL RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 27.5.2011 COPY TO : (1) THE ASSESSEE (2) THE RESPONDENT (3) THE CIT(A), MUMBAI, CONCERNED (4) THE CIT, MUMBAI CITY CONCERNED (5) THE DR, E BENCH, ITAT, MUMBAI TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI