M/S. TRIUMPH INTERNATIONAL FINANCE INDIA LTD, MUMBAI V. THE DCIT CEN CIR-40, MUMBAI

ITA 6879/MUM/2008

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3623 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 19-02-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 02-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DANIEL
• Keywords: Business income; Depreciation; Business expenditure; Opportunity of being heard; Earning of tax free income; Speculation loss; Bad and doubtful debts; Cancellation of registration
• Section: 43B; 234B; 37; 12; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 6879/MUM/2008 ASSESSMENT YEAR: 2004-05 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. OXFORD CENTRE, 10 SHORFF LANE, COLABA CAUSEWAY, MUMBAI-. 400005 PAN : AAACE0308A VS. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 40, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJIV KHANDELWAL RESPONDENT BY : SHRI P. DANIEL DATE OF HEARING : 19-02-2013 DATE OF PRONOUNCEMENT : 19-04-2013 O R D E R PER DR.S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD. CIT (A)-VII, MUMBAI DATED 21.08.2008 FOR THE AS SESSMENT YEAR 2004-05. 2. AT THE OUTSET, THE LD.AR OF THE ASSESSEE HAS INS ISTED THAT IT IS NECESSARY TO ADJUDICATE GROUND NO. 9(A) FIRST SINCE THE DECISION ON THE SAME MAY HAVE RELEVANCE AND IMPACT ON THE PROPOSED ADJUD ICATION OF THE REMAINING GROUNDS AND HENCE THE SAME IS ADJUDICATED AT THE FIRST INSTANCE. 2.1 GROUND NO. 9(A) RELATES TO THE ISSUE OF ENHANCI NG THE INCOME OF THE ASSESSEE BY RS.1,07,98,248/- BY DISALLOWING THE CAR RY FORWARD LOSS OF RS.1,07,98,248/- ON ACCOUNT OF TRADING IN SHARES AN D SECURITIES CLAIMED BY THE ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 2 ASSESSEE AS THE ASSESSEE HAS NOT CARRIED ANY BUSINE SS ACTIVITY DURING THE YEAR UNDER CONSIDERATION. 2.2 THE RELEVANT FACTS ARE THAT THE ASSESSEE, A COM PANY, ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES HAD CL AIMED CARRY FORWARD BUSINESS LOSS OF RS.38.68 CRORES AND LOSS FROM SPECULATION BUSINESS IN SHARES AND SECURITIES OF RS.1,07,98,248 /-. THE SPECULATION BUSINESS LOSS WAS MAINLY ON ACCOUNT OF DECREASE IN THE VALUE OF STOCK IN TRADE. THE LD.CIT(A) DISALLOWED THE CARRY FORWARD O F THE IMPUGNED SPECULATION LOSS AND ADDED THE SAME TO THE TOTAL IN COME OF THE ASSESSEE AS NO BUSINESS ACTIVITY WAS CARRIED ON BY THE ASSESSEE CONSEQUENT TO THE BAN IMPOSED AND CANCELLATION OF THE REGISTRATION BY THE SEBI BY ITS ORDERS DATED 04.04.2001, 21.06.2001 AND 16.05.2002 BY HOLDING TH AT THE AO HAD WRONGLY ALLOWED THE LOSS CARRIED FORWARD FOR SETTING OFF IN THE SUBSEQUENT YEAR. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HA S RAISED THIS GROUND IN THE APPEAL BEFORE US. 2.3 BEFORE US, THE LD.AR OF THE ASSESSEE HAS POINTE D OUT THAT THE ITAT IN THE ASSESSEE OWN CASE IN ITA NO. 76/MUM/2009 FOR TH E A.Y. 2005-06 HAS HELD THAT THE ASSESSEE HAS CARRIED ON THE BUSINESS DURING THE YEAR UNDER REFERENCE (2005-06). IN THE PROCESS, THE ITAT HAS R ELIED ON ANOTHER DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF TRIUMPH SEC URITIES LTD 1053 & 2111/M/08 FOR THE AYS 2001-02 AND 2002-03 DATED 31. 12.2010 WHICH IS AN ASSOCIATE CONCERN OF THE ASSESSEE WHICH IN TURN HAS RELIED ON THE DECISION OF ITAT IN THE CASE OF KNP SECURITIES LTD ITA NOS 5008 & 5009/MUM/2007 AND 5245/MUM/2011 FOR THE AYS. 2003-04, 2004-05 & 2007- 08 DATED 29.05.2009 WHICH IS ANOTHER ASSOCIATE CONCERN OF THE ASSESSEE. THE L D.AR HAS ALSO RELIED ON VARIOUS DECISIONS OF THE ITAT IN THE CASES OF ASSES SEESS ASSOCIATE CONCERN WHICH ARE STATED AS BELOW:- (I) TRIUMPH SECURITIES LTD. ITA NOS 1053 & 2111/MUM/200 8 FOR THE AYS 2001-02 & 2002-03. (II) KNP SECURITIES IN ITA NOS 5008 & 5009/MUM/2007 AND 5245/MUM/2011 FOR THE AYS. 2003-04, 2004-05 & 2007-08. ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 3 (III) CLASSIC SHARES AND STOCK BROKING SECURITIES LTD IN ITA NOS. 191 & 1135/M/2008, 5244/MUM/2011 AYS 2002-03, 2003-04 & 2 007-08. (IV) V. N. PAREKH SECURITIES, ITA NOS. 6876, 7047 & 7048 /MUM/2007 5243/MUM/2011 FOR THE AYS. 2002-03, 2003-04, 2004-0 5 & 2007-08. (V) NH SECURITIES LTD. IN ITA NOS 6875/MUM/2008, 6312/ MUM/2009 FOR THE AYS 2005-06 & 2006-07. 2.3.1 ON THE OTHER HAND, THE COUNSEL FOR THE REVENU E SHRI P. DANIEL HAS VEHEMENTLY ARGUED THAT THE SEBI HAS CANCELLED THE R EGISTRATION OF THE ASSESSEE WITH IMMEDIATE EFFECT FROM THE DATE OF ITS ORDER DATED 16.05.2005 WHICH HAS BEEN SUBSEQUENTLY AFFIRMED BY THE SUPREME COURT. WHEN THE CANCELLATION ATTAINS THE FINALITY, THE SAME DATES B ACK TO THE ORIGINAL DATE WITH EFFECT FROM WHEN THE CANCELLATION ORDER HAS BEEN PA SSED BY THE SEBI. HENCE, THE PRESUMPTION IS THAT THE ASSESSEE HAS NOT CARRIE D ANY BUSINESS DURING THE YEAR UNDER CONSIDERATION AND THE LD.CIT(A) HAS CORR ECTLY DISALLOWED THE CLAIM AND THUS ENHANCED THE INCOME OF THE ASSESSEE. ] 2.4 WE HAVE HEARD BOTH THE PARTIES ON THIS GROUND A ND PERUSED THE MATERIAL ON RECORD. THE ITAT IN THE ASSESSEES OWN CASE IN ITA NO. 76/MUM/2009 FOR THE A.Y. 2005-06 AFTER CONSIDERING THE RELEVANT FACTS INCLUDING THE BAN IMPOSED BY THE SEBI WHICH ARE SIM ILAR TO THE YEAR UNDER CONSIDERATION IN THE PRESENT CASE, HAS HELD THAT TH E ASSESSEE HAS BEEN CARRYING ON BUSINESS DURING THE ASSESSMENT YEAR 200 5-06 AND THE RELEVANT PORTION OF THE SAID ORDER ARE CONTAINED IN PARA 17 TO 22 AND THE SAME IS EXTRACTED HEREUNDER FOR READY REFERENCE: GROUND NO. 5 RAISED BY THE ASSESSEE READS AS FOLL OWS: 5. THE CIT(A) ERRED IN ENHANCING THE INCOME OF THE APPELLANTS BY RS.37,99,796/- BY NOT ALLOWING EXPENSES CLAIMED BY THE APPELLANTS ON THE GROUND THAT THE APPELLANTS HAVE N OT CARRIED ON ANY BUSINESS ACTIVITY DURING THE YEAR UNDER REFEREN CE AND THEREBY NOT ALLOWING CARRY FORWARD OF LOSS OF RS.37 ,99,796/-. THE APPELLANTS CONTEND THAT ON THE FACT AND CIRCUMS TANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT NOT TO HAVE D ISALLOWED THE EXPENSES CLAIMED BY THE APPELLANTS INASMUCH AS THE ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 4 APPELLANTS HAVE INCURRED THE IMPUGNED EXPENSES IN P URSUIT OF BUSINESS. CONSEQUENTLY, THE APPELLANTS CLAIM THAT T HE APPELLANTS HAVE INCURRED LOSS WHICH OUGHT TO BE ALLOWED TO BE CARRIED FORWARD. 