Shri H.L. Nagaraj, Bangalore V. ACIT, Bangalore

ITA 634/BANG/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0546 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-09-2009
• Assessment Year: 2000-2001
• Appeal Filed On: 24-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LAKSHMI HANDE PURI
• Keywords: Capital asset; Business income; Residential status; Rectification of order; Double taxation relief; Period of limitation; Advance ruling; Reasonable cause; Bad and doubtful debts; Time period of passing order; Capital Gains
• Section: 143(3); 234B; 37; 263; 28; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NOS. 634/BANG/2007 & 78/BANG/2008 ASSESSMENT YEAR : 2000-01 SRI H.L. NAGARAJA, NO.212, 3 RD STAGE, II BLOCK, JUDGES COLONY, BASAVESWARANAGAR, BANGALORE 560 079. : APPELLANT VS. THE ASST .COMMISSIONER OF INCOME-TAX, CIRCLE 19(1), BANGALORE. : RESPONDENT APPELLANT BY : SHRI S. PARTHASARATHI RESPONDENT BY : SMT. LAKSHMI HANDE PURI O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THE ASSESSEE, AN INDIVIDUAL, HAS PREFERRED THESE TW O APPEALS WHICH ARE DIRECTED AGAINST THE ORDERS OF THE CIT (A)-IV [ U/S 143(3)] AND [U/S 154] FOR THE ASSESSMENT YEAR 2000-01. ITA NO:634/B/07 : 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED NINE GRO UNDS IN AN EXHAUSTIVE AND ELABORATE MANNER. ON A CLOSE SCRUTI NY OF THE SAME, WE FIND ITA NO.634/07 & 78 /09 PAGE 2 OF 26 THAT THE GRIEVANCE OF THE ASSESSEE IS THREE-FOLD WH ICH ARE BROUGHT OUT HEREUNDER, FOR THE SAKE OF CLARITY, IN A REFORMULAT ED AND CONCISE MANNER: (I) THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE AMOUN T ADVANCED TOWARDS PURCHASE OF SHARES IN THE COURSE O F BUSINESS WAS IRRECOVERABLE AND, ACCORDINGLY, THE LO SS WAS CRYSTALLIZED DURING THE RELEVANT AY AND HAD RIGHTLY MADE THE CLAIM OF DEDUCTION; (II) WITHOUT PREJUDICE, THE CIT(A) OUGHT TO HAVE APPRECI ATED THAT THE ASSESSEE WAS AN NRI AND THE PROVISIONS OF DTAA WAS APPLICABLE AND THE ASSESSEE BEING COVERED BY THE AA RS RULING IN THE ASSESSEES OWN CASE, THE ASSESSEE WAS NOT LIABLE TO TAX BY APPLYING THE PROVISIONS OF I.T.ACT; & (III) CONFIRMING THE CHARGING OF INTEREST U/S 234A AND 23 4B OF THE ACT. ITA NO: 78/B/08 : 3. IN THIS APPEAL TOO, THE ASSESSEE HAS RAISED SIX GROUNDS, OUT OF WHICH, GROUND NOS: 1, 5 AND 6 ARE GENERAL AND NOT S PECIFIC AND, THEREFORE, NEED NO ADJUDICATION. IN THE REMAINING GROUNDS ARE AS UNDER: (I) THE CIT(A) OUGHT TO HAVE DIRECTED THE AO TO RECTIFY THE ASSESSMENT MADE IN PURSUANCE OF U/S 263 OF THE ACT TO REDUCE T HE INCOME TO RS.8923142/- [RS.7412920+1510222]; (II) THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE REVIS ED TOTAL INCOME DETERMINED AT RS.7412920/- WAS ACCEPTED BY THE REVE NUE AND THE ORDER OF CIT U/S 263 WAS IN RESPECT OF ONLY THE VAL UATION OF CLOSING STOCK AND ACCORDINGLY THE CONSEQUENTIAL ORDER OF TH E AO WAS NOT LIABLE TO GO INTO OTHER QUESTIONS WHICH WAS SETTLED IN THE ORIGINAL ASSESSMENT; & (III) THE REASSESSMENT ORDER WAS AMENABLE TO THE PROVISIO NS OF S.154, THE CIT(A) OUGHT TO HAVE DIRECTED THE AO TO ACCEPT THE CLAIM OF THE ASSESSEE AND RECTIFY THE ASSESSMENT ACCORDINGLY. 4. IT WAS NOTICED THAT THERE WAS A DELAY OF NEARLY 20 DAYS IN PREFERRING THIS APPEAL [ITA NO:634/B/07] , FOR WHICH, THE ASSESSEE HAD FURNISHED AN ITA NO.634/07 & 78 /09 PAGE 3 OF 26 AFFIDAVIT, IN ORIGINAL, WHEREIN IT WAS CLAIMED THAT SINCE HE WAS AN NRI AND FOR MOST PART OF THE YEAR, HE WAS OUT OF INDIA AND FURTHER, BETWEEN 15 TH APRIL AND 20 TH OF MAY, THOUGH HE WAS IN INDIA, BUT WAS NOT IN BAN GALORE ON ACCOUNT OF BUSINESS MEETINGS. ON HIS RETURN TO BAN GALORE, IT WAS CLAIMED, EFFORTS WERE MADE TO FILE THE APPEAL IMMEDIATELY, A ND EVEN THEN THERE WAS A DELAY OF 20 DAYS IN DOING SO. IT WAS, THEREFORE, PLEADED THAT SINCE THE DELAY CAUSED WAS ON ACCOUNT OF BONA FIDE REASONS, T HE SAME BE CONDONED AND THE APPEAL BE ADMITTED. 4.1. AFTER DUE CONSIDERATION OF THE SUBMISSION OF THE ASSESSEE, THE BENCH WAS OF THE FIRM VIEW THAT THE ASSESSEE WA S PREVENTED BY A REASONABLE CAUSE IN NOT PREFERRING THE APPEAL WITHI N THE STIPULATED TIME. THE DELAY IN QUESTION WAS CONDONED AND, ACCORDINGLY , THE REGISTRY WAS DIRECTED TO TAKE THE APPEAL ON RECORD AND PLACE TH E SAME FOR ADJUDICATION. 5. SINCE THE GROUNDS RAISED IN THESE APPEALS ARE PE RTAINING TO THE SAME ASSESSMENT YEAR IN QUESTION; FOR THE SAKE OF C ONVENIENCE, THEY ARE CONSIDERED TOGETHER AND DISPOSED OFF IN THIS COMMON ORDER. ITA NO:634/B/07 : 6. THE ASSESSEE, AN INDIVIDUAL-NRI, WAS DEALING IN SHA RE TRANSACTIONS IN INDIA AND ABROAD AND CARRIED ON THE TRANSACTIONS IN INDIA THROUGH M/S. I.K.S.MURTHY & CO., PVT. LTD AND M/S.YELKAYS FINANC IAL CONSULTANTS AND INVESTMENTS LTD. DURING THE YEAR UNDER DISPUTE, THE ASSESSEE IN HIS P & L ACCOUNT, HAD DEBITED RS.1.63 CRORES ON ACCOUNT OF AMOUNT PAID FOR PURCHASE OF SHARES WRITTEN OFF DUE TO NON-DELIVERY OF THE SHARES . IN THE AUDIT REPORT, IT WAS STATED THAT RS.28833360.37 WAS PAID TO THE STOCK ITA NO.634/07 & 78 /09 PAGE 4 OF 26 BROKERS FOR PURCHASE OF SHARES. DUE TO NON-DELIVER Y OF SHARES, THE ASSESSEE WAS OF THE OPINION THAT RS.1.25 CRORES WAS RECOVERABLE AND THE BALANCE OF RS.1.63 CRORES WAS WRITTEN OFF. AFTER C ONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO DRAWING STRENG TH FROM VARIOUS JUDICIAL PRECEDENTS, THE AO WAS OF THE VIEW THAT TH AT THE WRITTEN OFF OF RS.1.63 CRORES WAS NOT AN ALLOWABLE DEDUCTION. HOW EVER, HE WAS MAGNANIMOUS IN HIS VIEW THAT, THE ASSESSEE WOULD BE ALLOWED BUSINESS LOSS ON ACCOUNT OF REDUCTION MARKET VALUE OF THESE SHARES AS ON 31.3.2000 SINCE THE MARKET RATE IN RESPECT OF MTNL AND SBI SH ARES WAS NOT AVAILABLE. I AM UNABLE TO COMPUTE THE CORRECT MARKET VALUE OF THESE SHARES AS ON 31.3.2000. AS AND WHEN THE ASSESSEE FURNISHES THE SAME, THE ORDER WOULD BE RECTIFIED ACCORDINGLY. 7. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE WITH T HE CIT(A) FOR REDRESSAL. HE ALSO TOOK ANOTHER PLEA IN THE FORM O F AN ADDITIONAL GROUND THAT, THE ASSESSEE BEING A NON-RESIDENT INDIAN, THE PROVI SIONS OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT WAS APPLICABLE TO HIM AND, CONSEQUENTLY, HE WAS NOT LIABLE TO TAX BY APPLYING THE PROVISIONS OF INDIAN INCOME-TAX ACT, 1961. AFTER HAVING GIVEN DUE WEIGHT-AGE TO THE ASSERTION OF THE ASSESSEE AND ALSO PERUSING THE REVENUES REA SONING, THE LD. CIT (A) HAD OBSERVED THUS (1) WITH REGARD TO THE ADDITIONAL GROUND OF THE ASS ESSEE : (A) THE HONBLE AUTHORITY FOR ADVANCE RULINGS IN AAR NO :267 OF 1996 DATED: 8/6/1996 IN THE ASSESSEES OWN CASE HAD RULED THAT THE APPELLANT WAS A RESIDENT OF UAE FOR THE PURPOSE OF THE AGREEMENT WITHIN THE MEANING OF ARTICLE 4[2][B] OF DTAA BETWEEN INDIA AND UAE. ITA NO.634/07 & 78 /09 PAGE 5 OF 26 (B) HOWEVER, THE HONBLE AAR IN AAR NO:637,638 & 640 OF 2004 DATED: 9/5/2005 IN THE CASES OF ABDUL RAZAK, A.MEMA N, MRS.AKILA A MEMAN AND MANISH BHATIA HAD RULED THAT AN INDIAN NATIONAL RESIDING IN UAE IS NOT ENTITLED TO CLAIM THE BENEFIT OF THE PROVISIONS OF THE TREATY ENTERED INTO BETWEEN INDIA AND UAE. 7.1. TAKING A LEAF OUT OF THE RULING OF AAR IN TH E CASES OF ABDUL RAZAK AND OTHERS REFERRED SUPRA, THE CIT(A) WAS OF THE V IEW THAT THE RULING CITED BY THE AR OF THE PRESENT ASSESSEE WAS TOTALLY SILENT AS TO NATIONALITY OF THE ASSESSEE BECAUSE PR OBABLY IT WAS NOT CALLED UPON TO DECIDE IT WHEREAS IN THE ABDUL R AZAKS CASE, THE RULING WAS MORE COHERENT AND ALSO GIVES A FINDI NG THAT EVEN THE FACTUM OF NATIONALITY WAS INDISPENSABLE FOR DET ERMINING WHETHER THE INDIAN INCOME OF A NON-RESIDENT INDIAN NATIONAL OR GLOBAL INCOME RECEIVED OR ACCRUED IN INDIA HAS TO B E TAXED IN INDIA AND NOT? THUS, HE DISMISSED THE ADDITIONAL G ROUND RAISED BY THE ASSESSEE. 7.2 WITH REGARD TO THE CONFIRMING THE DISALLOWANCE OF RS.1.63 CRORES, THE LD.CIT (A) HAD JUSTIFIED THE REASONING OF THE A O WHO HAD PLACED STRONG RELIANCE IN THE CASES OF (I) ALEMBIC CHEMICALS REP ORTED IN 266 ITR 54 (GUJ); AND (II) THE RULING OF THE HONBLE SUPREME C OURT IN THE CASE OF CIT V. SWADESHI COTTON REPORTED IN 53 ITR 134 WHEREIN, T HE HONBLE COURT HAD OBSERVED THUS WE ARE OF THE OPINION THAT THIS SYSTEM OF REOPENING ACCOUNTS DOES NOT FIT IN WITH THE SCHEME OF THE INDIAN INCOME-AX ACT. W E HAVE ALREADY HELD IN COMMISSIONER OF INCOME-TAX V. GAJAPATHY NAIDU T HAT, AS FAR AS RECEIPTS ARE CONCERNED, THERE CAN BE NO REOPENING OF ACCOUNTS. THE SAME WOULD BE THE POSITION IN RESPECT OF EXPENSES. 8. AGITATED OVER THE TREATMENT METED OUT BY THE CI T (A), THE ASSESSEE HAS COME UP WITH THE PRESENT APPEAL. DURI NG THE COURSE OF ITA NO.634/07 & 78 /09 PAGE 6 OF 26 HEARING, THE LD. A R HAD, MORE OR LESS, REITERATED WHAT WAS CONTENTED BEFORE THE CIT (A). IN CONCLUSION, IT WAS URGED TH AT (I) THE CIT(A) HAD FAILED TO APPRECIATE THAT THE AMOUNT ADVANCED TOWARDS THE PURCHASE OF SHARES IN THE COURSE OF BUS INESS OF THE ASSESSEE WAS IRRECOVERABLE AND, ACCORDINGLY, THE LO SS HAD CRYSTALLIZED DURING THE RELEVANT ASSESSMENT YEAR, A ND THE ASSESSEE HAD RIGHTLY MADE THE CLAIM OF DEDUCTION; (II) THE CIT(A) HAD FAILED TO APPRECIATE THAT THE INCIDE NCE OF LOSS HAD OCCURRED DURING THE RELEVANT YEAR AND AS A PRUDENT BUSINESSMAN, HE ASSESSEE HAD MADE A FAIR ANALYSIS AND DETERMINED THAT THE AMOUNT WAS IRRECOVERABLE AND HAD RIGHTLY WRITTEN OF F IN THE RETURN AND THE LOSS HAD INCURRED IN THE RELEVANT ASSESSMEN T YEAR, THE ASSESSEE WAS ENTITLED TO THE CLAIM; (III) WITHOUT PREJUDICE, THE CIT(A) HAD ALSO FAILED TO AP PRECIATE THAT THE ASSESSEE WAS AN NRI AND THE PROVISIONS OF DTAA WAS APPLICABLE TO THE ASSESSEE AND THE ASSESSEE BEING C OVERED BY THE DECISION OF THE AAR IN THE ASSESSEES OWN CASE, THE ASSESSEE WAS NOT LIABLE TO TAX BY APPLYING THE PROVISIONS OF I.T . ACT, 1961; JUST BECAUSE THE ASSESSEE HAD MOVED THE ARBITRARY P ROCEEDINGS FOR THE PURPOSE OF RECOVERY OF LOSS, IT DID NOT MEAN TH AT THE ASSESSEE HAD ANY HOPE OF RECOVERY OF AMOUNT AND, CONSEQUENTL Y, THE LOWER AUTHORITIES SHOULD HAVE ALLOWED THE CLAIM OF THE AS SESSEE. 8.1. TO BUTTRESS HIS SPIRITED ARGUMENTS; THE LD . A R HAD FURNISHED A WHOPPING PAPER BOOK CONTAINING 1 598 PAGES WHICH CONSISTS OF, INTER ALIA, COPIES OF WRITTEN SUBMISSIONS MADE BEFORE THE CIT(A), COPY OF SUIT FILED AGAINST THE ARBITRATION AWARD ETC., 8.2. ON THE OTHER HAND, THE LD. D. R ALSO EQUALLY CAME UP WITH FORCEFUL ARGUMENT TO REBUT THE CLAIM OF THE ASSESSE E. HER SUBMISSIONS ARE SUMMARIZED AS UNDER: (I) DEPOSITION OF KRISHNAMURTHY, DIRECTOR OF STOCK-BROK ING COMPANIES HAD ESTABLISHED THAT THE NON-DELIVERY OF SHARES WAS ON ACCOUNT OF HUGE DEBIT BALANCE OF RS.3.01 CRORES IN ASSESSEES A/C IN HIS BOOKS AND, THUS, IT WAS NOT A CASE OF EMBEZZ LEMENT AS MADE OUT BY THE ASSESSEE; ITA NO.634/07 & 78 /09 PAGE 7 OF 26 - KRISHNAMURTHY HAD CONFIRMED THE TRANSACTION OF 1 .44 LAKHS MTNL SHARES AND 40000SBI SHARES (II) ASSESSEE CONTINUED TO TAKE DELIVERY OF SHARES IN EX CESS OF RS.1.48 CRORES EVEN AFTER THE CLOSE OF FY 31.3.00 WHICH CLE ARLY NEGATED THE ASSESSEES PLEA THAT THE CHANCE OF RECOVERY OF THE SUMS ALLEGEDLY DUE FROM THE SHARE-BROKER WAS REMOTE; (III) A SUIT FILED BEFORE THE COURT OF ACCJ AT BANGALORE AGAINST THE ARBITRATION PROCEEDINGS IS STILL PENDING; (IV) CLAIM OF IRRECOVERABILITY OF LOSS OF RS.1.63 CRORES ON ACCOUNT OF NON-DELIVERY OF SHARES WAS PREMATURE. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: - ASSOCIATED BANKING CO. V. CIT 56 ITR 1 (SC) - CANARA SALES CORPN. LTD. V. CIT 176 ITR 340 (KAR) - CIT V. PURE ICE CREAMS CO. 147 ITR 556 (DEL) (V) THE ASSESSEE HAD FILED AN ARBITRATION APPLICATION A GAINST YELKAYS FINL. CONSULTANTS & INV. LTD. ONLY ON 17.12.02 MAKI NG CLAIM OF RS.9.41 CRORES WHICH INCLUDED RS.3.94 CRORES ON ACC OUNT OF NON- DELIVERY OF 144000 MTNL SHARES, RS.99.58 LAKHS ON A CCOUNT OF NON-DELIVERY OF 40000 SBI SHARES AND ALSO RS.6.68 C RORES CONSTITUTING OPPORTUNITY LOSS IN THE CASE OF ROLTA S SHARES; (VI) ACCORDING TO THE ASSESSEE, YELKAYS FURNISHED THE A CCOUNTS ONLY THE LAST WEEK OF FEB. 02, CONSEQUENT OF WHICH, THE CAS WERE APPOINTED TO EXAMINE THE SAME AND THE AUDIT REPORT WAS FINALIZED ON 14.3.02. ACCORDING TO YELKAYS, RS.14.54 LAKHS W AS PAYABLE BY THE ASSESSEE TO THEM AS ON 31.3.00 WHICH WAS SUBSEQ UENTLY REVISED TO RS.10.73 CRORES AND EVENTUALLY, THE ASSE SSEE HAD FILED HIS ROI FOR THE AY 00-01 ONLY ON 15.3.02 IE, AFTER 2 YEARS AFTER THE END OF THE FY RELEVANT TO AY 00-01; (VII) THE ASSESSEE FILED AN INVESTOR COMPLAINT ON 19/8/02 BEFORE THE NSE CLAIM OF RS.9.41 CRORES. THE TIME LIMIT FOR AD MISSIBILITY OF ARBITRATION APPLICATION WAS RAISED BY THE STOCK-BRO KERS, THE ASSESSEE CAME UP WITH A REPLY THAT SINCE THE DATE O F DISPUTE WAS 14.3.02, IE, THE DATE ON WHICH THE AUDIT REPORT WAS FINALIZED, THE APPEAL WAS WITHIN SIX MONTH LIMITATION PERIOD COMM ENCING ON 14/3/02; > BEFORE THE NSE, THE ASSESSEE CONTENDED THAT THERE WAS NO DISPUTE WITH THE SAID STOCK-BROKERS UNTIL 6/9/02 WH EN YELKAYS COMMUNICATED TO THE GRIEVANCE CELL OF NSE THAT IT W AS NOT LIABLE TO PAY ANY MONIES OR DELIVER ANY SHARES TO THE ASSE SSEE. IT WAS ITA NO.634/07 & 78 /09 PAGE 8 OF 26 CONTENDED BEFORE THE NSE THAT THE APPLICATION FILED BEFORE NSE ON 17.12.02 WAS NOT TIME-BARRED SINCE IT WAS WELL WIT HIN 6 MONTHS PERIOD STIPULATED BY THE NSE. THE ASSESSEE, FOR TH E PURPOSE OF TIME LIMIT, THE DATE OF DISPUTE WAS TAKEN AS 6.9.02 BEFORE THE NSE, WHEREAS FOR PURPOSES OF WRITE OFF, THE LOSS WAS CLA IMED TO HAVE CRYSTALLIZED IN THE FY RELEVANT TO THE AY 00-01. T HUS, THE DISPUTE ITSELF AROSE IN THE FY 02-03 AND THE ALLEGED LOSS D OES NOT APPEAR TO HAVE CRYSTALLIZED DURING THE FY RELEVANT TO THE AY UNDER DISPUTE; (VIII) AS PER THE COMPUTATION OF WRITE OFF PROVIDED BY THE CAS WHO HAVE ALSO AUDITED THE ASSESSEES BOOKS AND FU RNISHED AUDIT REPORT IN FORM 3 CD, NET AMOUNT OF RS.2.88 CRORES (MTNL/SBI SHARES NOT DELIVERED VALUED AT RS.4.93 CRORES (-) AMOUNT PAYABLE TO STOCK BROKERS OF RS.2.05 CRORES ) WAS RECEIVAB LE FROM THE STOCK BROKERS. OUT OF RS.2.88 CORES, RS.1.25 CRORES WA S ESTIMATED BY THE ASSESSEE AS RECOVERABLE FROM THE STOCK BROKERS AND THE BALANCE OF RS.1.63 CRORES WAS BOOKED AS LOSS IN THE P & L ACCOUNT. THE BASIS OR JUSTIFICATION FOR THIS ANAL YSIS REMAINS TO BE EXPLAINED; > IN THE AUDIT REPORT, IT HAS BEEN CERTIFIED THAT THE ASSESSEE WAS OF THE OPINION THAT RS.1.25 CRORES (APPROX) ONLY W AS RECOVERABLE AND THE BALANCE OF RS.1.63 CRORES WAS WRITTEN OFF A ND THAT THE BALANCE OF THE STOCK-BROKERS WAS SUBJECT TO RECONCI LIATION. THE WRITE OFF OF LOSS HAS TO HAVE A SCIENTIFIC BASIS BU T, IT CANNOT BE BASED ON AN OPINION OF THE ASSESSEE; (IX) EVEN THE ARBITRATION PANEL IN ITS AWARD DT.26/6/03 DISMISSED THE APPEAL ON THE GROUND THAT NEITHER VERSION COULD BE ACCEPTED SINCE NEITHER OF THE PARTIES PRODUCED SUFFICIENT PROOF IN SUPPORT OF THEIR CLAIMS/COUNTER CLAIMS; (X) IN CONCLUSION A. IT WAS NOT ESTABLISHED THAT A LOSS WAS INCURRED ; B. EVEN IF IT WAS INCURRED, THERE WAS NO VALID BASI S FOR ARRIVING AT THE QUANTUM; & C. THE CLAIM OF IT HAVING CRYSTALLIZED IN THE FY RELEVANT TO THE AY UNDER DISPUTE WAS COMPLETELY UNFOUNDED AND WITHOUT BASIS; (XI) WITH REGARD TO RESIDENTIAL STATUS., THE ASSESSEES CLAIM WAS THAT SINCE HE WAS AN NRI, THE PROVISIONS OF THE DTAA WER E APPLICABLE TO HIM AND THAT HE WAS COVERED BY THE RULING OF THE AAR IN HIS OWN CASE AS PER WHICH HE WAS ENTITLED TO CLAIM THE BENEFIT OF DTAA, IT WAS CONTENDED THAT THE ASSESSEE WAS IN THE BUSINESS OF DEALING/TRADING IN SHARES OF INDIAN COMPANIES LISTE D IN NSE, ITA NO.634/07 & 78 /09 PAGE 9 OF 26 BOMBAY/BANGALORE STOCK EXCHANGES THROUGH INDIAN COMPANIES/STOCKBROKERS LISTED AS TRADING MEMBERS IN INDIAN STOCK EXCHANGES. IN THE COMPUTATION STATEMENT FOR 00-01, THE ASSESSEE HAD DECLARED BUSINESS INCOME/LOSS FROM TRA DING IN INDIAN SHARES IN INDIA IN HIS INDIVIDUAL CAPACITY U NDER THE STATUS OF NRI. - AS PER PROVISIONS OF S.5(2), THE TOTAL INCOME OF A NON-RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WH ICH ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE T O HIM IN INDIA DURING SUCH YEAR; - THE AAR RULING IN THE ASSESSEES CASE WAS THAT HAVI NG HELD THAT HE WAS A RESIDENT OF UAE WITHIN THE MEANING OF ART.4(2)(B), BY VIRTUE OF HIS HAVING A HABITUAL ABO DE IN UAE, HE WAS ENTITLED TO THE BENEFITS OF THE DTAA BETWEEN INDIA AND UAE IN RESPECT OF HIS INCOME IN INDIA WITH REFERENC E TO THE PROVISIONS OF S.90(2); - SUB-SEC.(2) OF S.90 PROVIDES THAT WHERE A DTAA WAS ENTERED INTO BETWEEN THE INDIAN GOVT. AND ANY COUNTRY OUTSI DE INDIA FOR GRANTING RELIEF OF TAX OR AVOIDANCE OF DOUBLE T AXATION, THEN THE PROVISIONS OF INDIAN IT ACT SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THE ASSESSEE TO WHOM DTAA AP PLIES. IN THE PRESENT CASE, THE ASSESSEE HAD NOT CLAIMED ANY RELIEF OF TAX IN HIS RETURNS NOR WAS IT AN INSTANCE OF HAVING BEE N TAXED TWICE ON THE SAME INCOME BY BOTH THE COUNTRIES; & - MOREOVER THE AAR RULING IN ASSESSEES CASE MAKES IT CLEAR WHICH SPEAKS OF HIS LIABILITY TO TAX IN INDIA IN TE RMS OF ART. 13(3) OF DTAA UNDER THE HEAD CAPITAL GAINS ONLY AND IN PARA 7, OTHER HEADS INCLUDED WERE DIVIDENDS, INTERE ST ETC, - IN THE AY UNDER DISPUTE IS UNDER THE HEAD BUSINESS , THE ASSESSEE CANNOT TAKE SHELTER UNDER AARS RULING. (XII) IN HER FURTHER SUBMISSION DT:5.10.09, THE LD D R, I T WAS CONTENDED THAT THE FACTS EMERGE, FROM THE SCORE OF CASE LAWS ON WHICH THE ASSESSEE HAD, OF LATE, PLACED STRONG RELIANCE, THA T I. THE LOSS WAS GENUINE, REAL AND THERE WAS NO DIS PUTE REGARDING THE QUANTUM WRITTEN OFF OR THE FACT THAT THE LOSS HAD ACTUALLY BEEN INCURRED;& II. IT WAS WRITTEN OFF IN THE ACCOUNTING YEAR IN W HICH THE LOSS WAS DETECTED BY THE ASSESSEE. ITA NO.634/07 & 78 /09 PAGE 10 OF 26 HOWEVER, IN THE CASE ON HAND I. IT WAS NOT ESTABLISHED THAT A LOSS WAS INCURRED AND IN OTHER WORDS, THE FACT OF LOSS ITSELF WAS NOT PROVED; II. EVEN IF IT WAS INCURRED, THERE WAS NO VALID BA SIS FOR ARRIVING AT THE QUANTUM SINCE THERE WAS NO VALID BASIS OR JUSTI FICATION FOR THE ESTIMATION OF THE QUANTUM WRITTEN OFF AND THAT A WRITE OFF OF LOSS CANNOT BE BASED ON OPINION, BUT, HAS TO HAVE A SOUND SCIENTIFIC BASIS; III. THE DISPUTE WITH THE STOCK-BROKERS