TMI Blog2006 (3) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... ,767 as trading loss on the ground that the shares were either confiscated or seized by economic offences wing under crime No. CR/1/ 96 dated 4-1-1996. The department also accepted the loss in that assessment year. Out of the total purchases of Rs. 96,46,282, the assessee had received bad delivery of Rs. 65,51,018. The balance was treated as good delivery. Out of bad delivery, in addition to the claim of Rs. 28,77,767 made in the assessment year 1995-96, a further sum of Rs. 36,73,251 {6551018 - 2877767} was claimed as trading loss in the assessment year 1998-99. The Assessing Officer disallowed the claim on the ground that assessee was well aware about the loss prior to this assessment year. Hence, it did not pertain to this assessment year. The learned CIT(A) confirmed the disallowance on the ground that the purchases of stolen goods is an offence in itself and criminal investigation proceedings were already in progress. According to the learned CIT(A), the assessee had purchased shares from OPT at a price lower than market price, hence he was aware of the risk. Further, there has been an amendment under section 37(1) of the Act, according to which, the expenditure on illegal act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of loss in that year. 5. We have heard the rival submissions and considered the material on record. We are of the view that the lower authorities have misunderstood the concept of trading loss and business expenditure. The two have been unnecessarily mixed up. The trading loss is allowed under section 28 whereas business expenditure is allowed under sections 30 to 43D including section 37. It has been interpreted by various courts that income includes loss. When we compute income under section 28, we have not only to take into account the loss suffered by the assessee in trade but also the expenditure incurred in earning that income/loss. The loss suffered on account of this fraud is an allowable deduction from the income of the assessee. Further department cannot take two contrary views one in the assessment year 1995-96 where the Assessing Officer considered in detail and allowed the claim of the assessee by observing as under : "The assessee s turnover during the year was Rs. 3,50,65,778 as against the preceding year s turnover of Rs. 4,26,22,348. The fall in turnover has been attributed to the loss suffered by the assessee in share trading business. The assessee carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. 48. Mode of computation. The income chargeable under the head Capital gains shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely : ( i )expenditure incurred wholly and exclusively in connection with such transfer; ( ii )the cost of acquisition of the asset and the cost of any improvement thereto :" The above explanation is applicable to an expenditure. The facts of the case show that the assessee has not incurred any expenditure. Further the trading is not as a result of any offence by the assessee. It was on account of fraud committed by OPT. In any case, it is not established that it was the assessee, who had committed fraud and claimed resultant loss as trading loss. Therefore, explanation to section 37(1) cannot be invoked on both of these accounts. Further, we do not approve the view of the CIT(A) that loss is incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69 ITR 1 reversed in part." We, therefore, hold that the loss of Rs. 36,73,251 was incurred during the course of business and was permissible during this assessment year as assessee recognised the loss in this year. As a result, this ground of the assessee is allowed. 8. The second ground is about claim of Rs. 4,00,000 paid to housing cooperative society on sale of flat. The Assessing Officer allowed only Rs. 25,000 and disallowed Rs. 3,75,000. The facts are that the assessee sold his flat during the previous year relevant to assessment year. In computing capital gains it claimed a sum of Rs. 4,00,000 as expenditure under section 48 being the payment made to housing cooperative society in which the flat existed. According to the assessee, the entire money was paid for getting the NOC from the society. The Assessing Officer is of the view that only Rs. 25,000 was so paid and balance of Rs. 3,75,000 is voluntary contribution to the society and hence, it is not part of the transaction. The assessee submitted before the CIT(A) as under : "In this regard, the learned AR of the appellant has submitted as under : ( a )the appellant paid a sum of Rs. 4,00,000 by a single cheque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... society. As against this, learned DR relied on the orders of the authorities below. 11. We have examined the material on record and considered the rival submissions. We find that clause No. 8 of the MOU between assessee and the buyer provided a condition that assessee has to make the payment of Rs. 4,00,000 as transfer charges to the society. The letter dated 25-8-1997 written by the assessee to the secretary of housing cooperative society, indicated that a cheque of Rs. 4,00,000 was sent to the society for taking NOC for the sale of the flat. The cheque seems to have been returned unpaid. The society wrote a letter to the assessee on 20-12-1997, indicating that on non receipt of Rs. 4,00,000 within seven days, in NOC will be withdrawn. There was another letter from the society dated 25-12-1997 directing the assessee to make the payment of Rs. 4,00,000 immediately on the receipt of sale proceeds of the flat. The assessee vide his letter dated 2-1-1998 enclosed a DD for Rs. 4,00,000 stating that it is transfer charges against sale of flat. All these evidences show that society is demanding a sum of Rs. 4,00,000 for transfer charges for instance of NOC. The Assessing Officer an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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