Shri Madhusudan Lal Nanda, Noida V. ITO, New Delhi

ITA 4645/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3911 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 21-04-2010
• Assessment Year: 1997-1998
• Appeal Filed On: 09-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRATIMA KAUSHIK
• Assessee Lawyers: MADHUSUDAN LAL NANDA
• Keywords: Capital asset; Opportunity of being heard; Cost of acquisition; Fair market value; Wrong claim; Valuation report
• Section: 143(3); 2(14); 54; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `E: NEW DELHI BEFORE SHRI C.L.SETHI, JM & SHRI SHAMIM YAHYA, AM I.T. A. NO.4645/DEL OF 2009 ASSESSMENT YEAR: 1997-98 M/S MADHUSUDAN LAL NANDA, INCOME-TAX OFFICER, D-110, SECTOR 25, NOIDA. VS WARD 30(1), NEW DELHI. APPELLANT RESPONDENT APPELLANT BY: SHRI MADHUSUDAN LAL NANDA RESPONDENT BY: SMT. PRATIMA KAUSHIK ORDER PER C.L. SETHI, JM: THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 2 1 ST OCTOBER, 2009 PASSED BY THE LEARNED CIT(A) IN THE MATTER OF AN AS SESSMENT MADE U/S 143(3) OF THE INCOME-TAX ACT,1961 (THE ACT) DATED 28.2.200 0 BY THE AO FOR THE ASSTT. YEAR 1997-98. 2. IN THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE CIT(A)S ORDER IN CONFIRMING THE FOLLOWING ADDITIONS MADE BY THE AO: 2 (1) THE DISALLOWANCE OF LOSS RS.21,40,390/- CLAIMED AS MISAPPROPRIATION OF CASH OR SHARES BY THE ACCOUNTANT OF THE ASSESSEE SHRI SANDEEP GUPTA. (2) DETERMINING THE LONG TERM CAPITAL GAIN ON SALE OF M EMBERSHIP CARD OF DELHI STOCK EXCHANGE BY TAKING THE COST OF ACQUISIT ION ONLY AT RS.2 LACS AS AGAINST COST OF ACQUISITION CLAIMED BY THE ASSESSEE AT RS.16.86 LACS TAKING BASE COST AS ON 1.4.81 AT RS.6 LACS. WE SHALL NOW FIRST TAKE THE ISSUE WITH REGARD TO TH E DISALLOWANCE OF DEDUCTION OF RS.21,40,390/- ON ACCOUNT OF MISAPPROP RIATION OF CASH/SHARES BY THE ACCOUNTANT OF THE FIRM. 3. IN THIS CASE, THE ASSESSEE FILED HIS RETURN OF I NCOME ON 31.10.97 DECLARING TOTAL INCOME AT RS.22,11,660/-. THE AO TH EN COMPLETED THE ASSESSMENT U/S 143(3) ON 28.2.2000 DETERMINING THE TOTAL INCOME AT RS.45,39,526/-. IN THE ASSESSMENT, THE AO MADE ADD ITION OF RS.21,40,390/- BY WAY OF DISALLOWANCE OF ASSESSEES CLAIM ON ACCOU NT OF MISAPPROPRIATION OF CASH/SHARES BY SANDEEP GUPTA. IN THE ASSESSMENT , THE AO HAS MENTIONED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SH ARE BROKING. APART FROM ABOVE, THE ASSESSEE WAS DERIVING INCOME FROM HOUSE PROPERTY, CAPITAL GAIN AND INCOME FROM OTHER SOURCES. ON SCRUTINY OF THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING ON 31.3.1997 FILED BY THE ASSES SEE, THE AO NOTICED THAT 3 THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.21,40,390/ -, BEING MISAPPROPRIATION OF CASH AND DIFFERENCE IN CLEARING OF SHARES BY SHRI SANDEEP GUPTA. ASSESSEE VIDE AOS LETTER DATED 16. 12.99 WAS SPECIFICALLY ASKED TO FILE A DETAILED NOTE IN RESPECT OF THE AFO RESAID CLAIM. IN REPLY THERETO, THE ASSESSEE VIDE LETTER DATED 5.1.2000 SU BMITTED BEFORE THE AO THAT ASSESSEES EMPLOYEE, NAMED SHRI SANDEEP GUPTA, DEFR AUDED THE ASSESSEE FIRM BY TAKING DELIVERY OF SHARES FROM HIS CLIENTS AND MISAPPROPRIATED THE SAME. HOWEVER, THE AO DISALLOWED THE ASSESSEES CL AIM BY OBSERVING THAT THE MATTER WAS IN LITIGATION AND WAS SUB JUDICE, AN D, THEREFORE, THE SAME WAS NOT ALLOWABLE. THIS MUCH REASON HAS BEEN GIVEN BY T HE AO IN THE ASSESSMENT ORDER. 4. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LEARNED CIT(A). THE LEARNED CIT(A) DISPOSED OF THE APPEAL VIDE ORDER DATED 6.11.2002 AND DECIDED THIS ISSUE REGARDING THE DISA LLOWANCE OF LOSS OF RS.21,40,390/- MADE BY THE AO AGAINST THE ASSESSEE AS PER HIS DISCUSSION AND CONCLUSION MADE IN PARA 2 TO 2.7. THE VARIOUS REASONS GIVEN BY THE CIT(A) IN HIS ORDER DATED 6.11.2002 FOR CONFIRMING THE AOS ACTION ARE SUMMARIZED AS UNDER: (I) IN THE VARIOUS LETTER WRITTEN BY THE ASSESSEE IN DE CEMBER, 1995 TO SANDEEP GUPTA, DELHI STOCK EXCHANGE AND THE POLICE STATION, NO 4 DETAILS OF SHARES, WHICH WERE CLAIMED TO HAVE BEEN MISAPPROPRIATED, HAS BEEN GIVEN. (II) NO DETAILS WERE GIVEN WHETHER THE SHARES BELONGING TO THE CLIENTS OR TO THE ASSESSEE WERE HELD AS STOCK-IN-TRADE. (III) NO PARTICULARS OF ANY ENTRIES MADE IN THIS REGARD I N THE BOOKS OF THE FIRM WAS FURNISHED. (IV) EVEN IF ANY LOSS HAS TAKEN PLACE, IT HAD TAKEN PLAC E IN FINANCIAL YEAR 1995-96 AND CLAIM FOR DEDUCTION COULD BE SET O UT BY THE ASSESSEE IN THE ASSTT. YEAR 1996-97 BUT NOT IN ASST T. YEAR 1997-98. (V) FOR CLAIMING SUCH LOSS, THE ASSESSEE WOULD HAVE TO SHOW THAT THE SAID LOSS WAS INCIDENTAL TO THE BUSINESS AND HAD TA KEN PLACE IN THE NORMAL COURSE OF CARRYING ON THAT BUSINESS. (VI) LOSS, IF ANY, INCURRED BY THE ASSESSEE ON ACCOUNT O F THEFT OR EMBEZZLEMENT DID NOT CONSTITUTE BUSINESS DEBTS AS T HE SAME WAS NOT TAKEN INTO ACCOUNT IN COMPUTING THE TOTAL INCOM E OF ANY PREVIOUS YEAR. HENCE, IT COULD NOT BE ALLOWED AS B AD DEBT WRITTEN OFF U/S 36(1)(VII) READ WITH SECTION 36(2) IN ASSTT . YEAR 1997-98. 5 (VII) THE AMOUNT OF RS.21,40,390/- WRITTEN OFF DURING THE FINANCIAL YEAR, THUS, DID NOT CONSTITUTE BAD DEBT WITHIN THE MEANIN G OF SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT. 5. BEING AGGRIEVED WITH THE CIT(A)S ORDER, THE ASS ESSEE WENT IN APPEAL BEFORE THE TRIBUNAL, WHICH WAS REGISTERED AS ITA NO .4931/DEL/2002. 6. THE TRIBUNAL VIDE ORDER DATED 7 TH DECEMBER, 2005 DISPOSED OF THE APPEAL. REGARDING THIS ISSUE ABOUT THE CLAIM OF DE DUCTION ON ACCOUNT OF EMBEZZLEMENT OF CASH OR SHARES BY THE ACCOUNTANT OF THE ASSESSEE, THE TRIBUNAL SET ASIDE THE CIT(A)S ORDER AND RESTORED THE MATTER BACK TO HIM FOR TAKING DECISION AFRESH IN ACCORDANCE WITH LAW AND A FTER PROVIDING A PROPER AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE AS SESSEE. WHILE SETTING ASIDE THE MATTER BACK TO THE FILE OF THE CIT(A), IT WAS OBSERVED BY THE TRIBUNAL THAT THE CIT(A) HAS NOT EXAMINED THE CLAIM IN RIGHT PERSPECTIVE AND APPEARS TO HAVE TAKEN A DECISION ON ASSESSEES APPE AL IN UNDUE HASTE. IN THE LIGHT OF THE TRIBUNALS ORDER, THE MATTER AGAIN CAM E UP BEFORE THE CIT(A), WHO HAS HEARD THE MATTER AFRESH AND PASSED THE IMPU GNED ORDER DATED 21 ST OCTOBER, 2009. WITH REGARD TO THIS ISSUE REGARDING DISALLOWANCE OF LOSS OF RS.21,40,390/-, THE CIT(A) HAS DISCUSSED THE MATTER IN PARA 6 TO 6.4.5. IN PARA 6.3 OF HIS ORDER, THE CIT(A), IN HIS