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TMI Blog2024 (11) TMI 1163X X X X Extracts X X X X X X X X Extracts X X X X ..... in the alternative bad debt under Section 36(i)(vii) of the Income Tax Act, 1961?" 3. The factual background in which the aforesaid substantial question of law arises for our consideration need mention. 4. The assessee is engaged in the business of sale of electrical goods, money lending and dealing in shares and mutual funds. The assessee has filed his returns of income on 08.10.2002 for the assessment year 2002-2003 declaring loss of Rs.24,74,584/- on account of the fact that fixed deposits with Krishi Bank having been lost on account of liquidation of the said Bank. The assessee claimed the aforesaid amount of Rs.24,74,584/- as deduction on the ground that the same is a trading loss or bad debt under Sections 27 and 28 of the Act. 5. The assessment under Section 143(3) of the Act was completed by the Assessing Officer on 31.12.2004 and aforesaid loss was disallowed on the ground that the said amount constitutes a capital loss. Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The appeal was dismissed by an order dated 30.09.2005. Thereupon, the assessee filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en off as irrecoverable in the accounts of the assessee for the previous year] : [Provided that in the case of] [an assessee] [to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause.] [Provided further that where the amount of such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof becomes irrecoverable or of an earlier previous year on the basis of income computation and disclosure standards notified under sub-section (2) of section 145 without recording the same in the accounts, then, such debt or part thereof shall be allowed in the previous year in which such debt or part thereof becomes irrecoverable and it shall be deemed that such debt or part thereof has been written off as irrecoverable in the accounts for the purposes of this clause.] [Explanation 1.]- For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whatever name called) received or receivable by any person against exports under any scheme of the Government of India; ] (iiic)[ any duty of customs or excise re-paid or re-payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971; ] (iiid)[ any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992);] (iiie)[ any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992);] (iv)[ the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession;] (v)[ any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm: Section 11 (w.e.f. 1.4.1993).]Provided that where any interest, salary, bonus, commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into, or treated as, a capital asset determined in the prescribed manner;] (vii)[ any sum, whether received or receivable, in cash or kind, on account of any capital asset (other than land or goodwill or financial instrument) being demolished, destroyed, discarded or transferred, if the whole of the expenditure on such capital asset has been allowed as a deduction under section 35-AD;] [Explanation 1 omitted by Act 4 of 1987, Section 28 (w.e.f. 1.4.1989).] Explanation 2. - Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as "speculation business") shall be deemed to be distinct and separate from any other business. Following Explanation 3 shall be inserted after Explanation 2 to Section 28 by the Finance (No.2) Act, 2024, w.e.f. 1-4-2025: Explanation 3.- It is hereby clarified that any income from letting out of a residential house or a part of the house by the owner shall not be chargeable under the head "Profits ad gains of business and profession" and shall be chargeable under the head "Income from house property". 11. After having noticed the relevant statutory provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business operations. The Court emphasized that the frequency or degree of the risk is less important than its direct relationship to the business, and the loss due to dacoity in this case was deemed a deductible trading loss as it was incidental to banking operations. 14. In Ramchandar Shivnarayan's case (supra), the Hon'ble Apex Court held that a loss arising from theft can be considered a trading loss and deductible when it is directly connected to an incidental to the business operations of the assessee. In this case, the loss of Rs. 30,000 was a result of money brought for the purpose of purchasing Government securities, which is an integral part of the assessee's business activities. The court emphasized that the loss, although not explicitly covered in the tax laws, was part of the ordinary course of business and, therefore, should be treated as a trading loss. This principle was reinforced by previous rulings such as Badridas Daga (supra) and Nainital Bank Ltd. (supra), where it was established that any loss that is inherently linked to the business operations and is necessary for conducting those operations is deductible, even if it is caused by unforeseen events like the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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