YELKAYS FINL. CONSULTANTS & INV. LTD. ITSELF WAS DETECTED ONLY WHEN THE AUDI T REPORT WAS FINALIZED BY THE CAS ON 14/3/02; IV. THE DIFFERENCE OR DISPUTE WITH THE STOCK BROKE RS CAME TO FORE ONLY ON 6/9/02, WHEN YELKAYS COMMUNICATED TO NSE TH AT IT WAS NOT LIABLE TO PAY ANY MONIES OR DELIVER ANY SHARES TO THE ASSESSEE; & V. IF THE LOSS WAS TO BE WRITTEN OFF, IT SHOULD BE WRITTEN OFF IN THE FY RELEVANT FOR THE AY 03-04 AND NOT EARLIER. (XIII) STRONG RELIANCE WAS PLACED ON THE FOLLOWING LEGAL PRECEDENTS: > KHAITAN & CO V. CIT 118 ITR 728 (CAL) > LAXMI GINNING AND OIL MILLS V. CIT 82 ITR 9 58 (PUN) > ALEMBIC CHEMICALS WORKS LTD V DCIT (2004) 2 66 ITR 47 (GUJ) > CIT V. SWADESHI COTTON & FLOUR MILLS PVT LT D 53 ITR 134(SC) > CIT V. KUNDAN SUGAR MILLS CO LTD. (2001) 11 8 TAXMAN 73 (DEL) > CIT V. RAJ MOTORS 284 ITR 489 (ALL) > SOUTH MADRAS ELECTRIC SUPPLY CORPN LTD V. C IT 240 ITR 503 (MAD) > CIT V. PURUSHOTHAM GOKULDAS 237 ITR 115 (KER ) > CIT V. NEW HORIZON SUGAR MILLS 237 ITR 102 ( MAD) & (XIV) THE RULING OF HONBLE BOMBAY HIGH COURT REPOR TED IN 206 ITR 562 ON WHICH THE ASSESSEE PLACED RELIANCE WAS DISTINGUISHE D BY THE REVENUE ON THE GROUND THAT - I. THE LOSS CAUSED BY EMBEZZLEMENT BY THE COMPANY S EMPLOYEES WAS HELD TO BE ALLOWABLE AS DEDUCTION IN THE RELEVANT P REVIOUS YEAR THOUGH DETECTED IN A SUBSEQUENT YEAR; ITA NO.634/07 & 78 /09 PAGE 11 OF 26 II. THE SAME WAS DULY REFLECTED IN THE BOOKS OF ACC OUNT BY OMISSION OF THE VALUE OF SUCH GOODS FROM SALES AS WELL AS THE C LOSING STOCK OF THE ASSESSEE IN PREPARATION OF THE FINAL ACCOUNTS; & III. IN SUCH A SITUATION, DETECTION WAS NOT RELEVA NT SO FAR AS THE LOSS WAS CONCERNED IN THE PRESENT CASE I. THE DISPUTE WITH THE STOCK-BROKER DID NOT ARISE UNTIL THE AUDIT REPORT WAS FINALIZED IN MARCH, 02; II. DURING THE FY RELEVANT TO THE AY UNDER DISPUTE , THE QUESTION OF DISPUTE DID NOT ARISE; III. BOOKS OF ACCOUNT WERE FINALIZED AND THE RETURN WAS FILED BELATEDLY ONLY ON 15.3.2002 9. WE HAVE DULY CONSIDERED THE SPIRITED ARGUMENTS P UT-FORTH BY THE RIVAL PARTIES. WE HAVE ALSO CAREFULLY PERUSED THE RELEVANT RECORDS AND THE WRITTEN SUBMISSIONS MADE BY THE EITHER PARTY IN THE SHAPE OF PAPER-BOOKS BACKED WITH VARIOUS JUDICIAL PRONOUNCEMENTS. 9.1. THE CRUXES OF THE ISSUES ARE (A) WHETHER THE SUM OF RS.1.63 CRORES DEBITED IN THE P & L ACCOUNT ON ACCOUNT OF AMOUNT PAID FOR PURCHASE OF SHARES WRIT TEN OFF DUE TO NON-DELIVERY OF SHARES IS ALLOWABLE AS BUSINESS LO SS? (B) WHETHER THE AO WAS RIGHT IN HIS VIEW THAT THAT WRIT TEN OFF OF RS.1.63 CRORES WAS NOT ALLOWABLE AS DEDUCTION? [HOWEVER, ON THE SAME BREATH, THE AO ADMITTED THAT THE ASSESSEE WOULD BE ALLOWED BUSINESS LOSS ON ACCOUNT OF REDUCT ION IN MARKET VALUE OF THESE SHARES AS ON 31.3.00 AS AND WHEN THE ASSESSEE FURNISHED THE CORRECT MARKET VALUE OF MTNL AND SBI SHARES AS ON 31.3.00.]. 9.2. THE ASSESSEE, AN NRI INDIVIDUAL, WAS IN THE PROCESS OF FINALIZING HIS ACCOUNTS TO FURNISH THE ROI FOR THE AY UNDER DI SPUTE. WHILE DOING SO, HE CAME ACROSS TO THE FACT THAT 1.14 LAKHS SHARES O F MTNL AND 40000 ITA NO.634/07 & 78 /09 PAGE 12 OF 26 SHARES OF SBI HAVE NOT BEEN HANDED OVER BY THE SHAR E-BROKERS TO WHOM THE PAYMENTS HAVE ALREADY BEEN MADE. ON A QUERY WI TH THE SHARE- BROKERS, THE ASSESSEE WAS INFORMED THAT THE NON-DEL IVERY OF THE SAID SHARES WERE DUE TO THE FACT THAT AS HE OWED SOME M ONEY TO THEM. HOWEVER, THE CONTENTION OF THE ASSESSEE WAS THAT HE HAD ADVANCED RS.2.88 CRORES TO THE STOCK-BROKERS FOR THE PURCHAS E OF MTNL AND SBI SHARES. ACCORDING TO THE ASSESSEE, THE RETRIEVAL OF SAID SHARES FROM THE STOCK-BROKERS HAD BECOME A REMOTE POSSIBILITY DUE T O DISPUTE, THE ASSESSEE HAVING ESTIMATED THAT RS.1.25 CRORES WAS R ECOVERABLE AND THE REMAINING RS.1.63 CRORES WAS WRITTEN OFF IN HIS BOO KS OF ACCOUNT SINCE THERE WAS NO POSSIBILITY OF THE RECOVERY OF EITHER THE MONEY OR THE SHARES FROM THE STOCK-BROKERS. SIMULTANEOUSLY, THE ASSESS EE WAS PURSUING THE MATTER WITH THE STOCK-BROKERS TO OBTAIN THE DETAILS OF ACCOUNTS. IT CAN BE SEEN FROM THE IMPUGNED ORDER OF THE AO THAT THE DIR ECTOR OF THE SHARE BROKING COMPANIES HAD ADMITTED ON OATH BEFORE THE A O HIMSELF THAT THE SAID SHARES HAVE NOT BEEN DELIVERED TO THE ASSESSEE AS THERE WERE CERTAIN AMOUNTS DUE FROM THE ASSESSEE AND VOUCHED THAT THE SHARES WOULD BE HANDED OVER TO THE ASSESSEE AS SOON AS THE DUES WER E CLEARED. 9.3. ON A CLOSE SCRUTINY OF THE EVENTS WHICH HAD T AKEN PLACE, THE FOLLOWING CRUCIAL POINTS EMERGE: (I) THERE WAS NO DISPUTE WITH REGARD TO PURCHASE OF MTN L AND SBI SHARES FOR WHICH THE ASSESSEE HAD ADVANCED AMOUNTS TO THE STOCK- BROKERS; (II) THERE WAS ALSO NO DISPUTE IN RESPECT OF NON-RECEIPT OF THE SAID SHARES AS VOUCHED BEFORE THE AO BY THE DIRECTOR OF THE STOCK BROKING COMPANIES ON OATH; ITA NO.634/07 & 78 /09 PAGE 13 OF 26 (III) THE NON-RECEIPT OF SUCH SHARES CAME TO THE KNOWLEDG E OF THE ASSESSEE WHEN HIS ACCOUNTS FOR THE PREVIOUS YEAR RE LEVANT TO THE AY UNDER DISPUTE WERE BEING FINALIZED. IN OTHER WO RDS, EFFORTS WERE UNDERWAY WITH THE STOCK BROKERS FOR DELIVERY O F THE SAID SHARES. WHEN THE EFFORTS OF THE ASSESSEE FOR RETRI EVAL OF THE SHARES FROM THE STOCK-BROKERS HAD GONE AWRY, THE ASSESSEE, PERHAPS, SIMULTANEOUSLY, PURSUED THE ISSUE THROUGH ARBITRAT ION; (IV) THUS, THE AOS ASSERTION THAT NO EFFORTS WERE MADE BY THE ASSESSEE FOR RECOVERY OF SHARES DOESNT HOLD WATER. HAD IT BEEN SO, MURTHY, DIRECTOR OF THE STOCK-BROKING COMPANY COULD HAVE ASSERTED THAT THE ASSESSEE HAD NOT APPROACHED HIM F OR THE SAME? IN STEAD, HE HAD DEPOSED BEFORE THE AO THAT, HE HA D NOT DELIVERED THESE SHARES AS THERE WERE CERTAIN AMOUNT S DUE TO HIM FROM NAGARAJ AND THAT HE WAS PREPARED TO DELIVER TH ESE SHARES AS AND WHEN HIS DUES WERE CLEARED THIS AMPLY PRO VES THAT THE ASSESSEE WAS PURSUING THE MATTER IN DIFFERENT A NGLES; (V) WHEN THE ASSESSEE EFFORTS TO RETRIEVE THE SHARES FR OM THE STOCK- BROKERS WERE NOT SUCCESSFUL EVEN AFTER HIS BEST PER SUASION, THE ASSESSEE TOOK A STAND THAT THE AMOUNT OF RS.1.63 CR ORES COULD NOT BE RECOVERED; HE CLAIMED IT AS A BUSINESS LOSS; (VI) ON THE ONE HAND, THE AO HAD NOT ALLOWED THE AMOUNT WRITTEN OFF OF RS.1.63 CRORES AS DEDUCTION AND ON THE OTHER HAN D, HE HAD AFFIRMED THAT, HOWEVER, THE ASSESSEE WOULD BE ALL OWED BUSINESS LOSS ON ACCOUNT OF REDUCTION IN MARKET VALUE OF THE SE SHARES AS ON 31.3.2000. SINCE THE MARKET RATE AS ON 31.3.200 IN RESPECT OF MTNL AND SBI IS NOT AVAILABLE, I AM UNABLE TO COMPU TE THE CORRECT MARKET VALUE OF THESE SHARES AS ON 31.3.200 0. AS AND WHEN THE ASSESSEE FURNISHES THE SAME, THE ORDER WOU LD BE RECTIFIED ACCORDINGLY. SUBSEQUENTLY, U/S 154 OF THE ACT, TH E AO RECTIFIED THE ASSESSMENT ORDER BY ALLOWING THE BUSINESS LOSS ON ACCOUNT OF REDUCTION IN MARKET VALUE OF SHARES OF MTNL AND SBI AS ON 31.3.2000 AS FURNISHED. THUS, THE AO HAD NOT DIS PUTED THE TRANSACTION OF RS.1.63 CRORES; (VII) THE ASSESSEE HAD ALSO ESTABLISHED TO THE EXTENT POS SIBLE WAY THAT HE HAD NOT RECEIVED THE SHARES TILL DATE WHICH WAS ACKNOWLEDGED BY THE DIRECTOR OF THE STOCK BROKING COMPANIES ON O ATH; (VIII) THE STOCK BROKER HAD DISPUTED THIS PAYMENT OF RS.1. 63 CRORES CITING SOME OTHER AMOUNT DUE FROM THE ASSESSEE. THE EFFECT OF THAT TRANSACTION WAS NOT REFLECTED IN THE ASSESSEES BOO KS AS TO LOSS OR PROFIT. TO THAT EFFECT THERE WAS NEITHER CASH INF LOW NOR OUT-FLOW; ITA NO.634/07 & 78 /09 PAGE 14 OF 26 (IX) IT WAS NOT DISPUTED THAT THE ASSESSEE HAD ADVANCED MONEY FOR PURCHASE OF SHARES WHICH THE STOCK BROKER HIMSELF H AD ADMITTED BEFORE THE AO AND ALSO NON-DELIVERY OF SUCH SHARES TO THE ASSESSEE DUE TO SOME DUES [FROM THE ASSESSEE WHICH WAS NOT I DENTIFIED] . THUS, THE ADVANCEMENT OF MONEY BY THE ASSESSEE AS W ELL AS THE NON-RECEIPT OF SAID SHARES BY THE ASSESSEE HAS BEEN ESTABLISHED; (X) IN SPITE OF THE BEST EFFORTS MADE BY THE ASSESSEE, NEITHER HE WAS ABLE TO SALVAGE THE AMOUNT ADVANCED NOR RETRIEVE TH E SHARES. THUS, THE ONLY ALTERNATIVE BEFORE THE ASSESSEE WAS TO WRITE OFF THE AMOUNT OF RS.1.63 CRORES AS BUSINESS LOSS IN HIS BO OKS OF ACCOUNT; (XI) THE ASSESSEE HAD NOT FINALIZED HIS ACCOUNTS PERTAIN ING TO THE AY UNDER DISPUTE, SINCE THE DISPUTE OF NON-RECEIPT OF SHARES HAD NOT REACHED ITS FINALITY; (XII) THOUGH THE LOSS IN THE SHARE TRANSACTION WAS IDENTI FIED ONLY IN THE SUBSEQUENT YEAR, THE ACCOUNTS OF THE ASSESSEE NOT C LOSED. THEREFORE, CONSIDERING THE MATCHING CONCEPT, THE AS SESSEE STANDS TO GET RELIEF ON THIS COUNT; (XIII) WE ARE QUOTING THE FOLLOWING FOR THE PURPOSE OF COM PARISON WHICH IS, OF COURSE, OF AN ACADEMIC INTEREST: THE CBDT VIDE ITS CIRCULAR NO.551 DATED 23.1.1990 H AD DEALT WITH THE PROVISIONS OF S.36(1)(VII) OF THE ACT. TH E RELEVANT PORTION OF WHICH IS EXTRACTED HERE BELOW, FOR READY GLANCE: 6.6. THE OLD PROVISIONS OF CLAUSE (VII) OF SUB-SEC TION (1) READ WITH SUB-SECTION (2) OF SECTION LAID DOWN COND ITIONS NECESSARY FOR ALLOWABILITY OF BAD DEBTS. IT WAS PR OVIDED THAT THE DEBT MUST BE ESTABLISHED TO HAVE BECOME BAD IN THE PREVIOUS YEAR. THIS LED TO ENORMOUS LITIGATION ON THE QUESTION OF ALLOWABILITY OF BAD DEBTS IN A PARTICU LAR YEAR, BECAUSE THE BAD DEBTS WAS NOT NECESSARILY ALLOWED B Y THE ASSESSING OFFICER IN THE YEAR WHICH THE SAME HAD BE EN WRITTEN OF ON THE GROUND THAT THE DEBT WAS NOT ESTABLISHED TO HAVE BECOME BAD IN THAT YEAR. IN ORDER TO ELIMINATE THE DISPUTES IN THE MATTER OF DETERMINING THE YEAR IN WHICH A BA D DEBT CAN BE ALLOWED AND ALSO TO RATIONALIZE THE PROVISIO NS, THE AMENDING ACT, 1987 HAS AMENDED CLAUSE (VII) OF SUB- SECTION (1) AND CLAUSE (I) OF SUB-SECTION (2) OF THE SECTIO N 36 TO PROVIDE THAT THE CLAIM FOR BAD DEBT WILL BE ALLOWED IN THE ITA NO.634/07 & 78 /09 PAGE 15 OF 26 YEAR IN WHICH SUCH A BAD DEBT HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. 6.7. CLAUSES (III) AND (IV) OF SUB-SECTION (2) OF THE SECTION 36 PROVIDED FOR ALLOWING DEDUCTION FOR A BAD DEBT I N AN EARLIER OR LATER PREVIOUS YEAR, IF THE INCOME-TAX O FFICER WAS SATISFIED THAT THE DEBT DID NOT BECOME BAD IN THE Y EAR IN WHICH IT WAS WRITTEN OFF BY THE ASSESSEE. THESE CLAUSES HAVE BECOME REDUNDANT, AS THE BAD DEBTS ARE NOW BEING STRAIGHTWAY ALLOWED IN THE YEAR OF WRITE OFF. THE AMENDING ACT, 1987, HAS, THEREFORE, AMENDED THESE CLAUSES WI THDRAW THEM AFTER THE ASSESSMENT YEAR 1988-89 WHEN AN ASSESSEE WHO IS IN THE VERY BUSINESS, FORME D AN OPINION THAT THE DEBT HAD BECOME IRRECOVERABLE AND THE SAME WAS WRITTEN OFF IN HIS BOOKS OF ACCOUNT AS BAD DEB T DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN QU ESTION AND CLAIMED AS SUCH, THE ASSESSEE WAS TO BE ALLOWED AS PER THE AMENDED PROVISIONS OF S.36 (1) (VII) REFERRED SUPRA WITHOUT RAISING AN IOTA OF SUSPICION WHETHER THE WRITE OFF OF BAD DEBT WAS BASED ON OPINION OR WAS A SOUND SCIENTIFIC BASIS. IN THE CASE ON HAND, THE ASSESSEE HAD ADVANCED CERTAIN MONEY FOR T HE PURCHASE OF SHARES TO A SHARE BROKER WHO IN TURN HA D NEITHER DELIVERED THE SHARES AS APPLIED FOR NOR REFUNDED TH E MONEY. IN SUCH A SITUATION, THE ASSESSEE HAD CONSIDERED A POR TION OF SUCH AMOUNT AS IRRECOVERABLE IN SPITE OF HIS BEST EFFORT S AND CLAIMED IT AS BUSINESS LOSSES. WHEN AN ASSESSEE WHO HAD FOR MED AN OPINION THAT THE AMOUNT IN QUESTION HAD BECOME IRRE COVERABLE AND, ACCORDINGLY, WRITTEN OFF THE SAID DEBT(S) IN H IS BOOKS OF ACCOUNT AS BAD DEBTS, THE AMENDED PROVISION REFER RED SUPRA COMES TO HIS RESCUE. HOWEVER, THE ASSESSEE WHO HAD WRITTEN ITA NO.634/07 & 78 /09 PAGE 16 OF 26 OFF IN HIS BOOKS OF ACCOUNT RS.1.63 CRORES AS IRREC OVERABLE BUSINESS LOSS WHICH IS SIMILAR TO THAT OF BAD DE BTS AS DISCUSSED SUPRA, EXCEPT THE NOMENCLATURE, WHY THE S AME ANALOGY AS IN THE AMENDED PROVISIONS OF S.36(1)(VI I) OF THE ACT CANNOT BE APPLIED IN THIS CASE TOO, IS A MOOT QUESTION? (XIV) THE REVENUE HAS PLACED STRONG RELIANCE ON THE RULING OF THE HONBLE APEX COURT IN THE CASE OF CIT V. SWADESHI C OTTON AND FLOUR MILLS PRIVATE LIMITED REPORTED IN 53 ITR 134 HAD HELD THAT, AN EMPLOYER WHO FOLLOWS THE MERCANTILE SYSTEM OF A CCOUNTING INCURS A LIABILITY TOWARDS PROFIT BONUS ONLY WHEN T HE CLAIM, IF MADE, IS SETTLED