OPINION, HAS SUMMARIZED THE FACTS AS UNDER: 6 6.3.1 M/S WAZIR CHAND NAND AND CO. WAS EARLIER A PARTNERSHIP FIRM, WITH THE APPELLANT AND HIS FATHER , SHRI WAZIR CHAND NANDA, AS PARTNERS, CARRYING ON BUSINES S AS STOCKS AND SHARES BROKERS IN THE DELHI STOCK EXCHANGE SINCE 1957. THE PARTNERSHIP DEED WAS WRIT TEN SEVERAL TIME TO ALTER THE SHARES OF THE PARTNERS, W ITH THE LAST DEED DATED 31.5.1989 DETERMINING THE SHARE OF EACH PARTNER AT 50%. FOLLOWING THE DEATH OF SHRI WAZIR CHAND NANDA, THE PARTNERSHIP FIRM STOOD DISSOLVED O N 16.4.1993 AND THE BUSINESS OF THE FIRM WAS TAKEN OV ER BY THE APPELLANT AS PROPRIETOR UNDER THE NAME AND S TYLE OF M/S WAZIR CHAND NANDA & CO. 6.3.2 AS PER THE LETTER OF THE APPELLANT DATED 30.6.1998, IN RESPONSE TO NOTICE U/S 143(2) DATED 16.6.1998, THE FRAUD COMMITTED BY SHRI SANDEEP KUMAR GUPTA, EMPLOYEE AND AUTHORIZED ASSISTANT OF THE FIRM, CAM E TO THE LIGHT IN THE BEGINNING OF 1995; AND ORIENTAL INSURANCE CO. LTD. WITH WHOM THE FIRM WAS INSURED A S PER THE RULES OF THE DELHI STOCK EXCHANGE WAS INTIM ATED ON 28.12.1995 ABOUT THE MISSING SHARES OF VARIOUS COMPANIES DELIVERED BY THE CLIENTS TO SHRI SANDEEP KUMAR GUPTA. IT WAS STATED THAT THE FRAUD PERTAI NED TO THE INVESTMENT OF THE KOCHHAR GROUP OF 120 SUNDE R NAGAR, NEW DELHI, THAT THE ORIGINAL CLAIM MADE BY T HE KOCHHAR GROUP AGAINST THE FIRM WAS RS.1.50 CRORES; THAT AGAINST THIS CLAIM, THE APPELLANT PAID RS.51.38 LAC S IN FULL AND FINAL SETTLEMENT AS PER THE MEMORANDUM OF UNDERSTANDING, INDEMNITY BOND AND AFFIDAVIT DATED 31.7.1996 AND ALSO ADMITTED IN THEIR LETTER DATED 17.3.1997 TO ORIENTAL INSURANCE CO. LTD. 6.3.3 THE NET LOSS OF RS.21,40,390/- CLAIMED IN THE RETUR N OF INCOME WAS EXPLAINED THUS: LOSS PAID IN THE MARKET DUE TO MISAPPROPRIATION BY SH. SANDEEP GUPTA 15,73,000 COST OF SHARES MISAPPROPRIATED 7 AND COST DEBITED TO HIS ACCOUNT: 5300 PADMINI POLYMERS 10200 TINNA OIL 4900 SCHEMATIC LEASING 8,76,800 4,02,100 2,52,400 COST OF 1100 SHARES OF UTO MASTER PLUS FOR WHICH PAYMENT WAS MADE IN THE MARKET AND COST OF 100 SHARES OF HDFC BAN PAID IN MARKET 12,190 TOTAL AMOUNT MISAPPROPRIATED 31,15,390 PAYMENT BY SH. SANDEEP GUPTA 9,75,000 NET LOSS CLAIMED 21,40,390 IT WAS CLAIMED THAT THE LOSS WAS ALLOWABLE AS IT WA S SUFFERED DURING THE COURSE OF BUSINESS AND THE PAYM ENTS WERE MADE ON THE GROUND OF BUSINESS EXPEDIENCY. 6.3.4 THERE ARE SEVERAL COPIES OF LETTERS DATED OCTOBER A ND NOVEMBER 1995 AND JANUARY 1996 WRITTEN BY THE MEMBE RS OF KOCHHAR GROUP TO THE APPELLANT TO RELEASE AMONG OTHER THINGS THEIR CAPITAL AMOUNTS LYING WITH THE APPELLA NT FOR THE PURPOSE OF INVESTMENT. SERIOUS ALLEGATIONS OF VIOLA TING SEBI INSTRUCTIONS, INCOMPLETE BOOKS OF ACCOUNTS AND REMOVAL OF BOOKS OF ACCOUNT FROM OFFICE FOR MAKING DUPLICATE ACCOUNTS ARE ALSO LEVIED BY THE MEMBERS O F THE KOCHHAR GROUP AGAINST THE APPELLANT. 