ACIT, New Delhi V. M/s. GE Capital Transportation Financial Services Ltd., New Delhi

ITA 767/DEL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6899 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-07-2016
• Assessment Year: 2002-2003
• Appeal Filed On: 07-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: T VASANTHAN
• Keywords: Capital asset; Business income; Depreciation; Bad and doubtful debts; Revised return; Revenue expenditure
• Section: 143(3); 2(14); 14A; 32; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C, NEW DELHI BEFORE SHRI G. D. AGRAWAL, HONBLE VICE PRESIDENT AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER I.T.A. NO.767/DEL/2011 (ASSESSMENT YEAR 2002-03) ACIT, CIRCLE 12(1), VS. M/S. GE CAPITAL TRANSPORTAT ION NEW DELHI FINANCIAL SERVICES LTD., AIFACS BUILDING, 1, RAFI MARG, NEW DELHI -110 001 GIR / PAN : AAACS0001N I.T.A.NO. 514/DEL/2011 (ASSESSMENT YEAR 2002-03) M/S. GE CAPITAL TRANSPORTATION VS. ACIT, CIRCLE 12( 1), FINANCIAL SERVICES LTD., NEW DELHI AIFACS BUILDING, 1, RAFI MARG, NEW DELHI-110 001 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TUSHAR JARWAL, ADV SHRI GAUTAM SWARUP, ADV. RESPONDENT BY :SHRI T VASANTHAN, SR. DR DATE OF HEARING: 04.07.2016 DATE OF PRONOUNCEMENT: 27.07.2016 ORDER PER BEENA A. PILLAI, JM: THE PRESENT APPEALS ARE FILED BY THE REVENUE (I.T.A.NO. 767/DEL/2011) AND ASSESSEE (I.T.A.NO. 514/DEL/2011) AGAINST THE ORDER DATED 30.11.2010 2 I.T.A.NO.763,514/DEL/2011 PASSED BY LD. CIT(A) XV, NEW DELHI FOR THE ASSESSME NT YEAR 2002-03. 2. THE BRIEF FACTS OF THE CASE ARE AS UNDER: 2.1 GE CAPITAL TRANSPORTATION FINANCIAL SERVICES LTD. ('THE ASSESSEE') IS A NON BANKING FINANCIAL COMPANY ('NBFC') ENGAGED IN THE BUSINESS OF LEASING, HIRE PURCHASE AND FINANCE. THE ASSESSEE FI LED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2002-03 ON OCTOBER 31, 2002 DECLARING A LOSS OF RS. 7,43,29,29 9/-. THEREAFTER, THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT VIDE INTIMATION DATED FEBRUARY 27,2003, WHEREIN THE ASSESSING OFFICER ACCEPTED THE RETURNED LOSS. SUBSEQUENTLY THE ASSESSEE FILED ITS REVISED RETURN OF INCOME ON MARCH 31,2004 TO MAKE AN ADDITIONAL CLAIM FOR TAX DEDUCTED AT SOURCE OF RS. 6,49,930/-. 3. THE ASSESSING OFFICER OBSERVED AS UNDER: ASSESSEE HAS NOT FURNISHED THE BASIS OF ARRIVING AT THE MARKET VALUE OF THE LOSS OF THE REPOSSESSED STOCK STILL IN POSSESSION OF THE ASSESS EE AT THE END OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR. HE SUBMITTED THAT NO OTHER DISCLOSURE HAS ALSO BEEN MADE IN THE ACCOUNTING POLICIES ATTACHED WITH THE ANNUAL ACCOUNTS AS SCHERDULE-14. THE AUDITORS HAVE ONLY COMMENTED THAT REPOSSESSED STOCK IS VALUED AT THE LOWER OF AGREEME NT VALUE NET OF INSTALLMENTS RECEIVED AND UNMATURED FINANCE CHARGES AND THE ESTIMATED REALIZABLE VALUE OF THE ASSET CONCERNED. 3 I.T.A.NO.763,514/DEL/2011 3.1 THE LD. A.O. FURTHER OBSERVED AS UNDER: THE ASSESSEE MAY BE GOVERNED BY THE STATUTORY BODIES REGULATING IT'S CONDUCT IN ORDINARY COURSE O F BUSINESS BUT THE INCOME HAS TO BE COMPUTED STRICTLY IN ACCORDANCE WITH THE PROVISION OF THE INCOME TAX ACT , 1961. THE INVESTMENT CONSTITUTE CAPITAL ASSET IN TH E HANDS OF THE ASSESSEE, THEREFORE ANY LOSS ON ACCOUN T OF SALE OF CAPITAL ASSET CANNOT BE CLAIMED AS A DEDUCTION IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE. THE ASSESSEE HAS RELIED UPON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF INVESTMENT LTD VS CIT -77 ITR 533 WHEREIN IT WAS HELD THAT NOMENCLATURE OF A PARTICULAR ITEM DOES NOT DECIDE I T'S NATURE. A TAX PAYER IS FREE TO EMPLOY FOR THE PURPO SE OF HIS TRADE HIS OWN METHOD OF KEEPING ACCOUNTS. IN THAT CASE THE ASSESSEE INVOLVED WAS A DEALER OF SHARES. APPLYING THE SAME LOGIC THE LOSS CLAIMED ON STOCK IN TRADE CANNOT BE TREATED AS A REVENUE LOSS BECAUSE THE ASSESSEE IS NOT REGULARLY ENGAGED IN TH E BUSINESS DEALING IN SHARES. IT HAS BEEN OBSERVED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE FOR THI S YEAR AND THE LAST SO MANY YEARS THAT NO PURCHASE OF SHARES HAS BEEN DONE. THE LOSS, WHICH HAS ARISEN, I S ON ACCOUNT OF SHARES AND GOVERNMENT SECURITIES HELD FOR A VERY LONG TIME. BY TREATING PART OF IT AS STO CK IN TRADE THE ASSESSEE DOES NOT BECOME ENTITLED TO CLAIMING THE LOSS ON STOCK- IN-TRADE. IN THE CASE O F KEDARNATH JUTE MANUFACTURING 82 ITR 363 THE HON'BLE SUPREME COURT HAS HELD THAT ACCOUNTING ENTRIES IN T HE BOOKS OF THE ASSESSEE DO NOT DECIDE THE TAXABLE INCOME OF THE ASSESSEE. IN THE INSTANT CASE NOT A SINGLE SHARE HAS BEEN PURCHASED FOR LAST MANY YEARS . THERE IS NO REGULAR PURCHASE AND SALE ACTIVITY OF SHARES BY THE ASSESSEE. VIDE SUBMISSION DATED .03.2005 THE ASSESSEE HAS SUBMITTED THAT THE COMPANY BEING NBFC IS ENGAGED IN THE BUSINESS OF SHARES AND SECURITIES, HOWEVER, IT IS SEEN THAT THE RE IS NO DEALING IN SHARES FOR LAST MANY YEARS. THE ASSESSEE IS JUST SHOWING THEM AS STOCK IN TRADE IN ITS BOOKS BUT NO DEALING BUSINESS OF SHARE IS BEING DON E. 4 I.T.A.NO.763,514/DEL/2011 THE TREATMENT OF SHARES IN THE BOOKS AS STOCK IN TR ADE DOES NOT ENTITLED THE ASSESSEE TO CLAIM THE SHARES HELD BY IT FOR A VERY LONG PERIOD AS BUSINESS LOSS. NOT EVEN MENTIONING OF THE PHRASE DEALING IN SHARES AND SECURITIES IN THE OBJECT CLAUSE OF MEMORANDUM AND ARTICLE OF ASSOCIATION OF COMPANY DECIDE THAT THE BUSINESS OF THE COMPANY IS DEALING ION SHARES. WHAT HAS TO BE SEEN IS WHETHER THE ACTIVITY OF SALE AND PURCHASE OF SHARES FOR EARNING BUSINESS PROFITS HAS BEEN DONE OR NOT, THE ASSESSEE COMPANY FAILS THIS TEST. 3.2 THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT BY THE LD. DEPUTY COMMISSIONER OF' INCOME TAX, CIRC LE 12(1), NEW DELHI (THE A.O.) VIDE HIS ORDER DATED MARCH 14, 2005, WHEREIN THE ASSESSEE WAS ASSESSED AT A LO SS OF RS.8,01,33,086/- ON ACCOUNT OF THE FOLLOWING DISALLOWANCES: LOSS AS PER RETURN, DATED 31.10.2002 7,43,29,299 /- ADD: I) LOSS ON REPOSSESSED STOCK 69,19,000/ - II) OUT OF DIVIDEND INCOME 1,567/- LOSS ON SALE OF INVESTMENT 1,69,52 8/- NET 6,72,39,204/- LESS: PRINCIPAL AMOUNT INCLUDED IN LEASE RENAL REDUCED BY DEPRECIATION CLAIMED IN RESPECT F LEASE TRANSACTIONS WHICH WERE HELD THOSE OF FINANCE (PARA 7) 8,01,33,086 /- TOTAL INCOME BEING LOSS 8,01,33,086/- HOWEVER, THIS FIGURE WILL BE RESTRICTED TO THE RETURNED LOSS OF RS.7,43,29,299/- ROUNDED OFF 7,43,29,300/- 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). LD. CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOU NT OF LOSS ON SALE OF REPROCESSED STOCK AND CONFIRMED THE ADDITION IN RESPECT OF LOSS ON SALE OF INVESTMENTS. HE 5 I.T.A.NO.763,514/DEL/2011 FURTHER MADE CERTAIN DISALLOWANCES IN RESPECT OF SECTION14A. 5. AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REVENU E AS WELL AS ASSESSEE ARE IN APPEAL BEFORE US ON THE FOL LOWING GROUNDS: REVENUES APPEAL; ITA NO. 767/DEL/2011: I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE ORDER OF THE CIT(A) IS ERRONEOUS, PERVERSE , ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.69,19,000/- MADE BY THE AO ON ACCOUNT OF LOSS ON SALE/DISPOSAL OF REPOSSESSED HIR E PURCHASE ASSETS. III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN QUASHING THE RESTRICTION TO THE ASSESSED LOSS OF RS. 8,01,33,086 /- TO THE RETURNED LOSS OF RS. 7,43,29,300/- MADE BY THE AO. GROUND NO.(I) IS GENERAL IN NATURE. GROUND NO.(II) & (III): 6 LD. D.R. SUBMITTED THAT ASSESSEE HAS NEITHER DISCLOSED REGARDING ESTIMATION OF REALIZABLE VALUE NOR THE METHOD OF COMPUTATION OF ESTIMATED VALUE. LD. D.R. SUBMITTED THAT THE LOSS FIGURE OF RS.69,19,000/- IS NOT ACTUAL LOSS OF THE ASSESSEE BUT ALSO INCLUDES NOTIO NAL LOSS CLAIMED BY THE ASSESSEE OCCURRED TO IT WHICH CANNOT BE ALLOWED AS AN EXPENSE IN THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE AS THE SAME IS NOT AN ASCERTAINED EXPENDIT URE. 6 I.T.A.NO.763,514/DEL/2011 LD. D.R. SUBMITTED THAT THE VIEW TAKEN BY THE LD. A .O. IS SUPPORTED BY THE DECISION OF ALLAHABAD HIGH COURT I N CASE OF MOTOR AND GENERAL SALES (P) LTD. VS CIT REPORTED IN (1997) 226 ITR 137. HE SUBMITTED THAT UNLESS THE ASSESSEE ELABORATED ON HOW THE REALIZABLE VALUE WAS ESTIMATED, THE LOSS WAS A NOTIONAL LOSS AND CANNOT BE ALLOWED AS A REVENUE EXPENDITURE. 7. ON THE CONTRARY THE LD. A.R. SUBMITTED THAT THE ASSESSEE COMPANY IS A NON-BANKING FINANCE COMPANY ENGAGED IN BUSINESS OF PROVIDING FINANCE TO INDUSTR Y AND AS PER DIRECTIONS ISSUED BY RBI THE ASSESSEE IS REQ UIRED TO MAINTAIN THE LIQUID ASSETS INCLUDING INVESTMENT IN SHARES, STOCK, GOVERNMENT SECURITIES ETC. LD. A.R. SUBMITTE D THAT THESE INVESTMENTS ARE IN THE ORDINARY COURSE OF BUS INESS. 7.1 LD. A.R. SUBMITTED THAT DURING THE PREVIOUS YE AR, AS PART OF ITS BUSINESS, THE ASSESSEE HAS GIVEN CERTAI N ASSETS ON HIRE PURCHASE. UNDER THE HIRE PURCHASE, THE INSTALLMENTS RECEIVABLE FROM THE HIRER IN RESPECT O F THE ASSETS GIVEN ON HIRE BECOMES DUE AND PAYABLE AFTER 'PREDETERMINED INTERVALS AS DECIDED IN ADVANCE IN T HE AGREEMENTS ENTERED INTO BETWEEN THE ASSESSEE AND TH E HIRERS. THE VALUE OF THESE RECEIVABLES ARE SHOWN AS STOCK - ON - HIRE IN THE BALANCE SHEET OF THE COMPANY (REFE R SCHEDULE 7 OF THE AUDITED ACCOUNTS). LD. A.R. SUBMI TTED THAT ASSESSEE HAS NOT CLAIMED DEPRECIATION ON THE S AME IN THE COMPUTATION OF INCOME FOR THE F.Y. 2001- 02. 7 I.T.A.NO.763,514/DEL/2011 7.2 HE SUBMITTED THAT UNDER THE HIRE PURCHASE AGREEMENTS, IN CASE HIRER MAKES A DEFAULT IN THE PA YMENT OF CERTAIN MEMBER OF INSTALLMENTS, THE COMPANY HAS THE RIGHT TO REPOSSESS THE STOCK GIVEN UNDER THE HIRE P URCHASE TRANSACTION. HE SUBMITTED THAT IN CASE OF HIRERS WH O DO NOT PAY/AGREE TO PAY THE OVERDUE INSTALLMENTS, THE COMPANY REPOSSESSES THE HIRED ASSETS. SINCE THE REPOSSESSED ASSETS ARE ALREADY USED ONES, I.E., THE Y ATTAIN THE COMMERCIAL STATUS OF SECOND-HAND ASSETS, THE APPELLANT SEARCHES FOR POTENTIAL BUYERS OF SUCH ASS ETS, WHICH SOMETIMES COULD BE THE HIRER HIMSELF, AND THEREAFTER SELLS SUCH REPOSSESSED STOCK. SUCH STOCK , TO THE EXTENT UNSOLD, FORMS PART OF THE APPELLANT'S CURREN T ASSETS AND VALUED, AS PER THE APPELLANT'S ACCEPTED PRACTIC E OF VALUATION, I.E., AGREEMENT VALUE NET OF INSTALLMENT S RECEIVED AND IMMATURED FINANCE CHARGES, AND THE ESTIMATED REALIZABLE VALUE, WHICHEVER IS LOWER. 7.3 LD. A.R. SUBMITTED THAT DIFFERENCE BETWEEN THE AGREEMENT VALUE (NET OF INSTALLMENTS RECEIVED AND IMMATURED FINANCE CHARGES) AND THE ESTIMATED REALIZ ABLE VALUE IS PROVIDED AS A GAIN/LOSS. WHEN A REPOSSESSE D ASSET IS SOLD, THE EXCESS/SHORTFALL OF THE SALE PRO CEEDS VIS- A-VIS THE AMOUNT RECOVERABLE FROM THE HIRERS CONSTI TUTES THE PROFIT/(LOSS) INCURRED BY THE APPELLANT, WHICH IS BOOKED BY II IN ITS BOOKS. 7.4 HE FURTHER SUBMITTED THAT WHEN A REPOSSESSED AS SET, (LOSS IN RESPECT OF WHICH IS BOOKED IN THE EARLIER YEARS), IS 8 I.T.A.NO.763,514/DEL/2011 SOLD THEN THE PROVISION IS REVERSED AND THE GAIN/LO SS ARISING FROM THE SALE IS ACCOUNTED. LD. A.R. SUBMIT TED THAT DURING THE CAPTIONED ASSESSMENT YEAR, THE ASSESSEE CLAIMED LOSS ON REPOSSESSED STOCK INCURRED DURING T HE YEAR AMOUNTING TO RS. 69,19,000/-. 7.5 FURTHER, IT HAS BEEN SUBMITTED THAT THE ASSESSE E IS IN THE BUSINESS OF LEASING AND HIRE PURCHASE. IT I S AN ACCEPTED COMMERCIAL PRACTICE TO REPOSSESS THE ASSET S GIVEN ON HIRE PURCHASE FORM THE DEFAULTING HIRERS O R WHEN THE ASST IS RETURNED BY THE HIRER AFTER REFUSING TO PAY THE REMAINING INSTALLMENTS. THE REPOSSESSED ASSETS ARE NORMALLY DISPOSED OFF AT THE PREVAILING MARKET PRIC E, WHICH IS DECIDED ON THE BASIS OF REMAINING LIFE AND CONDITION OF THE ASSET. THE LOSS ON SALE OF REPOSS ESSED ASSETS OCCURS WHEN THE RECOVERY FROM SALE FALLS SHO RT OF THE VALUE OF THE REPOSSESSED ASSTS. THE LOSS ON SA LE OF REPOSSESSED STOCK IS INCIDENTAL TO AND IS AN INHERE NT PART OF THE BUSINESS OF HIRE PURCHASE. 7.6 LD. A.R. SUBMITTED THAT ASSESSEE IS CONSTRAINED TO SELL THE ASSET TO THE DEFAULTING HIRER HIMSELF AS T HE CONDITION OF THE ASSET MIGHT BE SUCH THAT IT WOULD FETCH A MUCH LOWER PRICE IF SOLD TO A THIRD PARTY. IN SOME CASES IT HAS BEEN SO THAT THE HIRER WANTED TO CANCEL THE SAL E FOR THE REASON THAT THE CONDITION OF THE ASSET HAS WORS ENED. LD. A.R. SUBMITTED THAT SINCE IN THE CASE OF SECOND HAND USED ASSETS IT IS DIFFICULT TO FIND A READY MARKET, COMMERCIAL PRUDENCE REQUIRES THAT THE ASSESSEE RECO VERS 9 I.T.A.NO.763,514/DEL/2011 THE PRICE FROM THE HIRER HIMSELF BY MAKING AN OFFER THAT RECOVERS THE PRICE FROM THE HIRER HIMSELF. HE SUBM ITTED THAT THERE MAY NOT BE ANY AVENUES AVAILABLE FOR REC OVERING THE AMOUNT PAYABLE BY THE HIRER OTHER THAN CONTRACT ED LITIGATION, WHICH MAY NOT BE WORTHWHILE, CONSIDERIN G THE TIME AND COST INVOLVED. 7.7 THE PRACTICE OF REPOSSESSING HIRE PURCHASE ASSE TS FROM DEFAULTING HIRERS AND DISPOSING OF THE SAME AT THE PREVAILING MARKET PRICE IS AN ACCEPTED COMMERCIAL PRACTICE IN THE BUSINESS OF HIRE PURCHASE. LOSSES I NCURRED IN THIS MANNER ARE INCIDENTAL TO, AND ARE AN INHERE NT PART OF, THE BUSINESS OF HIRE PURCHASE. 7.8 LD. A.R. SUBMITTED THAT THE FACT REMAINS THAT G OODS PURCHASED BY THE ASSESSEE AND GIVEN TO VARIOUS HIRE RS UNDER HIRE PURCHASE CONSTITUTE ASSESSEES STOCK IN TRADE. H SUBMITTED THAT THE ASSESSEE PAYS SALES TAX ON THE SAME (UNDER HIRE PURCHASE AGREEMENT) OF ITS SALES TO THE HIRER AT THE MATURITY OF THE AGREEMENT. LD. A.R. SUBMITTED THAT THE HIRE PURCHASE ASSETS ARE STOCK-IN-TRADE, AS THE AMOUNT RECOVERABLE FROM THE HIRE PURCHASER' CONSTIT UTE BUSINESS TRADE AND THE LOSS THERE OF IS ALLOWABLE A S BUSINESS LOSS AS' ASSESSEE IS ENGAGED INTO THE BUSI NESS OF MONEY LENDING. HE SUBMITTED THAT THE LOSS INCURRED ON DISPOSAL OF REPOSSESSED HIRE PURCHASE ASSETS REPRES ENTS THE INSTALLMENTS, WHICH COULD NOT BE RECOVERED FROM THE HIRERS, LESS THE SALE PROCEEDS RECOVERED. THE LD. A.R. SUBMITTED THAT THE AMOUNT WRITTEN OF AND CLAIMED BY THE 10 I.T.A.NO.763,514/DEL/2011 ASSESSES SHOULD BE ALLOWED UNDER THE ACT AS TRADING / BUSINESS LOSS. LD. A.R. SUBMITTED THAT SUCH LOSS H AD BEEN CONSISTENTLY BEEN ACCEPTED BY THE REVENUE IN T HE PAST AND PRECEDING ASSESSMENT YEARS. 7.9 LD. A.R. REFERRED TO THE NOTE REPRODUCED IN SCH EDULE X TO THE ANNUAL ACCOUNTS BY THE AUDITORS (PAGE 65), WHICH READS AS UNDER: 5. REPOSSESSED STOCK: REPOSSESSED STOCK IS VALUED AT LOWER OF AGREEMENT VALUE NET OF INSTALLMENTS RECEIV ED AND UNMATURED FINANCE CHARGES, AND THE ESTIMATED REALIZABLE VALUE OF THE ASSETS CONCERNED. LD. A.R. SUBMIT THAT THE ASSESSING OFFICER HAS NOTED THE ABO VE NOTE OF THE AUDITORS AND HAS FOUND NO FAULT WITH TH E SAME. HE FURTHER SUBMITTED THAT ASSESSEE WAS NEVER ASKED AT THE TIME OF ASSESSMENT TO EXPLAIN THE MECHANISM FOR DETERMINING THE MARKET VALUE OF THE REPOSSESSED ASSETS. THE ASSESSEE, HOWEVER, TRIED T O EXPLAIN THE BASIS ON WHICH THE LOSS WAS COMPUTED. 7.10 LD. A.R. IN HIS WRITTEN SUBMISSION, PLACED IN THE PAPER BOOK HAS RELIED UPON VARIOUS DECISIONS OF HON 'BLE SUPREME COURT AND HON'BLE JURISDICTIONAL HIGH COURT WHICH ARE AS UNDER: I) K.L. JOHAR & CO. VS DCIT (1965) 16 STC 213 (S.C. ); II) P MOHAMMED MEERAKHAN VS CIT (1969) 73 ITR 735 (S.C.); III) CIT VS BASTI SUGAR MILLS CO. LTD. 257 ITR 88 ( DEL.); IV) CITVS U P STAT INDUSTRIAL CORPN. (1997) 225 ITR 703 (S.C.); V) CHALLAPALLI SUGARS LTD. VS CIT (1975) 98 ITR 167 (S.C.); VI) KEDARNATH JUTE MFG. CO. LTD. 82 ITR 363 (S.C.) 7.11 LD. A.R. SUBMITTED THAT THE DECISION RELIED UP ON BY THE LD. D.R. IN CASE OF MOTOR & GENERAL SALES (P) L TD. VS CIT (SUPRA) IS DISTINGUISHABLE AS THE CASE DEALS WI TH 11 I.T.A.NO.763,514/DEL/2011 ASSESSMENT YEAR 1968-69, WHICH IS MUCH BEFORE THE CONCEPT OF HIRE PURCHASE GOT A STATUTORY DEFINITION UNDER THE HIRE PURCHASE ACT 1972. 8. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDE AND THE JUDGEMENTS RELIED UPON BY THEM. UNDOUBTEDLY, IT IS AN ADMITTED POSITION THAT THE RE VENUE IN THE PAST AND PRECEDING ASSESSMENT YEARS, HAVE BE EN ACCEPTING THE CLAIM OF ASSESSEE IN RESPECT OF THE L OSS ON SALE OF REPOSSESSED STOCK AND THERE HAS BEEN NO CHA NGE IN THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. 8.1 COMING TO THE DECISION OF HON'BLE ALLAHABAD HIG H COURT IN THE CASE OF MOTOR & GENERAL SALES (P) LTD. (SUPRA), RELIED UPON BY THE LD. D.R., WE AGREE WITH THE SUBMISSIONS ADVANCED BY LD. A.R. THAT THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT VS NAINITAL BA NK LTD. REPORTED IN 55 ITR 707 WAS NOT BROUGHT TO THE NOTICE OF HON'BLE ALLAHABAD HIGH COURT WHEREIN THE HON'BLE SUPREME COURT HAS HELD THAT THE AMOUNT RECOVERABLE FROM THE HIRER, DO CONSTITUTE STOCK IN TRADE. RELE VANT PARAS FROM THE DECISION OF HON'BLE SUPREME COURT IN CIT VS NAINITAL BANK LTD. (SUPRA) OF THE DECISION ARE REPRODUCED HEREIN BELOW: IT IS SETTLED LAW, AND INDEED IT IS NOT DISPUTED, THAT CASH IS THE STOCK IN TAD OF A BANKING COMPANY. IN ARUNACHALAM CHETTIAR VS CIT, THE JUDICIAL COMMITTEE WAS CONSIDERING THE BASIS OF THE RIGHT OF AN ASSESS EE TO DEDUCT IRRECOVERABLE LOANS BEFORE ARRIVING AT TH E PROFITS OF MONEY-LENDING, AND IN THAT CONTEXT IT ST ATED: 12 I.T.A.NO.763,514/DEL/2011 THE BASIS OF THE RIGHT TO DEDUCT IRRECOVERABLE LOAN S BEFORE ARRIVING AT THE PROFIT OF MONEY-LENDING IS T HAT TO THE MONEY-LENDER, AS TO THE BANKER MONEY IS HIS STOCK-IN TRADE OR CIRCULATING CAPITAL: HE IS DEALIN G IN MONEY IN COMMISSIONER OF INCOME-TAX V. SUBRAMANYA PILLAI IN A DIVISION BENCH OF THE MADRAS HIGH COURT , IN EXPLAINING THE PRINCIPLE WHY IN MONEY-LENDING BUSINESS ALLOWANCES FOR BAD DEBTS WERE GIVEN, OBSERVED: ' IN THE CASE OF BANKING OR MONEY-LENDING BUSINESS .... ALLOWANCE FOR BAD AND DOUBTFUL DEBTS WAS GIVEN FOR THE REASON THAT ALL THE MONEYS EMBARKED IN THE MONEY-LENDING BUSINESS AND LENT OUT FOR INTEREST WE RE IN THE NATURE OF STOCK-IN-TRADE OF THE BANKER OR MO NEY- LENDER AND THE BAD AND DOUBTFUL DEBTS REPRESENTED S O MUCH LOSS OF THE STOCK-IN-TRADE. LOSSES IN RESPECT OF THE STOCK-IN-TRADE HAVE ALWAYS BEEN REGARDED AS TRADE LOSSES AND ALLOWED TO BE SET OFF AGAINST THE RECEIPTS. ' THE SAME VIEW WAS EXPRESSED BY THE FULL BENCH OF THE MADRAS HIGH COURT IN RAMASWAMI CHETTIAR V. COMMISSIONER OF INCOME-TAX AND BY THE PATNA HIGH COURT IN MOTIPUR SUGAR FACTORY LTD. V. COMMISSIONER OF INCOME-TAX. UNDER SECTION 10(1) OF THE ACT LOSS OF STOCK-IN-TRA DE IS CERTAINLY AN ADMISSIBLE DEDUCTION IN COMPUTING THE PROFITS. PAYMENT RECEIVED FROM AN INSURANCE COMPANY FOR STOCK DESTROYED BY FIRE WAS TAKEN INTO ACCOUNT AS A TRADING RECEIPT IN COMPUTING THE PROFITS ASSESSAB LE TO INCOME TAX: SEE GREEN V. J. GLIKSTEN & SON LTD. AND RAGHUVANSHI MILLS LTD. V. COMMISSIONER OF INCOME-TA X 5. IF RECEIPT FROM AN INSURANCE COMPANY TOWARDS LOS S OF STOCK WAS A TRADING RECEIPT, CONVERSELY TO THE E XTENT OF THE LOSS NOT SO RECOUPED IT SHOULD BE TRADING LO SS. LOSS SUSTAINED BY AN ASSESSEE OWING TO DESTRUCTION OF THE STOCK WHICH THE ASSESSEE WAS ENTITLED TO CLA IM AS A DEDUCTION: SEE POHOOMAL BROS. V. COMMISSIONER 13 I.T.A.NO.763,514/DEL/2011 OF INCOME-TAX 6. LOSS INCURRED IN STOCK-IN-TRADE BY RAVAGES OF WHITE ANTS WAS ALLOWED AS TRADING LOSS I N COMPUTING THE PROFIT OF A BUSINESS: SEE HIRA LAL PHOOLCHAND V. COMMISSIONER OF INCOME-TAX 7. WE THEREFORE, REACH THE POSITION THAT CASH IS A STOCK- IN- TRADE OF A BANKING BUSINESS AND ITS LOSS IN THE COU RSE OF ITS BUSINESS UNDER VARYING CIRCUMSTANCES IS DEDUCTIBLE AS A TRADING LOSS IN COMPUTING THE TOTAL INCOME OF THE BUSINESS. BUT IT IS SAID THAT EVERY LOSS OF A STOCK-IN-TRADE IN WHATSOEVER WAY IT IS CAUSED IS NOT A TRADING LOSS, BUT THE SAID LOSS SHOULD HAVE BEEN CAUSED NOT ONLY IN T HE COURSE OF THE BUSINESS BUT ALSO SHOULD HAVE BEEN INCIDENTAL TO IT. THE LEADING CASE ON THE SUBJECT I S THAT OF THIS COURT IN BADRI DAS DAGA V. COMMISSIONER OF INCOME-TAX 8. THERE, THE APPELLANT WAS THE SALE PROPRIETOR OF A FIRM WHICH CARRIED ON THE BUSINESS OF MONEY-LENDING. THE AGENT OF FIRM WITHDREW LARGE AMOUNTS FROM THE FIRM'S BANK ACCOUNT AND APPLIED THEM IN SATISFACTION OF HIS PERSONAL DEBTS. IN THE FIRM'S ACCOUNT THE BALANCE OF THE AMOUNT NOT RECOVERED FRO M THE AGENT WAS WRITTEN OFF AT THE END OF THE ACCOUNT ING YEAR AS IRRECOVERABLE. THIS COURT HELD THAT THE LOS S SUSTAINED BY THE APPELLANT THEREIN AS A RESULT OF MISAPPROPRIATION BY THE AGENT WAS ONE WHICH WAS INCIDENTAL TO THE CARRYING ON OF THE BUSINESS AND SHOULD, THEREFORE, BE DEDUCTED IN COMPUTING THE PROFITS UNDER SECTION 10(1) OF THE ACT. VENKATARAMA AYYAR J., SPEAKING FOR THE COURT, OBSERVED: 'THE RESULT IS THAT WHEN A CLAIM IS MADE FOR A DEDUCTION FOR WHICH THERE IS NO SPECIFIC PROVISION IN SECTION 10(2), WHETHER IT IS ADMISSIBLE OR NOT WILL DEPEND ON WHETHER, HAVING REGARD TO ACCEPTED COMMERCIAL PRACTICE AND TRADING PRINCIPLES, IT CAN BE SAID TO ARISE OUT OF THE CARRYING ON OF THE BUSINES S AND TO BE INCIDENTAL TO IT. IF THAT IS ESTABLISHED, THEN THE DEDUCTION MUST BE ALLOWED, PROVIDED OF COURSE THERE IS NO PROHIBITION AGAINST IT, EXPRESS OR IMPL IED, IN THE ACT.' 14 I.T.A.NO.763,514/DEL/2011 8.2 APPLYING THE PRINCIPLES LAID DOWN BY HONBLE AP EX COURT TO THE PRESENT CASE, THE ASSESSEE WAS CARRYIN G ON THE BUSINESS OF HIRE PURCHASE / MONEY LENDING ACTIV ITIES. IT IS A PART OF THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND THE HIRER THAT; (I) POSSESSION OF GOODS IS DELIVERED BY THE OWNER THEREOF TO A PERSON ON CONDITION THAT SUCH PERSONS PAYS THE AG REED AMOUNT IN PERIODICAL INSTALLMENTS; (II) THE PROPERTY IN THE GOODS IS TO PASS TO SUCH P ERSON ON THE PAYMENT OF THE LAST OF SUCH INSTALLMENTS, AND (III) SUCH PERSON HAS A RIGHT TO TERMINATE THE AGRE EMENT AT ANY TIME BEFORE THE PROPERTY SO POSSESS. 8.3 BASED UPON THESE LEGAL AND CONTRACTUAL POSITION S UNDER HIRE PURCHASE AGREEMENT AND THE RATIO LAID DO WN BY HON'BLE SUPREME COURT IN CASE OF NAINITAL BANK (SUPRA), THE FOLLOWING CONSEQUENCES EMERGE: - WHEN THE APPELLANT GENERATE INCOME OUT OF HIRE PURC HASE TRANSACTIONS, (ON ACCOUNT OF REALISATION OF INSTALL MENTS FROM THE HIRERS) THE SAME IS TREATED AS BUSINESS IN COME. CONSIDERING THE SAME FACT, WHEN THERE IS A LOSS ON ACCOUNT OF .REPOSSESSION OF HIRE PURCHASE STOCK, TH E SAME SHOULD BE CONSIDERED AS A BUSINESS LOSS SINCE THE M AIN BUSINESS OF THE COMPANY IS TO GIVE ASSETS ON HIRE A ND AS 15 I.T.A.NO.763,514/DEL/2011 SUCH, ANY LOSS ARISING OUT OF SALE OF REPOSSESSED S TOCK IS INCIDENTAL AND INHERENT PART OF THE BUSINESS OF HIR E PURCHASE CARRIED ON BY THE COMPANY. REPOSSESSED HIRE PURCHASE ASSETS