Karnataka Financial Services Limited, Bangalore V. Assistant Commissioner Of Income Tax, Central Circle-V, Bangalore

ITSSA 115/BANG/1997

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 8834 (ITAT-BANGALORE)
• Duration Of Justice: 25 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 08-11-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-11-2022
• Assessment Year: misc
• Appeal Filed On: 24-06-1997
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHRIA. SHANKAR
• Keywords: Depreciation; Opportunity of being heard; Question of law; Valuation report; Block assessment; Set aside; Liquidation; CHAPTER XIVB
• Section: 37; 132; 28; 158BC; 158B(b); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SMT. BEENA PILLAI, JUDICIAL MEMBERAND Ms. PADMAVATHY S, ACCOUNTANT MEMBER IT(SS)A No.115/Bang/1997 Assessment year: Block Period 1986-87 to 1996-97 Karnataka Financial Services Ltd., No.29, Hospital Road, Bangalore. Vs. The Assistant Commissioner of Income Tax, Central Circle V, Bangalore. ASSESSEE RESPONDENT Assessee by : ShriA. Shankar, Senior Advocate Respondent by : Dr. Manjunath Karkihalli, CIT(DR)(ITAT), Bengaluru. Date of hearing : 03.11.2022 Date of Pronouncement : 09.11.2022 O R D E R Per Padmavathy S., Accountant Member This appeal of the assessee arises out of the directions of the Hon’ble High Court of Karnataka vide judgment dated 8.2.2021 in ITA No.88 of 2015 for the block assessment year 1986-87 to 1996-97 in the following facts and circumstances of the case. 2. The assessee is a company in liquidation. For the relevant Block period viz., 1986-87 to 1996-97, it was carrying on the business of financial activity in equipment leasing. A search u/s. 132 of the Income-tax Act, 1961 [the Act] was conducted at the premises of the IT(SS)A No.115/Bang/1997 Page 2 of 19 assessee company and its Directors on 29.03.1996. Thereafter, a notice was issued u/s.158BC of the Act, requiring the assessee to file return of income from block period pending on 29.03.1996. The return of income in Form-2B was filed on 02.12.1996. The Assessing Officer [AO] by an order dated 30.05.1997, inter alia, held that the assessee purchased the assets fromM/s PL Finance and Investments Ltd. [PLFIL] at a higher value of Rs.3,62,52,309/- with a view to claim depreciation on the enhanced value as against actual written down value [WDV] of Rs.87,75,621/- in the books of accounts of PLFIL. The AO concluded the assessment for the said block period and adopted the value of assets at Rs.1,00,00,000/- and allowed depreciation on this value alone, disallowing the excess depreciation claimed by the assessee. 3. The assessee preferred an appeal before the ITAT. The tribunal by an order dated 21.11.2003 deleted disallowance of depreciation and decided the issue in favour of the assessee. 4. The revenue filed an appeal before the Hon’ble High Court of Karnataka in ITA No.88 of 2015 against the order of the Tribunal. During the pendency of the appeal before the High court, the Reserve Bank of India filed a company petition before this court to wind up the assessee. The High Court by an order dated 20.07.2005 directed the company to be wound up and appointed the Official Liquidator to take charge of the assets of the company. The High Court by an order passed in ITA.No.146/2004 dated 25.11.2009 set aside the order of this IT(SS)A No.115/Bang/1997 Page 3 of 19 Tribunal dated 21.11.2013 and remitted the matter to the Tribunal for fresh adjudication considering the amended provision of Section 158BB of the Act. 5. The Tribunal, in the second round, after hearing the parties, passed an order on 17.10.2014 and did not adjudicate the ground raised by the assessee with regard to the limitation and held that the aforesaid ground is not subject matter of the order of remand in the light of directions contained in the order dated 25.11.2009 passed by the Hon’ble High Court. The Tribunal further held that in view of the material evidence found and seized during the course of the search u/s. 132 of the Act, the excess depreciation is to be brought to tax in block assessment made under Chapter XIVB of the Act and also upheld the action of the AO in invoking Explanation 3 to Section 43(1) of the Act and adopting the value of assets for the purpose of depreciation at Rs.2,00,00,000/- (instead of Rs.1,00,00,000/-). 