7. IN THE LIGHT OF THE AFORESAID FACTS NARRATED BY THE CIT(A), THE LEARNED CIT(A) HAD DRAWN THE FOLLOWING INFERENCES: 8 (I) THE CLAIMS AND COUNTER CLAIMS WITH REGARD TO THE EM BEZZLEMENT OF SHARES WERE MADE BY THE ASSESSEE AND HIS CLIENTS. (II) AS PER LETTER DATED 11.1.96 WRITTEN BY THE KOCHHAR GROUP (ASSESSEES CLIENT), IT WAS STATED THAT SHARES WERE TRANSFERRED BY THE ASSESSEE IN HIS NAME AND IN THE NAME OF HIS WIFE AN D DAUGHTER WHILE THE ASSESSEE CLAIMED BEFORE THE DELHI STOCK E XCHANGE AND INCOME-TAX DEPARTMENT THAT THE IRREGULARITIES WERE IN FACT COMMITTED BY SHRI SANDEEP KUMAR GUPTA. (III) NO FIR WAS LODGED AT ANY TIME AGAINST SANDEEP KUMAR GUPTA. (IV) THE ASSESSEES LETTER DATED 26.12.95 ADDRESSED TO S HRI SANDEEP KUMAR GUPTA ACCUSING HIM OF MISAPPROPRIATION OF FUN DS OF ASSESSEES CLIENT AND ASSESSEES FIRM, AND NOTICE T O THE PUBLIC ON 23.11.95 INTIMATING THAT SHRI SANDEEP KUMAR GUPTA H AS BEEN RESTRAINED FROM ACTING AS AN AUTHORIZED ASSISTANT I N DELHI STOCK EXCHANGE, AND LETTER DATED 16.12.95 TO DELHI STOCK EXCHANGE AND LETTER TO POLICE DATED 30.12.95 ARE SELF SERVING DO CUMENTS, AND THE MATTER NEVER CAME UNDER THE SCANNER OF POLICE INVES TIGATION. THUS, THERE WAS NO INDEPENDENT EVIDENCE ON RECORD TO SUGG EST THAT IRREGULARITIES WERE INDEED COMMITTED BY THE EMPLOYE E FOR HIS OWN BENEFIT. 9 (V) QUANTUM OF THE SO CALLED LOSS WAS NOT CAPABLE OF VE RIFICATION, EXCEPT FROM THE DETAILS OF CLAIM AS TABLED OUT, THE ASSESSEE HAS NOT BROUGHT OUT ANY MATERIAL TO SHOW HOW THE NET LOSS O F RS.21,40,390/- WAS WORKED OUT. (VI) EVEN IN THE EVENT OF SUCH IRREGULARITY HAVING BEEN FOUND TO BE COMMITTED BY ASSESSEE, THE INCIDENTAL BUSINESS LOSS WOULD BE ADMISSIBLE IN THE YEAR IN WHICH THE LOSS WAS FOUND TO HAVE BEEN MADE. SINCE THE IRREGULARITIES WERE DISCOVERED IN THE BEGINNING OF 1995, THE ASSESSEE SHOULD HAVE CLAIMED SUCH INCIDEN TAL BUSINESS LOSS ONLY IN ASSTT. YEAR 1996-97. (VII) IT WOULD BE SEEN FROM THE LETTER OF THE ASSESSEE DA TED 23.4.1997 ADDRESSED TO ORIENTAL INSURANCE CO. THAT A CLAIM OF RS.51.38 LACS (THAT WAS SAID TO HAVE BEEN PAID TO THE CLIENT AGAI NST THEIR CLAIMS OF RS.1.50 CRORES) HAD BEEN FILED EARLIER WITH THE INS URANCE COMPANY. TAKING INTO ACCOUNT THE STATEMENTS OF CLAIM WITH IN SURANCE COMPANY, THERE WOULD BE NO LOSS SUFFERED BY THE ASS ESSEE. IN THE LIGHT OF THE AFORESAID INFERENCE AND DISCUSS ION MADE ABOVE, THE CIT(A) HOLD THAT THERE WAS NO MERIT IN THE CLAIM OF THE ASSESSEE. HE, THEREFORE, CONFIRMED THE AOS ORDER IN DISALLOWING THE LOSS OF RS.21,40,390/-. 10 8. THE ASSESSEE IS AGAIN IN APPEAL BEFORE THE TRIBU NAL. 9. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. FROM THE ORDER OF THE CIT(A), IT IS SEEN THAT SUM OF RS.51.38 LACS WERE PAID BY THE ASSESSEE TO H IS CLIENTS AGAINST THEIR TOTAL CLAIM OF RS.1.50 CRORES. IT IS ALSO AN ADMIT TED FACT THAT A CLAIM WAS MADE BY THE ASSESSEE BEFORE THE INSURANCE COMPANY T O REIMBURSE THE LOSS INCURRED BY THE ASSESSEE COMPANY COVERED UNDER THE STOCK BROKERS INDEMNITY INSURANCE POLICY. IT IS ALSO SEEN THAT T HE ASSESSEE ISSUED LETTER TO SHRI SANDEEP KUMAR GUPTA IN DECEMBER, 1995. THE AS SESSEE ALSO INFORMED THE PUBLIC ON 23.11.95 THAT SANDEEP KUMAR GUPTA HAS BEEN RESTRAINED FROM ACTING AS AN AUTHORIZED ASSISTANT IN DELHI STOCK EX CHANGE. THE ASSESSEE HAD ALSO GIVEN LETTER ON 16.12.1995 TO DELHI STOCK EXCH ANGE AS WELL AS TO POLICE DATED 30.12.95. ALL THESE DOCUMENTS HAVE BEEN CONS IDERED AS SELF- SERVING DOCUMENT BY THE LEARNED