Monnet Projects India Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 2168/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61777 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 19-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 02-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: V K JAIN
• Keywords: Business income; Depreciation; Transactions in derivatives; Source of fund; Speculation loss; Futures and options; Speculative transactions
• Section: 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E NEW DELHI DELHI BENCH : E NEW DELHI DELHI BENCH : E NEW DELHI DELHI BENCH : E NEW DELHI BEFORE SHRI K.G. BANSAL, ACCOUNTANT MEMBER , AND SHRI C.M. GARG, JUDICIAL MEMBER I.T.A NO. 2168/DEL/11 ASSTT. YEAR 2007-08 MONNET PROJECTS INDIA LTD., 302, WORLD TRADE CENTRE, BABAR ROAD, NEW DELHI 110 001. AAACM8559K VS. ADDL. CIT RANGE-5, CENTRAL REVENUE BUILDING, NEW DELHI 110 002. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI V.K. JAIN, CA RESPONDENT BY: SHRI ASHOK PANDEY, SR. DR DATE OF HEARING : 19-06-2012 DATE OF PRONOUNCEMENT : 13-07-2012 ORDER PER K.G. BANSAL, AM: IN THIS APPEAL, THE ASSESSEE COMPANY HAS TAKEN U P THREE GROUNDS. GROUND NO. 1 IS GENERAL IN NATURE, WHICH HAS NOT B EEN ARGUED BEFORE US BY THE LD. COUNSEL FOR THE ASSESSEE. THEREFORE, THI S GROUND IS TREATED AS DISMISSED. GROUND NO. 2 IS IN RESPECT OF TWO AMOUNT S OF ` 5,82,802/- AND ` ITA NO. 2168/DEL/11 2 2.00 LACS, WRITTEN OFF BY THE ASSESSEE FROM THE ACC OUNTS AND CLAIMED AS DEDUCTION, BUT NOT ALLOWED BY THE AO AND THE LD. CI T(A). GROUND NO. 3 IS IN RESPECT OF THE FINDING OF LOWER AUTHORITIES THAT TRADING IN DERIVATIVES (F & O) SEGMENTS, LEADING TO LOSS OF ` 85,398/- IS SPE CULATION LOSS U/S 43(5) OF THE INCOME TAX ACT, 1961. 2. IN REGARD TO THE AMOUNT OF ` 5,82,802/-, THE DEB T REMAINED OUTSTANDING IN THE NAME OF SHRI G.P. AGGARWAL, WHO WAS A SENIOR EXECUTIVE OF THE ASSESSEE COMPANY. IT WAS SUBMITTED BEFORE THE AO THAT HE HAD TAKEN THIS AMOUNT TOWARDS OFFICE EXPENSES. A LL OF A SUDDEN HE RESIGNED. HE DID NOT SUBMIT ANY BILL OR VOUCHER OF EXPENDITURE INCURRED AGAINST THE AFORESAID ADVANCE. THE AMOUNT COULD NOT BE RECOVERED FROM HIM. THEREFORE, THE AMOUNT WAS WRITTEN OFF IN THE B OOKS OF ACCOUNT. INITIALLY THESE VERY SUBMISSIONS WERE MADE BEFORE T HE LD. CIT(A) IN LETTER DATED 15.2.2011. HOWEVER, HE REQUIRED THE ASSESSEE TO FILE THE RELEVANT ACCOUNTS. SUCH ACCOUNTS WERE FILED ALONGWITH WRITTE N SUBMISSIONS DATED 24.2.2011. IN THIS LETTER THE ASSESSEE CHANGED HIS VERSION AND SUBMITTED THAT OUTSTANDING BALANCE IN HIS ACCOUNT WAS ` 21608 8/-. HE WAS ALSO PROVIDED A CAR OF THE WDV OF ` 3,66,714/-. THE ACCO UNTS SUBMITTED WITH THIS LETTER SHOW THAT AFTER ADJUSTING SALARY PAYABL E TO SHRI G.P. AGGARWAL, A SUM OF ` 2,16,088/- AND CAR OF THE WDV OF ` 3,66,71 4/- WERE WRITTEN OFF. THUS, IT WILL BE CLEAR THAT THE ADVANCE OF ` 2,16,0 88/-AND CAR OF THE WDV OF ` 3,66,714/- WERE WRITTEN OFF