6. On revenue’s appeal against this order of the Tribunal dated 17.10.2014, the Hon’ble High Court by order dated 08.02.2021 in ITA No.88 of 2015 framed the following questions of law:- 1. Where the Tribunal is justified in law in not holding that the block assessment order passed by the assessing office for the block assessment years 1986-87 to 1996-97 is barred by limitation on the facts and circumstances of the case? 2. Whether the Tribunal is correct in law in holding there was material evidence found and seized in the course of search under section 132 of the Act on the basis of which the alleged excess depreciation is to be brought to tax in the block assessment IT(SS)A No.115/Bang/1997 Page 4 of 19 made under chapter XIV-B of the Act on the facts and circumstances of the case? 3. Whether the Tribunal is justified in upholding the action of the assessing officer in invoking the provisions of explanation 3 to section 43(1) of the Act even when the same is not warranted, on the facts and circumstances of the case? 4. Whether the Tribunal is justified in law in holding that the value of the assets is to be adopted at Rs.2,00,00,000/- for the purpose of depreciation in place of Rs.1,00,00,000/- adopted by the assessing officer as against the actual incurred by the assessee of Rs.3,62,52,209/- on the facts and circumstances of the case? 5. Without prejudice, whether the Tribunal erred in law in not appreciating that if the value of the assets is adopted at an amount lower than the value agreed upon by the parties of Rs.32,62,52,209/-, then a proportionate reduction in lease rentals will have to be made as otherwise it would result in double taxation on the facts and circumstances of the case? 7. With regard to first substantial question of law pertaining to non- adjudication of the question of limitation, the Hon’ble High Court remitted the issue back to the Tribunal with the following observations:- “6.We have considered the submissions made by learned counsel for the parties and have perused the record. Before proceeding further, it is apposite totake note of legal effect of quashing of an order. The Supreme Court in SHREE CHAMUNDI MOPEDS LTD. VS. CHURCH OF SOUTH INDIA TRUST ASSOCIATION, (1992) 3 SCC 1 has held that quashing of an order results in restoration of a position as it stood on the date of passing of the order which had been quashed. It has further been held that if an order passed by an Appellate Authority is quashed and the matter is remanded the result would be the appeal which had been disposed of by the said order of the Appellate Authority would be restored and can be said to be pending before the Appellate Authority after quashing order passed by the Appellate Authority. Thus, the effect of quashing of an order IT(SS)A No.115/Bang/1997 Page 5 of 19 of Appellate Authority is that the appeal is restored before the Appellate Authority. 7. In the backdrop of aforesaid legal position, it is pertinent to have a look at the memo of appeal filed on behalf of the revenue. From perusal of the prayer clause, it is evident that the revenue had sought quashment of the order dated 21.11.2013. This court has passed an order on 25.11.2009. The relevant extract of paragraphs 2 and 3 are reproduced below for the facility of reference: ‘2. Therefore, in the aforesaid case, by setting aside the order of the Income Tax Appellate Tribunal, we are remanding the matter to the tribunal for fresh consideration. 3. In the circumstances, following the decision in I.T.A. No.146/2002, we allow this appeal without considering the questions of law and remand the matter to the tribunal for fresh consideration considering the amended provision of Section 158 BB of the income Tax Act, 1961.’ 8. Thus, from perusal of the aforesaid relevant extract, it is evident that the matter was remitted to tribunal for fresh consideration. The finding of the tribunal that the issue with regard to limitation cannot be adjudicated as the same would be beyond the purview of the order of remand cannot but be said to be perverse. The order passed by the tribunal was set aside in its entirety by this court. Therefore, it was open for the assessee to raise the plea of limitation. Therefore, the first substantial question of law is answered accordingly. Since, the tribunal has not adjudicated the issue with regard to limitation, the impugned order dated 17.10.2014 passed by the tribunal insofar as it pertains to finding with regard to the issue of limitation is hereby quashed and the tribunal is directed to decide the issue of limitation with regard to the order of assessment