CIT(A). WE FAIL TO UNDERST AND THAT HOW THE LETTER WRITTEN TO THE EMPLOYEE ACCUSING HIM OF MISAPPROPRI ATION OF FUNDS, GIVING A NOTICE TO THE PUBLIC ABOUT EXPULSION OF EMPLOYEE AN D INTIMATING THE MATTER TO DELHI STOCK EXCHANGE AS WELL AS TO THE POLICE CA N BE CALLED SELF-SERVING DOCUMENTS. ALL THESE ARE RELEVANT DOCUMENTS WITH R EGARD TO THE EVENT ACTUALLY TAKEN PLACE AT THE RELEVANT POINT OF TIME. IT IS NOT THE CASE THAT THERE WAS ANY CONSPIRACY BETWEEN ASSESSEE AND SHRI SANDEE P KUMAR GUPTA FOR 11 CREATING FALSE CLAIM PARTICULARLY IN VIEW OF THE FA CT THAT A CLAIM OF RS.51.38 LACS WAS DISCHARGED BY THE ASSESSEE TOWARDS THE CLA IM MADE BY HIS CLIENTS. AND ASSESSEE HAS ALSO MADE A CLAIM BEFORE THE INSUR ANCE COMPANY TO INDEMNIFY THE ASSESSEE UNDER INDEMNITY INSURANCE PO LICY. IT IS ALSO NOT THE CASE OF THE REVENUE THAT ASSESSEE HAS RECEIVED THE INSURANCE CLAIM DURING THIS YEAR SO AS TO SET OFF THE SAME AGAINST THE LOSS INC URRED BY THE ASSESSEE. THE DETAILS OF THE LOSS HAS BEEN GIVEN BY THE ASSESSEE INDICATING THEREIN THE NUMBERS AND NAMES OF SHARES, WHICH WERE MISAPPROPRI ATED AS WELL AS THE AMOUNT PAID BY THE ASSESSEE IN THE MARKET DUE TO MI SAPPROPRIATION BY SHRI SANDEEP KUMAR. FROM THE DETAILS OF THE LOSS, IT IS ALSO CLEAR THAT THE ASSESSEE HAS BEEN ABLE TO RECOVER THE SUM OF RS.9,75,000/- O UT OF THE TOTAL AMOUNT MISAPPROPRIATED OF RS.31,15,390/- LEAVING A BALANCE OF RS.21,40,390/-. THOUGH IT CAME TO THE KNOWLEDGE OF THE ASSESSEE IN THE FINANCIAL YEAR 1995- 96 THAT HIS EMPLOYEE SHRI SANDEEP KUMAR GUPTA HAS M ISAPPROPRIATED THE FUNDS AND SHARES OF HIS CLIENTS BUT THE ACTUAL LOSS WAS QUANTIFIED DURING THE FINANCIAL YEAR RELEVANT TO THE ASSTT. YEAR 1997-98 AFTER THE ASSESSEE COULD ABLE TO RECOVER ONLY THE SUM OF RS.9,75,000/- FROM SHRI SANDEEP KUMAR GUPTA LEAVING THE BALANCE AMOUNT OF RS.21,40,390/-, WHICH THE ASSESSEE WAS UNABLE TO RECOVER. FROM THE DISCUSSION MADE BY THE CIT(A), IT IS CLEAR THAT ONE KOCHHAR GROUP WAS MAKING ALLEGATION AGAINST THE ASSESSEE, WHICH 12 MAKES IT CLEAR THAT THERE WAS A LOSS CAUSED TO THE CLIENT OF THE ASSESSEE INCLUDING KOCHHAR GROUP. IT IS USUAL AND COMMON TH AT THE CLIENT WOULD ALWAYS MADE A CLAIM AGAINST THE MASTER EVEN IF LOSS IS CAUSED BY WRONGFUL ACTS OF CERTAIN EMPLOYEES OF THE PROPRIETOR OF THE FIRM. THEREFORE, MERE BECAUSE KOCHHAR GROUP WAS MAKING CLAIM AGAINST THE ASSESSEE WOULD NOT MEAN THAT THE ASSESSEES EMPLOYEE HAS NOT CAUSED AN Y LOSS TO THE ASSESSEE. IN SO FAR AS THIRD PARTIES ARE CONCERNED, IT IS ONL Y THE ASSESSEE, WHO IS RESPONSIBLE TO INDEMNIFY THEIR LOSS. HOWEVER, THE MATTER OF MISAPPROPRIATION OF FUND BY AN EMPLOYEE IS A MATTER BETWEEN THE EMPLOYER AND EMPLOYEE, AND THE THIRD PARTY IS NOT SUPPOSED T O TAKE ANY ACTION AGAINST THE EMPLOYEE FOR RECOVERY OF THE AMOUNT OF ANY LOSS CAUSED TO THEM. IN THIS VIEW OF THE MATTER, WE FIND THAT THE ASSESSEES CLA IM OF LOSS ON ACCOUNT OF EMBEZZLEMENT OF CASH AND SHARES BY ITS EMPLOYEE IS TO BE ALLOWED INASMUCH AS THIS LOSS HAS BEEN OCCURED TO THE ASSESSEE IN TH E COURSE OF CARRYING ON THE BUSINESS OF STOCKBROKER. HOWEVER, IF THIS LOSS IS ULTIMATELY RECOVERED BY THE ASSESSEE FROM INSURANCE COMPANY, THE AMOUNT AS AND WHEN RECOVERED SHALL BE BROUGHT TO TAX IN THE RELEVANT ASSESSMENT YEAR. WE, THEREFORE, DELETE THE DISALLOWANCE OF RS.21,40,390/- DISALLOWED BY THE AO AND ALLOW THIS GROUND RAISED BY THE ASSESSEE. 