TMI Blog2011 (12) TMI 625X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of the case and in law, the CIT(A) ought not to have enhanced the income of the appellants and ought to have allowed the carry forward of the business loss of ₹ 31,47,188/- inasmuch as the appellants have carried on business during the year. 3. During the course of assessment proceedings, the AO treated the business of ₹ 31,47,188/- as speculation loss and allowed to be carried forward as speculation in view of the Explanation below section 73 of the Act. No such set-off was allowed on the income from other sources. During the course of appellate proceedings, the learned CIT(A) had observed that business loss had been determined by the AO at ₹ 31,47,188/-, which had been treated as speculative loss and had been allowed to be carried forward in view of the Explanation below to section. 73 of the Act. However, it was noticed from the audited accounts that no business activity was carried out by the assessee during the year under consideration and a loss of ₹ 80,000/- was shown under the head shares and securities on account of valuation of closing stock which had been treated as nongenuine by the AO. The CIT(A) further obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and he supported the order passed by the CIT(A) in support of revenue s case. 6. We have heard both the parties, perused the record and gone through the orders of the authorities below. The CIT(A) passed enhancement order on the ground that the assessee has not carried out any business during the year and allowability of business expenses u/s 37 the assessee has to carry out the business activity and directed the AO to enhance the assessment. Under similar facts and circumstances, the ITAT in the case of Triumph Securities (supra) following the decision in the case of KNP securities P. Ltd. (supra), held as under:- 17. After hearing both the parties, we find identical issue had come up before the Tribunal in the case of KNP Securities P Ltd (supra) wherein the Assessing Officer had disallowed various expenses claimed by the assessee in its P L Account on the ground that the assessee has not carried out any business activity since SEBI made restriction vide order dated 11.4.2001. In appeal, the CIT(A) upheld the action of the Assessing Officer and on further appeal, the Tribunal vide order dated 29.5.2009 allowed the various expenses claimed by the assessee. The relevant por ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oans taken from various banks and others for the purpose of business activity in past were outstanding during the year under consideration; therefore, any interest accrued was to be paid during the year under consideration or was payable. The assessee is having valid BSE card which could not be used for the reason that SEBI has passed an order barring the assessee not to do any business activity. Therefore, it also cannot be said that the assessee could not use the BSE card its own which was ready to use. In these circumstances, we are of the considered view that the assessee s business does 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 abandonment of possession followed by the actual possession of another, it implies 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 page 295. It is further explained at the same page 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 discontinued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and limited the salary paid to the employees of the assessee to 10% and the audit fee was limited to 15%. That was affirmed by the first appellate authority. However, the Tribunal held that the assessee was carrying on business and was entitled to the deductions claimed by the assessee. On reference, the Hon ble Madras High Court affirmed the view taken by the Tribunal. 6.2 The ratio of the decision of the Hon ble Madras High Court is squarely applicable on the facts of the present case as in the present case also the assessee was restricted by the order of the SEBI not to do any business activity, however, establishment of the assessee was maintained and various expenses were incurred which were necessary and they were connected with the business activity of the assessee. 7. In the case of Sree Meenakshi Mills Ltd, in 63 ITR 207, the Apex Court has allowed various expenses on account of expenditure for prosecuting civil proceedings. In this case, the assessee company which carried on the business of cotton spinning and weaving, finding its own handlooms in its factory premises inadequate, distributed yarn produced by it to weavers outside the factory. Under cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.1 The ratio of the decision of the Apex Court also goes in favour of the assessee as the litigation expenses incurred in respect to its business were held as business expenditure. 7.2 In the present case also all the expenses incurred are connected with the business of the assessee only; therefore, the expenses claimed by the assessee are allowable. 8. In the case of M/s Marine Labour Supplying Co, decided 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 reason due to lullness of business no business can be done for AYs 2002-03 to 2005-06, the assessee is entitled to deduction in respect of administrative and other expenses which are required to be incurred for keeping the business alive. 