passed by the Assessing Officer for the block assessment years 1986-86 to 1996-97. Needless to state that it will be open for the parties to raise all contentions before the tribunal on the aforesaid issue. Therefore, it is not necessary for us to answer the remaining substantial questions of law.” IT(SS)A No.115/Bang/1997 Page 6 of 19 8. Further, the Hon’ble High Court on an application for clarification in the Order on I.A.1/2021 in ITA No.88/2015 dated 9.4.2021 has clarified that it will be open for the parties to address the arguments on all the issues, which arise for consideration in the appeal before the tribunal. The relevant observations are as follows:- “Heard on I.A. No.1/2021, an application for clarification of the judgment dated 08.02.2021 passed by this court in - No.88/2015. Heard learned counsel for the parties. After hearing learned counsel for the parties, it is clarified that it will be open for the to address the arguments on all the issues, which arise for consideration in the appeal before the tribunal. To the aforesaid extent, the judgment dated 08.02.2021 is modified.” 9. Accordingly, in the light of above facts, this appeal is now taken up for consideration and heard. The ld. AR submitted that the following issuesarise for the kind consideration before the Tribunal:- (1) Whether the block assessment order passed by the assessing officer for the block assessment years 1986-87 to 1996-97 is barred by limitation on the facts and circumstances of the case? (2) Whether there was material evidence found and seized in the course of search under section 132 of the act on the basis of which the alleged excess depreciation is to be brought to tax in the block assessment made under chapter XIV-8 of the Act on the facts and circumstances of the case? (3) Whether the provisions of Explanation 3 to section 43( 1) of the Act are applicable on the facts and circumstances of the case? (4) Whether the value of the assets is to be adopted at Rs.2,00,00,000/- for the purpose of depreciation as against the actual cost incurred by the assessee of Rs.3,62,52,209/- on the facts and circumstances of the case? IT(SS)A No.115/Bang/1997 Page 7 of 19 (5) Without prejudice, if the value of the assets is adopted at an amount lower than the value agreed upon by the parties i.e., a sum of Rs.3,62,52,209/-, then a proportionate reduction in lease rentals will have to be made as otherwise it would result in double taxation on the facts and circumstance of the case? 10. The brief facts are that the assessee is a company and was carrying on the business of financial activity, including that of equipment leasing. There was a search action u/s. 132 of the Act on 29.3.1996 at the business premises of the assessee and its directors. In the course of search proceedings, it was noticed by the department that the assessee had entered into purchase and lease back transactions with many parties. A sale and lease back [SLB] transaction is one, where a person sells the assets to a financing / leasing company and takes back the same assets on lease from the financing / leasing company. 11. A notice u/s. 158BC of the Act was issued to the assessee on 9.7.1996 requiring it to file the return of income for the Block Period ending on 29.3.1996. In response thereto, the assessee filed the return in Form No.2B on 2.12.1996 admitting undisclosed income of Rs.69,11,041 for the Block Period. In the course of Block Assessment proceedings, it was noticed by the AO that there were 6 lease transactions entered into by the assessee (page 3 of AO’s order). In respect of these six transactions, the AO noted that Sri Rajaram Khandige, Executive Director of the assessee company, had admitted to the fact that they were entered into, based on documents furnished by the so-called lessees, without verifying the actual purchase and its installation in the lessee's premises. The AO, however, observed that IT(SS)A No.115/Bang/1997 Page 8 of 19 the assessee, in the return filed in response to the notice under section 158BC of the Act, has only considered five transactions and offered to tax an amount of Rs.69,11,204 as undisclosed income on account of excess depreciation claimed. He also observed that the lease transaction with PLFIL was not considered by the assessee. The AO conducted a cross-examination of the concerned PLFIL and obtained the information that the WDV as per the I.T. Rules, 1962 in this party's books of account is Rs.87,75,621; whereas the sale consideration for which the concerned assets were sold to the assessee was Rs.3,62,52,209. The AO was of the view that the assessee purchased the above at a higher rate with the intention of claiming depreciation on the enhanced value. In this factual background, the AO held the lease transactions are entered into fraudulently by collusion of the parties concerned with the assessee and determined the undisclosed income in respect of the various lease transactions with PLFIL at Rs.95,79,064.In this view of the matter, he determined the reasonable value of these assets for the purpose of allowing depreciation as per Explanation (3) to section 43(1) of the Act at Rs.1 Crore and allowed depreciation thereon. The excess depreciation claimed by the assessee was disallowed and he arrived at the undisclosed income of the assessee at Rs.2,47,56,322. The details of the excess depreciation claimed & disallowed and brought to tax for the Block Period 1.4.1985 to 29.3.1996 by the AO are as follows :- IT(SS)A No.115/Bang/1997 Page 9 of 19 Asst. Year Value determined above / WDV Depreciatio n allowed Depreciation claimed Excess depreciation disallowed 1994-95 1,00,00,000 25,00,000 90,63,053 65,63,053 1995-96 75,00,000 18,75,000 67,97,289 49,22,289 1996-97 56,25,000 14,06,250 50,97,967 36,91,717 Total 57,81,250 209,58,309 151,77,258 12. We will first consider the issues relating to the merits of the case. 13. The first contention of the ld AR is whether the alleged excess depreciation claimed by the assessee can be regarded as ‘undisclosed income’. On this issue, the ld AR submitted that the letter dated 24.07.1993 pertains to the legitimate business of the assessee and the said letter does not state or indicate that the value of the assets was inflated and the report also supports the valuation. The ld AR further submitted that the transaction referred to in the letter is accounted for in the books of accounts of the assessee and therefore cannot be considered to be incriminating material found during the course of search which leads to unearthing undisclosed income within the meaning of Section 158B(b) of the Act. The ld AR also submitted that the assessee has filed the regular returns of income The assessee has offered the lease rentals arising out of the impugned transactions for tax and claimed deduction for the allowance in connection with the same and thus there is no undisclosed income with respect to the same. IT(SS)A No.115/Bang/1997 Page 10 of 19 In fact, Section 158BA and explanation thereto that deals with assessment of undisclosed income of the block period is in addition to the regular assessment. 14. The ld AR placed reliance on decision of the Hon'ble Supreme Court in the case of CIT v. Vatika Township (P.) Ltd. (2014) 367 ITR 466 (SC) where the scheme of block assessment has been explained in Para 27. The relevant extract is reproduced below - "The essence of this new procedure, therefore, is a separate single assessment of the "undisclosed income", detected as a result of search and this separate assessment has to be in addition to the normal assessment covering the same period. Therefore, a separate return covering the years of the block period is a prerequisite for making block assessment." 15. The ld. DR submitted that during the course of search u/s. 132 of the Act, seized material A/KF/7 contained a letter dated 24.7.1983 from Padmaja Financial Services Pvt. Ltd. [PFSPL] where the entire modus operandi of the transactions with regard to SLB are extensively and illustratively mentioned. As regards the assessee’s contention that the said letter is not addressed to the assessee, the ld. DR submitted that any material found during the course of search is deemed to be that of the assessee unless proved otherwise and this letter is not disputed by the assessee in any of the statements recorded. Further the figures mentioned in the seized letter are the same as mentioned in the books of accounts towards the impugned transactions. Hence it clearly establishes that entire sale/purchase transactions of the assessee are SLB transactions entered into only with a view to claim excessive depreciation. IT(SS)A No.115/Bang/1997 Page 11 of 19 16. We have heard the rival submissions and perused the material on record. Section 158B defines the term ‘undisclosed income’ as follows:- “ "undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act, or any expense, deduction or allowance claimed under this Act which is found to be false.” 17. The words ‘or any expense, deduction or allowance claimed under this Act which is found to be false’ in section 158B were inserted by the Finance Act, 2002 w.r.e.f. 1.7.1995. The contention of the ld. AR is that when the AO himself has said that the lease transaction was not false, the claim of depreciation on such transaction cannot be termed as ‘false’. It is on the basis of the valuation that depreciation is claimed and disclosed in the return of income, therefore, the question of the same being undisclosed income does not arise. 18. We notice that the SLB transactions have been recorded in the books of the assessee and the other party to the transaction has also confirmed as having recorded the sale. However, the seized material during the course of search u/s. 132 clearly indicates how the selling price of the leased items the WDV of which is Rs.87 lakhs is to be sold at Rs.362.46 lakhs on which the assessee could claim depreciation. The seized document clearly describes the modus operandi of the IT(SS)A No.115/Bang/1997 Page 12 of 19 whole transaction which makes it a ‘false’ transaction. The depreciation which is claimed on such non-genuine transaction would clearly be an allowance claimed under this Act is false. Hence, we are of the opinion that the AO has rightly considered the claim of excess depreciation as undisclosed income. 19. The next argument of the assessee is with regard to the AO invoking Explanation (3) to section 43(1) of the Act for the purpose of determining the undisclosed income. The ld. AR submitted that the assessee has basically entered into a SLB transaction wherein the assessee is the party purchasing the asset and leasing it back to the seller. This transaction, according to the ld. AR, is with a completely unrelated party and the lease rentals received have also been offered to tax. There is a valuation report which has not been considered by the AO. 20. The ld. DR questioned the genuineness of the valuation report contending that the items valued include computers, transformers, etc., which should go down in value in reality with the changing technology. Whereas, in this case, the original cost of the assets itself is only Rs.1.90 crores which is valued at Rs.3.26 crores, hence it does not seem to be a correct valuation. Further, the ld. DR submitted that assessee’s case falls within the ambit of Explanation (3) to section 43(1) and he supported the computation of undisclosed income by the AO. IT(SS)A No.115/Bang/1997 Page 13 of 19 21. After hearing both the parties on the issue, we find that the AO has estimated the value of the assets for the purposes of depreciation at Rs.1,00,00,000 as against the value of Rs.3,62,52,209 adopted by the assessee. The AO has allowed depreciation on his estimation of the value of assets at Rs.1,00,00,000. It is an undisputed fact that the assessee has entered into the lease transactions with the concerned parties and claimed depreciation in such a manner as to avoid or reduce its tax liability as evident and very clearly corroborated from the letter dt.24.7.1993 of PFSPL in seized document A/KF/7, addressed to the assessee. In these circumstances, Explanation 3 to section 43(1) of the Act is clearly attracted and in our considered opinion, it has been rightly invoked by the AO in the facts and circumstances of the case. We therefore find no merit in the argument of the assessee that there can be no application of Explanation 3 to section 43(1) and reject the same. 22. An alternate plea was raised by the ld. AR that the lease rentals accounted and offered to tax by the assessee has to be considered while computing the undisclosed income. In this regard, he brought to our attention that out of the six transactions considered by the AO, five transactions were conceded by the assessee and one is the impugned transaction. He submitted that while the AO had given effect of the lease rentals received towards five assets, but the AO had not considered the lease rental received and offered to tax of the impugned lease asset.During the course of hearing the ld AR presented a table IT(SS)A No.115/Bang/1997 Page 14 of 19 with computation of undisclosed after considering the proportionate lease rental. The table is reproduced herein below Particulars Reference Amount in Rs. Cost considered by the assessee A 3,62,52,209 Reasonable cost – As per the earlier order of the Tribunal B 2,00,00,000 Depreciation on cost C 2,09,58,309 Depreciation on reasonable cost D 1,15,62,500 Excess depreciation claimed E = C – D 93,95,809 Rent received during the period F 1,99,38,710 Proportionate rent received on Rs.2 crores G = F/A * B 1,09,99,997 Proportionate rent on cost not allowed H = F – G 89,38,713 Undisclosed income I = E – H 4,57,096 23. In reply, the ld. DR submitted that the five transactions have been admitted by the assessee as not-genuine and hence the AO had considered both the debit & credit entries to the P&L account viz., depreciation and lease rentals for the purpose of computing undisclosed income. However, the impugned transaction is with regard to higher valuation in order to claim enhanced depreciation and therefore the AO has not considered its lease rentals received. 24. We have heard both the parties and considered the material on record. The assessee has admitted five out of six transactions to be bogus and has returned the undisclosed income. The AO took into consideration all the entries pertaining to these five transactions while computing the undisclosed income and considered the depreciation as well as the lease rentals. This course of action adopted by the AO, in our view, is not correct, because the lease rentals as per the seized document are decided based on the sale value of the asset and the lease IT(SS)A No.115/Bang/1997 Page 15 of 19 rentals are accounted and offered to tax bythe assessee in the regular assessment. Taxing the whole lease rental again as undisclosed income on the ground that the valuation itself is questioned is not correct. We don’t see any merit in the argument that impugned addition is based on the enhanced valuation and hence lease rentals are not considered. The fact of the matter is that the assessee has offered to tax the lease rentals of all six transactions including the impugned one and voluntary admission by the assessee or the addition based on the seized material should not change the nature of transaction but only the value to be considered for the purpose of depreciation. Therefore in our considered view, in the interest of justice, it would be fair and appropriate that the lease rental proportionate to the estimated value of the lease transaction i.e., Rs.2,00,00,000 should be considered for the purpose of computing the undisclosed income. We, therefore, direct the AO to consider table of workings as reproduced in the earlier part of the order and delete the excess disallowance after giving reasonable opportunity of being heard to the assessee. It is ordered accordingly. 25. The next issue for consideration is with regard to the disallowance of Rs.26 lakhs claimed by the assessee as financial loss against the five transactions admitted as bogus bythe assessee. The AO while computing made addition of the said sum to the undisclosed income admitted by the assessee against the five transactions. 26. The ld. AR submitted that the said financial loss claimed by the assessee is for the purpose of business which has to be allowed as a IT(SS)A No.115/Bang/1997 Page 16 of 19 deduction u/s. 37 or u/s. 28 of the Act. Alternatively, he submitted, assuming that the five transactions which were admitted by the assessee as income is considered as a separate business income by itself, then any expenditure towards such business ought to be considered as a business loss which could be set off against business income of the current year or carried forward, as the case may be. The ld. AR placed reliance on the decision of the Supreme Court in the case of Dr. T.A. Qureshi v. CIT [2006] 287 ITR 547 (SC). 27. We have heard the ld. DR who supported the order of the AO. 28. We have considered the rival submissions. It is noticed that the financial loss incurred and claimed by the assessee is towards the five transactions admitted to be bogus by the assessee. The details are at page 4 of the assessment order. In such a situation, all the transactions/entries pertaining to the five transactions ought to be considered for the purpose of arriving at the undisclosed income. .The Hon’ble Supreme Court in the case of Dr. T.A. Qureshi (supra) has held that as follows:- “11. Once the income-tax authorities records such a finding of fact, it follows that any loss from such a business is a business loss. 12. The facts of this case are squarely covered by the decision of this Court in CIT v. Piara Singh [1980] 124 ITR 40 which was a case of an assessee carrying on smuggling activity and this Court held that the loss arising out of confiscation of currency notes must be allowed as a business loss. 13. In the order of the Tribunal dated 14-10-1998, there is a finding of fact in paragraph 8 to the effect that the heroin forms part of the IT(SS)A No.115/Bang/1997 Page 17 of 19 stock-in-trade of the assessee. In view of this finding, the Tribunal allowed the assessee's claim of deducting the loss of 5 kg. of heroin whose value was assessed by the Tribunal at Rs. 2 lakhs as a business loss. We fully agree with the view taken by the Tribunal. 14. The High Court, however, in paragraph 10 of its judgment observed : "The assessee in this case was engaged in profession of doctor. He had nothing to do with the contraband article. Heroin for carrying on his profession. It is an admitted fact that possession of Heroin is an offence under NDPS Act. In this view, the rigour of Explanation to section 37 was fully satisfied and hence the question claiming any deduction for the value of seized article did not arise nor was an assessee entitled to claim any such deduction who was bound in indulging in such heinous and illegal business unconnected with his pious professional activity. Indeed, it was disgrace for a doctor community where one doctor was found indulging in doing such kind of activities against the humanity." 15. In our opinion, the High Court has adopted an emotional and moral approach rather than a legal approach. We fully agree with the High Court that the assessee was committing a highly immoral act in illegally manufacturing and selling heroin. However, cases are to be decided by Court on legal principles and not on one's own moral views. Law is different from morality, as the positivist jurists Bentham and Austin pointed out. 16. As already observed above, the facts of the case are squarely covered by the decision of this Court in Piara Singh's case (supra). 17. The Explanation to section 37 has really nothing to do with the present case as it is not a case of a business expenditure, but of business loss. Business losses are allowable on ordinary commercial principles in computing profits. Once it is found that the heroin seized formed part of the stock-in-trade of the assessee, it follows that the seizure and confiscation of such stock-in-trade has to be allowed as a business loss. Loss of stock-in-trade has to be considered as a trading loss videCIT v. S.N.A.S.A. Annamalai Chettiar AIR 1973 SC 1032. IT(SS)A No.115/Bang/1997 Page 18 of 19 18. For the reasons given above, the impugned judgment of the High Court cannot be sustained and it is hereby set aside and the order of the Tribunal stands restored. The appeal is allowed. No costs.” 29. In view of the above ratio laid down by the Hon’ble Supreme Court, we are of the considered view that Rs.26 lakhs claimed by the assessee as financial loss against the bogus transactions be allowed as a deduction for the purpose of computing the undisclosed income by the assessee. The disallowance is therefore deleted and the issue is allowed in favour of the assessee. 30. The issue no.1 relates to the legal issue of whether the block assessment order passed by the assessing officer for the block assessment years 1986-87 to 1996-97 is barred by limitation. Both the revenue and the ld AR presented elaborate arguments in this regard during the course of hearing and both the parties furnished before the bench a detailed written submission also that are placed on record. The bench called for certain assessment records viz., copies of all panchanamas, in order to decide the legal issue and the case was posted for hearing from time to time. The ld DR submitted that records called for could not obtained inspite of their best efforts since the case related to very old period of 1986 – 96. In the last of the hearings to put a quietus to the issue, the ld AR conceded that the bench could decide the issue on merits leaving open the legal contentions. Considering the submissions of the ld AR, the legal issue is left open, having decided the issue on merits in the earlier part of this order. IT(SS)A No.115/Bang/1997 Page 19 of 19 31. In the result, the appeal of the assessee is allowed as indicated above. Pronounced in the open court on this 9 th day of November, 2022. Sd/- Sd/- ( BEENA PILLAI ) ( PADMAVATHY S. ) JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore, Dated, the 9 th November, 2022. /Desai S Murthy / Copy to: 1. Assessee 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.