13 10. AT THIS STAGE, BE IT MENTIONED THAT IN THE ORIG INAL ASSESSMENT, THE AO ALSO DISALLOWED THE SUM OF RS.2 LACS ON ACCOUNT OF EXPENSES. ON AN APPEAL, IN THE FIRST ROUND, THE CIT(A) REDUCED THE DISALLOW ANCE TO RS.50,000/- BY GRANTING A RELIEF OF RS.1,50,000/-. THIS ISSUE WAS NOT CARRIED FURTHER BEFORE THE TRIBUNAL AND, THEREFORE, THIS ISSUE IS NOT A SU BJECT MATTER OF THE IMPUGNED CIT(A)S ORDER PASSED IN THE SECOND ROUND. THEREFO RE, WE ARE NOT CONCERNED WITH THIS ISSUE, WHICH HAS BEEN FINALLY SETTLED BY DISALLOWING THE EXPENSES OF RS.50,000/- ONLY AS AGAINST RS.2 LACS MADE BY THE A O. 11. NOW, WE COME TO THE ISSUE ABOUT THE DETERMINATI ON OF CAPITAL GAIN ON SALE OF STOCK EXCHANGE TICKET. 12. IN THE RETURN OF INCOME, THE ASSESSEE HAD SHOWN SALE OF STOCK EXCHANGE TICKET FOR RS.25 LACS. THE ASSESSEE ADOPT ED THE COST OF STOCK EXCHANGE CARD AT RS.6 LACS AS ON 1.4.81. APPLYING T HE COST INFLATION INDEX, THE ASSESSEE DETERMINED THE INDEXED COST OF ACQUISI TION AT RS.16.86 LACS. REDUCING THE INDEXED COST OF ACQUISITION OF RS.16.8 6 LACS FROM SALE PRICE OF RS.25 LACS, THE ASSESSEE ARRIVED AT A CAPITAL GAIN OF RS.8.14 LACS, WHICH WAS SHOWN AS INCOME IN THE RETURN OF INCOME FILED BY TH E ASSESSEE. IN THE ASSESSMENT MADE BY THE AO, THE CAPITAL GAIN SHOWN B Y THE ASSESSEE WAS NOT DISTURBED BUT WAS ACCEPTED. HOWEVER, ON AN APPEAL BEFORE THE LD. CIT(A), THE CIT(A) HAS TAKEN A VIEW THAT THE COST OF ACQUIS ITION OF STOCK EXCHANGE 14 MEMBERSHIP SHOULD HAVE BEEN ONLY RS.2 LACS AS AGAI NST RS.6 LACS (AS ON 1.4.81) ADOPTED BY THE ASSESSEE. ACCORDINGLY, HE DIRECTED THE AO TO COMPUTE THE CAPITAL GAIN TAKING COST AT RS.2 LACS. HOWEVER, THE IMPUGNED ORDER OF CIT(A) PASSED IN THE FIRST ROUND HAS BEEN SET ASIDE BY THE TRIBUNAL BY OBSERVING THAT THE CIT(A) HAS DECIDED THE MATTER IN HASTE AND HE SHOULD GIVE ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASS ESSEE. THE TRIBUNAL, THEREFORE, RESTORED THE MATTER BACK TO THE FILE OF CIT(A). THE CIT(A) THEN AGAIN CONSIDERED THIS ISSUE VIDE HIS IMPUGNED ORDER DATED 21 ST OCTOBER, 2009, WHICH IS APPEALED AGAINST BEFORE US. IN THIS RESPECT, THE CIT(A) HAS OBSERVED THAT THE ASSESSEE HAD ACQUIRED DELHI STOCK EXCHANGE MEMBERSHIP CONSEQUENT TO THE DILUTION OF EXISTING MEMBERSHIP, WHICH WAS ALLOTTED TO VARIOUS AUTHORIZED ASSISTANTS, SONS/DAUGHTERS OR DI RECT DEPENDENT OF THE EXISTING MEMBERS. THE ASSESSEE, BEING A SON OF SHR I WAZIR CHAND NANDA, EXISTING SHAREHOLDER OF DELHI STOCK EXCHANGE, ACQUI RED THE MEMBERSHIP BY PAYING RS.1 LAC AS ADMISSION FEE AND NON-REFUNDABLE DEPOSIT OF RS.1 LAC ON 17.12.1990. THE CIT(A), THEREFORE, TAKEN A VIEW TH AT COST OF ACQUISITION IS TO BE TAKEN AT RS.2 LACS AGAINST THE FULL VALUE OF SALE CONSIDERATION OF RS.25 LACS. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS NOT IN DISPUTE THAT ASSESSEE HAS DECLARED CAPITA L GAIN ON SALE OF DELHI 15 STOCK EXCHANGE MEMBERSHIP IN THE RETURN OF INCOME F ILED BY THE ASSESSEE. IT IS NOT THE CASE WHERE THE ASSESSEES MEMBERSHIP HAS BEEN CANCELLED BY THE STOCK EXCHANGE FOR ANY DEFAULT. IT IS THE CASE WHE RE THE MEMBERSHIP HAS BEEN SOLD BY THE ASSESSEE VOLUNTARILY FOR RS.25 LAC S TO ONE M/S TEJI MANDI SECURITIES LTD. THROUGH ITS DIRECTOR SHRI ANIL SEHG AL. IT IS NOW WELL SETTLED THAT STOCK EXCHANGE MEMBERSHIP IS A CAPITAL ASSET W ITHIN THE MEANING OF SECTION 2(14) OF THE ACT AS HELD BY A DECISION OF S PECIAL BENCH OF INCOME- TAX APPELLATE TRIBUNAL, CHENNAI BENCH IN THE CASE O F VALLIAPPAN (R.M.) VS ACIT (2006) 281 ITR (AT) 203 (CHENNAI)(SB), WHERE I T HAS BEEN HELD THAT THE MEMBERSHIP CARD IS A VALUABLE PROPERTY WHICH ENTITLES THE MEMBERS TO DEAL IN TRANSACTIONS ON THE FLOOR OF THE STOCK EXCHANGE AND WITHOUT WHICH ONE CANNOT TRANSACT SUCH BUSINESS. THIS RIGHT CAN BE DISPOSED OF BY A MEMBER BY NOMINATION, THOUGH SUBJECT TO THE RULES AND REGULATIONS OF THE STOCK EXCHANGE AND SETTLEMENT OF DEBTS AND LIABILITIES OF THE MEMBERS OF THE STOCK EXCHANGE. THE JUDGMENT OF THE SUPREME COURT IN STOCK EXCHANGE, AHMEDABAD VS ACIT (2001) 248 ITR 209 APPLIES ONLY TO CASES WHERE THE MEMBERSHIP HAS CEASED AND HAS VESTED WITH THE STOCK EXCHANGE AUTHORITIES. IT CANNOT APPLY TO CASES OF CONTINUING MEMBERSHIP. ACCORDINGLY, IN THE PRESENT CASE, THE TRANSFER OF MEMBERSHIP CARD BY THE ASSESSEE TO A LTD. WAS A TRANSFER OF A CAPIT AL ASSET WITHIN THE MEANING OF SECTION 2(14) OF THE ACT AND CONSEQUENTLY THE CONSIDERATION FOR THE TRANSFER IS EXIGIBLE TO CAPITAL GAINS TAX. 16 14. IN THE PRESENT CASE, THE ASSESSEE HAS SOLD THE MEMBERSHIP OF STOCK EXCHANGE. THEREFORE, ANY CAPITAL GAIN ARISING ON S ALE OF STOCK EXCHANGE MEMBERSHIP CARD IS CHARGEABLE TO TAX AS PER THE PRO VISIONS CONTAINED IN THE INCOME-TAX ACT. THEREFORE, THE INCOME FROM CAPITAL GAIN ON SALE OF STOCK EXCHANGE CARD IS LIABLE TO BE INCLUDED IN THE ASSES SEES HAND AS HAS BEEN RIGHTLY INCLUDED BY THE ASSESSEE HIMSELF IN THE RET URN OF INCOME FILED BY HIM. 15. THE DISPUTE IS NOW WITH REGARD TO THE COST OF A CQUISITION OF STOCK EXCHANGE MEMBERSHIP CARD. IN THIS CONNECTION, WE M AY TAKE A NOTE OF THE FACT MENTIONED BY THE LD. CIT(A) IN HIS ORDER THAT ORIGINALLY THE SHARE OF DELHI STOCK EXCHANGE WAS HELD BY THE ASSESSEES FAT HER SHRI WAZIR CHAND NANDA. THE ASSESSEE WAS ALLOTTED THE MEMBERSHIP IN DELHI STOCK EXCHANGE BY VIRTUE OF HIS STATUS AS HEIR OF SHRI WAZIR CHAND NANDA. IT IS, THUS, SEEN THAT THE ASSESSEE HAS ACQUIRED THE MEMBERSHIP IN DE LHI STOCK EXCHANGE BY WAY OF SUCCESSION, THEREFORE, THE COST TO THE PREVI OUS OWNER I.E. FATHER OF THE ASSESSEE, IS ALSO TO BE TAKEN INTO ACCOUNT. SINCE ASSESSEES FATHER ACQUIRED A SHARE IN DELHI STOCK EXCHANGE PRIOR TO 1.4.81, THE ASSESSEE HAS OPTION TO ADOPT THE FAIR MARKET VALUE AS ON 1.4.81 AS THE COS T OF ACQUISITION TO HIM. THE ASSESSEE HAS CLAIMED THE FAIR MARKET VALUE OF S TOCK EXCHANGE CARD AS ON 1.4.81 TO BE RS.6 LACS. HOWEVER, THE ASSESSEE HAS NOT PRODUCED ANY ADEQUATE OR SUFFICIENT EVIDENCE OR WORKING FOR ADOP TING THE FAIR MARKET VALUE 17 OF STOCK EXCHANGE CARD AT RS.6 LACS AS ON 1.4.81. THE STOCK EXCHANGE CARD HAS BEEN SOLD FOR RS.25 LACS IN FINANCIAL YEAR 1996 -97. IN THE LIGHT OF