AMICABLY OR BY INDUSTRIAL ADJUDICA TION. THE SYSTEM OF REOPENING OF ACCOUNTS DOES NOT FIT IN WIT H THE SCHEME OF THE INCOME-TAX ACT. AS FAR AS RECEIPTS ARE CONCERN ED THERE CAN BE NO RE-OPENING OF ACCOUNTS, AND THE POSITION IS THE SAME IN RESPECT OF EXPENSES. ON A CLOSE READING OF THE SAID RULING, WITH DUE RESPECTS WE WOULD LIKE TO POINT OUT THAT THE THERE WAS NO QUESTION OF RE-OPENING OF THE ACCOUNTS IN THE PRESENT CASE A S THE ASSESSEE HAD NOT CLOSED HIS BOOKS OF ACCOUNT FOR TH E RELEVANT AY UNDER DISPUTE. WHEN THE ASSESSEE WAS IN THE PRO CESS OF FINALIZING HIS ACCOUNTS, THE QUESTION OF NON-RECEIP T OF MTNL AND SBI SHARES WERE NOTICED. THE ISSUE OF RE-OPENING O F ACCOUNTS WILL CROP UP ONLY, IF THE ACCOUNTS WERE CLOSED. H OWEVER, IN THE CASE HAND, THE QUESTION DOES NOT ARISE AT ALL. THU S, IN OUR ITA NO.634/07 & 78 /09 PAGE 17 OF 26 CONSIDERED VIEW, THE RULING CITED SUPRA IS ON THE D IFFERENT FOOTING AND DOESNT COME TO THE RESCUE OF THE REVENUE; (XV) THE REVENUE HAD CONCEDED THAT - (A) LOSS SUSTAINED BY THE ASSESSEE DUE TO DEFALCATION C OMMITTED BY AN EMPLOYEE WAS HELD TO BE DEDUCTIBLE AS A BUSINESS /TRADING LOSS [CHURAKULAM TEA ESTATES PVT. LTD. V.CIT - 21 4 ITR 457 (KER)]; (B) THE ASSESSEE WAS ENTITLED TO DEDUCTION OF LOSS ON A CCOUNT OF THEFT, PILFERAGE AS BUSINESS LOSS [HARIJAN EVAM NIR BAL VARG AVAS NIGAM LTD V CIT - 229 ITR 776 (ALL)]; (C) ALLOWABILITY OF LOSS ARISING ON ACCOUNT OF NON-REFU ND OF AMOUNT ADVANCED NOT IN THE YEAR IN WHICH IT WAS WRI TTEN OFF AS A LOSS BY THE ASSESSEE BUT DURING THE ACCOUNTING PE RIOD WHEN THE LOSS WAS ACTUALLY INCURRED [COMMONWEALTH TRUST (INDIA) LTD V. CIT - 242 ITR 593 (KER)] ; (D) THE ALLOWABILITY OF LOSS ARISING ON ACCOUNT OF NON- REFUND OF AMOUNT ADVANCED NOT IN THE YEAR IN WHICH IT WAS WRI TTEN OFF AS A LOSS BY THE ASSESSEE BUT DURING THE ACCOUNTING PE RIOD WHEN THE LOSS WAS ACTUALLY INCURRED [GLASS MINIATURE BUL B INDUSTRIES V. CIT 204 ITR 352 (SC)]; HOWEVER, IT HAD DISPUTED THAT IN THE PRESENT CASE - IT WAS NOT ESTABLISHED THAT THE LOSS WAS INCURRED A ND THAT THE FACT OF LOSS ITSELF WAS NOT PROVED; - EVEN IF IT WAS INCURRED, THERE WAS NO VALID BASIS F OR ARRIVING AT THE QUANTUM SINCE THERE WAS NO VALID BASIS OR JU STIFICATION FOR THE ESTIMATION OF THE QUANTUM WRITTEN OFF AND T HAT A WRITE OFF OF LOSS CANNOT BE BASED ON OPINION, BUT, HAS T O HAVE A SOUND SCIENTIFIC BASIS; - THE DISPUTE WITH THE STOCK BROKERS WAS DETECTED ONL Y WHEN THE AUDIT REPORT WAS FURNISHED BY THE CAS; - THERE WERE NO CLAIM, DIFFERENCE OR DISPUTE WITH THE STOCK BROKERS UNTIL 6/9/02 WHEN THE STOCK BROKERS COMMUNI CATED TO THE NSE THAT IT WAS NOT LIABLE TO PAY ANY MONIES OR DELIVER ANY SHARES TO THE ASSESSEE; ITA NO.634/07 & 78 /09 PAGE 18 OF 26 - THE DATE OF DISPUTE WAS NOT EVEN ON 14/3/02 BUT, AC TUALLY AROSE ON 6/9/02 AND, HENCE, EVEN IF THE LOSS WAS WR ITTEN OFF, IT SHOULD HAVE BEEN WRITTEN OFF IN THE AY 03-04 AND NO T EARLIER. 9.4. THEREFORE, THE REVENUE WAS THE FIRM VIEW THAT SINCE THE ASSESSEE HAD FAILED TO ESTABLISH THAT THE LOSS WAS INCURRED AND THAT THE FACT OF LOSS ITSELF WAS NOT PROVED; THE ABOVE CASE LAWS CITED WO ULD NOT BE OF ANY HELP TO THE ASSESSEE. 9.5 IN HIS REBUTTAL, THE LD. A.R CONTENDED THAT THE CASES CITED HELD THAT (I) THE LOSS ON ACCOUNT OF ANY EXPENDITURE INCURRED TOW ARDS BUSINESS TRANSACTION WAS LIABLE TO BE ALLOWED AS DEDUCTION U /S 28 ITSELF OR U/S 37 OF THE ACT. THOUGH THE INSTANCES IN THOSE C ASES MAY BE DIFFERENT FROM THE ASSESSEES CASE, THE PRINCIPLE L AID DOWN WAS THAT ANY LOSS ON ACCOUNT OF THE TRANSACTIONS IN THE COURSE OF BUSINESS WAS REQUIRED TO BE ALLOWED AS DEDUCTION. THUS, THE PRINCIPLE WILL SQUARELY APPLY; (II) IN THE CASES OF KHAITAN & CO V. CIT 118 ITR 728 ( CAL) AND LAXMI GINNING AND OIL MILLS V CIT 82 ITR 958 (PUN J) SUPPORT THE VIEW THAT PENDENCY OF LITIGATION WAS NOT SUFFIC IENT TO HOLD THAT THE LOSS HAD NOT BEEN INCURRED FOR ALLOWANCE IN THE RELEVANT YEAR. THE HONBLE HIGH COURT OF BOMBAY IN ITS RULING REPO RTED IN 206 ITR 562 HAD HELD THAT WHEN THE LOSS IS REFLECTED IN THE ACCOUNTS, THEN, IT IS ALLOWABLE IN THE RELEVANT YEAR; (III) THE LOSS HAD INCURRED IN THE RELEVANT YEAR HAVING P AID THE MONEY FOR PURCHASE OF SHARES WHICH WAS STOCK-IN-TRADE OF THE ASSESSEE AND THE SAME WAS NEITHER DELIVERED NOR THE MONEY WA S RETURNED. OBVIOUSLY, THE LOSS HAD OCCURRED AND THE ASSESSEE H AD RIGHTLY CLAIMED BY PROVIDING IN THE ACCOUNTS WHICH WERE DUL Y AUDITED AND SUBSEQUENTLY RETURN WAS FURNISHED; (IV) THE ASSESSEE HAD FURNISHED A DECLARATION THAT IF UL TIMATELY THE ASSESSEE WAS ABLE TO RETRIEVE ANY AMOUNT OUT OF THE LOSS CLAIMED, ITA NO.634/07 & 78 /09 PAGE 19 OF 26 THE SAME WOULD BE OFFERED FOR TAXATION IN THE YEAR IN WHICH IT WAS RECEIVED BY APPLYING THE PROVISIONS OF S.41(1) OF T HE ACT. [SEE P.482 PB] 10. IN OVERALL CONSIDERATION OF THE CLAIMS AND COUNTER CONTENTIONS OF THE RIVAL PARTIES, WE ARE OF THE UNANIMOUS VIEW THA T - (I) THERE WAS NO DISPUTE WITH REGARD TO PURCHASE OF MTN L AND SBI SHARES FOR WHICH THE ASSESSEE HAD ADVANCED AMOUNTS TO THE STOCK- BROKERS; (II) THERE WAS ALSO NO DISPUTE IN RESPECT OF NON-RECEIPT OF THE SAID SHARES AS ADMITTED BEFORE THE AO BY THE DIRECTOR OF THE STOCK BROKING COMPANIES ON OATH; (III) THE NON-RECEIPT OF SUCH SHARES CAME TO THE KNOWLEDG E OF THE ASSESSEE WHEN HIS ACCOUNTS FOR THE PREVIOUS YEAR RE LEVANT TO THE AY UNDER DISPUTE WERE BEING FINALIZED. IN THE MEAN WHILE THE ASSESSEES EFFORTS TO PURSUE THE ISSUE WITH THE STO CK BROKER WERE UNDERWAY FOR DELIVERY OF THE SAID SHARES. WHEN THE EFFORTS OF THE ASSESSEE FOR RETRIEVAL OF THE SHARES FROM THE STOCK -BROKERS HAD GONE AWRY, THE ASSESSEE, PERHAPS, SIMULTANEOUSLY, P URSUED THE ISSUE THROUGH ARBITRATION; (IV) THUS, THE AOS ASSERTION THAT NO EFFORTS WERE MADE BY THE ASSESSEE FOR RECOVERY OF SHARES DOESNT SOUND WELL. HAD IT BEEN SO, MURTHY, DIRECTOR OF THE STOCK-BROKING COMPANY COULD HAVE DEPOSED THAT THE ASSESSEE HAD NOT APPROACHED HIM FO R THE SAME? IN STEAD, HE HAD ADMITTED BEFORE THE AO THAT, HE H AD NOT DELIVERED THESE