18. THE BUSINESS OF ASSESSEE WAS TRADING IN SHARES AND SECURITIES. THERE WAS NO SALE AND PURCHASE OF SHARE S FOR THE YEAR. HOWEVER THE ASSESSEE HAD SHOWN DECREASE IN VA LUE OF CLOSING STOCK OF SHARES TO THE TUNE OF RS.37,99,796 /-. IN VIEW OF EXPLANATION BELOW SECTION 73, THE AO HELD THAT THE ASSESSEE IS DEEMED TO HAVE BEEN CARRYING ON A SPECULATION BUSIN ESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF PURCHASE A ND SALE OF SHARES. HE THEREFORE, TREATED THE LOSS ON ACCOUNT O F DIMINUTION IN THE VALUE OF SHARES OF RS.37,99,796/- AS A SPECU LATION LOSS AND REFUSED TO ALLOW THE SET OFF OF SUCH LOSS AGAIN ST BUSINESS INCOME. THE AO ALLOWED THE LOSS TO BE CARRIED FORWA RD FOR BEING SET OFF AGAINST SPECULATION INCOME IN THE SUCCEEDIN G ASSESSMENT YEARS IN ACCORDANCE WITH LAW. 19. WHEN THIS MATTER WAS CHALLENGED BY THE ASSESSEE BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE LOSS IN QUES TION SHOULD BE TREATED AS BUSINESS LOSS AND NOT SPECULATION LOS S AND SUCH LOSS SHOULD BE ALLOWED TO BE CARRIED FORWARD. THE CIT(A) WAS OF THE VIEW THAT THE LOST IN QUESTION WAS SPECULATION LOSE. HE WAS FURTHER OF THE VIEW THAT THE AO OUGHT TO HAVE ALLOW ED THIS LOSS TO BE CARRIED FORWARD BECAUSE THE ASSESSEES REGIST RATION AS SHARE BROKER WAS CANCELLED BY SEBI AND THERE WAS NO PURCHASE AND SALE OF SHARES BY THE ASSESSEE FROM THE PREVIOU S YEAR. IN EXERCISE OF HIS POWERS OF ENHANCEMENT HE CONCLUDED THAT THE AO OUGHT NOT TO HAVE ALLOWED CARRY FORWARD OF THE L OSS FOR BEING SET OFF IN FUTURE. HE HELD THAT THERE BEING NO BUSI NESS ACTIVITY IN SHARES AND SECURITIES FORM THE YEAR 2001 ON ACCOUNT OF CANCELLATION OF REGISTRATION AS SHARE BROKER, LOSS ARISING FROM MERE VALUATION OF THE OPENING STOCK OF SHARES WOULD NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE WAS CARRYING ON AN Y SUCH ACTIVITY. HE HELD THAT THE ASSESSEE HAS NEITHER DEA LT WITH IN SHARES ETC NOR DONE ANY OTHER BUSINESS. IN SUCH A S ITUATION, THE LOSS IN SHARES WHICH HAS BEEN DISALLOWED BY THE ASS ESSING OFFICER AS PER THE COMPUTATION OF INCOME, COULD NOT BE IN THE SAME BREATH ALLOWED TO BE CARRIED FORWARD AS SPECUL ATION BUSINESS LOSS. TO THIS EXTENT HE HELD THAT THE ACTI ON OF THE ASSESSING OFFICER WAS NOT CORRECT. HE HELD THAT AS AN APPELLATE AUTHORITY HAVING CO-TERMINUS POWERS AS OF THE ASSES SING OFFICER HE HAD POWER TO DIRECT THE AO TO WITHDRAW ALLOWING CARRYING FORWARD OF THE LOSS IN QUESTION. ACCORDINGLY THE AO WAS DIRECTED TO WITHDRAW CARRY FORWARD OF LOSS IN QUESTION CARRY FORWARD TO SUBSEQUENT ASSESSMENT YEARS. 20. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESS EE HAS RAISED GROUND NO. 5 BEFORE THE TRIBUNAL. ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 5 21. AT THE TIME OF HEARING BEFORE US IT WAS AGREED BY THE PARTIES THAT SIMILAR ISSUE ARISING UNDER IDENTICAL FACTS AND CIRCUMSTANCES, WAS CONSIDERED BY THE TRIBUNAL IN TH E CASE OF NH SECURITIES VS. ACIT, ITA NO. 6875/MUM/08 (ANOTHER GROUP COMPANY OF THE ASSESSEE) AND THIS TRIBUNAL HELD AS FOLLOWS: 2. GROUND NO. 1 RAISED BY THE ASSESSEE READS AS UNDER:- 1. THE CIT(A) ERRED IN ENHANCING THE INCOME OF THE APPELLANTS BY RS.31,47,188/- BY NOT ALLOWING EX PENSES CLAIMED BY THE APPELLANTS ON THE GROUND THAT THE AP PELLANTS HAVE NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING T HE YEAR UNDER REFERENCE AND THEREBY NOT ALLOWING CARRY FORWARD OF LOSS OF RS.31,47,188/- THE APPELLANTS CONTEND THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OU GHT NOT TO HAVE ENHANCED THE INCOME OF THE APPELLANTS AND OUGH T TO HAVE ALLOWED THE CARRY FORWARD OF THE BUSINESS LOSS OF R S.31,47,188/- INASMUCH AS THE APPELLANTS HAVE CARRIED ON BUSINESS DURING THE YEARS. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO TREATED THE BUSINESS OF RS.31,47,188/- AS SPECULATI ON LOSS AND ALLOWED TO BE CARRIED FORWARD AS SPECULATION IN VIE W OF THE EXPLANATION BELOW SECTION 73 OF THE ACT. NO SUCH SE T-OFF WAS ALLOWED ON THE INCOME FROM OTHER SOURCES. DURING TH E COURSE OF APPELLATE PROCEEDINGS, THE LEARNED CIT(A) HAD OBSER VED THAT BUSINESS LOSS HAD BEEN DETERMINED BY THE AO AT RS.3 1,47,188/-, WHICH HAD BEEN TREATED AS SPECULATIVE LOSS AND HAD BEEN ALLOWED TO BE CARRIED FORWARD IN VIEW OF THE EXPLAN ATION BELOW TO SECTION 73 OF THE ACT. HOWEVER, IT WAS NOTICED F ROM THE AUDITED ACCOUNTS THAT NO BUSINESS ACTIVITY WAS CARR IED OUT BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AN D A LOSS OF RS.80,000/- WAS SHOWN UNDER THE HEAD SHARES AND SE CURITIES ON ACCOUNT OF VALUATION OF CLOSING STOCK WHICH HAD BEEN TREATED AS NON-GENUINE BY THE AO. THE CIT(A) FURTHER OBSERV ED THAT THE ASSESSEE HAS NOT CARRIED ANY BUSINESS ACTIVITY IN S HARES AND SECURITIES FROM THE YEAR 2001 ON ACCOUNT OF CANCELL ATION OF REGISTRATION AS SHARE BROKER, LOSS ARISING FROM MER E VALUATION OF THE OPENING STOCK OF SHARES WOULD NOT LEAD TO THE C ONCLUSION THAT THE ASSESSEE WAS CARRYING ON ANY SUCH ACTIVITY . THE CIT(A) ALSO OBSERVED THAT THE WORK BUSINESS CONNOTES SOM E REAL, SUBSTANTIAL AND SYSTEMATIC OR ORGANIZED COURSE OF A CTIVITY OR CONDUCT WITH A SET OF PURPOSE. THE CIT(A) HELD THAT FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 37 OF THE ACT, TH E EXPENDITURE MUST BE INCURRED FOR THE PURPOSE OF BUSINESS WHICH WAS IN EXISTENCE DURING THE YEAR AND THE PROFIT OF WHICH A RE UNDER ASSESSMENT AND, IF DURING THE YEAR NO BUSINESS WAS IN EXISTENCE EITHER BECAUSE IT WAS DISCONTINUED OR FOR SOME OTHE R REASON, THE ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 6 QUESTION OF COMPUTATION OF INCOME DOES NOT ARISE AT ALL. THE LEARNED CIT(A) RELYING ON VARIOUS CASE LAWS, DIRECT ED THE AO TO WITHDRAW SUCH LOSS CARRIED FORWARD TO SUBSEQUENT AS SESSMENT YEARS. HE, ACCORDINGLY, HELD THAT THERE WOULD BE EN HANCEMENT OF INCOME TO THE EXTENT OF RS.31,47,188/-, WHICH HA S BEEN WRONGLY ALLOWED TO BE CARRIED FORWARD BY THE AO. AG GRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL B EFORE US. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE ASSESSEE WAS IN THE BUSINESS OF SHARE TRAD ING ACTIVITY AND THE ASSESSEE WAS UNABLE TO CARRY FORWARD THE BU SINESS ACTIVITIES BECAUSE OF THE SEBI ORDER AND THE SAME W AS CHALLENGED BEFORE THE HONBLE HIGH COURT AND ALSO B EFORE THE HONBLE SUPREME COURT. STOPPAGE OF T HE BUSINESS IS ONLY TEMPORARY AND NOT PERMANENT AND EVEN THE ORDER PASS ED BY THE SEBI IS ONLY A TEMPORARY ORDER, THEREFORE, IT CANNO T BE SAID THAT THE ASSESSEE IS NOT IN THE BUSINESS ACTIVITY. THE L EARNED COUNSEL FURTHER SUBMITTED THAT SIMILAR ISSUE HAS BEEN CONSI DERED BY THE MUMBAI BENCH OF ITAT IN THE ASSESSEES SISTER CONCE RN CASE, VIZ. KNP SECURITIES P. LTD. IN ITA NOS. 6008 & 5009/MUM/ 07 FOR AYS 2003-04 & 2004-05 VIDE ORDER DATED 29 TH MAY, 2009. THE SAID DECISION WAS FOLLOWED BY THE ITAT, MUMBAI BENCH IN ANOTHER SISTER CONCERN CASE OF THE 2111/MUM/08 FOR ASSESSME NT YEAR 2001-02 & 2002-03, ORDER DATED 31.12.2010. 5. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THA T FINALLY THE HONBLE HIGH COURT AND SUPREME COURT CONFIRMED THE ORDER PASSED BY THE SEBI AND HE SUPPORTED THE ORDER PASSE D BY THE CIT(A) IN SUPPORT OF REVENUES CASE. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE REC ORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. T HE CIT(A) PASSED ENHANCEMENT ORDER ON THE GROUND THAT THE ASS ESSEE HAS NOT CARRIED OUT ANY BUSINESS DURING THE YEAR AND AL LOWABILITY OF BUSINESS EXPENSES U/S 37 THE ASSESSEE HAS TO CARRY OUT THE BUSINESS ACTIVITY AND DIRECTED THE AO TO ENHANCE TH E ASSESSMENT. UNDER SIMILAR FACTS AND CIRCUMSTANCES, THE ITAT IN THE CASE OF TRIUMPH SECURITIES (SUPRA) FOLLOWING DE CISION IN THE CASE OF KNP SECURITIES P. LTD (SUPRA), HELD AS UNDE R:- AFTER HEARING BOTH THE PARTIES, WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF KNP SECU RITIES P LTD (SUPRA) WHEREIN THE ASSESSING OFFICER HAD DISALLOWE D VARIOUS EXPENSES CLAIMED BY THE ASSESSEE IN ITS P&L ACCOUNT ON THE GROUND THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BU SINESS ACTIVITY SINCE SEBI MADE RESTRICTION VIDE ORDER DAT ED 11.04.2001. IN APPEAL, THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER AND ON FURTHER APPEAL, THE TRIBUN AL VIDE ORDER DATED 29.05.2009 ALLOWED THE VARIOUS EXPENSES CLAIM ED BY THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL READS AS UNDER:- ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 7 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. WE HAVE ALSO PERUSED THE MATERIAL O N RECORD ALONG WITH VARIOUS CASE LAWS RELIED BY BOTH THE PAR TIES. AFTER CONSIDERING THE RELEVANT MATERIAL IT IS SEEN THAT T HE ASSESSEE WAS DOING BUSINESS OF SHARE TRADING AND SECURITY ET C. VARIOUS BUSINESS EXPENSES INCURRED FOR THE PURPOSE OF ITS B USINESS ACTIVITIES WERE HELD AS ALLOWABLE IN PAST. IN THE Y EAR UNDER CONSIDERATION, THE LD AO NEGATIVED THE CLAIM OF THE ASSESSEE FOR THE REASON THAT THERE IS NO BUSINESS ACTIVITY DURIN G THE YEAR UNDER CONSIDERATION AS SEBI HAS IMPOSED RESTRICTION VIDE ORDER DATED 11.04.2001. COPY OF THE ORDER ISSUED BY SEBI IS PLACED AT PAGES 82 TO 84 OF THE PAPER BOOK. IT IS MENTIONED I N THIS ORDER THAT THE ASSESSEE IS BARRED FROM UNDERTAKING ANY FR ESH BUSINESS AS STOCK BROKER TILL FURTHER ORDER AS ON ACCOUNT OF INDICATIONS OF THE PRIMA FACIE INVOLVEMENT OF MR. KETAN PAREKH IN MANIPULATING CERTAIN SCRIPS OF VARIOUS COMPANIES. IT HAS BEEN NO TICED THAT M/S V N PAREKH SECURITIES LTD AND M/S KNP SECURITIES LT D ARE ALSO THE ENTITIES CONTROLLED BY AND CONNECTED WITH MR KE TAN PAREKH OR MR KARTIK PAREKH. THEREFORE, IN VIEW OF THE POWE RS CONFERRED UNDER THE PROVISIONS OF SUB SECTION (3) OF SEC. 4 R.W.S. 11 AND 11B OF THE SEBI ACT, 1902, THE ASSESSEE WAS BARRED FROM UNDERTAKING ANY FRESH BUSINESS AS STOCK BROKERS TIL L FURTHER ORDERS AS STATED ABOVE. THEREAFTER, SEBI PASSED ANO THER ORDER ON 21 ST JUNE 2001 STATING THAT IN VIEW OF THE ORDER OF SEB I DATED 4.4.2001 AND 10.4.2001 DEBARRING THEM FROM UNDERTAK ING ANY FRESH BUSINESS AS A STOCK BROKER AND MERCHANT BANKE RS TILL FURTHER ORDERS SHOULD BE CONTINUED. THIS ACTION OF THE SEBI HAS BEEN CHALLENGED BY THE ASSESSEE BEFORE THE APPROPRI ATE AUTHORITIES. COPY OF THE PETITION FILED BEFORE THE SECURITIES APPELLATE TRIBUNAL IS PLACED AT PAGE 94 OF THE PAPE R BOOK. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, THE ASSESSEE WAS NOT ALLOWED TO DO ITS BUSINESS ACTIVITY IN SHARE ON THE STOCK EXCHANGE FLOOR. 5.1 NOT DOING BUSINESS ACTIVITY WAS NOT ON ACCOUNT OF ASSESSEES WILL BUT ON ACCOUNT OF FORCED CIRCUMSTAN CES; THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE HAS CLOSED/DISCONTINUED US BUSINESS ACTIVITY ITS OWN. T HE ESTABLISHMENTS OF THE ASSESSEE WERE INTACT AND THEY WERE TO BE MAINTAINED. STAFF MEMBERS WERE KEPT AND SALARIES WE RE PAID TO THEM LOANS TAKEN FROM VARIOUS BANKS AND OTHERS FOR THE PURPOSE OF BUSINESS ACTIVITY IN PAST WERE OUTSTANDI NG DURING THE YEARS UNDER CONSIDERATION; THEREFORE, ANY INTEREST ACCRUED WAS TO BE PAID DURING THE YEAR UNDER CONSIDERATION OR W AS PAYABLE. THE ASSESSEE IS HAVING VALID BSE CARD WHICH COULD N OT BE USED FOR THE REASON THAT SEBI HAS PASSED AN ORDER BARRIN G THE ASSESSEE NOT TO DO ANY BUSINESS ACTIVITY. THEREFORE , IT ALSO CANNOT BE SAID THAT THE ASSESSEE COULD NOT USE THE BSE CARD ITS ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 8 OWN WHICH WAS READY TO USE. IN THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEES BUSINESS DO ES NOT COME TO AN END OR DISCONTINUED. 5.2 THE MEANING OF DISCONTINUATION IS EXPLAINED IN THE LAW LEXICON WHERE IT IMPLIES A VOLUNTARY ACT AND ABAND ONMENT OF POSSESSION FOLLOWED BY THE ACTUAL POSSESSION OF ANO THER, IT IMPLIED THAT THE PERSON DISCONTINUING HAS GIVEN UP THE LEND AND LEFT IT TO THE POSSESSED BY ANYONE CHOOSING TO COME IN AS HELD IN THE CASE OF QADIR BUX VS RAMCHAND 1917 AIR 289 AT P AGE 295. IT IS FURTHER EXPLAINED AT THE SAME PATE AT 563 OF THE LAW LEXICON THAT DISCONTINUE; TO CAUSE TO CEASE OR TO PUT A STOP. 5.3 IN THE PRESENT CASE NEITHER THE BUSINESS IS DIS CONTINUED ON ACCOUNT OF VOLUNTARY ACT OF THE ASSESSEE NOR THE SAME HAS PUT TO STOP ITS OWN. THE BUSINESS COULD NOT BE DONE FOR THE REASON THAT SEBI HAS BARRED THE ASSESSEE NOT TO DO ANY BUSINESS ACTIVITY TILL FURTHER ORDER. THE ASSESSEE WAS BARRED TILL FURTHER ORDERS CLEARLY MEAN THAT THE ASSESSEE WAS N OT BARRED PERMANENTLY. THE PERMANENT ORDER ISSUED IN THE YEAR 2007 AND FROM THE YEAR OF 2007, THE ASSESSEE CANNOT DO ANY B USINESS ACTIVITY; THEREFORE, AT THE MOST IT CAN BE SAID THA T NO EXPENSES CAN BE ALLOWED FROM THAT YEAR. HOWEVER, FOR THE EAR LIER YEAR, IN OUR CONSIDERED VIEW, THE EXPENSES INCURRED BY THE A SSESSEE FOR THE PURPOSE OF ITS BUSINESS ACTIVITY ARE ALLOWABLE AS THE ESTABLISHMENT WAS NOT SCRAPED AND THE ASSESSEE WAS STILL HOPEFUL TO START ITS BUSINESS ACTIVITY. 6. IN THE CASE OF CIT VS VELLORE ELECTRIC CORPORATI ON LTD REPORTED IN 243 ITR 529, THE HONBLE MADRAS HIGH CO URT HAS HELD THAT: IT COULD NOT BE SAID THAT THERE WAS A PERMANENT CLOSURE, AS THE VALIDITY OF THE ACT WAS YET TO BE FINALLY SE TTLED BY THE SUPREME COURT. IN THE EVENT OF THE ACT BEING STRUCK DOWN, THE ASSESSEE COULD RESUME BUSINESS. THE FACT THAT IT HA D CONTINUED TO MAINTAIN AN ESTABLISHMENT WAS INDICATION OF ITS INTENTION TO RESUME BUSINESS, IF AN OPPORTUNITY FOR IT AROSE BY REASON OF THE SUPREME COURT HOLDING IN ITS FAVOUR. THE EXPENSES I NCURRED BY IT WHILE AWAITING THE DECISION OF THE SUPREME COURT CO ULD NOT ALTOGETHER BE REGARDED AS UNCONNECTED WITH THE BUSI NESS THAT IT HAD BEEN CARRYING ON BY SUPPLY OF ELECTRICITY AND A ND THAT BUSINESS WAS INTERRUPTED ONLY BY REASON OF THE ACT. THE POSSIBLE RESUMPTION OF THE BUSINESS WAS DEPENDENT ON THE OUT COME OF THE APPEALS PENDING BEFORE THE SUPREME COURT. THE A MOUNTS CLAIMED WERE ALSO NOT VERY SUBSTANTIAL. THE TRIBUNA L HAD TAKEN A BROAD VIEW OF THE MATTER AND HAD HELD IN FAVOUR OF THE ASSESSEE. THERE WAS NO GROUND TO DIFFER. 6.1 THE FACTS BEFORE THE HONBLE HIGH COURT WERE TH AT THE ASSESSEE WAS A PRIVATE ELECTRIC COMPANY. ITS UNDERT AKING VESTED ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 9 WITH THE STATE GOVERNMENT BY REASON OF THE ENACTMEN T OF THE TAMIL NADU ELECTRICITY SUPPLY UNDERTAKING (ACQUISIT ION) ACT, 1973. AFTER AN UNSUCCESSFUL ATTEMPT TO CHALLENGE TH E VALIDITY OF THAT ACT IN THE HIGH COURT, THE ASSESSEE HAD FILED APPEALS BEFORE THE SUPREME COURT WHICH WERE PENDING DURING THE REL EVANT YEARS I.E. AYS 1975-76 TO 1979-80. THE AO HELD THAT THE ASSESSEE WAS NOT CARRYING ON ANY BUSINESS AND LIMIT ED THE SALARY PAID TO THE EMPLOYEES OF THE ASSESSEE TO 10% AND THE AUDIT FEE WAS LIMITED TO 15%. THAT WAS AFFIRMED BY T HE FIRST APPELLATE AUTHORITY. HOWEVER, THE TRIBUNAL HELD THA T THE ASSESSEE WAS CARRYING ON BUSINESS AND WAS ENTITLED TO THE DEDUCTIONS CLAIMED BY THE ASSESSEE. ON REFERENCE, T HE HONBLE MADRAS HIGH COURT AFFIRMED THE VIEW TAKEN BY THE TR IBUNAL. 