THIS VALUE OF STOCK EXCHANGE CARD IN 1996-97 AT RS.25 LA CS, THE FAIR MARKET VALUE AS ON 1.4.81 I.E. ABOUT 15 YEARS BACK, MAY REASONAB LY BE TAKEN AT RS.4 LACS. WE, THEREFORE, DIRECT THE AO TO ADOPT THE COST OF A CQUISITION, BEING FAIR MARKET VALUE OF STOCK EXCHANGE CARD AS ON 1.4.81, A T RS.4 LACS AS AGAINST RS.6 LACS CLAIMED BY THE ASSESSEE. FURTHER, IT IS ALSO SEEN THAT THE ASSESSEE HAS MADE A FURTHER PAYMENT OF RS.2 LACS WHEN HE WAS ADMITTED TO THE STOCK EXCHANGE ON 17.12.90 AS A HEIR OF EXISTING SHAREHOL DER. THEREFORE, THE FURTHER PAYMENT OF RS.2 LACS PAID ON 17.12.1990 IS TO BE TAKEN AS COST OF IMPROVEMENT FOR THE PURPOSE OF COMPUTING CAPITAL GA IN. ACCORDINGLY, THE COST OF ACQUISITION AS ON 1.4.81 IS TO BE TAKEN AT RS.4 LACS AND THE COST OF IMPROVEMENT ON 17.12.90 IS TO BE TAKEN AT RS.2 LACS , AND, THEREAFTER, THE AO SHALL DETERMINE THE INDEXED COST OF ACQUISITION BY APPLYING THE COST INFLATION INDEX FOR THE PURPOSE OF COMPUTING CAPITAL GAIN FRO M SALE OF STOCK EXCHANGE CARD. THE SALE CONSIDERATION SHALL BE TAKEN AT RS. 25 LACS AS WAS DECLARED BY THE ASSESSEE. THUS, THE ISSUE WITH REGARD TO THE C OMPUTATION OF CAPITAL GAIN N SALE OF STOCK EXCHANGE MEMBERSHIP CARD STANDS DECID ED IN THE MANNER AS INDICATED ABOVE. 18 16. THE NEXT ISSUE IS WITH REGARD TO THE COMPUTATIO N OF CAPITAL GAIN ON SALE OF HOUSE NO.S-302, GREATER KAILASH II, NEW DEL HI, WHICH WAS SOLD FOR RS.40 LACS AND RS.36 LACS. THE ASSESSEE HAD TAKEN THE FAIR MARKET VALUE OF THE PROPERTY AT RS.13,82,000/- AS ON 1.4.1981. APP LYING THE COST INFLATION INDEX, THE ASSESSEE WORKED OUT THE CAPITAL GAIN AT RS.37,16,580/-. IN THE SECOND ROUND OF APPEAL BEFORE THE LD. CIT(A), THE CIT(A) HAS ACCEPTED THE ASSESSEES CLAIM AND DIRECTED THE AO TO ACCEPT THE VALUATION REPORT OF THE REGISTERED VALUER FILED BY THE ASSESSEE WITH REGARD TO THE COST OF ACQUISITION OF THE PROPERTY AS ON 1.4.81 AND COMPUTE THE CAPITA L GAIN ACCORDINGLY. IT IS, THUS, SEEN THAT GRIEVANCE OF THE ASSESSEE IN THIS R EGARD HAS BEEN MET OUT AT THE STAGE OF LEARNED CIT(A). IN OTHER WORDS, THE L ONG-TERM CAPITAL GAIN FROM SALE OF HOUSE AS SHOWN BY THE ASSESSEE HAS BEEN ACC EPTED. THUS, IN THIS APPEAL, WE ARE NOT CONCERNED WITH THIS MATTER ANY M ORE THOUGH THIS MATTER WAS ALSO RESTORED BACK TO THE TRIBUNAL TO THE FILE OF THE CIT(A) FOR HIS FRESH ADJUDICATION AND DURING THE COURSE OF FRESH APPELLA TE PROCEEDINGS, THE LEARNED CIT(A) HAS ACCEPTED THE ASSESSEES CLAIM. LET IT BE FURTHER MENTIONED THAT ASSESSEES CLAIM FOR DEDUCTION U/S 5 4 AGAINST THE CAPITAL GAIN ARISING FROM TRANSFER OF HOUSE PROPERTY HAS ALSO BE EN ACCEPTED BY THE LEARNED CIT(A) AND AO HAS BEEN DIRECTED TO ALLOW THE ASSESS EES CLAIM OF DEDUCTION 19 U/S 54 OF THE ACT. THEREFORE, THIS ISSUE IS ALSO N OT A MATTER OF CONSIDERATION IN THIS APPEAL. 17. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED IN THE MANNER AS INDICATED ABOVE. 18. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT ON 14 TH MAY, 2010. (SHAMIM YAHYA) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14 TH MAY, 2010 VIJAY COPY TO: 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT(A)-XXV, NEW DELHI 5. DR ASSISTANT REGISTRAR