SHARES AS THERE WERE CERTAIN AMOUNT S DUE TO HIM FROM NAGARAJ AND THAT HE WAS PREPARED TO DELIVER TH ESE SHARES AS AND WHEN HIS DUES WERE CLEARED. THIS GOES TO PROVE THAT THE ASSESSEE WAS PURSUING THE MATTER IN DIFFERENT A NGLES TO ACHIEVE HIS INEVITABLE ; (V) WHEN THE ASSESSEES EFFORT TO RETRIEVE THE SHARES FROM THE STOCK- BROKERS WAS NOT SUCCESSFUL EVEN AFTER HIS ALL OUT P ERSUASION, THE ASSESSEE TOOK A STAND THAT THE AMOUNT OF RS.1.63 CR ORES COULD NOT BE RECOVERABLE; AND AS SUCH HE HAD CLAIMED IT AS A BUSINESS LOSS IN HIS ROI; (VI) THE AO IN THE IMPUGNED ORDER HAD NOT ALLOWED THE AM OUNT WRITTEN OFF OF RS.1.63 CRORES AS DEDUCTION AND ON THE OTHER HAND, HE HAD STATED THAT, HOWEVER, THE ASSESSEE WOULD BE ALLO WED BUSINESS LOSS ON ACCOUNT OF REDUCTION IN MARKET VALUE OF THE SE SHARES AS ON ITA NO.634/07 & 78 /09 PAGE 20 OF 26 31.3.2000. SINCE THE MARKET RATE AS ON 31.3.200 IN RESPECT OF MTNL AND SBI IS NOT AVAILABLE, I AM UNABLE TO COMPU TE THE CORRECT MARKET VALUE OF THESE SHARES AS ON 31.3.200 0. AS AND WHEN THE ASSESSEE FURNISHES THE SAME, THE ORDER WOU LD BE RECTIFIED ACCORDINGLY. SUBSEQUENTLY, U/S 154 OF THE ACT, TH E AO RECTIFIED THE ASSESSMENT ORDER BY ALLOWING THE BUSINESS LOSS ON ACCOUNT OF REDUCTION IN MARKET VALUE OF SHARES OF MTNL AND SBI AS ON 31.3.2000 AS FURNISHED. THUS, THE AO HAD NO AN I OTA OF DOUBT OF THE TRANSACTION OF RS.1.63 CRORES; (VII) THE ASSESSEE HAD ALSO ESTABLISHED TO THE EXTENT POS SIBLE WAY THAT HE HAD NOT RECEIVED THE SHARES TILL DATE WHICH WAS ACKNOWLEDGED BY THE DIRECTOR OF THE STOCK BROKING COMPANIES ON O ATH. THUS, IT PROVES THAT THE ASSESSEE HAD ADVANCED THE MONEY FOR THE SHARES TO THE STOCK-BROKER WHO HAD ADMITTED ON OATH, THE TRA NSACTION, BUT, ACKNOWLEDGED THE NON-DELIVERY OF SAID SHARES OWING TO SOME AMOUNT DUE FROM THE ASSESSEE; (VIII) THE STOCK BROKER HAD DISPUTED THIS CITING SOME OTHE R AMOUNT DUE FROM THE ASSESSEE. THE EFFECT OF THAT TRANSACTION W AS NOT REFLECTED IN THE ASSESSEES BOOKS AS TO LOSS OR PROFIT. TO T HAT EFFECT THERE WAS NEITHER CASH INFLOW NOR OUT-FLOW; (IX) THUS, THE ADVANCEMENT OF MONEY BY THE ASSESSEE AS W ELL AS THE NON-RECEIPT OF SAID SHARES BY THE ASSESSEE HAS BEEN ESTABLISHED; (X) IN SPITE OF THE BEST EFFORTS MADE BY THE ASSESSEE, NEITHER HE WAS ABLE TO SALVAGE THE AMOUNT ADVANCED NOR RETRIEVE TH E SHARES. THUS, THE ONLY ALTERNATIVE BEFORE THE ASSESSEE WAS TO WRITE OFF THE AMOUNT OF RS.1.63 CRORES AS BUSINESS LOSS IN HIS BOOKS OF ACCOUNT; (XI) THE ASSESSEE HAD NOT FINALIZED HIS ACCOUNTS PERTAIN ING TO THE AY UNDER DISPUTE, SINCE THE DISPUTE OF NON-RECEIPT OF SHARES HAD NOT REACHED ITS FINALITY; (XII) THOUGH THE LOSS IN THE SHARE TRANSACTION WAS IDENTI FIED ONLY IN THE SUBSEQUENT YEAR SINCE THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR RELEVANT TO THE AY IN DISPUTE WERE NE ITHER FINALIZED NOR HIS BOOKS OF ACCOUNT WERE CLOSED. THEREFORE, C ONSIDERING THE MATCHING CONCEPT, THE ASSESSEE STANDS TO GET RELIEF ON THIS COUNT; (XIII) SINCE THE ASSESSEE WAS IN THE BUSINESS OF SHARES AN D THUS IT WAS IN HIS PRUDENCE WHICH HE HAD ASCERTAINED THE REALITY AND CAME TO THE CONCLUSION THAT A PORTION OF AMOUNT COULD NOT B E RETRIEVED AND THUS CLAIMED AS BUSINESS LOSS. (XIV) THE REVENUE, IN OUR CONSIDERED VIEW, CANNOT SIT ON THE JUDGMENT ON THE ASSESSEES BUSINESS PRUDENCE AND EQUALLY CAN NOT INDULGE IN IMPOSING ITS OPINION ON THE ASSESSEE AS TO HOW TO CONDUCT HIS/ITS BUSINESS; ITA NO.634/07 & 78 /09 PAGE 21 OF 26 (XV) TO TOWERING IT ALL, THE AO HAD NOT DISPUTED THE CLA IM OF THE ASSESSEE, BUT, HAD ONLY DISALLOWED THE DEDUCTION AS PREMATURE. HOWEVER, HE WAS MAGNANIMOUS IN HIS ASSERTION THAT THE ASSESSEE WOULD BE ALLOWED BUSINESS LOSS ON ACCOUNT OF REDUCT ION IN MARKET VALUE OF THESE SHARES AS ON 31.3.2000 AND, ACCORDINGLY, RECTIFIED THE ASSESSMENT U/S 154 OF THE ACT ON 9/5/200, BY RE DUCING THE NET TAXABLE INCOME FROM RS.15430440/- TO RS.7412920/-; (XVI) THE VARIOUS JUDICIAL PRECEDENTS ON WHICH THE REVENU E PLACED STRONG RELIANCE ARE RATHER DISTINGUISHABLE AND ON T HE DIFFERENT FOOTING; (XVII) IN THE CASE OF CIT V. ANJANI KUMAR CO LTD REPORTED IN 259 ITR 114, THE ISSUE BEFORE THE HONBLE HIGH COURT OF RAJ ASTHAN JAIPUR BENCH WAS THAT DURING THE AY 79-80, THE AO NOTICED THAT A SUM OF RS.52489 WAS WRITTEN OFF ON ACCOUNT OF ADV ANCE TO AN AGRICULTURIST FOR PURCHASE OF AGRICULTURAL LAND TH E INTENTION OF THE ASSESSEE WAS TO ACQUIRE THE LAND TO SET UP A BOILER FACTORY, BUT ULTIMATELY THAT DID NOT MATERIALISE. THE AGRICULTU RIST REFUSED TO REFUND THE AMOUNT. THE ASSESSEE FILED A CIVIL SUIT IN THE COURT, WHERE THE ASSESSEE LOST ITS CLAIM. THE ASSESSEE HA D WRITTEN OFF THE AMOUNT IN ITS BOOKS OF ACCOUNT AND CLAIMED DEDUCTI ON OF THE INCURRED AMOUNT AS REVENUE LOSS. THE AO REJECTED H IS CLAIM, BUT THE TRIBUNAL ALLOWED IT ON A REFERENCE: THE HONBLE COURT HELD THAT WHEN LAND WAS NOT ACQUI RED, NO CAPITAL ASSET HAD BEEN ACQUIRED, AND THEREFORE, THE PAYMENT OF RS52489 WAS TO BE ALLOWED AS A BUSINESS LOSS. WITH RESPECT, APPLYING THE SAME RATIO, WE ARE OF TH E UNANIMOUS VIEW THAT THE ABOVE FINDING FITS IN TO THE PRESENT CASE ON HAND. 10.1. THUS, WE ARE OF THE FIRM VIEW THAT THE A SSESSEE IS ENTITLED TO CLAIM THE BUSINESS LOSS DURING THE PREVIOUS YEAR RE LEVANT TO THE ASSESSMENT YEAR IN DISPUTE. IT IS ORDERED ACCORDI NGLY. 11. SINCE WE HAVE DECIDED THE ISSUE IN FAVOUR OF T HE ASSESSEE AS DISCUSSED IN FORE-GOING PARAGRAPHS, WE HAVE NOT GON E IN DETAIL THE SECOND GROUND OR THE ALTERNATIVE GROUND, AS THE CASE MAY B E, RAISED BY THE ITA NO.634/07 & 78 /09 PAGE 22 OF 26 ASSESSEE THAT HE WAS AN NRI AND THE PROVISIONS OF D TAA WERE APPLICABLE ETC., AS IT HAD BECOME REDUNDANT IN VIEW OF THE ABO VE FINDING. 12. THE LAST GROUND WITH REGARD TO CHARGING OF INT EREST U/S 234A AND 234B IS NOT MAINTAINABLE AS LEVYING OF INTEREST UNDER THESE SECTIONS ARE MANDATORY AND CONSEQUENTIAL IN NATURE. THUS, T HIS GROUND IS DISMISSED AS SUCH. ITA NO:78/B/08: 13. THE ORIGIN OF THE FACTS, IN BRIEF, ARE THAT THE ORIGINAL ASSESSMENT FOR THE AY UNDER DISPUTE WAS ORIGINALLY COMPLETED ON 28 /3/2003 U/S 143(3) OF THE ACT, ASSESSING THE ASSESSEES NET TAXABLE INCOM E AT RS.15430440/- BY DISALLOWING A SUM OF RS.16333360/- DEBITED TO P & L ACCOUNT ON ACCOUNT OF AMOUNT PAID FOR PURCHASE OF SHARES WRITTEN OFF DUE TO NON-DELIVERY OF SHARES. WHILE DOING SO, THE AO HAD STATED THAT THE ASSESSEE WOULD BE ALLOWED BUSINESS LOSS ON ACCOUNT OF REDUCTION IN MA RKET VALUE OF THESE SHARES AS ON 31.3.2000. ACCORDINGLY, THE ASSESSEE S A.R. FILED A LETTER DT.18.4.2003 TO RECTIFY THE ORDER BY TAKING INTO AC COUNT THE REDUCTION IN THE MARKET VALUE OF SHARES AMOUNTING TO RS.8017520/-. THE AO VIDE HIS ORDER U/S 154 OF THE ACT DT: 9/5/2003 REVISED THE TOTAL I NCOME OF THE ASSESSEE TO RS.7412920/- FROM RS1.54 CRORES ORIGINALLY DETERMIN ED. IN THE MEANWHILE THE LD.CIT (INTL.TAXN) HAD PASSED AN ORDER U/S 263 OF THE ACT ON 23/3/05 SETTING ASIDE THE ORIGINAL ORDER PASSED ON 28/3/03 ON THE GROUND THAT THE ORIGINAL ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AS NO ADJUSTMENTS HAD BEEN MADE TO THE DECLARED VALUAT ION BY APPLYING THE FIFO METHOD AS PER BOARDS CIRCULAR NO768 AND FOR T HE REASON THAT THERE ITA NO.634/07 & 78 /09 PAGE 23 OF 26 WAS NO MATERIAL ON RECORD TO INDICATE WHICH SHARES WERE HELD IN PHYSICAL FORM OR IN THE DEMATERIALIZED FORM. CONSEQUENTLY, AN ORDER U/S 143(3) RWS 263 WAS PASSED ON 31/3/06, ASSESSING THE ASSESSEES TOTAL INCOME AT RS.16940662 BY ADDING THE DIFFERENCE OF RS.1510222/ - IN CLOSING STOCK VALUATION OF RELIANCE SHARES AS ADMITTED BY THE ASS ESSEE. SINCE THE TOTAL INCOME COMPUTED VIDE ORDER U/S 143(3) RWS 263 WAS SHOWN AT RS.16940662/- BY ADDING THE DIFFERENCE OF RS.151022 2/- TO THE EARLIER TOTAL INCOME OF RS.1.54 CRORES AS PER THE ORIGINAL ORDER INSTEAD OF THE REVISED TOTAL INCOME OF RS.7412920 U/S 154 OF THE ACT, THE ASSESSEE HAD FILED ANOTHER RECTIFICATION APPLICATION DT.9/5/06 POINTIN G OUT THAT THE ADDITION ON ACCOUNT OF DIFFERENCE IN CLOSING STOCK VALUATION OF RS.1510222/- WAS TO BE ADDED TO THE REVISED TOTAL INCOME OF RS.7412920/- I NSTEAD OF RS.15430440/- AS PER THE ORIGINAL ORDER DT.28/3/03. HOWEVER, THE AO VIDE ORDER U/S 154 DT.14.6.06 HAD REJECTED THE ASSESSEE S PLEA ON THE GROUND THAT THE TOTAL INCOME ASSESSED AS PER THE ORIGINAL ORDER WAS CORRECT AS THE ASSESSEE HAD NOT DEBITED THE TRADING ACCOUNT WITH T HE COST OF 1.44 LAKHS SHARES OF MTNL AND 40000 SHARES OF SBI. SIMULTANEO USLY THE AO HELD THAT WHEN THE PURCHASE CONSIDERATION ITSELF HAD NOT BEEN DEBITED TO THE PURCHASE ACCOUNT AND, THEREFORE, NOT FORMED PART OF THE CLOSING STOCK OF THE ASSESSEE, IT WAS ONLY RIGHT IN LAW THAT THE BUSINES S LOSS ON ACCOUNT OF REDUCTION IN MARKET VALUE OF THE SHARES AS ON 31.3. 2000 SHOULD NOT BE ALLOWED. THUS, THE ASSESSEES TOTAL INCOME WAS FIN ALLY ARRIVED AT RS.16940662/- (BY ADDING RS.1510222/- BEING DIFFERE NCE IN CLOSING STOCK VALUATION + RS.15430440 ARRIVED AT BY ADDING BACK THE BUSINESS LOSS ALLOWED IN RECTIFICATION ORDER DT: 9.5.03). ITA NO.634/07 & 78 /09 PAGE 24 OF 26 14. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE BEFORE THE CIT(A) WHO AFTER MUCH DELIBERATION HAD OBSERVED THAT 6THE DEBATE ON WHETHER THE ASSESSING OFFICER SHOULD HAVE ADOPTED THE TOTAL INCOME AS PER THE ORIGINAL ORDER U/S 143(3) OR THE SUBSEQUENT ORDER U /S 154 CEASES TO BE OF RELEVANCE SINCE ON FACTS THE ORDER U/S 154 DT:9/5/2 003 APPEARS TO HAVE BEEN MISTAKEN ON FACTS AND THE ASSESSING OFFICER IN HIS RECTIFICATION ORDER DT:14/6/2006 HAS ONLY CORRECTED THE SITUATION. IT IS ALSO NOTEWORTHY THAT THE FACTS BASED ON WHICH THE RECTIFICATION ORDER HAS BE EN PASSED HAS NOT BEEN CHALLENGED BY THE APPELLANT. THUS, THE ASSESSEES APPEAL WAS DISMISSED IN TOTO. 15. AGITATED, THE ASSESSEE HAS COME UP WITH THE PRESENT APPEAL. AT THE OUT SET, WE WOULD LIKE TO POINT OUT THAT THE GA MUT OF THIS APPEAL WAS BASED ON THE ORIGINAL ORDER PASSED ON 28/3/2003 IN WHICH THE NET TAXABLE INCOME WAS DETERMINED AT RS.15430440/- WHICH WAS RE CTIFIED SUBSEQUENTLY U/S 154 OF THE ACT ON 9/5/03, REVISING THE TOTAL IN COME AT RS.7412920/-. YET AGAIN, IT HAD TRANSFORMED WITH ANOTHER ORDER U/S 14 3(3) RWS 263 OF THE ACT ON 31/3/06 WHEREIN THE TOTAL INCOME WAS DETERMINED AT RS.16940662/- BASED ON THE ORIGINAL TOTAL INCOME ASSESSED AT RS.1 5430440/- AND BY ADDING RS.1510222/- BEING DIFFERENCE IN CLOSING STO CK VALUATION. YET ANOTHER RECTIFICATION U/S 154 OF THE ACT ON 14/6/20 06 WHICH WAS SEQUEL TO THE EARLIER RECTIFICATION ORDER U/S 154 OF THE ACT DATED: 9/5/2003 WAS PASSED. IN EFFECT, THIS RECTIFICATION ORDER WAS NO THING BUT MERE REPETITION OF THE ORDER PASSED U/S 143(3) RWS 263 DATED: 31/3/06. ITA NO.634/07 & 78 /09 PAGE 25 OF 26 16. THE FIGURE OF RS.15430440/- [ASSESSED AS NET TAX TAXABLE INCOME, BY DISALLOWING THE BUSINESS LOSS OF RS.1633 3360/- AS CLAIMED, IN THE ORIGINAL ORDER DT:28/3/03] IS THE BASIS FOR ALL THE SUBSEQUENT RECTIFICATIONS AND ALSO THE ORDER PASSED U/S 143(3) RWS 263 OF THE ACT. IN THE ASSESSEES APPEAL [IN ITA NO:634/2007] REFERRE D SUPRA, WE HAVE ALLOWED THE ASSESSEES CLAIM OF RS.1,63,33,360/- AS BUSINESS LOSS AND AS SUCH THE SUBSEQUENT ORDERS PASSED BY THE ASS ESSING OFFICER ON THE BASIS OF ORIGINAL ORDER DATED 28/3/03 HAVE NO LEGAL SANCTITY AND HAVE BECOME REDUNDANT. WE ARE, THEREFORE, OF THE CONSID ERED VIEW THAT THE RECTIFICATION ORDER UNDER APPEAL IS NULL AND VOID WHICH REQUIRES NO CONSIDERATION. HOWEVER, THE AO IS DIRECTED TO IMPL EMENT THE DIRECTIONS OF THIS BENCH IN THE ASSESSEES APPEAL ADJUDICATED IN THE FOREGOING PARAGRAPHS [IN ITA NO:634 OF 2007] AND TO TAKE APPR OPRIATE FOLLOW UP ACTION IN ACCORDANCE WITH LAW, IF FOUND NECESSARY. IT IS ORDERED ACCORDINGLY. 17. IN THE RESULT THE ASSESSEES APPEAL: (I) IN ITA NO:634/2007 IS PARTLY ALLOWED. (II) IN ITA NO:78/2008 IS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 16.10.09. SD/- SD/- (SHAILENDRA KUMAR YADAV ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 16 TH OCTOBER, 2009. DS/- ITA NO.634/07 & 78 /09 PAGE 26 OF 26 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.