CONSTITUTE STOCK-I N- TRADE ('CURRENT ASSETS') FOR THE APPELLANT AND ARE CLASSIFIED AS SUCH IN ITS ACCOUNTS ALSO. THEY ARE NEITHER CLASSIFIED AS FIXED ASSETS NOR IS ANY DEPRECIATION CLAIMED THEREON BY THE APPELLANT. STOCK-IN-TRADE HAS BEEN SPECIFICALLY EXCLUDED FROM THE PURVIEW OF 'CAPITAL ASSETS' VIDE CLAUSE (I) OF SECT ION 2(14) OF THE ACT. ACCORDINGLY, THE REPOSSESSED ASSETS ARE NO T CAPITAL ASSETS OF THE APPELLANT. THE ABOVE MENTIONED LOSS AROSE CONSEQUENT TO THE REPOSSESSION OF ASSETS GIVEN ON HIRE PURCHASE, FOLL OWING A DEFAULT BY THE HIRER'S. THE SHORTFALL OF THE REALIZABLE VALUE/SALE PROCEEDS VIS-A-VIS THE AMOUNT RECOVERABLE FROM THE HIRERS CONSTITUTED THE LOSS INCURRED BY THE APPELLANT IS A BUSINESS LOSS. 8.4 RESPECTFULLY FOLLOWING DECISION OF HON'BLE SUPR EME COURT IN THE CASE OF CIT VS NAINITAL BANK LTD. (SUP RA), WE HOLD THAT THE LOSS INCURRED BY THE ASSESSEE DUE TO SALE OF REPOSSESSED ASSETS ARE ALLOWABLE AS BUSINESS LOSS. ACCORDINGLY, GROUND NO.(II) & (III) RAISED BY REVEN UE STANDS DISMISSED. B. ASSESSEES APPEAL: ITA NO.514/DEL/2011: 16 I.T.A.NO.763,514/DEL/2011 9. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE IN ITS APPEAL: 1. THAT THE ORDER DATED NOVEMBER 30,2010 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - XV ['CIT(A)'] IS ERRONEOUS AND BAD IN LAW TO THE EX TENT THE SAME CONFIRMS THE DISALLOWANCES MADE IN THE ASSESSMENT ORDER. 2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF RS.1,69,528/-, ON ACCOUNT OF LOSS O N SALE OF DEBENTURES AND GOVERNMENT SECURITIES, BY UPHOLDING THE SAME AS CAPITAL LOSS AS AGAINST BUSINESS LOSS CLAIMED BY THE APPELLANT. 2.1 WITHOUT PREJUDICE TO ABOVE, THE LD. CIT(A) HAS ERRED IN NOT TREATING THE SAME AS LONG TERM CAPITAL LOSS UNDER THE HEAD CAPITAL GAINS TO BE CARRIED FORWARD. 3 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.1,567/- UNDER SECTION 14A OF THE ACT BY ERRONEOUSLY HOLDING THAT THE APPELLANT CANNO T EARN DIVIDEND INCOME WITHOUT INCURRING ADMINISTRATI VE EXPENSES. 10. GROUND NO.1 IN GENERAL IN NATURE. 11. GROUND NO.2 : THE BRIEF FACTS OF THE CASE ARE THAT DURING THE RELEVANT ASSESSMENT YEAR THE ASSESSEE HA D INCURRED LOSS ON SALE OF INVESTMENTS AGGREGATING TO RS.1,69,528/-. DURING THE ASSESSMENT PROCEEDINGS, THE LD. A.O. ASKED FOR AN EXPLANATION AS TO WHY THE LOS S ON SALE OF INVESTMENTS CLAIMED AS REVENUE EXPENSES , B E NOT DISALLOWED? THE LD. A.O. HELD AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE. THE ASSESSEE MAY BE GOVERNED BY THE 17 I.T.A.NO.763,514/DEL/2011 STATUTORY BODIES REGULATING; IT'S CONDUCT IN ORDINA RY COURSE OF BUSINESS BUT THE INCOME HAS TO BE COMPUTE D STRICTLY IN ACCORDANCE WITH THE PROVISION OF THE IN COME TAX ACT, 1961. THE INVESTMENT CONSTITUTE CAPITAL AS SET IN THE HANDS OF THE ASSESSEE, THEREFORE ANY LOSS ON ACCOUNT OF SALE OF CAPITAL ASSET CANNOT BE CLAIMED AS A DEDUCTION IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE. THE ASSESSEE HAS RELIED UPON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF INVESTMENT LTD VS CIT -77 ITR 533 WHEREIN IT WAS HELD THAT NOMENCLATURE OF A PARTICULAR ITEM DOES NOT DECIDE I T'S NATURE. A TAX PAYER IS FREE TO EMPLOY FOR THE PURPO SE OF HIS TRADE HIS OWN METHOD OF KEEPING ACCOUNTS. IN THAT CASE THE ASSESSEE INVOLVED WAS A DEALER OF SHARES. APPLYING THE SAME LOGIC THE LOSS CLAIMED ON STOCK IN TRADE CANNOT BE TREATED AS A REVENUE LOSS BECAUSE THE ASSESSEE IS NOT REGULARLY ENGAGED IN TH E BUSINESS DEALING IN SHARES. IT HAS BEEN OBSERVED IN THE PROFIT AND LOSS ACCOUNT OF, THE ASSESSEE FOR TH IS YEAR AND THE LAST SO MANY YEARS THAT NO PURCHASE OF SHARES HAS BEEN DONE. THE LOSS, WHICH HAS ARISEN, I S ON ACCOUNT OF SHARES AND GOVERNMENT SECURITIES HELD FOR A VERY LONG TIME. BY TREATING PART OF IT AS STO CK IN TRADE THE ASSESSEE DOES NOT BECOME ENTITLED TO CLAI M THE LOSS ON STOCK- IN TRADE. IN THE CASE OF KEDARNA TH JUTE MANUFACTURING 82 ITR 363 THE HON'BLE SUPREME COURT HAS HELD THAT ACCOUNTING ENTRIES IN THE BOOKS OF THE ASSESSEE DO NOT DECIDE THE TAXABLE INCOME OF TH E ASSESSEE. IN THE INSTANT CASE NOT A SINGLE SHARE HA S BEEN PURCHASED FOR LAST MANY YEARS. THERE IS NO REGULAR PURCHASE AND SALE ACTIVITY OF SHARES BY THE ASSESSEE. VIDE SUBMISSION DATED .03.2005 THE ASSESSEE HAS SUBMITTED THAT THE COMPANY BEING NBFC IS ENGAGED IN THE BUSINESS OF SHARES AND SECURITIES. HOWEVER, IT IS SEEN THAT THE RE IS NO DEALING IN SHARES FOR LAST MANY YEARS. THE ASSESSEE IS JUST SHOWING THEM AS STOCK IN TRADE IN ITS BOOKS BUT NO DEALING BUSINESS OF SHARE IS BEING DON E. THE TREATMENT OF SHARES IN THE BOOKS AS STOCK IN TR ADE DOES NOT ENTITLED THE ASSESSEE TO CLAIM THE SHARES HELD BY IT FOR A VERY LONG PERIOD AS 'BUSINESS LOSS . NOT 18 I.T.A.NO.763,514/DEL/2011 EVEN MENTIONING OF THE PHRASE DEALING IN SHARES AND SECURITIES IN THE OBJECT CLAUSE OF MEMORANDUM AND ARTICLE OF ASSOCIATION OF COMPANY DECIDE THAT THE BUSINESS OF THE COMPANY IS DEALING IN SHARES. WHAT HAS TO BE SEEN IS WHETHER THE ACTIVITY OF SALE AND PURCHASE OF SHARES FOR EARNING BUSINESS PROFITS HAS BEEN DONE OR NOT. THE ASSESSEE COMPANY FAILS THIS TEST. 11.1 AGGRIEVED BY THE ORDER OF LD. ASSESSING OFFICE R, THE ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). TH E LD. CIT(A) UPHELD THE ADDITION MADE BY LD. A.O. BY HOLD ING AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT , THE FINDINGS OF THE AO AND THE FACTS ON RECORD. PER USAL OF THE FACTS ON RECORD SHOW THAT REDUCTION IN ASSES SED INCOME COMPARED TO RETURNED INCOME IS NOT ON ACCOUN T OF ANY CLAIM PREFERRED BY THE APPELLANT BUT DUE TO CONSEQUENTIAL EFFECT OF DISALLOWANCES MADE IN THE EARLIER YEAR. AS PER CIRCULAR NO. 772 ISSUED BY HON'BLE CBDT IN KEEPING WITH THE FINANCE ACT, 1998 IT IS SEEN THAT THE ACT HAS AMENDED SUB SECTION 3 OF SECTION 143 AND NOW IT HAS BEEN PROVIDED THAT THE A O CAN EXAMINE THE SUMS PAYABLE BY THE ASSESSEE AS WELL AS THE REFUND OF ANY AMOUNT DUE TO HIM WHILE MAKING AN ORDER OF ASSESSMENT U/S 143(3). FURTHERMORE THE FACT THAT ASSESSED INCOME CAN BE LE SS THAN THE RETURNED INCOME IS ALSO MADE CLEAR BY A READING OF EXPLANATION 5 WHICH HAS BEEN ADDED TO SECTION 32 OF THE I.T. ACT W.E.F. A.Y. 2006-07 (HEL D TO BE RETROSPECTIVE), ACCORDING TO WHICH DEPRECIATION IS TO BE ALLOWED WHETHER OR NOT THE ASSESSEE HAS CLAIMED DEDUCTION OF DEPRECATION IN COMPUTATION OF INCOME. READING OF THE ABOVE MAKES IS VERY CLEAR THAT IN CA SE A PERSON HAS NOT CLAIMED DEPRECIATION, THE AO IS DU TY BOUND TO ALLOW DEPRECIATION WHICH WILL IN TURN RESU LT IN MAKING THE ASSESSED INCOME BELOW THE RETURNED INCOME. THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF 19 I.T.A.NO.763,514/DEL/2011 GUJARAT GAS LTD. VS JCIT 245 ITR 84, ON THE FOLLOWI NG FACTS: 'FACTS: IN THIS CASE, WE ARE CONCERNED WITH THE ASSESSMENT YEAR 1996-97. THE ASSESSEE HAS FILED RETURN ON NOVEMBER 30, 1996, SHOWING TAXABLE INCOME OF RS. 5,13,86,320. THE RETURN WAS PROCESSED UNDER SECTION 143(1 )(A) OF THE INCOME-TAX ACT, 196 1 (HEREINAFTER REFERRED TO AS 'THE ACT'), AFTER MAKIN G SOME PRIMA FACIE ADJUSTMENT ON OCTOBER 7, 1997. THEREAFTER, NOTICES UNDER SECTIONS 143( 1) AND 142( 2) OF THE ACT CAME TO BE ISSUED AND THE PETITIONER CAM E TO BE ASSESSED UNDER SECTION 143(3) OF THE ACT BY ORDER DATED MARCH 31, 1999. THE ASSESSING OFFICER B Y HIS ORDER HAS HELD THAT THOUGH THE TOTAL INCOME OF THE ASSESSEE WAS RS. 2,11,81,620, THE ASSESSEE WAS LIABLE TO PAY TAX ON THE TOTAL INCOME OF RS. 5,13,86,320 ON THE GROUND THAT IN ACCORDANCE WITH CIRCULAR NO. 549, PARA. 5.12, DATED OCTOBER 31, 198 9, THE ASSESSED INCOME SHALL NOT BE LESS THAN THE RETURNED INCOME.' HAS HELD AS UNDER 'IN THIS CASE, ACCORDING TO US, THE ASSESSING OFFICER WAS NOT BOUND BY THE SAID CIRCULAR AND YET THE ASSESSING OFFICER HAS CONSIDERED THE CIRCULAR AND, THEREFORE, HE HAS NOT EXERCISED POWERS INDEPENDENTLY. HE HAS NOT EXERCISED HIS OWN DISCRETION. IN THE INSTANT CASE, THEREFORE, IN PARAGRAPH 12, AFTER ROUNDING OFF THE TAXABLE INCOME THE FOLLOWING PARAGRAPH FOUND IN THE ASSESSMENT ORDER, WHICH READS AS UNDER, IS QUASHED AND SET ASIDE. 'HOWEVER, AS PER THE CENTRAL BOARD OF DIRECT TAXES, NEW DELHI'S CIRCULAR NO. 549, PARA. NO. 5.12, DATED OCTOBER 31, 1989, THE ASSESSED INCOME SHALL NOT BE LESS THAN THE RETURNED INCOME. IN VIEW OF THE ABOVE, THE TOTAL INCOME WILL BE RS.5,13,86,320.' 20 I.T.A.NO.763,514/DEL/2011 IN VIEW OF THE FINDINGS ABOVE AND JUDICIAL PRECEDEN TS THIS GROUND OF APPEAL IS ALLOWED IN FAVOR OF THE APPELLANT. 12. WE HAVE PERUSED THE SUBMISSIONS AND ARGUMENTS ADVANCED BY BOTH THE PARTIES. WE HAVE PERUSED THE RECORDS / PAPER BOOK PLACED BEFORE US. 12.1 LD. A.R. SUBMITTED THAT ASSESSEE IS A NON BANK ING FINANCE COMPANY('NBFC') ENGAGED IN THE BUSINESS OF PROVIDING FINANCE TO INDUSTRY, TRADE, ETC. THROUGH HIRE PURCHASE, LEASE AND LOAN PRODUCTS. IT IS ALSO ENGAG ED IN BILLS DISCOUNTING ACTIVITY, DEALING IN -ALL KINDS O F- SECURITIES (INCLUDING SHARES, DEBENTURES, COMMERCIA L PAPERS, GOVERNMENT SECURITIES ETC.). IN SHORT, THE APPELLANT UNDERTAKES WHOLE GAMUT OF ACTIVITIES RELATED TO THE FINANCIAL SERVICES INDUSTRY. 12.2 LD. A.R. SUBMITTED THAT LD. A.O. HAS ERRED IN THE AO ERRED IN COMING TO THE CONCLUSION THAT SINCE THE CO MPANY IS NOT DEALING IN SHARES FOR LAST MANY YEARS, THE L OSS ON SALE OF SHARES CANNOT BE CONSTRUED AS BUSINESS LOSS . FURTHER, ATTENTION IS INVITED TO THE FACT THAT THE APPELLANT IS CARRYING ON THE ACTIVITIES OF SALE AND PURCHASE OF SECURITIES REGULARLY IN CONTRAST TO WHAT HAS BEEN A LLEGED BY THE AO. THE PROFIT AND/OR LOSS ARISING OUT OF SU CH ACTIVITY HAS ALWAYS BEEN TREATED BY THE APPELLANT A S BUSINESS INCOME/BUSINESS LOSS AND ASSESSED AS SUCH BY THE DEPARTMENT. THE COMPLETE DETAILS OF SALE OF SHA RES 21 I.T.A.NO.763,514/DEL/2011 AFFECTED BY THE APPELLANT AND ACCEPTED BY THE AO AR E GIVEN HEREUNDER: IN THIS CONNECTION, RELIANCE IS PLACED ON THE DECIS ION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT DEL HI CENTRAL VS BHARAT INSURANCE CO. LTD. [1421TR 342] WHEREIN THE HON'BLE HIGH COURT HAS HELD THAT ' .... BUSINESS IS A TERM OF WIDE AMPLITUDE WHICH INCLUDES ANY TRADE, COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE COMMERC E OR MANUFACTURE. EVEN THOUGH THE WORDS ARE WIDE, BUT UNDERLYING EACH OF THEM IS THE FUNDAMENTAL IDEA OF THE CONTINUED EXERCISE OF AN ACTIVITY. THE FREQUENC Y OR REPETITION OF AN ACTIVITY, THOUGH AT TIMES A DECISI VE FACTOR, IS BY NO MEANS AN UNFAILABLE TEST, AND A TRANSACTION, THOUGH REPEATED, MAY NOT AMOUNT TO A TRADE OR AN ADVENTURE IN THE NATURE OF TRADE. CONVERSELY AN ISOLATED ADVENTURE MAY FALL WITHIN TH E DEFINITION OF BUSINESS. ORDINARILY, BUSINESS IMPLIE D A CONTINUOUS ACTIVITY IN CARRYING ON A PARTICULAR TRA DE OR A VOCATION, BUT IT MAY ALSO INCLUDE AN ACTIVITY WHI CH MAY BE CALLED QUIESCENT. 12.3 LD. A.R. FURTHER SUBMITTED THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE SAME TREATMENT IN E ARLIER YEARS AS WELL AS IN LATER YEARS AND THE SAME BEING ACCEPTED BY REVENUE AUTHORITIES. 12.4 FURTHER, THE LD. A.R. SUBMITTED THAT ASSESSEE IS A FURTHER, THE COMPANY BEING A NON-BANKING FINANCIAL COMPANY ('NBFC'), IS GOVERNED BY THE DIRECTIONS ISS UED BY THE RESERVE BANK OF INDIA (RBI) AND EVERY NBFC I S MANDATORILY REQUIRED TO FOLLOW THOSE DIRECTIONS. IN TERMS OF THE DIRECTIONS ISSUED BY THE RBI, EVERY NBFC IS REQUIRED TO MAINTAIN LIQUID ASSETS INCLUDING INVEST MENT IN 22 I.T.A.NO.763,514/DEL/2011 SHARES, STOCKS, GOVERNMENT SECURITIES, ETC. AND THE RE IS NO OPTION AVAILABLE WITH THE APPELLANT BUT A BUSINESS COMPULSION IF IT HAS TO CARRY ITS BUSINESS ACTIVITI ES. THESE INVESTMENTS, THEREFORE, ARE MADE IN THE ORDINARY CO URSE OF THE BUSINESS OF THE APPELLANT. 12.5 RELIANCE HAS BEEN PLACED ON THE FOLLOWING JUDGEMENTS : I) ITO VS J & K BANK LTD. 95 ITD 141 (2005); II) JOSNA BANK LT. VS CIT 97 ITR 72; III) CIT VS NEDUNGADI BANK LIMITED, 264 ITR 545; IV) BANK OF COCHIN VS CIT 94 ITSR 93 (KER.); V) PATNAIK & CO. LTD. VS CIT ORISSA 161 ITR 365 (S.C.) VI) STATE BANK OF PATIALA VS ITO 8 ITD 396 (T CHD.) 12.6 LD. A.R. SUBMITTED THAT CO-ORDINATE BENCH OF T HIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-02 IN I.T.A.NO. 2190/DEL/2006 AND 2069/DEL/200 6, HAS ALLOWED THE CLAIM OF THE ASSESSEE. 13. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN T HE AFORSTATED DECISIONS, WE ARE OF THE CONSIDERED OPIN ION THAT THE LOSS ON SALE OF DEBENTURES AND GOVT. SECURITIES HAVE BEEN RIGHTLY CLAIMED AS BUSINESS LOSS BY THE ASSESS EE. ACCORDINGLY, GROUND NO.2 OF THE ASSESSEES APPEAL S TANDS ALLOWED. 14. AS WE HAVE ADJUDICATED GROUND NO.2 IN FAVOUR OF THE ASSESSEE, WE DO NOT FIND ANY NEED TO DEAL WITH GROU ND NO.2.1. HENCE, THE SAME IS LEFT UNANSWERED. 15. LD. A.R. DO NOT WISH TO PRESS GROUND NO.3 AS NO T PRESSED. HENCE, THE SAME STAND DISMISSED. 23 I.T.A.NO.763,514/DEL/2011 16. IN THE RESULT, APPEAL FILED BY REVENUE IS DISMI SSED AND THAT OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH JULY, 2016. SD./- SD./- (G. D. AGRAWAL) (BEENA A. PILLAI) VICE PRESIDENT JUDICIAL MEMBER DATE:27.07.2016 SP. COPY FORWARDED TO:- THE APPELLANT THE RESPONDENT THE CIT THE CIT (A)-, NEW DELHI. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER (ITAT, NEW DELHI) S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 27/7/16 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 27/7 SR. PS/PS 7 FILE SENT TO BENCH CLERK 29/7 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER