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2008 (11) TMI 279 - AT - Income TaxDisallowance of loss incurred in transactions involving SGL securities - violation of s.15 of Security Contracts (Regulation) Act, 1956 (SCR Act) - Whether the loss emanating from the security transactions in violation of s. 15, constitute an allowable business losses? - Revenue contended that assessee failed to prove the 'existence of the consent of the BOA' with the written confirmations. it is the case of presuming the consent of BOA, which never existed with the broker both at the time of entering the security transaction or within 3 days from the date of the contract - loss should neither be allowed nor allowed to be set off against the profits earned out of comparable transactions. HELD THAT:- We find that Tribunal in the case of Ashok Kumar Karola vs. Asstt. CIT [2006 (11) TMI 261 - ITAT JAIPUR-B] held that the loss arising out of the transactions by infraction of law is not an allowable business loss and in these circumstances, the judgment of the apex Court in the case of CIT vs. Piara Singh[1980 (5) TMI 2 - SUPREME COURT] should have no application. However, the Supreme Court held in another case of Dr. T.A. Quereshi vs. CIT [2006 (12) TMI 91 - SUPREME COURT] held that illegal losses are allowable losses. In that case, where the assessee reflected the banned substances in the stock-in-trade, when such stock is seized, the loss on account of such stock is held as an allowable business loss despite the infraction of law. Thus, the Apex Court distinguished the relevance of the principles of the morality from the principles of the legality as pointed out by the Bentham and Austin. Therefore, we have examined the case, where the assessee executed the security transaction, may be in violation of the provisions of s. 15 of the SCR Act. and the loss generated out of the said transaction, when undisputedly borne out of the books of the assessee, is an allowable loss. Therefore, the said loss is eligible for set off as claimed by the assessee. Accordingly, the ground No. 1 of the assessee is allowed. Disallowance of the expenditure - incurred by the overseas branches for its Indian operations - Head office expenses - HELD THAT:- We have perused the decisions in the case of Emirates Commercial Bank Ltd.[2003 (4) TMI 2 - BOMBAY HIGH COURT] and British Bank of Middle East [2005 (6) TMI 476 - ITAT MUMBAI] and Hong Kong & Shanghai Banking Corpn. Ltd. We find that book entries are not very important for determining the correct assessed income of the assessee. The claim can be made through the 'computation of income' route. The provisions of s. 44C are inapplicable in a case of expenses incurred exclusively by the bank branches abroad in respect of NRI desk maintained by those branches. Therefore, we are of the considered opinion that the provision of s. 44C is inapplicable to this claim of the assessee. Accordingly, ground No. 2 is allowed. Disallowance u/s.43B - HELD THAT:- We find that the contribution made by both the employer as well as the employees before the extended due date by way of the grace period should be allowed as allowable claim and not the payments subsequent to the grace period allowed in the relevant statute. In our opinion, we have to follow the judgment in the case of Pamwi Tissues Ltd. [2008 (2) TMI 400 - BOMBAY HIGH COURT] as their Lordship have held that the Supreme Court has merely dismissed the SLP in the case of Vinay Cement Ltd.[2007 (3) TMI 346 - SC ORDER] and it could not be said that the said amounts to law declared by the Hon'ble Supreme Court. Therefore, we set aside this issue to the file of the AO only for giving effect to our finding and recompute the disallowance accordingly. AO shall comply with the principles of natural justice while determining the exact disallowance. Accordingly, ground No. 3 is set aside. In the result, appeal of the assessee is allowed for statistical purposes.
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