6.2 THE RATIO OF THE DECISION OF THE HONBLE MADRA S HIGH COURT IS SQUARELY APPLICABLE ON THE FACTS OF THE PR ESENT CASE AS IN THE PRESENT CASE ALSO THE ASSESSEE WAS RESTRICTE D BY THE ORDER OF THE SEBI NOT TO DO ANY BUSINESS ACTIVITY, HOWEVE R, ESTABLISHMENT OF THE ASSESSEE WAS MAINTAINED AND VA RIOUS EXPENSES WERE INCURRED WHICH WERE NECESSARY AND THE Y WERE CONNECTED WITH THE BUSINESS ACTIVITY OF THE ASSESSE E. 7. IN THE CASE OF SREE MEENAKSHI MILL LTD, IN 63 IT R 207, THE APEX COURT HAS ALLOWED VARIOUS EXPENSES ON ACCOUNT OF EXPENDITURE FOR PROSECUTING CIVIL PROCEEDINGS. IN T HIS CASE, THE ASSESSEE COMPANY WHICH CARRIED ON THE BUSINESS OF C OTTON SPINNING AND WEAVING, FINDING ITS OWN HANDLOOMS IN ITS FACTORY PREMISES INADEQUATE, DISTRIBUTED YARN PRODUCED BY I T TO WEAVERS OUTSIDE THE FACTORY. UNDER CLAUSE 18B OF THE COTTON CLOTH AND YAN (CONTROL) ORDER 1945, THE TEXTILE COMMISSIONER WAS AUTHORISED TO DIRECT ANY MANUFACTURE OR DEALER OR A NY CLASS OF MANUFACTURERS OR DEALERS, INTER ALIA, NOT TO SELL O R DELIVER ANY YEARN OR CLOTH OF SPECIFIED DESCRIPTION EXCEPT TO S UCH PERSON OR PERSONS AND SUBJECT TO SUCH CONDITIONS AS HE MIGHT SPECIFY. ACCORDINGLY, THE ORDER PASSED BY THE TEXTILE COMMIS SIONER DIRECTING THE COMPANY NOT TO SELL OR DELIVER YARN M ANUFACTURED BY IT EXCEPT TO SUCH PERSON OR PERSONS AS HE MIGHT SPECIFY. HOWEVER, THE COMPANY CONTINUED TO DELIVER YARN TO W EAVERS OUTSIDE FACTORY. THE ACTION OF THE COMMISSIONER WAS CHALLENGED BEFORE THE APPELLATE AUTHORITY AND THE SAME WAS REJ ECTED BY THE HIGH COURT AS WELL AS THE SUPREME COURT. ON APPELLA TE PROCEEDINGS, THE EXPENSES INCURRED BY THE ASSESSEE WERE CLAIMED AS BUSINESS EXPENDITURE AND THEY WERE NOT A LLOWED BY THE AO BY OBSERVING THAT THESE EXPENSES WERE NOT FO R THE PURPOSE OF BUSINESS AND WERE NOT INCURRED DURING TH E YEAR UNDER CONSIDERATION. MATTER REACHED UP TO THE STAGE OF THE HONBLE SUPREME COURT WHO HAS ALLOWED THE EXPENDITU RE INCURRED BY THE COMPANY AS BUSINESS EXPENDITURE BY HOLDING AS UNDER: ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 10 THAT THE OBJECT OF THE PETITION WAS T SECURE A D ECLARATION THAT THE ORDER DATED FEB 20 TH 1946, IN SO FAR AS IT SOUGHT TO PUT RESTRICTIONS UPON THE RIGHT OF THE COMPANY TO CARRY ON ITS BUSINESS IN THE MANNER IN WHICH IT WAS ACCUSTOMED T O DO WAS UNAUTHORISED, AND TO PREVENT ENFORCEMENT OF THAT OR DER. THEREBY, THE COMPANY WAS SEEKING TO OBTAIN AN ORDER FROM THE COURT ENABLING THE BUSINESS TO BE CARRIED ON WITHOU T INTERFERENCE. THE AMOUNTS EXPENDED BY THE COMPANY O N THAT BEHALF WERE EXPENDITURE LAID OUT WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF ITS BUSINESS AND WERE DEDUCTIBLE U/S 10( 2) (XV). IT WAS FURTHER HELD THAT; THE QUESTION OF ADMISSIBILITY U/S 10(2) (XV) HAD TO BE DECIDED NOT ON WHAT WAS FOUND OR OBSERVED BY THE HI GH COURT IN APPEAL FROM THE ORDER IN THE PROCEEDINGS U/S 45 OF THE SPECIFIC RELIEF ACT OR BY THE PRIVY COUNCIL BUT UPO N THE FINDINGS OF FACT RECORDED BY THE TRIBUNAL. EXPENDITURE INCUR RED TO RESIST IN A CIVIL PROCEEDINGS THE ENFORCEMENT OF A MEASURE , LEGISLATIVE OR EXECUTIVE, WHICH IMPOSES RESTRICTIONS ON THE CAR RYING ON OF A BUSINESS, OR TO OBTAIN A DECLARATION THAT THE MEASU RE IS INVALID, WOULD, IF OTHER CONDITIONS ARE SATISFIED, BE ADMISS IBLE AS A DEDUCTION U/S 10(2) (XV) 7.1 THE RATIO OF THE DECISION OF THE APEX COURT ALS O GOES IN FAVOUR OF THE ASSESSEE AS THE LITIGATION EXPENSES I NCURRED IN RESPECT TO ITS BUSINESS WERE HELD AS BUSINESS EXPEN DITURE. 7.2 IN THE PRESENT CASE ALSO ALL THE EXPENSES INCUR RED ARE CONNECTED WITH THE BUSINESS OF THE ASSESSEE ONLY; T HEREFORE, THE EXPENSES CLAIMED BY THE ASSESSEE ARE ALLOWABLE. 8. IN THE CASE OF M/S MARINE LABOUR SUPPLYING CO, D ECIDED IN ITA NO. 6048 & 6049/MUM/07 VIDE ORDER DATED 2.12 .2008, THE TRIBUNAL BY FOLLOWING THE DECISION IN THE CASE OF RUIA SHELTERS LTD IN 10 SOT 157 (MUM) AND IN THE CASE OF CHUNILAL & CO IN 4 SOT 309 (MUM(TM) HELD THAT IF FOR THE REASO N DUE TO DULLNESS OF BUSINESS NO BUSINESS CAN BE DONE FOR AY S 2002-03 TO 2005-06, THE ASSESSEE IS ENTITLED TO DEDUCTION I N RESPECT OF ADMINISTRATIVE AND OTHER EXPENSES WHICH ARE REQUIRE D TO BE INCURRED FOR KEEPING THE BUSINESS ALIVE. 9. WE HAVE ALSO TAKEN INTO CONSIDERATION VARIOUS CA SE LAWS ON WHICH RELIANCE HAS BEEN PLACED BY THE LD DR AND FOUND THAT THEY ARE DISTINGUISHABLE ON FACTS. 10. IN THE CASE OF CHINAI AND CO P LTD IN 206 ITR 6 16, THE HONBLE BOMBAY HIGH COURT HAS HELD THAT THE ASSESSE E COMPANY COULD NOT BE ENTITLED FOR ANY DEDUCTION OF EXPENSES CLAIMED BY IT AS BUSINESS EXPENDITURE OF EXPENSES CLAIMED BY IT A S BUSINESS EXPENDITURE U/S 37 AS THE ASSESSEE COMPANY HAS STOP PED CARRYING ON ITS BUSINESS AT THE END OF DECEMBER, 19 69. THE MERE FACT THAT IT CONTINUED TO HOLD ITS INVESTMENTS WOULD NOT BE ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 11 SUFFICIENT FOR THE PURPOSE OF ESTABLISHING THAT IT CONTINUED TO CARRY ON BUSINESS. 10.1 IN THE PRESENT CASE, THE ASSESSEE HAS NOT STOP PED THE BUSINESS ACTIVITY, ITS OWN BUT IT WAS FORCED BY SEB I NOT TO DO ANY BUSINESS ACTIVITY. THEREFORE, THE RATIO OF THIS DECISION OF THE HONBLE BOMBAY HIGH COURT IS NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. 11. SIMILARLY, THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF NATHALAL ASHARAM IN 194 ITR 110 IS A LSO NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE AS THE COMPANY PAID COMPENSATION TO ITS EMPLOYEES UNDER THE PROVISIONS OF SEC. 25 FFF OF INDUSTRIAL DISPUTES ACT 1947 ON ACCOUNT OF R ETRENCHMENT WHICH WERE HELD AS NOT RELATED TO THE BUSINESS CARR IED ON BY THE ASSESSEE. 11.1 WE HAVE ALSO TAKEN INTO CONSIDERATION VARIOUS OTHER CASE LAWS RELIED UPON BY THE LD DR AND FOUND THAT THEY A RE DISTINGUISHABLE ON FACTS. 12. IN THE PRESENT CASE, NO SUCH FACTS ARE INVOLVED AS ALL THE EXPENSES INCURRED WERE IN CONNECTION WITH THE BUSIN ESS ACTIVITY ONLY AND FOR KEEPING THE BUSINESS ALIVE, THE MAINTA IN ITS BUSINESS ESTABLISHMENT AND TO MEET THAT THE OBLIGAT ION OF INTEREST ON LOAN ETC TAKEN FOR ITS BUSINESS ACTIVIT Y, THEREFORE, WE HOLD THAT VARIOUS EXPENSES INCURRED BY THE ASSESSEE ARE ALLOWABLE AS DEDUCTION. HOWEVER, ADMISSIBILITY OF T HE EXPENDITURE WAS NOT EXAMINED BY THE AO FOR THE REA SON THAT HE HAS DISALLOWED THE EXPENDITURE ON THE GROUND THAT T HEY ARE NOT ALLOWABLE AS THE ASSESSEE HAS NOT DONE ANY BUSINESS ACTIVITY. THEREFORE, FOR THE PURPOSE OF EXAMINING THE ADMISSI BILITY/ GENUINENESS OF THESE EXPENSES, THE MATTER IS SENT T THE FILE OF THE AO. THE ASSESSEE HAS CONTENDED THAT DEPRECIATIO N AND INTEREST HAVE BEEN ALLOWED BY THE TRIBUNAL AS ALLOW ABLE WHILE PASSING ORDER FOR ASSESSMENT YEAR 2000-01. THE AO WILL TAKE INTO CONSIDER THE ORDER OF THE TRIBUNAL AND IF IT I S FOUND THAT FACTS ARE SIMILAR THEN OF COURSE, IN VIEW OF THE DE CISION OF THE TRIBUNAL, THE CLAIM OF THE ASSESSEE ON ACCOUNT OF D EPRECIATION AND INTEREST HAS TO BE ALLOWED. 17.1 SINCE THE FACTS OF THE IMPUGNED APPEAL ARE IDE NTICAL TO THE FACTS IN THE CASE OF THE SISTER CONCERN OF THE ASSE SSEE I.E. KNP SECURITIES P LTD; THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL, WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM VARIOUS EXPENSES DEBITED IN THE P&L ACCOUNT. WE HOL D AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESS EE IS ACCORDINGLY ALLOWED. 7. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICAL TO THAT OF THE CASE DECIDED BY THE CO-ORDINATE IN THE CASE OF TRIUMPH ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 12 SECURITIES LTD.(SUPRA), WE RESPECTFULLY FOLLOW THE SAME AND IN THE LIGHT OF THAT THIS GROUND OF THE ASSESSEE IS AL LOWED. 22. IN SHORT THE REASONING OF THE TRIBUNAL IS THAT THE ASSESSEE COULD NOT DO BUSINESS BECAUSE OF THE BAN I MPOSED ON ITS TRADING BY SEBI WHICH HE WAS CHALLENGING AND TH E BUSINESS COULD NOT BE CARRIED ON FOR REASONS BEYOND THE ASSE SSEES CONTROL. THE SAID REASONS WOULD SQUARELY APPLY IN T HE PRESENT CASE ALSO WHERE THE FACTS ARE IDENTICAL AS ADMITTED BY THE PARTIES BEFORE US. WE THEREFORE, FOLLOWING THE ORDE R OF THE CO- ORDINATE BENCH HOLD THAT THE ASSESSEE IS ENTITLED T O CARRY FORWARD THE LOSS FOR SET OFF IN SUBSEQUENT ASSESSME NT YEAR AS ALLOWED BY THE AO. FOR THE REASONS GIVEN ABOVE THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. FROM THE ABOVE, IT IS EVIDENT THAT THE ITAT HAS COM E TO THE CONCLUSION IN THE CONTEXT OF ALLOWABILITY OF ADMINISTRATIVE EXPENSES WHEN THE BUSINESS OF THE ASSESSEE HAS BEEN CLOSED BY THE ORDERS OF THE SEBI. IT IS ALSO SEEN FROM THE ORDER OF THE ITAT FOR THE AY 2005-06 THAT THE SPECU LATION LOSS IS ALLOWABLE ON THE SAME ANALOGY OF ADMINISTRATIVE EXPENSES. 2.4.1 IN THE LIGHT OF THE ABOVE, THE AO IS DIRECTED TO EXAMINE THE FACTS OF THE CASE AND ALLOW THE CLAIM OF THE ASSESSEE CONSIDERIN G COMPARABILITY OF THE FACTS AND CIRCUMSTANCES OF THE CASES AFTER GIVING R EASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ORDER AND DIRECT AC CORDINGLY. GROUND NO 9(C) IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 3. GROUND NO. 1 RELATES TO THE DISALLOWANCE OF BAD DEBT WRITTEN OFF OF RS.38,30,66,554/- & RS.97,27,368/- OUT OF PROVISION S MADE IN EARLIER YEAR, CLAIMED BY THE ASSESSEE UNDER SECTION 36(1)(VII)/SE CTION 28 OF THE INCOME TAX ACT. 3.1 BRIEFLY STATED, THE ASSESSEE IN THE P&L ACCOUNT HAD SHOWN UNDER PROVISIONS AND LOSSES, CLAIMED BAD DEBT WRITTEN O FF RS.38,30,66,554/- AS THE DEBTS BECAME IRRECOVERABLE FOR THE PREVIOUS YEAR IN RELATION TO THE STOCK BROKING BUSINESS. FURTHER, THE ASSESSEE HAD IN COMP UTATION OF TOTAL INCOME DEBITED AN AMOUNT OF RS.97,27,368/- ON ACCOUNT OF B AD DEBT PROVISION WRITTEN OFF. IN THE ASSESSMENT COMPLETED, THE AO DISALLOWED THE CLAIM OF THE ASSESSEE AS THE IMPUGNED AMOUNTS WERE NOT ON ACCOUN T OF TRADING IN ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 13 PURCHASE AND SALE OF SHARES DONE BY THE ASSESSEE CO MPANY AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL , THE LD.CIT(A) CONFIRMED THE IMPUGNED DISALLOWANCES/ADDITIONS. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL B EFORE US. 3.2 BEFORE US, THE LD.AR HAS RELIED ON THE DECISION OF THE ITAT IN THE ASSESSEES OWN CASE IN ITA NO. 1389/MUM/2008 AND ME NTIONED THAT THE ISSUES STAND COVERED BY THE SAID DECISIONS IN FAVOU R OF THE ASSESSEE. THE LD.AR HAS FURTHER RELIED ON THE DECISIONS IN THE CA SES OF VST INDUSTRIES LTD. [41 SOT 415 (HYD)], GOODLAS NEROLAC PAINTS LTD [188 ITR 1 (BOM)] AND LORDS DAIRY FARM [27 ITR 700 (BOM)] IN SUPPORT OF THE ASS ESSEES CASE. THESE DECISIONS ARE RELEVANT FOR THE PROPOSITION THAT AMO UNTS WRITTEN OFF OF ASSOCIATE CONCERN IS ALLOWABLE AND COURTS WILL GENE RALLY NOT INTERFERE WITH THE DECISION OF THE ASSESSEE TO WRITE-OFF. [ 3.2.1 ON THE OTHER HAND, THE LD. COUNSEL FOR THE AS SESSEE HAS VEHEMENTLY ARGUED THAT THE ASSESSEE HAS INVOLVED IN CIRCULAR T RADES AND ADOPTED COLOURABLE DEVICES TO REDUCE THE TOTAL INCOME AS MO ST OF THE DEBTS ARE PERTAINING TO THE TRANSACTION OF GROUP CONCERNS, AS SOCIATE CONCERNS OF GROUP CONNECTED WITH THE ASSESSEE COMPANY. HENCE, THE AMO UNT WRITTEN OFF BEING STAGE MANAGED LOSSES/DEBTS HAVE BEEN CORRECTLY DISA LLOWED BY THE AO AND UPHELD BY THE LD.CIT(A). HE HAS ALSO RELIED ON THE DECISION IN MC DOWELLS CASE REPORTED IN 154 ITR 148. IN THE FACTS AND CIRC UMSTANCES OF THE CASE, LIFTING OF CORPORATE VEIL AND PERUSING THE SUBSTANC E OF THE TRANSACTION WOULD REVEAL THAT ASSESSEE HAS INVOLVED IN CIRCULAR TRADE S AND ADOPTED COLOURABLE DEVICES TO REDUCE THE TOTAL INCOME. 3.3 WE HAVE HEARD BOTH THE PARTIES ON THIS GROUND A ND PERUSED THE MATERIAL ON RECORD. THE PERUSAL OF THE RECORD REVEA LS THAT AMONG SEVEN PARTIES CONNECTED WITH THE BAD DEBTS, SIX OF THEM A RE THIRD PARTIES UNCONNECTED TO THE ASSESSEE. ONLY SISTER/ASSOCIATE CONCERN IN THE LIST IS TRIUMPH SECURITIES IN CONNECTION WITH THE BAD DEBT CLAIM OF RS.1,42,56,769/-. THE CO-ORDINATE BENCH OF THE ITAT IN THE ASSESSEES OWN CASE IN ITA NO. ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 14 1389/MUM/2008 FOR THE AY 2002-03 HAS DISMISSED THE APPEAL OF THE REVENUE AND HELD THAT BAD DEBTS CLAIMED BY THE ASSESSEE ARE ALLOWABLE INASMUCH AS THE ASSESSEES ARE SHARE BROKERS AND AMOUNTS RECEIVA BLE BY THEM FROM THEIR CLIENTS AGAINST TRANSACTION OF PURCHASE OF SHARES O N THEIR BEHALF CONSTITUTE BAD DEBT WHICH IS TRADING DEBT AND THAT WHEN THE AMOUNT OF BROKERAGE/COMMISSION INCOME FROM SUCH TRANSACTION H AVE BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVANT PREVIOUS YEAR OR ANY EARLIER YEAR, IT SATISFIES THE CONDITIO NS STIPULATED IN SECTION 36(2)(I) AND THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SEC TION 36(1)(II) BY RELYING ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF CIT VS SHRI SHREYAS S MORARKHIA (ITA NO. 3374/MUM/2004). THE SA ID DECISION HAS ALSO BEEN UPHELD BY THE JURISDICTIONAL HIGH COURT IN 342 ITR 285. ALSO, SIMILAR VIEW HAS BEEN TAKEN BY THE ITAT IN THE ASSESSEES OWN CA SE IN ITA NO. 2783/MUM/2008 FOR THE AY 2004-05. IT IS RELEVANT TO STATE THAT SECTION 36(1)(VII) READ WITH SECTION 36(2) DOES NOT BAR THE ALLOWABILITY OF WRITTEN OFF OF BALANCES OF ASSOCIATE CONCERNS IF THE OTHER COND ITION OF THE PROVISIONS ARE SATISFIED. 3.3.1 THE SUBMISSION OF THE LD.AR THAT THE BAD DEBT S INVOLVED IS THE DEBT AROSE IN THE NORMAL COURSE OF BUSINESS OPERATIONS A ND THE SAME TO BE ALLOWED AS BAD DEBT AT PAR WITH THE OTHERS. ON CONSIDERING THE LD.ARS SUBMISSION, THE ASSESSEE IN OUR OPINION IS ENTITLED TO THE RELI EF OF THIRD PARTY BAD DEBTS IN VIEW OF THE CITED DECISIONS ABOVE AND THEREFORE, TH E SAME ARE ALLOWED. REGARDING THE BAD DEBT INVOLVING AN SISTER/ASSOCIAT E CONCERN, I.E. TRIUMPH SECURITIES THE PERUSAL OF THE ORDER REVEALS THAT TH ERE IS NO FINDING OF THE FACTS THAT THE ASSESSEE INCURRED THE BAD DEBT IN THE NORM AL COURSE OF THE BUSINESS OR OTHERWISE A SUSPICIOUS TRANSACTION. REGARDING TH E ALLOWABILITY OF OTHER CLAIM OF BAD DEBT PROVISION OF RS.97,27,368/-, IT I S SUBMITTED THAT THE SAID AMOUNT IS NOT STRICTLY A PROVISION CREATED IN THIS YEAR. PERUSAL OF THE ORDER OF THE LD.CIT(A) IS FOUND THAT THE SAME IS NOT A SPEAK ING ORDER ON THIS ISSUE. IN VIEW OF THAT MATTER, WE SET ASIDE THESE ISSUES I.E. BAD DEBT OF RS. 1,42,56,769/- AND OTHER BAD DEBT OF RS.97,27,368/- TO THE FILES OF THE AO FOR ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 15 FRESH EXAMINATION. NEEDLESS TO FURTHER EMPHASIS THA T THE ASSESSEE TO BE GIVEN PROPER OPPORTUNITY OF BEING HEARD. ACCORDINGL Y, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 4. GROUND NO. 2 RELATES TO THE DISALLOWANCE MADE BY THE AO AND THE SAME CONFIRMED BY THE LD.CIT(A) A SUM OF RS.15,25,9 96/- BEING WRITTEN OFF OF SUNDRY ADVANCES ON THE BASIS THAT THE SAME IS CAPIT AL LOSS AND NOT ON ACCOUNT OF ANY TRADING ACTIVITIES. 4.1 BRIEFLY STATED, THE ASSESSEE HAD, IN THE COMPUT ATION OF TOTAL INCOME REDUCED AN AMOUNT OF RS.15,25,996/- GIVEN AS LOAN/A DVANCES TO FRANCHISEES FOR THEIR BUSINESS, ON BECOMING IRRECOVERABLE, WRI TTEN OFF THE SAME AS BAD LOAN. HOWEVER, IN THE ASSESSMENT COMPLETED, THE AO DISALLOWED THE CLAIM OF THE ASSESSEE AS THE SAME IS A CAPITAL LOSS AND NOT ON ACCOUNT OF ANY TRADING ACTIVITY. ON APPEAL THE LD.CIT(A) CONFIRMED THE DIS ALLOWANCE MADE BY THE AO. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HA S RAISED THIS GROUND IN THE APPEAL BEFORE US. 4.2 BEFORE US, THE LD. AR HAS STATED THAT THE ASSES SEE COMPANY HAS WRITTEN OFF LOANS AGGREGATING TO RS.1,16,90,091/- D URING THE YEAR BEING RS.1,01,64,095/- TO PROFIT AND LOSS ACCOUNT AND RS. 15,25,996/- AGAINST THE PROVISION FOR DOUBTFUL LOANS MADE IN A.Y. 2002-03. THE PROVISION MADE IN A.Y. 2002-03 HAS NOT BEEN CLAIMED IN A.Y. 2002-03. THE S AME IS CLAIMED AS A DEDUCTION DURING THE YEAR UNDER CONSIDERATION ON TH E FINAL WRITTEN OFF OF THE AMOUNT. OUT OF WHICH LOANS AMOUNTING TO RS.1,07,33, 858/- HAVE BEEN GIVEN TO FRANCHISEES OF THE COMPANY LOCATED IN VARIOUS C ITIES OF INDIA FOR THEIR WORKING CAPITAL REQUIREMENT. THE ADVANCES HAVE BEEN MADE TO FUND THE OPERATIONS OF THE FRANCHISEES AND TO INCUR EXPENSES FOR THEIR ESTABLISHMENT SUCH AS SETTING UP OF V-SAT TERMINALS, REGISTRATION WITH THE EXCHANGES, REGISTRATION WITH THE SEBI, ADVERTISING, REGISTRATI ON OF SUB BROKERS ETC. HOWEVER, SINCE THESE FRANCHISEES COULD NOT BE MADE OPERATIONAL, THE ADVANCES GIVEN TO THEM COULD NOT BE RECOVERED AND H ENCE WRITTEN OFF. WHEN THE AO HAS ALLOWED A WRITTEN OFF OF RS.1,01,64,099/ - ON A SIMILAR COUNT, HE OUGHT TO HAVE ALLOWED THE IMPUGNED WRITTEN OFF ALSO BY FOLLOWING THE RULE OF ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 16 CONSISTENCY. ALSO, THE LD. AR HAS RELIED ON THE DE CISION OF THE HIGH COURT OF MADRAS IN THE CASE OF CIT VS. BRILLIANT TUTORIALS ( P) LTD. [292 ITR 399] IN SUPPORT OF THE CLAIM OF THE ASSESSEE. 4.2.1 ON THE OTHER HAND, THE LD. COUNSEL FOR THE RE VENUE HAS ADVANCED THE ARGUMENTS TO THE EFFECT THAT IN THE NORMAL COURSE O F BUSINESS IT IS ONLY THE FRANCHISEES GIVE THE ADVANCES INSTEAD THE FRANCHISE ES RECEIVES THE LOAN FROM THE PARENT COMPANY. THERE ARE ALSO NO CONFIRMATIONS FROM THE FRANCHISEES AS REGARDS THE ALLEGED TRANSACTION. HENCE THE AO AND T HE LD.CIT(A) HAVE CORRECTLY DISALLOWED THE CLAIM OF THE ASSESSEE. 4.3 WE HAVE HEARD THE RIVAL SUBMISSIONS ON THIS GRO UND AND PERUSED THE MATERIAL ON RECORD. HOWEVER, PERUSAL OF THE ORDER O F THE AO DOES NOT INDICATE THAT THE DEBT IN QUESTION IS THE LOANS GIVEN BY THE ASSESSEE TO THE FRANCHISEES ARE WITH THE CONDITION OF REPAYMENT OF OTHERWISE. I N THAT SENSE, THE LD.CIT(A)S INFERENCE THAT THE SAID IMPUGNED AMOUNT FALLS UNDER CAPITAL FIELD IS PREMATURE. AS REGARDS THE CONTENTION OF THE LD.A R BASED ON THE DECISION OF THE HIGH COURT OF MADRAS IN CIT VS. BRILLIANT TUTOR IALS (P) LTD., IT HAS BEEN HELD IN THE SAID CASE THAT THE ASSESSEE HAVING WRIT TEN OFF THE DUES FROM ITS FRANCHISEES AFTER THE LATTER CLOSED DOWN THEIR BUSI NESS IN THE WAKE OF SLEEP FALL IN THE RECEIPTS, THE CLAIM FOR DEDUCTION UNDER SECTION 36(I)(VII) IS ALLOWABLE. THE RELEVANT HEAD NOTES OF THE DECISION ARE EXTRACTED HEREUNDER: BUSINESS EXPENDITURE- BAD DEBT- CLOSURE OF BUSINES S OF FRANCHISEES- FOLLOWING STEEP FALL IN THE RECEIPTS O F THE ASSESSEES FRANCHISEES, A COMMERCIAL DECISION WAS TAKEN BY THEM TO CLOSE DOWN THE BUSINESS AND THE DUES FROM THE FRANCHISEES WERE WRITTEN OFF- THERE IS NOTHING FOR THE REVENUE TO SUSPECT TH E MOTIVE OF THE ASSESSEE IN WRITING OFF THE DEBT- QUESTION AS TO WH ETHER A DEBT HAS BECOME BAD OR DOUBTFUL IS A FACTUAL ONE- HONEST JUD GMENT MADE AT THE TIME WHEN THE ASSESSEE WROTE OFF THE DEBT, IN T HE LIGHT OF THE EVENTS LEADING TO THAT STAGE, COULD NOT BE FOUND FA ULT WITH- CLAIM FOR DEDUCTION UNDER S. 36(1)(VII) COULD NOT BE REJE CTED. THE ABOVE DECISION IS APPLICABLE ONLY WHEN THE ASSE SSEE PROVES THAT THERE IS/ARE DUES FROM THE FRANCHISEES WHICH HAVE BECOME IRRECOVERABLE, WHEREAS, ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 17 IN THE INSTANT CASE, SINCE THE SAID ELEMENT IS NOT ESTABLISHED, WE ARE OF THE VIEW THAT THE DECISION OF THE HIGH COURT OF MADRAS IS NOT APPLICABLE. WHILE WE ADMIT THE CONTENTION OF THE ASSESSEE THAT IT IS AN ADMITTED FACT THAT THE ADVANCES TO THE FRANCHISEES ARE THROUGH BANKING CHA NNELS AND THESE LOANS ARE DOUBTFUL IS NOT THE CASE OF THE AO OR THE LD.CI T (A) AND THEREFORE, THE CONFIRMATIONS OF THE FRANCHISEES CANNOT BE INSISTED AT THIS STATE OF SECOND APPEAL AFTER MORE THAN 10 YEARS ESPECIALLY IN THE W AKE OF THE FACT THAT THE ASSESSEE AND THE FRANCHISEES HAVE NO TRANSACTIONS P OST 31.03.2001, WE DIRECT THE AO TO GIVE A FINDING BASED ON FACTS AFTER EXAMI NING THE RELEVANT RECORDS OF THE TRANSACTION OF THE ASSESSEE WITH THE FRANCHI SEES BY GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PRODUCE THE RELEVANT RECORDS. ACCORDINGLY, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 5. GROUND NO. 3 RELATES TO THE DISALLOWANCE OF RS.1 ,85,498/- MADE BY THE AO AND THE SAME CONFIRMED BY THE LD. CIT(A) ON ACCO UNT OF DECREASE IN VALUATION OF STOCK. 5.1 BRIEFLY STATED, THE ASSESSEE IN THE P & L ACCOU NT HAD REDUCED AN AMOUNT OF RS.1,07,98,248/- ON ACCOUNT OF DECREASE I N VALUATION OF STOCK. IN THAT, THE ASSESSEE HAD REDUCED THE VALUE OF 671 SHA RES OF RELIANCE INDUSTRIES LTD TO ZERO AS THE SHARES WERE PHYSICALLY LOST. HOW EVER, IN THE ASSESSMENT COMPLETED, THE AO DISALLOWED THE IMPUGNED LOSS AMOU NTING TO RS.1,85,498/- AND ADDED THE SAME TO THE TOTAL INCOME AS THE ASSES SEE COULD HAVE OBTAINED DUPLICATE RECORDS IF THE SHARES WERE LOST. ON APPEA L, THE LD.CIT(A) UPHELD THE DECISION OF THE AO. AGGRIEVED BY THE IMPUGNED DECIS ION, THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL BEFORE US. 5.2 BEFORE US, THE LD. AR HAS STATED THAT THE SHARE S OF RELIANCE INDUSTRIES LTD HAVE BEEN PURCHASED BEFORE 31.03.2001 AND 671 S HARES HAVE BEEN LOST BEING IN PHYSICAL FORM AND THUS THE AMOUNT OF RS.1, 85,498/- HAS BEEN WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION. THE LD.AR HAS RELIED ON THE DECISIONS IN THE CASES OF CIT VS. N.A.S.A. ANNAMALAI CHETTIAR , [86 ITR 607 (SC)], POHOOMAL BROS VS. CIT [34 ITR 64 (BOM)] AND CIT VS. DEMPO & CO (P) LTD ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 18 [206 ITR 291]. ON THE OTHER HAND, THE COUNSEL FOR T HE REVENUE HAS RELIED ON THE DECISIONS OF THE AO AND THE LD.CIT (A). 5.3 WE HAVE HEARD BOTH THE PARTIES ON THIS GROUND A ND PERUSED THE MATERIAL ON RECORD. IT IS NOT DISPUTED THAT THE ASS ESSEE HAS NOT PRODUCED ANY EVIDENCE EITHER BEFORE THE AO OR BEFORE THE LD.CIT( A) AS TO THE PHYSICAL LOSS OF THE SHARES. ALSO, WE FIND MERIT IN THE REASONING OF THE LD.CIT(A) THAT IF THE SHARES ARE LOST, THE ASSESSEE COULD HAVE OBTAINED D UPLICATE FOR THE SAME. IT IS PERTINENT TO STATE THAT THE CASES RELIED ON BY THE LD.AR ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AS THE FIRST TWO DECI SIONS ARE PERTAINING TO THE DAMAGE TO THE PROPERTY DUE TO WAR & THE NON-USE OF THE OFFICE SPACE DUE TO THE OCCUPATION OF JAPANESE DURING THE WAR RESPECTIV ELY. THE THIRD DECISION RELIED ON BY THE LD.AR IS ALSO OUT OF THE CONTEXT O F THE FACTS OF THE PRESENT CASE. IN VIEW OF THAT MATTER, WE DO NOT FIND ANY IN FIRMITY IN THE DECISION OF THE LD.CIT(A) ON THIS COUNT AND THE SAME IS UPHELD. THUS GROUND NO.3 IS DISMISSED. 6. GROUND NO.4 RELATES TO THE DISALLOWANCE REGARDIN G THE ADJUSTMENT (REDUCTION) OF A SUM OF RS.6,07,078/- FROM PRIOR PE RIOD INCOME AS THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUN TING. 6.1 BRIEFLY STATED, IN ANNEXURE J TO THE STATEMEN T OF ACCOUNT ACCOMPANYING THE RETURN OF INCOME, THE ASSESSEE HAD SHOWN A PRIOR PERIOD INCOME OF RS.13,98,128/-. THE ASSESSEE HAD DEBITED THE EXPENSES AMOUNTING TO RS.6,07,078/- AFTER CREDITING PRIOR PERIOD ACTUA L INCOME OF RS.19,37,832/- FROM INTEREST ON FD. IN THE ASSESSMENT COMPLETED, THE AO DISALLOWED THE IMPUGNED EXPENSE OF RS.6,07,078/- ON THE REASON THA T THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING WHEREAS, THE ASSESSEE, CLAIMING OF SUCH EXPENSES WOULD AMOUNT TO FOLLOWING CASH SYSTEM WHICH WAS NOT THE METHOD FOLLOWED BY THE ASSESSEE. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE AS THERE WAS NO NEXUS IN TERMS OF SECT ION 57 OF THE INCOME TAX ACT TO SHOW THAT THE EXPENDITURE WAS INCURRED FOR E ARNING THE INTEREST ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 19 INCOME. AGGRIEVED BY THE IMPUGNED DECISION, THE ASS ESSEE HAS RAISED THIS GROUND IN THE APPEAL BEFORE US. 6.2 BEFORE US, THE LD.AR OF THE ASSESSEE HAS STATED THAT THE EXPENDITURE OF RS.6,07,078/- COMPRISES OF THREE COMPONENTS NAMELY, REVERSAL OF FD INTEREST OF RS.5,55,150/-. PRINTING AND STATIONARY OF RS.2,6 23/- AND INCOME TAX PENALTY OF RS.48,305/-. THE AMOUNT OF RS.5,55,150/- HAS TO BE ALLOWED AS EXPENDITURE, IN AS MUCH AS THE SAME IS REVERSAL ON FIXED DEPOSIT WITH GLOBAL TRUST BANK (GTB), OFFERED FOR TAX IN EARLIER YEARS AND THE SAME NETTED OFF AGAINST THE INTEREST INCOME OF PRIOR PERIOD. TH E LD.CIT(A) OUGHT TO HAVE ALLOWED THE ASSESSEES CLAIM OF REDUCTION OF INCOME ON FIXED DEPOSIT IN AS MUCH AS THE SAME IS WITHDRAWN BY THE BANK. ON THE O THER HAND, THE COUNSEL FOR THE REVENUE HAS RELIED ON THE ORDER THE LD.CIT( A). 6.3 WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AN D PERUSED THE MATERIAL ON RECORD. AS PER THE ACCOUNTING POLICY, IT IS FOR THE ASSESSEE TO DEMONSTRATE THAT THE LIABILITY HAS BEEN INCURRED IN THE YEAR UN DER CONSIDERATION. THE LD.ARS ARGUMENT THAT THE PRIOR PERIOD EXPENSES TO BE ALLOWED AS SET OFF AGAINST THE PRIOR PERIOD INCOME, IN OUR VIEW, IS NO T LEGALLY TENABLE. ALSO, AS THERE IS NO MATERIAL PLACED ON RECORD TO SHOW THAT THERE IS ANY NEXUS THAT THE EXPENSES CLAIMED ARE INCURRED FOR EARNING OF THE IN TEREST INCOME IN TERMS OF SECTION 57 OF THE ACT, WE DO NOT FIND ANY JUSTIFIAB LE REASON TO INTERFERE WITH THE FINDINGS OF THE LD.CIT(A) ON THIS COUNT AND THE SAME IS HEREBY UPHELD. ACCORDINGLY, GROUND NO. 4 IS DISMISSED. 7. GROUND NO.5 RELATES TO THE DIRECTION GIVEN BY TH E LD.CIT(A) TO THE AO TO TAX THE INTEREST INCOME OF RS.19,37,832/- AS INC OME FROM OTHER SOURCES. 7.1 BRIEFLY STATED, THE ASSESSEE IN THE RETURN OF I NCOME HAD SHOWN RS.19,37,832/- AS INTEREST ON FIXED DEPOSIT AS BUSI NESS INCOME. ON APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, THE LD.CIT(A) DIRECTED THE AO TO TAX THE SAID INCOME SEPARATELY UNDER THE HEAD INCOME FROM OTHER SOURCES AS THERE WAS NOTHING TO SHOW THAT THE INCOME FROM FDRS WERE HAVING ANY NEXUS WITH ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 20 THE BUSINESS CARRIED ON BY THE ASSESSEE. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL B EFORE US. 7.2 BEFORE US, THE LD.CIT(A) HAS STATED THE CASE OF THE ASSESSEE IS SQUARELY COVERED IN ITS FAVOUR IN THE IDENTICAL SET OF FACTS BY THE DECISIONS OF THE ITAT IN THE CASES OF NH SECURITIES LTD, ITA NO. 6312/M/09 FOR THE A.Y. 2006-07, CLASSIC SHARES AND STOCK BROKING SERVICES LTD, ITA NO 191 & 1135/M/2008 FOR THE AYS 2002-03 & 2003-04 AND V N P AREKH SECURITIES PVT LTD, ITA NOS 6876, 7047 & 7048/M/2007 FOR THE AYS 2 002-03, 2003-04 & 2004-05. 7.2.1 ON THE OTHER HAND, THE LD. COUNSEL FOR THE RE VENUE HAS RELIED ON THE DECISIONS IN THE CASES OF ALLIED CONSTRUCTION [105 ITO 1(DEL)], SOUTH INDIAN SHIPPING CORPORATION [240 ITR 24 (MAD)] & DR. V.P. GOPINATHAN [248 ITR 449(SC)] AND CONTENDED THAT THE IMPUGNED INCOME HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES AS RIGHTLY DIR ECTED BY THE LD.CIT(A). 7.3 WE HAVE HEARD BOTH THE PARTIES ON THIS GROUND A ND PERUSED THE MATERIAL ON RECORD. IT IS PERTINENT TO MENTION THAT IN THE CASE OF NH SECURITIES, THE TRIBUNAL NOTED THAT THE FDRS HAVE B EEN PLACED WITH THE BANKS FOR ISSUE OF BANK GUARANTEES, WITH STOCK EXCHANGE I N CONNECTION WITH THE BUSINESS OF THE ASSESSEE FOR ARRIVING AT A DECISION THAT THE INTEREST FROM FDRS PLEDGED IN CONNECTION WITH BUSINESS HAS TO BE TREAT ED AS BUSINESS INCOME. HOWEVER, IN THE PRESENT CASE OF THE ASSESSEE, THERE IS NOTHING TO SHOW THAT THE FDRS ARE KEPT FOR THE PURPOSE OF THE BUSINESS O F THE ASSESSEE AND HENCE WE ARE OF THE OPINION THAT THE FACTS OF THE CASE IN NH SECURITIES IS NOT IDENTICAL TO THE FACTS IN THE PRESENT CASE OF THE A SSESSEE. SIMILARLY, IN OTHER CASES RELIED BY THE LD.AR, A CLEAR FINDINGS ARE THE RE AS REGARDS THE NATURE OF INVESTMENT AND THE PURPOSES THEREON. AS REGARDS THE CASES RELIED ON BY THE LD.COUNSEL FOR THE REVENUE, THERE HAVE BEEN CLEAR F INDINGS BY THE COMPETENT AUTHORITIES AS TO THE NATURE/SOURSE/PURPOSE OF THE IMPUGNED INVESTMENT LIKE SURPLUS FUNDS FROM THE BUSINESS, TERM DEPOSITS ETC AND HENCE HAS BEEN TREATED AS INCOME FROM OTHER SOURCES AS THESE INVES TMENTS ARE NOT CONNECTED ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 21 WITH THE BUSINESS ACTIVITY. IN THE RESULT, NEITHER THE ASSESSEE NOR THE REVENUE IS IN A POSITION TO ESTABLISH WHETHER THE FDRS WITH THE BANK IS KEPT FOR THE BUSINESS PURPOSE OR NOT. IN VIEW OF THAT MATTER, WE ARE OF THE OPINION THAT THE LD.CIT(A) IS NOT JUSTIFIED IN SIMPLY DIRECTING THE AO TO ASSESSEE THE IMPUGNED RECEIPT IS TO BE TAXED UNDER THE HEAD INC OME FROM OTHER SOURCES WITHOUT VERIFYING THE NATURE OF THE FDRS, SOURCE OF INVESTMENT AND THE PURPOSE FOR WHICH THE FDRS ARE KEPT IN THE BANK. AS THE ORDERS OF THE LOWER AUTHORITIES DO NOT CONTAIN ANY RELEVANT FACTS AS TO THE NATURE/SOURCE/PURPOSE OF THE IMPUGNED INVESTMENT, WE ARE OF THE VIEW THAT IT WOULD MEET THE ENDS OF JUSTICE IF THIS ISSUE IS REMANDED BACK TO THE AO TO VERIFY THE NATURE OF THE FDRS, SOURCE OF INVESTMENT AND THE PURPOSE FOR WHIC H THE FDRS ARE KEPT IN THE BANK AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE TO DEFEND THE CASE THEREAFTER ACCORDINGLY TAX THE IMPUGNED RECEIP T UNDER THE RELEVANT HEAD OF INCOME. WE DIRECT AND ORDER ACCORDINGLY. GROUND NO. 5 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 8. GROUND NO, 6 RELATES TO THE DISALLOWANCE MADE BY THE AO AND THE SAME CONFIRMED BY THE LD.CIT(A) UNDER SECTION 43B B EING DELAYED PAYMENT TO ESIC FOR THE MONTH OF MARCH 2004 BEYOND THE DUE DATE. AGGRIEVED BY THE DECISION OF THE LD.CIT(A), THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL BEFORE US. 8.1 BEFORE US, THE LD. AR HAS STATED THAT THOUGH TH E PAYMENTS HAVE BEEN MADE BEYOND THE DUE DATES, THE SAME HAVE BEEN PAID BEFORE FILING THE RETURN OF INCOME AND THE SAME ARE ALLOWABLE IN VIEW OF THE SUPREME COURT DECISION IN THE CASE OF ALOM EXTRUSIONS [319 ITR 306(SC)] AN D VINAY CEMENTS [213 CTR (SC) 268]. ON THE OTHER HAND, THE COUNSEL FOR T HE REVENUE HAS RELIED ON THE ORDERS OF THE AO AND LD.CIT(A) . 8.2 WE HAVE HEARD BOTH THE PARTIES ON THIS GROUND A ND PERUSED THE MATERIAL ON RECORD. IT IS NOT DISPUTED THAT THE ASS ESSEE HAS PAID A SUM OF RS.2,058/- TO THE ESIC FOR THE MONTH OF MARCH 2004 BEFORE FILING THE RETURN OF INCOME. IT IS A SETTLED PRINCIPLE OF LAW THAT IN SO FAR AS THE INCOME TAX ACT IS CONCERNED, THE ASSESSEE CAN GET THE BENEFIT IF THE ACTUAL PAYMENT IS MADE ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 22 BEFORE THE RETURN IS FILED AS PER THE PRINCIPLE LAI D DOWN BY THE APEX COURT IN VINAY CEMENT CASE. IN VIEW OF THAT MATTER, WE DELET E THE IMPUGNED ADDITION OF RS.2,058/- MADE ON ACCOUNT OF DELAYED PAYMENT TO THE ESIC. GROUND NO. 6 IS THEREBY ALLOWED. 9. GROUND NO. 7 RELATES TO THE DISALLOWANCE OF RS.2 000/- ON ACCOUNT OF DONATION WHICH IS NOT PRESSED BY THE LD.AR AND HENC E REQUIRES NO ADJUDICATION. 10. GROUND NO. 8 RELATES TO DISALLOWANCE ON ELECTRI CAL FITTINGS RESTRICTED BY THE AO TO 15% AMOUNTING TO RS.10,637/-. 10.1 BRIEFLY STATED, THE ASSESSEE IN THE RETURN OF INCOME HAD CLAIMED DEPRECIATION ON ELECTRICITY FITTINGS @ 25%. HOWEVER , THE AO RESTRICTED THE SAME TO 15% IN VIEW OF THE AMENDMENT TO IT RULES WI TH EFFECT FROM AY 2003-04. THE DIFFERENCE @ 10% AMOUNTS TO RS.10,637/ - WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. ON CONFIRMING THE SAME BY THE LD.CIT(A), THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL B EFORE US. 10.2 BEFORE US, THE LD. AUTHORISED REPRESENTATIVE H AS RELIED ON THE ORDER OF THE ITAT IN THE ASSESSEES OWN CASE IN ITA NO. 76/M UM/2009 FOR THE AY 2005-06. ON THE OTHER HAND, THE LD. COUNSEL FOR THE REVENUE HAS RELIED ON THE ORDERS OF THE AO AND LD.CIT(A). 10.3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS PERTINENT TO EXTRACT THE FINDINGS OF THE ITAT IN THE SAID CASE RELIED BY THE LD. AR WHICH READS AS FOLLOWS: THE SAME ARGUMENTS THAT WERE ADVANCED BEFORE CIT(A ) WERE REITERATED BEFORE US. THE LEARNED DEPARTMENTAL REPR ESENTATIVE RELIED ON THE ORDER OF THE AO. WE HAVE CONSIDERED THE RIVA L SUBMISSIONS. IN OUR VIEW THE SUBMISSIONS MADE ON BEHALF OF THE ASSE SSEE IS ACCEPTABLE. THE ELECTRICAL INSTALLATION ONCE THEY F ORM PART OF THE BLOCK OF ASSETS, PLANT AND MACHINERY PRIOR TO A.Y. 2003-0 4, DEPRECIATION HAS TO BE ALLOWED N THE WRITTEN DOWN VALUE OF THE BLOCK . WE ARE OF THE VIEW THAT ONCE A PARTICULAR DEPRECIABLE ASSET ENTER S THE BLOCK IT LOSSES ITS IDENTITY AND IT IS NOT POSSIBLE TO APPLY THE NE W RATES OF DEPRECIATION ON THE WRITTEN DOWN VALUE OF THE ELECTRICAL INSTALL ATION BY CARVING OUT ITS WDV FROM THE BLOCK OF ASSETS, PLANT AND MACHINE RY. WE, THEREFORE, ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 23 AGREE WITH THE SUBMISSIONS OF THE ASSESSEE AND DIRE CT THE AO TO ALLOW DEPRECIATION AS CLAIMED BY THE ASSESSEE. SINCE NO DIFFERENCE IN FACTS HAS BEEN BROUGHT ON RE CORD, WE, FOLLOWING THE SAID DECISION, DIRECT THE AO TO ALLOW THE DEPRECIAT ION AS CLAIMED BY THE ASSESSEE. ACCORDINGLY, GROUND NO. 8 IS ALLOWED. 11. GROUND NO. 9(B) RELATES TO THE DIRECTION GIVEN BY THE LD.CIT(A) TO TAX INTEREST ON FIXED DEPOSITS RS.1,95,74,632/- AND MIS CELLANEOUS INCOME RS.3,01,450/- UNDER THE HEAD INCOME FROM OTHER SOU RCES. AGGRIEVED BY THE IMPUGNED DIRECTION, THE ASSESSEE HAS RAISED THIS GR OUND IN THE APPEAL BEFORE US. 11.1 BEFORE US THE LD.AR AND THE LD.COUNSEL FOR THE REVENUE HAVE PLACED THE SAME ARGUMENTS THAT THEY HAVE PLACED ON GROUND NO 5 OF THE APPEAL WHICH ARE STATED IN PARA 7.1 & 7.2 ABOVE AND HENCE NEED NOT BE REPRODUCED AGAIN. 11.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. FOLLOWING THE SAME REASONING GIVEN IN PARA 7.3 IN THE SIMILAR SET OF FACTS, WE ARE OF THE VIEW THAT IT WOULD MEET THE EN DS OF JUSTICE IF THIS ISSUE IS REMANDED BACK TO THE AO TO VERIFY THE NATURE OF THE INVESTMENT, SOURCE OF INVESTMENT AND THE PURPOSE FOR WHICH THE INVESTMENT S ARE MADE AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE TO DEFEND TH E CASE THEREAFTER ACCORDINGLY TAX THE IMPUGNED RECEIPT UNDER THE RELE VANT HEAD OF INCOME. WE DIRECT AND ORDER ACCORDINGLY. GROUND NO. 6 IS TREAT ED AS ALLOWED FOR STATISTICAL PURPOSE. 12. GROUND NO. 9 (C) RELATES TO THE DIRECTION GIVEN BY THE LD.CIT(A) TO THE AO TO TAX THE DIVIDEND INCOME OF RS.10,799/-. 12.1 AT THE OUTSET, IT IS PERTINENT TO MENTION THAT THE DIVIDEND INCOME IS EXEMPT UNDER THE PROVISIONS OF SECTION 10(34) OF TH E INCOME TAX ACT AND THE LD.CIT(A) HAS NOT GIVEN ANY REASON WHY THIS OBVIOUS LY EXEMPT INCOME IS TO BE TAXED IN THE HANDS OF THE ASSESSEE. HENCE, WE SE T ASIDE THE DIRECTION GIVEN BY THE LD.CIT(A) TO TAX THE SAME AND THIS GRO UND IS ALLOWED. ITA NO. 6879/M/08 TRIUMPH INTERNATIONAL FINANCE INDIA LTD. A Y . 2004-05 24 13. GROUND NO.10 RELATES TO CHARGING INTEREST UNDER SECTION 234B OF THE ACT, WHICH IS CONSEQUENTIAL AND PRE MATURE IN NATUR E AND HENCE WE ARE NOT ADJUDICATING THE SAME. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19TH DAY OF APRIL 2013 . -SD- -SD - (D. KARUNAKARA RAO) ACCOUNTANT MEMBER (DR. S.T.M. PAVALAN) JUDICIAL MEMBER MUMBAI, DATED: 19.04.2013 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR I BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.