9. We have also taken into consideration various case 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 616, the Hon ble Bombay High Court has held that the assessee company could not be entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies 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 hold and direct accordingly. The ground raised by the assessee 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 Triump Securities Ltd. (supra), we respectfully follow the same and in the light of that this ground of the assessee is allowed. 8. Ground No. 2, reads as under:- The CIT(A) erred in upholding the action of the AO in not allowing business loss of ₹ 80,000/-, being loss on account of valuation of shares, on the ground that the transactions are not genuine in nature and also that the appellants have not carried on any business activity during the year. The appellants contend that on the facts and in the circumstances of the case and in law, the observations, of the CIT(A) in upholding the action of the AO in not allowing the impugned loss arising on transactions carried out in the pursuit of business, are erroneous, baseless and contrary to the provisions of law. The CIT(A) ought to have allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve a specific finding that the case in hand is similar to the large number of group cases pertaining to the assessee and in those cases losses have been held as non-genuine. He further submitted that the loss resulting on account of mere valuation of shares, cannot be considered as business loss in any case. Before us, the assessee has not brought anything on record with regard to other group cases. In view of the specific finding given by the CIT(A), we do not find any reason to interfere in the order of the CIT(A) and, therefore, the order of the CIT(A) is hereby upheld on this issue. Accordingly, this ground of appeal of the asessee is dismissed. 13. Ground No. 3 is directed against the action of the CIT(A) in upholding the action of the AO in considering interest received on fixed deposits ₹ 6,19,480/- as income from other sources instead of business income. 14. The AO treated the business loss in shares etc. as speculation loss in view of the Explanation below section 73, since the assessee being a company was trading in shares. Therefore, the AO treated the interest on FD as income from other sources . On appeal, after considering the submissions of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was only suspended in view of the adverse order by SEBI. We find similr situation had been considered by the Tribunal in the case of KNP Securities Pvt. Ltd. (supra) another concern of Ketan Parekh Group in which similar claim was made by the assessee that business was in existence and not closed. The Tribunal following the judgment of Hon ble High Court of Madras in case of CIT Vs. Vellore Electrical Corporation Ltd. (243 ITR 529) held that the business had not closed and the claim of expenditure had to be allowed. Respectfully following the said decision of the tribunal we hold that the business of the assessee had not been closed in the relevant year and therefore FDRs had to be treated as pledged in connection with the business which was in existence and therefore the interest income had to be treated as incidental business income. We accordingly set aside the order of CIT(A) and allowed the claim of the assessee. 17. Since the issue under consideration is identical to that of the case decided by the co-ordinate bench in the case of assessee s sister concern as above, we respectfully follow the same and in the light of that we set aside the order of CIT(A) and allow t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as bad debt at all, therefore, the claim of the assessee of bad dbt under the head expenses and losses was rejected and disallowed the same. Aggrieved, the assessee carried the matter in appeal before the CIT(A). 20. Before the CIT(A) the AR of the assessee contended that the debt written-off is of Montrosa Investments Pvt. Ltd. which was not a group concern or an associate concern and hence, the reasons recorded by the AO in his order are baseless and erroneous. It was further contended that the debt had been written off in the accounts by transferring the balance in the debtors account to another account called Vatav Account . As such the requirement of section 36(1)(vii) to write off the bad debt as irrecoverable in the accounts of the assessee was fulfilled. The reasons for writing-off the bad debts among others, are constant follow-up with the client bearing no result and the amount outstanding since long. The AR of the assessee placed reliance on the decisions of the ITAT, Mumbai Benches, which were reproduced by the CIT(A) in his order at page No. 9. After considering the submissions of the assessee, the CIT(A) held as under:- 16. I have carefully considered the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Delhi High Court. In the case of DB (India) Securities Ltd.(supra), the assessee was a member of Delhi Stock Exchange and was carrying on the business of shares and stock broking. The assessee had purchased shares on behalf of his client for the total value of ₹ 1.06 crores at an average price of ₹ 55 per share. The said client made a payment to the extent of ₹ 65 lacs only to the assessee and the remaining amount of ₹ 41 lacs had remained unpaid. The brokerage income earned by the assessee in respect of the said transaction of purchase of shares was duly declared in its return of income and was assessed as well in the earlier year. The balance amount of ₹ 41 lacs remained unpaid even in the next year also apparently because of the reason that the price of shares fell from ₹ 55 to ₹ 5 per share. In the return of income filed for the said year, the assesse claimed deduction of ₹ 41 lacs as bad debts u/s 36(1)(vii). The A.O. disallowed the claim of the assessee for the said deduction which was confirmed by the ld. CIT(A). On further appeal by the assessee, the Tribunal, however, allowed the said deduction and when the matter reache ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Bench. 30. The learned D.R. has contended before us that the rules and regulations of stock exchange governing relations between broker and his clients as well as the guidelines issued by the SEBI from time to time protecting the interest of share broker were not brought to the notice of the Hon ble Delhi High Court in the cases of CIT vs. DB (India) Securities Ltd.(supra) and CIT vs. Bonanza Portfolio Ltd. (supra) and Their Lordships thus had no occasion to consider the issue in the light of the same. However, as already held by us, the said rules and regulations as well as guidelines are not relevant in the context of issue referred to this special bench which raises a specific question of law. We have already noted that the fact which is not in dispute is that the assessee has actually suffered the loss as a result of the amount in question representing debt becoming irrecoverable. It is therefore not relevant whether such loss has been incurred by the assessee as a result of not following the relevant rules and regulations and guidelines or even after following the same. As observed by us, this aspect may be relevant in the context of quantification of such loss. As a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written of the said debts from his books of account as irrecoverable. We, therefore, answer the question referred to this Special Bench in the affirmative that is in favour of the assessee. 22. In view of the said decision, we remit the matter back to the file of the AO with a direction to decide the issue following the said special bench decision of the Tribunal and in accordance with law after providing reasonable opportunity of hearing to the assessee. 23. Ground No. 5 is directed against the action of the CIT(A) in not deciding on the action of the AO in treating business loss of ₹ 31,47,188/- as speculation loss by invoking the provisions of Explanation to section 73 and thereby not allowing set-off of the loss against income computed under the head income from other sources ₹ 6,19,480/-. 24. The CIT(A) had directed the AO to verify the facts and decide the issue in accordance with law. At the time of hearing, the learned counsel for the assessee submitted that the business income of the assessee of ₹ 6,73, 81,303/- claimed u/s 41(1) of the Act, and, therefore, Explanation to section 73 is not applicable to the case of the assessee. The alterna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and of ₹ 13,12,20,615/-. The balance amount of ₹ 7,41,61,301/- was settled by order dated 25th November, 2004 passed by the DRT(2). The AO further noticed that the assessee paid ₹ 67,80,000/- as against the liability of ₹ 7,41,61,301/- and the remaining amount of ₹ 6,73,81,301/- was written off. The AO noted that the order of the DRT(2) had not clearly specified whether the write-off amount is a principal or interest amount. Due to Hon ble DRT(2) order, the assessee s liability of ₹ 6,73,81,303/- was written off which included principal amount of ₹ 4,61,24,769/- and interest and other charges re ₹ 2,12,56,534/- The AO further noted that the assessee had already been debited interest and other charges from the profit and loss account in relevant assessment year and increased the liability by way of enhancing the secured loan in the balance sheet and it had benefited by way of written off interest and other charges of ₹ 2,12,56,534/- by order of the Hon ble DRT(2). The AO, therefore, noted that as per section 41(1) of the Act, any person has obtained some benefit in respect of such trading liability by way of remission or cessati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 6,73,81,303/- allowed by the Bank was on principle amount and hence, not liable to be taxed u/s 41(1) of the Act. 29. The learned DR on the other hand placed reliance on the orders of the authorities below. 30. We have heard both the parties, perused the record and gone through the orders of the authorities below. The issue involved in this ground is relating the amount of waiver of loan of ₹ 6,73,81,303/- allowed by the Centurion Bank was on principle amount or on revenue account. The AO held that the entire waiver amount was on revenue account and therefore, the provisions of section 41(1) applies to facts of the case whereas the CIT(A) held that the total amount waived by the Bank amounting to ₹ 6,73,81,303/-, out of which ₹ 4,61,24,769/- was principle and the remaining balance of ₹ 2,12,56,534/- was interest portion. After careful consideration of the orders of the authorities below, we find that it is not clear that exactly what amount waived by the Bank relating to principle amount and interest amount. However, the CIT(A) has allowed the amount of ₹ 4,61,24,769/- on the ground that the above amount of waiver was relating to principle a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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