BY THE ASSESSEE. THE SUM OF THESE TWO AMOUNTS WAS CLAIMED AS DEDUCTION. ITA NO. 2168/DEL/11 3 2.1 THE FINDING OF THE AO IS THAT THE SUM OF ` 5,88 ,802/- CLAIMED AS A BAD DEBT IN RESPECT OF SHRI G.P. AGGARWAL, HAS NOT BEEN TAKEN IN THE ACCOUNT IN COMPUTING THE INCOME OF THIS YEAR OR ANY EARLIER YEAR. THE AMOUNT DOES NOT REPRESENT MONEY LENT IN THE ORDINAR Y COURSE OF BUSINESS OF MONEY LENDING. THEREFORE, IT IS NOT ALLOWABLE U/ S 36(1)(VII). THE FINDING OF THE LD. CIT(A) IS THAT THE CLAIM IS CORRECT ONLY TO THE EXTENT THAT SHRI G.P. AGGARWAL USED TO BE GIVEN ADVANCES AT REGULAR INTERVALS. HE USED TO SUBMIT BILLS OR VOUCHERS AFTER INCURRING THE EXPEND ITURE. HOWEVER, THE SITUATION TOOK A DIFFERENT TURN IN FINANCIAL YEAR 1 999-00 , WHEN A SUM OF ` 2,72,922/- WAS MADE AVAILABLE TO HIM WITHOUT ANY BU SINESS PURPOSE AND WITHOUT INSISTING UPON HIM TO SUBMIT BEFORE THE BIL LS, VOUCHERS OR ACCOUNT STATEMENT. THEREFORE, THE CLAIM THAT THE ADVANCE WA S MADE FOR BUSINESS PURPOSE HAS NOT BEEN SUBSTANTIATED BY ANY DOCUMENT. THUS, THE CLAIM HAS BEEN DENIED. 3. BEFORE US, THE LD. COUNSEL SUBMITS THAT THE ASSE SSEE - COMPANY HAD EMPLOYED SHRI G.P. AGGARWAL AS A TECHNICAL AND MARK ETING PERSONNEL. HE WAS ALSO AN EMPLOYEE - DIRECTOR IN THE ASSESSEE COM PANY. HE WAS GIVEN ADVANCES FROM TIME TO TIME AND A SUM OF ` 5,82,802/ - WAS FOUND OUTSTANDING AGAINST HIS NAME. HE SUDDENLY LEFT HIS EMPLOYMENT AS EMPLOYEE - DIRECTOR DURING DECEMBER, 1999. NO MONEY COULD BE RECOVERED FROM HIM TILL FINANCIAL YEAR 2006-07. THE REFORE, THIS AMOUNT WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT. THE AMOUNT WAS GIVEN TO AN EMPLOYEE IN THE COURSE OF BUSINESS. THEREFORE, THE SAME IS A LOSS IN THE REVENUE FIELD. ACCORDINGLY THE ASSESSEE IS ENTITLED TO DEDU CT THIS AMOUNT IN ITA NO. 2168/DEL/11 4 COMPUTING ITS TOTAL INCOME. IN REPLY, THE LD. SR. D R RELIED ON THE FINDINGS OF THE LD. CIT(A), WHICH IN BRIEF ARE THAT THE AMOU NT WAS NOT ADVANCED IN THE COURSE OF THE BUSINESS OF THE ASSESSEE COMPAN Y. 4. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUB MISSIONS MADE BEFORE US. WE FIND THAT THE AMOUNT UNDER QUESTION C ONSISTING OF TWO PARTS. A SUM OF ` 2,16,088/-, WHICH STOOD AS ADVANCE TO SH RI G.P. AGGARWAL, HAS BEEN WRITTEN OFF. WE DEAL WITH THIS AMOUNT AT THE O UTSET. THE FACTUAL POSITION IS THAT SHRI G.P. AGGARWAL WAS AN EMPLOYEE DIRECTOR. THE LD. CIT(A) HAS RECORDED A FINDING THAT THE COMPANY USED TO GIVE MONEY FOR INCURRING EXPENDITURE ON BEHALF OF THE COMPANY. HOW EVER, THE POSITION CHANGED IN FINANCIAL YEAR 1999-2000, AS NO OSTENSIB LE PURPOSE HAS BEEN STATED FOR THE INSTANT ADVANCE. WE ARE NOT IN AGREE MENT WITH THE LD. CIT(A) ON THIS ISSUE. HAVING HELD THAT THE ASSESSEE -COMPANY USED TO FURNISH ADVANCES TO SHRI G.P. AGGARWAL, IT WAS NOT RIGHT ON HIS PART TO CONCLUDE THAT THE INSTANT ADVANCE WAS NOT MADE IN T HE COURSE OF BUSINESS. THE AMOUNT HAD ACTUALLY BEEN PAID TO HIM. THEREFORE, IN VIEW OF HIS EARLIER FINDINGS, WITHOUT NARRATING ANY CHANGE IN FACTS, IT COULD NOT HAVE BEEN HELD BY HIM THAT THIS MONEY WAS NOT THE A DVANCE MADE IN THE COURSE BUSINESS. IN OTHER WORDS, IT IS HELD THAT TH E AMOUNT AT ` 2,16,088/- REPRESENTED MONEY ADVANCED TO AN EMPLOYEE AS ADVANC E FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, WHICH COULD NOT BE REC OVERED TILL FINANCIAL YEAR 2006-07, WHEN IT WAS WRITTEN OFF. THIS IS A LO SS INCURRED IN THE COURSE OF BUSINESS. THE SAME IS ALLOWABLE ON FIRST PRINCIP LES OF ACCOUNTANCY AND ITA NO. 2168/DEL/11 5 ALSO UNDER SECTION 28. THEREFORE, WE ARE OF THE VIE W THAT THIS AMOUNT REPRESENTS THE BUSINESS LOSS, DEDUCTIBLE IN COMPUTI NG THE INCOME. 4.1 THE FACTS IN REGARD TO THE OTHER WRITE OFF OF ` 3,66,704/- ARE COMPLETELY DIFFERENT. THE ASSESSEE HAS TAKEN UP DIF FERENT POSITIONS AT DIFFERENT POINTS OF TIME. THIS AMOUNT WAS STATED TO BE AN ADVANCE TO SHRI G.P. AGGARWAL BEFORE THE AO. THE SAME POSITION WAS REITERATED BEFORE THE LD. CIT(A) IN WRITTEN SUBMISSIONS FILED ON 15.2.201 1. HOWEVER, WHEN THE LD. CIT(A) PROBED THE MATTER FURTHER BY CALLING FOR ACCOUNTS, IT WAS SUBMITTED THAT THIS AMOUNT REPRESENTS THE WRITTEN D OWN VALUE OF THE CAR GIVEN TO SHRI G.P. AGGARWAL USED BY HIM FOR THE PUR POSE OF BUSINESS. HE DID NOT RETURN THIS CAR WHEN HE LEFT HIS EMPLOYMENT IN NOVEMBER, 1999. THE SPECIFIC QUERY WAS RAISED BY US WHETHER DEPRECI ATION WAS CLAIMED BY THE ASSESSEE-COMPANY ON THIS CAR. IT WAS SUBMITTED THAT THE DEPRECIATION WAS CLAIMED AND ONLY THE WRITTEN DOWN VALUE OF ` 3, 66,714/- WAS WRITTEN OFF. IT IS HIS CLAIM THAT SINCE THIS ASSET COULD NO T BE RECOVERED FROM THE EX- EMPLOYEE, THE AMOUNT REPRESENTS BUSINESS LOSS. HIS ATTENTION WAS DRAWN TOWARDS THE PROVISIONS CONTAINED IN SECTION 43(6), WHICH DEFINES THE TERM WRITTEN DOWN VALUE. IN THE CASE OF A BLOCK UP ASS ETS, THE WRITTEN DOWN VALUE OF A BLOCK OF ASSETS HAS TO BE REDUCED BY THE MONEYS RECEIVABLE IN RESPECT OF THE ASSET FROM THE VALUE OF BLOCK OF ASS ET, WHICH IS SOLD DISCARDED DEMOLISH OR DESTROYED. IN OTHER WORDS, IN CASE OF A DEPRECIABLE ASSET FALLING WITHIN A BLOCK UP ASSETS, ANY LOSS OC CURRING ON ACCOUNT OF LOSS OF THE ASSET HAS TO BE REDUCED FROM THE OPENIN G WDV OF THE BLOCK UP ASSETS. THE SAME CANNOT BE TREATED AS A BUSINESS LO SS U/S 28. IT DOES NOT ITA NO. 2168/DEL/11 6 REPRESENT ANY EXPENDITURE INCURRED WHOLLY AND EXCLU SIVELY FOR THE PURPOSE OF BUSINESS. THEREFORE, THIS AMOUNT IS NOT ALLOWABL E TO THE ASSESSEE IN COMPUTING THE TOTAL INCOME. IT FOLLOWS FROM THE AFO RESAID DISCUSSION THAT THE ASSESSEE IS ENTITLED TO DEDUCT A SUM OF ` 2,16, 088/- IN COMPUTING ITS TOTAL INCOME AND IT IS NOT ENTITLED TO DEDUCT THE S UM OF ` 3,66,714/- IN COMPUTING THE INCOME. THUS, GROUND NO. 2(B) IS PART LY ALLOWED. 5. THE ASSESSEE HAD ALSO WRITTEN OFF A SUM OF ` 2.0 0 LACS STANDING IN THE NAME OF M/S. WIMCO MONNET LTD. THE SUBMISSION O F THE ASSESSEE BEFORE THE AO WAS THAT THIS SUM REPRESENTED EARNEST MONEY PAID TO THE AFORESAID M/S. WIMCO MONNET LTD. NO EFFECTIVE BUSIN ESS COULD BE DONE WITH THIS PARTY. THEREFORE, THE SUM WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT. THIS VERY EXPLANATION WAS TENDERED BEFORE THE LD. C IT(A). HIS FINDING IS THAT THERE IS NO CONCRETE EVIDENCE THAT THE ADVANCE WAS MADE IN THE COURSE OF BUSINESS. IT IS DIFFICULT TO DECIDE WHETH ER THE ADVANCE WAS ON CAPITAL ACCOUNT OR REVENUE ACCOUNT. THEREFORE, IN A BSENCE OF SUFFICIENT EVIDENCE REGARDING NATURE OF THE ADVANCE, THE CLAIM HAS BEEN DENIED. 5.1 BEFORE US, THE LD. COUNSEL DREW OUR ATTENTION T O PAGE NO. 29 OF THE PAPER BOOK WHICH SHOWS THE SOURCES OF INCOME OF THE ASSESSEE IN THIS YEAR I.E. SALE OF POWER, SALE OF GEN SETS AND TOYS, COMMISSION AND CONSULTANCY, HIRE CHARGES AND INTEREST. THE CASE OF LD. COUNSEL IS THAT LOOKING TO DIVERSE SOURCES OF INCOME, IT CAN BE CON STRUED THAT ADVANCE TO M/S. WIMCO MONNET LTD. WAS FOR THE PURPOSE OF BUSIN ESS. IN REPLY THE LD. SR. DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIE S. ITA NO. 2168/DEL/11 7 5.2 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSIONS MADE BEFORE US. PAGE 44 TO THE PAPER BOOK SHOWS OPENING DEBIT BALANCE OF ` 2.00 LACS IN THE CASE OF M/S. WIMCO MONNET LTD. THI S HAS BEEN WRITTEN OFF AT THE END OF THE YEAR. THUS, THE PURPOSE OF ADVANC E IS NOT CLEAR FROM THE ACCOUNTS FILED BEFORE US. THERE IS ONLY A GENERAL E XPLANATION BEFORE US THAT THE AMOUNT WAS ADVANCED FOR DOING SOME BUSINES S, WHICH DID NOT FRUCTIFY. THE NATURE OF BUSINESS IS NOT KNOWN. THU S, NEITHER THE YEAR OF ADVANCE NOR THE PURPOSE OF ADVANCE IS KNOWN. THE BU RDEN OF ADDUCING REQUISITE EVIDENCE IN CLAIMING AN EXPENDITURE OR LO SS TO THE DEDUCTIBLE IS ON THE ASSESSEE. THIS BURDEN HAS NOT BEEN DISCHARGE D . THEREFORE, EVEN WITHOUT GOING INTO ANY CASE LAW, IT IS CLEAR FROM T HE FACTS THAT THE ASSESSEE HAS NOT PROVED THE ADMISSIBILITY OF THIS A MOUNT. CONSEQUENTLY IT IS HELD THE ASSESSEE IS NOT ENTITLED TO DEDUCT THIS AMOUNT IN COMPUTING THE TOTAL INCOME. THUS GROUND NO. 2 IS DISMISSED. 6. IN THE RESULT GROUND NO. 2 IS PARTLY ALLOWED. 7. GROUND NO. 3 IS IN REGARD TO THE TREATMENT METED TO THE LOSS OF ` 85,398/- INCURRED IN TRADING IN FUTURES AND OPTIONS SEGMENT. THE AO HAD NOT CONSIDERED THIS ISSUE IN THE ASSESSMENT ORDER. HOWEVER, THE LD. CIT(A) CALLED FOR THE EXPLANATION. IT WAS SUBMITTED THAT T HE LOSS WAS INCURRED IN TRADING IN FUTURES, WHICH DOES NOT CONSTITUTE SPECU LATION LOSS. THE LD. CIT(A) CAME TO THE CONCLUSION THAT THE PROVISION OF SECTION 43(5) IS GENERAL IN NATURE, WHICH WILL NOT OVERRIDE THE PROV ISION CONTAINED IN SECTION 73. THUS THE LOSS WAS HELD TO BE SPECULATIO N LOSS WHICH WAS NOT ALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME. ITA NO. 2168/DEL/11 8 7.1 BEFORE US, THE LD. COUNSEL RELIED ON THE AMENDM ENT MADE TO SECTION 43(5) BY FINANCE ACT, 2005, W.E.F. 1.4.2006 , WHICH INSERTED CLAUSE (D) IN THE PROVISION. UNDER THE AMENDMENT ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES REFERRED TO IN CLAUSES (A C) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATE) ACT, 1956, CARRIED OUT ON A RECOGNISED STOCK EXCHANGE IS NOT BE DEEMED TO BE A SPECULATION TRANSACTION. THE CASE OF THE LD. COUNSEL IS THAT THIS PROVISION IS A PPLICABLE FOR ASSESSMENT YEAR 2007-08. UNDER THIS PROVISION THE TRADING LOSS IN DERIVATIVES AT A RECOGNISED STOCK EXCHANGE DOES NOT AMOUNT TO A SPEC ULATION LOSS. ON THE OTHER HAND, LD. SR. DR RELIED ON THE ORDER OF THE L D. CIT(A). 8. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUB MISSIONS MADE BEFORE US. WE FIND THAT THE AFORESAID INSERTION OF CLAUSE (D) IN SECTION 43(5) DEEMS TRANSACTIONS IN DERIVATIVES AT RECOGNIS ED STOCK EXCHANGES NOT TO BE SPECULATIVE TRANSACTIONS. THUS SUCH TRANS ACTIONS ARE TAKEN TO BE BUSINESS TRANSACTIONS. UNDER THE MAIN PROVISION TRA DING IN DERIVATIVES CONSTITUTES SPECULATIVE BUSINESS AS THERE IS NO DEL IVERY OF THE SHARES AND THE CONTRACTS ARE SETTLED OTHERWISE THEN BY DELIVER Y OF SHARES BY PAYMENT OF DIFFERENCE ETC. THE QUESTION WHETHER, THIS DE EMING PROVISION CAN BE CARRIED FORWARD TO SECTION 73 REGARDING LOSS IN SP ECULATION BUSINESS ? THIS PROVISION CONSIDERS SPECULATION LOSS AS A DIST INCT KIND OF LOSS TO BE TREATED DIFFERENTLY FROM OTHER BUSINESS LOSS. SPEC ULATION LOSS CAN BE SET OFF AGAINST SPECULATIVE PROFIT IN THE SAME YEAR OR CARRIED FORWARD, AS THE CASE MAY BE, TO THE NEXT YEAR TO BE SET OFF AGAINST SPECULATION PROFIT, SO HOWEVER THAT IT CANNOT BE CARRIED FORWARD FOR MORE THAN FOUR SUCCEEDING ITA NO. 2168/DEL/11 9 YEAR IN WHICH THE LOSS WAS COMPUTED. WE ARE OF THE VIEW THAT A HARMONIOUS INTERPRETATION WILL HAVE TO BE MADE OF T HESE TWO PROVISIONS. IF IT IS HELD THAT THE PROVISION CONTAINED IN SECTION 73(1) HOLDS EVEN IN RESPECT OF THE LOSS MENTIONED IN AFORESAID CLAUSE ( D), THE WHOLE PURPOSE OF THE INSERTION OF THE CLAUSE WILL BE LOST. THIS CLAU SE WAS INTRODUCED FOR FACILITATING TRADING OF DERIVATIVES ON RECOGNISED S TOCK EXCHANGES AND, THUS, IT IS APPLICABLE ONLY IN RESPECT OF SUCH TRAD ING IN DERIVATIVES AND NOT IN RESPECT OF ANY OTHER GOODS, ARTICLES OR THINGS. SUCH TRANSACTIONS IN THE DERIVATIVES WERE TAKEN OUT OF THE DEFINITION OF A SPECULATIVE TRANSACTIONS. THE PROVISION IS MEANT FOR THE DEVEL OPMENT AND BENEFIT OF CAPITAL MARKETS. THE INTERPRETATION THAT SECTION 73 (1) WILL OVERRIDE SECTION 43(5) (D) WILL FORFEIT THE PURPOSE OF THE AMENDMEN T. THEREFORE, WE ARE OF THE VIEW THAT THE LOSS IS TO BE TAKEN AS THE BUSIN ESS LOSS, WHICH CAN BE SET OFF AGAINST OTHER BUSINESS PROFIT OF THE ASSESS EE. 8.1 THUS, GROUND NO. 3 IS ALLOWED. 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. SD/- SD/- [C.M. GARG] [K.G. BANSAL] JUDICIAL MEMBER ACCOUNTANT MEMBER VEENA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT ITA NO. 2168/DEL/11 10 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT