M/s. TRIUMPH SECURITIES LTD, MUMBAI v. ACIT. CENT. CIR. - 40, MUMBAI

ITA 1053/MUM/2008 | 2001-2002
Pronouncement Date: 31-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 105319914 RSA 2008
Assessee PAN AAACT2152P
Bench Mumbai
Appeal Number ITA 1053/MUM/2008
Duration Of Justice 2 year(s) 10 month(s) 18 day(s)
Appellant M/s. TRIUMPH SECURITIES LTD, MUMBAI
Respondent ACIT. CENT. CIR. - 40, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-12-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted J
Tribunal Order Date 31-12-2010
Date Of Final Hearing 09-11-2010
Next Hearing Date 09-11-2010
Assessment Year 2001-2002
Appeal Filed On 12-02-2008
Judgment Text
1 TRIUMPH SECURITIES LTD IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI J BENCH MUMBAI J BENCH MUMBAI J BENCH MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI BEFORE SHRI SHRI D MANMOHAN. VP BEFORE SHRI SHRI D MANMOHAN. VP BEFORE SHRI SHRI D MANMOHAN. VP BEFORE SHRI SHRI D MANMOHAN. VP & R & R & R & R K PANDA AM K PANDA AM K PANDA AM K PANDA AM ITA NOS. 1053 & 2111/MUM/2008 ITA NOS. 1053 & 2111/MUM/2008 ITA NOS. 1053 & 2111/MUM/2008 ITA NOS. 1053 & 2111/MUM/2008 (ASST YEARS 2001 (ASST YEARS 2001 (ASST YEARS 2001 (ASST YEARS 2001- -- -02 & 2002 02 & 2002 02 & 2002 02 & 2002- -- -03) 03) 03) 03) TRIUMPH SECURITIES LTD RADHA BHUVAN 1 ST FLOOR 121 NAGINDAS MASTER ROAD FORT MUMBAI 23 VS THE ASST COMMR OF INCOME TAX CENTRAL CIRCLE-40 MUMBAI 20 (APPELANT) (APPELANT) (APPELANT) (APPELANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO.AAACT2152P PAN NO.AAACT2152P PAN NO.AAACT2152P PAN NO.AAACT2152P ASSESSEE BY SHRI RAJIV KHANDEWAL REVENUE BY DR P DANIEL PER R K PANDA AM PER R K PANDA AM PER R K PANDA AM PER R K PANDA AM THE ABOVE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS DATED 21.1.2008 AND 17.1.2008 OF THE CIT(A) - CENTRAL VII MUMBAI RELATING TO ASSESSMENTS YEARS 2001-02 AND 2002-03 R ESPECTIVELY. FOR THE SAKE OF CONVENIENCE BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO. 1053/MUM/2008 (AY 2001 ITA NO. 1053/MUM/2008 (AY 2001 ITA NO. 1053/MUM/2008 (AY 2001 ITA NO. 1053/MUM/2008 (AY 2001- -- -02 0202 02) )) ): :: : 2 THE ASSESSEE IN ITS GROUNDS OF APPEAL NO.1 HAS CH ALLENGED THE ORDER OF THE CIT(A) UPHOLDING THE ACTION OF THE AO IN NOT ALLOW ING LOSS OF RS. 60 04 791/- ON SHARE TRANSACTIONS. 2.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSES SEE COMPANY HAS STATED ITS BUSINESS ACTIVITIES AS MAINLY SHARE AND STOCK BROKI NG INVESTMENT AND TRADING IN 2 TRIUMPH SECURITIES LTD SHARES AND SECURITIES. THE ASSESSEE COMPANY IS A M EMBER OF BSE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFF ICER ISSUED NOTICE U/S 142(1) CONTAINING A DETAILED QUESTIONNAIRE. IN THE SAID Q UESTIONNAIRE APART FROM ASKING FOR VARIOUS DETAILS THE AO SPECIFICALLY ASKED THE ASSESSEE TO EXPLAIN THE DETAILS OF TRANSACTIONS OF SHARES IN WHICH TOTAL LOSS OF 89 01 CRORES HAS BEEN INCURRED. HE ALSO ASKED THE ASSESSEE TO GIVE DETAILS OF PURCH ASE OF SHARES AND DATE OF DECLARATION OF DIVIDEND COMPLETE DETAILS OF SPECUL ATION LOSS OF RS. 58 11 300/-. THE ASSESSEE DID NOT SUBMIT THE DETAILS ON THE DUE DATE. THE AO ISSUED ANOTHER QUESTIONNAIRE AND ASKED THE ASSESSEE TO FURNISH COM PLETE DETAILS WITH REGARD TO EACH AND EVERY PURCHASE AND SALE OF SHARES. HE AL SO ASKED THE ASSESSEE TO SPECIFY WHETHER THESE TRANSACTIONS ARE DEALT ON STO CK EXCHANGE OR NOT?. HE ALSO ASKED THE ASSESSEE TO SUBMIT THE DETAILS OF KNOW YO UR CLIENTS (KYC) FORM IN THE CASE OF CLIENTS WITH WHOM IT HAS ENTERED INTO THESE SPECULATIVE TRANSACTIONS. SINCE THE ASSESSEE DID NOT RESPOND TO THE QUESTIONN AIRE THE ASSESSING OFFICER AGAIN ISSUED SHOW CAUSE NOTICE AND ASKED THE ASSESS EE TO EXPLAIN WHY THE LOSS OF RS. 58 11 382/- INCURRED ON ACCOUNT OF SHARE TRA NSACTIONS SHOULD NOT BE DISALLOWED IN THE ABSENCE OF ANY EVIDENCE TO PROV E THE GENUINENESS OF THE LOSS. 2.2 IT WAS EXPLAINED BY THE ASSESSEE THAT LOSS HAS ARISEN BECAUSE OF LOSS IN DELIVERY BASED TRANSACTIONS AND IN NON-DELIVERY BAS ED TRANSACTIONS. IT WAS SUBMITTED THAT THE LOSS IS GENUINE. IT WAS ARGUED THAT IT IS A MATTER OF PUBLIC RECORD THAT STOCK MARKET CRASHED AT THE LAST QUARTE R OF THE RELEVANT YEAR AND THE ASSESSEE HAS INCURRED HEAVY LOSSES IN THE PROCESS. REFERRING TO THE REPORTS OF SEBI AND JPC IT WAS STATED THAT LOSSES SUFFERED BY KETAN PAREKH ENTITIES WERE IN THE RANGE OF ` 3000 TO ` 4000 CRORES. IT WAS ALSO SUBMITTED THAT THE BUSIN ESS OF SIMILAR NATURE IN PREVIOUS YEARS WAS ACCEPTED AN D NET PROFIT WAS TAXED AFTER 3 TRIUMPH SECURITIES LTD TAKING INTO THE CONSIDERATION THE LOSSES SUFFERED I N THE SPECULATIVE AND NON- SPECULATIVE SECTORS OF SHARE TRADING. REFERRING T O THE VARIOUS CONFIRMATION LETTERS FILED FROM VARIOUS BROKERS INCLUDING SUPPOR TING DOCUMENTS IT WAS SUBMITTED THAT THE BUSINESS ACTIVITY OF THE ASSESSE E IS GENUINE AND SUCH CONFIRMATIONS WERE ACCEPTED IN THE PAST INCLUDING T HE BLOCK ASSESSMENT PROCEEDINGS. 2.3 HOWEVER THE AO WAS NOT CONVINCED WITH THE EXPL ANATION GIVEN BY THE ASSESSEE. HE NOTED THAT THE LOSS IS INCURRED PRIM A FACIE ON ACCOUNT OF SPECULATION LOSS AND NON-SPECULATION LOSS. IT IS A COMMON KNOWLEDGE THAT THE ABOVE CONCERN BELONGS TO KETAN PAREKH GROUP OF ENTI TIES. THE RELEVANT ASSESSMENT YEAR FALLS WITHIN THE SO-CALLED YEAR OF THE STOCK MARKET SCAM AND INVESTIGATIONS WERE UNDERTAKEN BY VARIOUS INVESTIGA TING AND REGULATORY AUTHORITIES TO EXAMINE THE ROLE OF THE KETAN PAREKH GROUP OF CASES IN STOCK MARKET SCAM. 2.4 THE AO DISCUSSED EXHAUSTIVELY THE REPORT OF THE SEBI AND JPC AND THE MODUS-OPERANDI ADOPTED BY THE GROUP. HE NOTED THAT DURING THE BLOCK ASSESSMENT PROCEEDINGS IN VIEW OF FAILURE OF ASSES SEE TO PROVIDE CONFIRMATION LETTERS IN PART OF TRANSACTIONS AND ALSO IN VIEW OF VARIOUS ID MISMATCHES (IDENTITY VOLUME RATE) SUCH TRANSACTIONS BOTH SPECULATIVE AND NON-SPECULATIVE WERE TREATED AS ASSESSEES OWN TRANSACTIONS. SIMILAR TR EATMENT WAS GIVEN IN EARLIER YEARS ALSO. MANY OF THE TRANSACTIONS OF THE ASSESSE E DURING THE YEAR ARE WAS ALSO WITH SUCH ENTITIES. 4 TRIUMPH SECURITIES LTD 2.5 THE AO NOTED THAT DESPITE NUMBER OF OPPORTUNITI ES GIVEN BY HIM THE ASSESSEE DID NOT FURNISH FULL DETAILS. ACCORDING TO THE ASSESSING OFFICER IT IS THE RESPONSIBILITY OF THE ASSESSEE TO EXPLAIN THE DIFF ERENCES SPECIFICALLY IN THOSE CASES WHERE CONFIRMATION HAS NOT COME OR WHERE CONF IRMATIONS ARE NOT COMPLETE. HE NOTED FROM THE FIGURES DISCLOSED IN TH E P&L ACCOUNT UNDER THE HEAD PROFIT FROM OPERATIONS THAT THE ASSESSEE HAS ADJU STED LOSS ARISING FROM NON- DELIVERY BASED TRANSACTIONS WHICH ARE ADMITTED TO B E SPECULATIVE IN NATURE. ACCORDING TO THE AO THESE TRANSACTIONS ARE NEITH ER SPOT TRANSACTION NOR ARE CONTRACTED ON THE BOLT OF THE STOCK EXCHANGE. IN C ERTAIN TRANSACTIONS THE NOMENCLATURE OF TRANSACTIONS APPEARS TO BE BROUGHT FORWARD WHICH ARE NON- DELIVERY BASED TRANSACTIONS. FURTHER THE ASSESSEE HAS NOT EVEN SUBMITTED BILLS OF TRANSACTIONS. ON CAREFUL EXAMINATION OF THE SAME THE ASSESSING OFFICER WAS OF THE OPINION THAT THE TRANSACTIONS ARE SHOWN ONL Y IN ORDER TO GENERATE LOSS OR GENERATE PROFIT AND ARE NOT GENUINE SHARE TRANSACTI ONS. 2.6 HE REFERRED TO THE CIRCULAR NO.SMDRP/POLICY/CIR -32/99 DATED 14.9.1999 ISSUED BY SEBI WHICH PROHIBITED NEGOTIATED DEALS AN D CROSS DEALS EXCEPT IN THE CIRCUMSTANCES MENTIONED IN THE CIRCULAR. ACCORDING TO THE SAID CIRCULAR IF TRANSACTIONS ARE DONE OUTSIDE THE FLOOR OF THE STOC K EXCHANGE IT IS MANDATORY FOR THE BROKER TO REPORT SUCH TRANSACTIONS. HOWEVER IN THE CASE OF THE ASSESSEE NO SUCH REPORT HAS BEEN DONE TO THE STOCK EXCHANGE. HE NOTED THAT THE ASSESSEE HAS NOT SUBMITTED TRANSACTION WISE STATEMENT SHOWIN G SPECIFIC DATE OF PAYMENT RECEIVED WITH REGARD TO PURCHASE AND SALE OF DELIVE RY BASED TRANSACTIONS. IN THE ABSENCE OF SUBMISSION DP TRANSACTION STATEMENT THE VERIFICATION OF MOVEMENT OF SCRIPS COULD NOT BE DONE. IT WAS SUBMITTED BY THE ASSESSEE THAT DETAILS OF DP STATEMENT HAVE BEEN DESTROYED BY WHITE ANTS. THE A SSESSING OFFICER NOTED THAT 5 TRIUMPH SECURITIES LTD THE ASSESSEE HAS NOT EVEN SUBMITTED THE DP ACCOUNT NUMBER. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE THE ASS ESSING OFFICER CAME TO THE CONCLUSION THAT LOSSES IN THE SPECULATIVE TRANSACTI ONS ARE NON-GENUINE. HE ACCORDINGLY DID NOT ALLOW THE SAME TO BE SET OFF DU RING THE YEAR AND FURTHER DID NOT ALLOW THE SAME TO BE CARRIED FORWARD BEING NON- GENUINE. 3 BEFORE THE CIT(A) IT WAS SUBMITTED THAT RELEVA NT BILLS WERE PRODUCED BEFORE THE ASSESSING OFFICER . NO MANIPULATION WAS DONE BY THE ASSESSEE AS ALLEGED BY THE AO. THE LOSS BEING GENUINE OUGHT TO HAVE BEEN ALLOWED. IT WAS FURTHER SUBMITTED THAT THE ACTUAL LOSS FIGURE AMOUN TED TO RS. 58 11 372/- AND NOT RS. 60 04 791/- AS HELD BY THE ASSESSING OFFICER. M OREOVER THERE IS DOUBLE ADDITION IN AS MUCH AS THE ASSESSING OFFICER ADDE D THE SAME AMOUNT TWICE IN THE COMPUTATION OF INCOME SINCE THE ASSESSING OFFI CER HAD ADDED THE AMOUNT OF RS. 58 11 372/- IN THE COMPUTATION OF INCOME IN ORD ER TO ARRIVE AT THE BUSINESS INCOME AND THEREAFTER AGAIN MADE THE ADDITION OF R S. 60 04 791/- ON THE GROUND THAT THE LOSS WAS NOT GENUINE. 3.1 HOWEVER THE CIT(A) WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT THE ASSESSEE IS A PART OF K ETAN PAREKH GROUP OF SHARE BROKERS AND TRADERS WHICH WAS FOUND TO BE INVOLVED IN SECURITY SCAM. THE TRANSACTIONS MADE WITH MOST OF THE PARTIES ARE PART OF THE SCAM. THE JPC REPORT WHICH HAS BEEN EXHAUSTIVELY DISCUSSED BY THE AO HAD CLEARLY BROUGHT OUT THE NEFARIOUS ACTIVITIES OF THE ENTIRE GROUP AS A WHOLE . THE MANIPULATED OPERATION WAS CARRIED THROUGH MULTI LAYERED TRANSACTIONS SO THAT IT WAS NOT POSSIBLE TO LINK THE SOURCE OF FUNDS TO THE ACTUAL USERS. THE BUYING AND SELLING PATTERN OF 6 TRIUMPH SECURITIES LTD KETAN PARIKH GROUP CREATED ARTIFICIAL TRADING VOLUM ES AND FACILITATED PRICE MANIPULATION AND SUCH MANIPULATIONS WERE CARRIED ON THROUGH THE VARIOUS SISTER CONCERNS WHICH LED TO THE CRASH OF STOCK MARKET. T HE TRANSACTION BOTH SPECULATIVE AND NON SPECULATIVE CARRIED ON BY THE A SSESSEE FALL IN THE SAME PERIOD. THEREFORE THE FINDINGS OF THE JPC REPORT ARE CLEARLY APPLICABLE TO THE FACTS OF THE CASE. HE NOTED THAT THE ASSESSEE FAIL ED TO REBUT THE FINDINGS OF THE ASSESSING OFFICER THAT THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE WERE MANIPULATIVE AND FRAUDULENT IN NATURE WITH AN INTEN TION OF DISTORTING THE MARKET EQUILIBRIUM FOR MAKING PERSONAL GAINS. FURTHER TH E ASSESSEE HAS FAILED TO PRODUCE ANY EVIDENCE TO SHOW THAT THE TRANSACTIONS CARRIED ON BY IT WERE NOT OFF MARKET TRANSACTIONS AND WERE REPORTED TO THE STOCK EXCHANGE. THE ASSESSEE HAS ALSO FAILED TO CONTROVERT THE FINDINGS OF THE ASSES SING OFFICER THAT THE TRANSACTIONS WERE NOT OFF MARKET CROSS DEALS BANNED BY SEBI AFTER 14.9.1999. HE NOTED THAT VARIOUS QUERIES RAISED BY THE ASSESSING OFFICER REMAIN UNANSWERED AND THE ADVERSE FINDINGS OF THE SPECIAL AUDITORS AN D THE FINDINGS OF THE JPC HAVE REMAINED NON-REBUTTED BY THE ASSESSEE BEFORE THE AS SESSING OFFICER. SOME OF THE PERTINENT POINTS NOTED BY THE CIT(A) AT PARA 5. 5 OF HIS ORDER ARE AS UNDER: A) THE TRANSACTIONS MADE OUTSIDE THE FLOOR OF THE S TOCK EXCHANGE WAS REQUIRED TO BE INTIMATED AS PER THE GUIDELINES OF S EBI B) THE ASSESSEE FAILED TO SUBMIT NECESSARY DETAILS TRANSACTION WISE SHOWING SPECIFIC DATES OF PAYMENT RECEIVED WITH REG ARD TO SALE AND PURCHASE. C) DP TRANSACTION STATEMENT WAS NOT SUBMITTED. AS A RESULT VERIFICATION OF THE MOVEMENT OF FUND COULD NOT BE VERIFIED. AN EVAS IVE REPLY WAS FILED STATING THAT THEY WERE EATEN BY TERMITES. THE REPLY SHOWS THE INATTENTION OF THE APPELLANT TO CONCEAL THE REAL FACTS FROM THE GLARE OF THE AUTHORITIES. D) ASSESSEE DID NOT EVEN SUBMIT DP ACCOUNT NO. AND THE PARTICIPANT WITH WHICH THE ACCOUNT WAS MAINTAINED. E) THE ASSESSEE DID NOT FURNISH COPIES OF CONTRACT NOTES TO THE SPECIAL AUDITORS AS ALSO BANK PAY-IN-SLIPS AND CHEQUE COUNT ERFOILS ON THE SAME PLEA THAT THE SAME WERE DESTROYED BY TERMITES. 7 TRIUMPH SECURITIES LTD F) THE TRANSACTIONS MADE WERE OFF FLOOR OR CROSS DE ALS WHICH WERE NOT BACKED BY PAYMENT POSITION WITHIN A REASONABLE TIME . 3.2 THE CIT(A) FURTHER NOTED THAT UNDER IDENTICAL FACTS HIS PREDECESSOR IN THE CASE OF SAI MANGAL INVESTRADE LTD HAS DISALLOWED S IMILAR CLAIM BY HOLDING THAT THE ASSESSEE FAILED TO PROVE THE GENUINENESS OF THE TRANSACTIONS. SIMILAR CONCLUSION HAS ALSO BEEN DRAWN BY THE CIT(A) IN THE CASES OF OTHER GROUP COMPANIES WHILE DECIDING THEIR RESPECTIVE APPEALS. RELYING ON A COUPLE OF DECISIONS THE CIT(A) UPHELD THE ACTION OF THE AO H OLDING THAT THE SO CALLED LOSS SHOWN BY THE ASSESSEE WAS NOT GENUINE ONE. 4 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL HERE BEFORE US. 5 THE LD COUNSEL FOR THE ASSESSEE WHILE CHALLENGING THE ORDERS OF THE CIT(A) AND ASSESSING OFFICER SUBMITTED THAT ALL TRANSACTIO NS WERE THROUGH TERMINAL OF THE STOCK EXCHANGE AND THE TRANSACTIONS ARE APPEARI NG IN THE DP ACCOUNT. THEREFORE THE VERY BASIS OF THE ASSESSING OFFICER TREATING THE TRANSACTIONS AS NON-GENUINE IS ERRONEOUS AND FAULTY. REFERRING TO PAGE 1 OF THE PAPER BOOK HE SUBMITTED THAT LOSS FROM SHARES AND SECURITIES WAS DISCLOSED AT ` 58 11 372/- WHEREAS THE ASSESSING OFFICER HAS WRONGLY TAKEN THE FIGURE AT ` 60 04 791/-. REFERRING TO PAGE 39 OF THE PAPER BOOK HE SUBMITTE D THAT THE ASSESSEE VIDE LETTER DATED 4.2.2004 HAS GIVEN THE SCRIP WISE DETA ILS OF SPECULATION LOSS OF ` 58 11 300/-AS PER ANNEXURE 1. REFERRING TO THE SAI D ANNEXURE HE DREW THE ATTENTION OF THE BENCH TO THE ITEM WISE OPENING STO CK OF QUANTITY RATE AND VALUE 8 TRIUMPH SECURITIES LTD PURCHASE OF QUAINTLY RATE AND VALUE SALE/PURCHASE DURING THE YEAR CONTAINING THE DETAILS OF QUAINTLY RATE AND VALUE AND THE CLO SING STOCK OF QUANTITY RATE AND VALUE. REFERRING TO THE SAID ANNEXURE HE SUBMITTE D THAT CONTRACT NOTE BILL AND DE-MAT ACCOUNT WERE ALSO FURNISHED BEFORE THE ASSES SING OFFICER. HE SUBMITTED THAT SCRIP WISE DETAILS OF PROFIT AND LOSS WITH SUP PORTING DETAILS WERE FURNISHED. THEREFORE TRANSACTION SIMPLY CANNOT BE TREATED AS NON-GENUINE. HE SUBMITTED THAT THE OBSERVATIONS OF THE ASSESSING OFFICER THAT ASSESSEE HAS SUBMITTED THAT DETAILS OF DP ACCOUNT HAVE BEEN DESTROYED BY WHITE ANT ARE WRONG AND ERRONEOUS AND DUE TO NON APPLICATION OF MIND. HE SU BMITTED THAT THE ASSESSEE NEVER STATED BEFORE THE ASSESSING OFFICER THAT THE DP STATEMENTS HAVE BEEN DESTROYED BY WHITE ANT. THE ASSESSING OFFICER HAS MERELY COPIED THE OBSERVATIONS OF ANOTHER ASSESSING OFFICER IN THE CA SE OF A SISTER CONCERN. REFERRING TO THE ORDER OF THE TRIBUNAL VIDE ITA NO. 4229/MUM/2007 ORDER DATED 27.4.2009 FOR THE ASSESSMENT YEAR 2001-02 IN THE CA SE IF SAI MANGAL INVESTRADE LTD HE SUBMITTED THAT THE TRIBUNAL UNDER IDENTICAL FACTS AND CIRCUMSTANCES HAS ALLOWED THE LOSS CLAIMED BY THE ASSESSEE COMPANY S INCE THE CIT(A) WHILE DECIDING THE CASE AGAINST THE ASSESSEE HAS FOLLOWED HIS ORDER IN THE CASE OF SAI MANGAL INVESTRADE LTD (SUPRA) AND SINCE THE TRIBUN AL HAS SET ASIDE THE ORDER OF THE CIT(A) AND ALLOWED THE CLAIM OF THE ASSESSEE; T HEREFORE THE ORDER OF THE CIT(A) SHOULD BE SET ASIDE AND THE LOSS CLAIMED BY THE ASSESSEE SHOULD BE ALLOWED. 5.1 REFERRING TO THE ORDER OF THE TRIBUNAL IN THE C ASE OF JAYANT N PAREKH VS DCIT VIDE ITA NO.3129/MUM/2007 ORDER DATED 6.8.2010 FOR THE AY 2001-02 HE SUBMITTED THAT UNDER IDENTICAL FACTS AND CIRCUMST ANCES THE TRIBUNAL HAS ALLOWED 9 TRIUMPH SECURITIES LTD THE CLAIM OF LOSS OF `.1.45 CRORES DISALLOWED BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A) ON THE GROUND THAT TRANSACTION S ARE NOT GENUINE IN NATURE. HE ACCORDINGLY SUBMITTED THAT LOSS CLAIME D BY THE ASSESSEE BEING GENUINE IN NATURE AND SINCE FULL DETAILS WERE BEFORE THE ASSESSING OFFICER THE ORDER OF THE CIT(A) SHOULD BE SET ASID E AND THE CLAIM SHOULD BE ALLOWED. 5.2 THE LD SPECIAL COUNSEL WHO APPEARED ON BEHALF O F THE REVENUE ON THE OTHER HAND WHILE SUPPORTING THE ORDERS OF THE AUTHORITIES BELOW SUBMITTED THAT THE ASSESSEE BELONGS TO KETAN PAREKH GROUP OF COMPANIES AND THIS IS THE SCAM YEAR. REFERRING TO PAGE 402 OF THE PAPER BOOK HE SUBMITTED THAT THE ASSESSEE HAS RAISED BILL TO HEAD OFFICE CO NTROL ACCOUNT; THEREFORE THE BILL ISSUED BY THE ASSESSEE TO SELF AMOUNTS TO A SELF SE RVING DOCUMENT. HE SUBMITTED THAT THE ASSESSEE HAS NEVER PRODUCED FUND FLOW DETA ILS. REFERRING TO THE OBSERVATIONS GIVEN BY THE ASSESSING OFFICER ON THE BASIS OF ENQUIRY CONDUCTED HE SUBMITTED THAT THE ASSESSEE WANTS TO CREATE LOSS TO BE SET OFF AGAINST ITS HUGE OTHER INCOME LIKE INTEREST AND MISCELLANEOUS I NCOME. HE SUBMITTED THAT THE CIT(A) HAS GIVEN CLEAR CUT FINDINGS FOR NOT ALL OWING THE LOSS CLAIMED BY THE ASSESSEE. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) SHOULD BE UPHELD. 5.3 THE LD COUNSEL FOR THE ASSESSEE IN HIS REJOIND ER SUBMITTED THAT THE ASSESSEE IS A MEMBER OF BSE AND TRADING IS BEING DO NE THROUGH ITS OWN TERMINAL AND THE ASSESSEE CANNOT TRADE THROUGH THE TERMINAL OF OTHER MEMBERS OF THE 10 TRIUMPH SECURITIES LTD STOCK EXCHANGE SINCE THERE IS PROHIBITION. HE SUB MITTED THAT THE ASSESSEE HAS APPLICATION ACCOUNT WITH THE STOCK EXCHANGE AND THE ENTIRE TRANSACTIONS ARE TO BE ROUTED THROUGH THE EXCHANGE AND THE ENTIRE MONEY HAS COME OUT FROM THE SAME ACCOUNT. HE SUBMITTED THAT THE ASSESSEE PAID STAMP DUTY ON THE CONTRACT. REFERRING TO THE ORDER OF THE SEBI AS RELIED ON BY THE ASSESSING OFFICER/CIT(A) HE SUBMITTED THAT THERE IS NO MENTION THAT SCRIPS OF THOSE COMPANIES APPEARS IN THE CASE OF THE ASSESSEE. H SUBMITTED THAT THE SCR IPS DISCUSSED BY SEBI ARE DIFFERENT FROM THOSE SCRIPS TRADED BY THE ASSESSEE. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) SHOULD BE SET ASIDE AN D THE LOSS CLAIMED BY THE ASSESSEE BE ALLOWED. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. FROM THE COPY OF THE ASSESSMENT ORDE R WE FIND THE ASSESSING OFFICER MADE AN ADDITION OF ` 58 11 372/- UNDER TH E HEAD SPECULATION LOSS AND ANOTHER ADDITION OF ` 60 04 791/- ON ACCOUNT OF SH ARE TRADING LOSS. 6.1 SO FAR AS THE ADDITION OF `. 58 11 372/- ON ACC OUNT OF SPECULATION LOSS IS CONCERNED WE FIND THE ASSESSING OFFICER ELABORATE LY DISCUSSED THE REASONS FOR SUCH DISALLOWANCE WHICH HAS ALREADY BEEN BROUGHT O UT IN THE FACTS OF THE CASE. SO FAR AS THE SHARE TRADING LOSS OF ` 60 04 791/ I S CONCERNED WE FIND THE REASONS GIVEN BY THE ASSESSING OFFICER IS THAT THE ASSESSEE DID NOT FURNISH THE MOVEMENT OF FUNDS PERTAINING TO THE PURCHASE OF THE SHARES. ACCORDING TO THE ASSESSING OFFICER FROM WHATEVER DETAILS FURNISHED B Y THE ASSESSEE IT APPEARS THAT THE SCRIPS IN WHICH THE ASSESSEE INCURRED LOSS ARE THE SAME SCRIPS WHICH 11 TRIUMPH SECURITIES LTD THE GROUP HAS MANIPULATED THE PRICES AS FOUND OUT BY THE JPC AND SEBI REPORT. IT IS THE SUBMISSION OF THE LD COUNSEL FOR THE ASSESSE E THAT THE SHARES ON WHICH LOSSES HAVE BEEN INCURRED ARE NOT THE SAME SCRIPS AS PER THE REPORT OF THE JPC AND SEBI. 6.2 WE FIND BEFORE THE CIT(A) IT WAS ARGUED THAT ` 58 11 372/- WAS ADDED IN THE COMPUTATION OF INCOME IN ORDER TO ARRIVE AT TH BUSINESS INCOME AND FURTHER ADDITION OF ` 60 04 791/- WAS MADE ON THE GROUND T HAT THE LOSS WAS NOT GENUINE. THUS THERE IS DOUBLE ADDITIONS {PARA 4 OF THE ORDE R OF THE CIT(A)}. WE FIND THIS ASPECT HAS NOT BEEN DECIDED BY THE CIT(A). ACCORDIN G TO THE LD COUNSEL FOR THE ASSESSEE VARIOUS OBSERVATIONS MADE BY THE ASSESSIN G OFFICER AND THE CIT(A) ARE CONTRARY TO THE FACTS. WE FIND DESPITE NUMBER OF O PPORTUNITIES GIVEN THE ASSESSEE DID NOT FURNISH THE DETAILS ON THE SPECIFI ED DATES. WE FIND THE ASSESSEE VIDE LETTER DATED 4.2.2004 ADDRESSED TO THE ASSESSI NG OFFICER HAS SUBMITTED THE SCRIP WISE DETAILS OF THE DETAILS OF SPECULATION LO SS OF ` 58 11 300/-. FURTHER VIDE LETTER 15.3.2004 SUBMITTED ON 24.3.2004 THE ASSESSE E EXPLAINED THE LOSS ON TRADING OF SHARES AND SECURITIES AMOUNTING TO ` 58. 11 LACS. ALTHOUGH THE LD COUNSEL FOR THE ASSESSEE REFERRING TO THE DETAILS O F SPECULATION LOSS OF ` 58 11 300/- TRIED TO EXPLAIN THE JUSTIFICATION OF SUCH LOSS BY EXPLAINING THE QUANTITY RATE AND VALUE OF OPENING STOCK PURCHASE SALES AND CLOSING STOCK AND SUBMITTED THAT CONTRACT NOTE BILL AND DEMAT ACCOU NT HAVE BEEN FURNISHED BEFORE THE ASSESSING OFFICER WE FIND THE SAME WERE NOT PROPERLY VERIFIED BY THE ASSESSING OFFICER OR BY THE CIT(A). IT IS ALSO THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS NOT EXPLAINED THE DIFFERENCES SPEC IFICALLY IN THOSE CASES WHERE CONFIRMATIONS HAVE NOT COME OR WHERE CONFIRMATIONS ARE INCOMPLETE. UNDER THESE CIRCUMSTANCES WE ARE OF THE CONSIDERED OPINI ON THAT THE MATTER REQUIRES 12 TRIUMPH SECURITIES LTD FRESH ADJUDICATION AT THE LEVAL OF THE ASSESSING OF FICER ON THE BASIS OF THE VARIOUS DOCUMENTS FILED BEFORE HIM WHICH APPEARS TO HAVE NOT BEEN PROPERLY EXAMINED BY HIM. WE THEREFORE SET ASIDE THE ORDE R OF THE CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WI TH THE DIRECTION TO DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIV ING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACC ORDINGLY. THIS GROUND OF THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PUR POSE. 7 IN GROUNDS OF APPEAL NO.2 THE ASSESSEE HAS CHALL ENGED THE ORDER OF THE CIT(A) IN NOT ALLOWING DEPRECIATION OF RS. 18 28 1 25/- ON MEMBERSHIP RIGHTS OF THE STOCK EXCHANGE. 8 AT THE TIME OF HEARING IT WAS AGREED BY BOTH THE PARTIES THAT THE ISSUE STANDS DECIDED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF TECHNO SHARES &STOCKS LTD & OT HERS REPORTED IN 84 TAXMAN 103. HOWEVER IT HAS COME TO OUR NOTICE THAT THE AB OVE DECISION OF THE HONBLE BOMBAY HIGH COURT HAS SINCE BEEN REVERSED BY THE H ONBLE SUPREME COURT WHEREIN IT HAS BEEN HELD THAT THE ASSESSEE IS ENTIT LED TO DEPRECIATION ON STOCK EXCHANGE MEMBERSHIP CARD. SINCE THIS ISSUE WAS NOT ARGUED IN DETAIL BY EITHER OF THE SIDES; THEREFORE IN THE INTEREST OF JUSTICE WE DEEM IT PROPER TO RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WIT H A DIRECTION TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT (SUPRA) AND IN ACCORDANCE WITH LAW. THIS GROUND OF THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 13 TRIUMPH SECURITIES LTD 9 IN GROUNDS OF APPEAL NO.3 THE ASSESSEE HAS CHAL LENGED THE ORDER OF THE CIT(A) IN NOT ADJUDICATING THE GROUND RELATING TO D ISALLOWANCE OF DEPRECIATION OF ` 4 64 727/- ON COMPUTER SYSTEMS FURNITURE AND OFFI CE EQUIPMENTS. 10 BOTH THE PARTIES AGREED THAT BEFORE THE CIT(A) A SPECIFIC GROUND AS PER 3(B) IN FORM NO.35 WAS TAKEN CHALLENGING THE ORDER OF THE ASSESSING OFFICER IN DISALLOWING WITHOUT ASSIGNING ANY REASON A SUM OF ` 4 64 727/- BEING DEPRECIATION ON COMPUTER SYSTEMS FURNITURE AND OFF ICE EQUIPMENTS. HOWEVER THE CIT(A) HAS NOT ADJUDICATED THIS GROUND AND THER EFORE THE SAME SHOULD BE RESTORED BACK TO HIS FILE FOR ADJUDICATION. SINCE ADMITTEDLY THE CIT(A) HAS NOT ADJUDICATED THE GROUND OF APPEAL 3(B) BEFORE HIM; T HEREFORE WE RESTORE THIS GROUND TO HIS FILE FOR ADJUDICATION. NEEDLESS TO S AY HE HAS TO GIVE DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECI DE THE ISSUE IN ACCORDANCE WITH LAW. WE HOLD AND DIRECT ACCORDINGLY. THIS GROU ND BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 11 IN GROUNDS OF APPEAL NO.4 THE ASSESSEE HAS CHAL LENGED THE ORDER OF THE CIT(A) IN UPHOLDING THE ACTION OF THE ASSESSING OF FICER IN DISALLOWING A SUM OF ` 1 49 62 136/- ON ACCOUNT OF BAD DEBTS. 11.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE HAS CLAIMED AN AMOUNT OF ` 2 30 92 877/- AS BAD DEBTS IN THE P&L ACCOUNT. THE ASSESSING OFFICER ASKED THE ASSESSEE TO PROVE THE ALLOWABILITY OF THE DEDUC TION. THE ASSESSEE EXPLAINED 14 TRIUMPH SECURITIES LTD THAT AN AMOUNT OF ` 21 56 580/- AND ` 59 74 161/- ARE WRITTEN OFF ON ACCOUNT OF BAD DEBTS FROM THE FRANCHISES OF THE COMPANY AT I NDORE AND VALSAD. SINCE THE ASSESSEE COULD NOT PROVE TO HIS SATISFACTION THE F ULFILMENT OF THE PROVISIONS OF SEC. 36(2) THE ASSESSING OFFICER DISALLOWED AN AMO UNT OF ` 149 62 136/-. 11.2 BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE AS SESSING OFFICER NEVER ASKED FOR ANY SUCH DETAILS. THE ASSESSEE FURNISHED COPI ES OF THE LEDGER ACCOUNT OF THE RESPECTIVE PARTIES ALONG WITH THE BILLS OF TRAN SACTIONS UNDERTAKEN ON BEHALF OF THE PARTIES IN STOCK EXCHANGE. IT WAS REQUESTED TO CONSIDER SUCH DETAILS AND EVIDENCES AS ADDITIONAL EVIDENCE/SUPPORTING DOCUMEN TS WHICH COULD NOT BE FILED DUE TO LACK OF SUFFICIENT OPPORTUNITY ALLOWED BY TH E ASSESSING OFFICER. HOWEVER THE CIT(A) NOTED THAT THE ASSESSING OFFICER HAD CAL LED FOR RELEVANT DETAILS PERTAINING TO BAD DEBTS AS PER DETAILED QUESTIONN AIRE DATED 9.12.2003 BY SEEKING DETAILS OF BAD DEBT WRITTEN OFF AND BASIS F OR CLAIMING THE DEDUCTION. THE ASSESSMENT ORDER WAS PASSED ON 30.3.2004. THEREFORE IT IS NOT CORRECT ON THE PART OF THE ASSESSEE TO STATE THAT THE ASSESSING OF FICER DID NOT ASK FOR NECESSARY DETAILS OR DID NOT ACCORD SUFFICIENT OPPORTUNITY. SINCE THE ASSESSEE FAILED TO GIVE JUSTIFIABLE REASON FOR ENTERTAINING ADDITIONAL EVID ENCES BEFORE HIM AS REQUIRED UNDER RULE 46A THE CIT(A) REJECTED THE ADDITIONAL EVIDENCES AND UPHELD THE ACTION OF THE ASSESSING OFFICER IN MAKING THE DISAL LOWANCE. THE CIT(A) FURTHER OBSERVED THAT EVEN PRIMARY DETAILS WERE NOT FURNIS HED BEFORE THE ASSESSING OFFICER AND THE ONUS IS ON THE ASSESSEE TO DISCHAR GE THE BURDEN CAST ON IT. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESS EE IS IN APPEAL HERE BEFORE US. 15 TRIUMPH SECURITIES LTD 12 THE LD COUNSEL FOR THE ASSESSEE REFERRING TO THE EVIDENCES FILED BEFORE THE CIT(A) AS ADDITIONAL EVIDENCE SUBMITTED THAT THE SA ME SHOULD HAVE BEEN ADMITTED BY HIM. HE ACCORDINGLY PRAYED THAT IN TH E INTEREST OF JUSTICE THE MATTER SHOULD BE SENT BACK TO THE FILE OF THE ASSES SING OFFICER FOR FRESH ADJUDICATION. 12.1 THE LD DR ON THE OTHER HAND WHILE SUPPORTING T HE ORDER OF THE CIT(A) SUBMITTED THAT HE HAS NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. 13 AFTER HEARING BOTH THE PARTIES WE FIND ADMITTED LY THE ASSESSEE HAD NOT FURNISHED THE FULL DETAILS BEFORE THE ASSESSING OFF ICER FOR ALLOWING THE CLAIM OF BAD DEBTS. WE FIND THE CIT(A) DID NOT ENTERTAIN THE ADDITIONAL EVIDENCES FILED BEFORE HIM ON THE GROUND THAT THE ASSESSEE COULD NO T SPECIFICALLY EXPLAIN THE REASONS FOR ENTERTAINING THE ADDITIONAL EVIDENCES U NDER RULE 46A OF THE I T ACT. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES OF THE CASE AND IN THE INTEREST OF JUSTICE WE ARE OF THE CONSIDERED OPINI ON THAT THE ASSESSEE SHOULD BE GIVEN ONE MORE OPPORTUNITY TO SUBSTANTIATE ITS CLAI M OF BAD DEBTS. WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A) AND DI RECT THE ASSESSING OFFICER TO GIVE ONE MORE OPPORTUNITY TO EXPLAIN THE ALLOWABILI TY OF BAD DEBTS OF ` 1 49 62 136/-. THE ASSESSING OFFICER SHALL DECIDE T HE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND TAKEN B Y THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 16 TRIUMPH SECURITIES LTD ITA NO. 2111/MUM/2008 (AY 2002 ITA NO. 2111/MUM/2008 (AY 2002 ITA NO. 2111/MUM/2008 (AY 2002 ITA NO. 2111/MUM/2008 (AY 2002- -- -03) 03) 03) 03) 14 BEFORE DECIDING OTHER GROUNDS THE GROUNDS OF A PPEAL NO.4 (A) IN OUR OPINION HAS TO BE DECIDED AT THE BEGINNING. THE ASSESSEE IN THIS GROUND HAS CHALLENGED THE ORDER OF THE CIT(A) IN MAKING ENHAN CEMENT OF INCOME BY WITHDRAWING DEDUCTION OF EXPENSES ALLOWED UNDER THE HEAD BUSINESS INCOME AND ALSO NOT ALLOWING CARRY FORWARD OF BUSINESS LOS S ON THE GROUND THAT NO BUSINESS ACTIVITY HAS BEEN CARRIED OUT DURING THE Y EAR. 14.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE HAS FILED ITS RETURN OF INCOME ON 31.10.2002 DECLARING THE LOSS OF ` . 7 27 08 940/-. THE ASSESSING OFFICER WHILE PASSING THE ORDER U/S 143(3) MADE VAR IOUS ADDITIONS/DISALLOWANCE AND DETERMINED THE TOTAL LOSS AT ` 70 493 585/-. THE ASSESSEE CHALLENGED THE ORDER OF THE ASSESSING OFFICER BEFORE THE CIT(A). D URING THE APPELLATE PROCEEDINGS THE CIT(A) NOTED THAT THE ASSESSING OFF ICER HAD DETERMINED THE BUSINESS LOSS AT ` 7.04 CRORES AND ALLOWED THE SAME TO BE CARRIED F ORWARD; ALTHOUGH NO SPECIFIC MENTION OF SUCH FACT HAS BEEN MADE IN THE ORDER. HE NOTED THAT THE ASSESSEE IS DEBARRED FROM CARRYING ON SHAR E TRADING ACTIVITY BY SEBI AS IT ALONG WITH OTHER GROUP CONCERNS LED BY SHRI KETA N PAREKH WAS INVOLVED IN SECURITIES SCAM WHICH WAS UNEARTHED IN THE YEAR 200 0. FROM APRIL 2001 THE WHOLE GROUP INCLUDING THE ASSESSEE COULD NOT CARRY OUT SUCH TRADING. HE NOTED THAT AS PER THE PAST RECORDS THIS WAS THE ONLY BUS INESS ACTIVITY OF THE ASSESSEE. HOWEVER THE ASSESSEE WAS ALSO EARNING CERTAIN RESI DUAL INCOME IN THE FORM OF INTEREST ON FDR ETC. HE NOTED FROM THE P&L ACCOUNT THAT MAJOR PART OF THE 17 TRIUMPH SECURITIES LTD INCOME OF THE ASSESSEE WAS DERIVED FROM OTHER INCOM E AMOUNTING TO ` 94.40 LAKHS WHICH INCLUDED INTEREST DIVIDEND AND MISCELL ANEOUS INCOME. REST OF OTHER INCOME COMPRISED OF BROKERAGE AND INCOME FROM SHARE S AND SECURITIES ETC. AMOUNTING TO ` 2.45 LAKHS AND ` . 2.07 LAKHS RESPECTIVELY. THE TOTAL RECEIPTS AMOUNTED TO ` 98.93 LAKHS ONLY. SINCE THE ASSE SSEE HAS NOT FURNISHED ANY DETAILS GIVING THE EXACT NATURE OF MISCELLANEOUS IN COME HE ASSUMED THAT SUCH AN INCOME IS RESIDUAL INCOME OTHER THAN BUSINESS IN COME AND IS ALSO LIABLE TO BE TAXED AS OTHER SOURCES. HOWEVER THE ASSESSEE HAS C LAIMED DEDUCTION AMOUNTING TO ` 8.10 CRORES AS EXPENSES WHICH INCLUDED THE BAD DE BT AND PENALTY WHICH CANNOT BE ATTRIBUTED TO EARNING THE MISCELLANEOUS I NCOME AS WELL AS NEGLIGIBLE INCOME FROM SHARES AND BROKERAGE ETC. SINCE NO BUS INESS AS SUCH WAS BEING CARRIED OUT BY THE ASSESSEE THE CIT(A) NOTED THAT THERE IS NO QUESTION OF ALLOWING ANY DEDUCTION OF THE EXPENSES. 14.2 REJECTING THE EXPLANATIONS GIVEN BY THE ASSESS EE AND RELYING ON A COUPLE OF DECISIONS HE NOTED THAT THERE WAS HARDLY ANY BUSINESS ACTIVITY DURING THE YEAR AND THE ASSESSING OFFICER HAD ERRONEOUSLY ALLOWED THE BUSINESS LOSS TO BE CARRIED FORWARD. HE ACCORDINGLY ISSUED NOTICE OF ENHANCEMENT PROPOSING TO DISALLOW THE EXPENSES CLAIMED UNDER THE HEAD BUSIN ESS INCOME AND WITHDRAWING THE CARRIED FORWARD LOSS. IN ABSENCE O F ANY RESPONSE FROM THE ASSESSEE TILL THE DATE OF PASSING THE ORDER THE CI T(A) HELD THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM ANY BUSINESS LOSS AND NOT ENT ITLED TO CARRY FORWARD THE SAME FOR SETTING OFF IN THE SUBSEQUENT ASSESSMENT YEAR. ACCORDINGLY HE DIRECTED THE ASSESSING OFFICER TO WITHDRAW THE ENTIRE DEDUCTION ALLOWED UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION AND ALSO THE AMOUNT OF BUSINESS LOSS 18 TRIUMPH SECURITIES LTD CARRIED FORWARD TO SUBSEQUENT ASSESSMENT YEARS. SI NCE THE BUSINESS LOSS WOULD BE IGNORED HE DIRECTED THE ASSESSING OFFICER TO TA X THE MISCELLANEOUS INCOME COMPRISING OF INTEREST ETC UNDER THE HEAD INCOME FROM OTHER SOURCES. ACCORDINGLY THERE WAS AN ENHANCEMENT OF INCOME T O THE EXTENT OF BUSINESS LOSS AMOUNTING TO ` 7.04 CRORES WHICH HAS BEEN WRONGLY ALLOWED TO BE CARRIED FORWARD. MISCELLANEOUS INCOME AGGREGATING TO ` 94.40 LAKHS INCLUSIVE OF INTEREST INCOME OF ` 39.98 LAKHS WAS DIRECTED TO BE TAXED AS INCOME F ROM OTHER SOURCES. 15 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE AS SESSEE IS IN APPEAL HERE BEFORE US. 16 THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY IS A MEMBER OF BSE AND WAS DEBARRED FROM UNDERTAKIN G ANY FRESH BUSINESS AS A STOCK BROKER OR MERCHANT BANKER TILL FURTHER ORDERS BY SEBI VIDE ITS ORDER DATED 4.4.2001. HE SUBMITTED THAT SEBI VIDE ORDER DATED 21.6.2001 PASSED ANOTHER ORDER HOLDING THAT ON RECEIPT OF THE ENQUIRY OFFIC ERS RECOMMENDATIONS FURTHER DECISION AS TO WHETHER PROHIBITION TO CARRY OUT FRE SH BROKING ACTIVITY ON THE ENTITIES SHOULD BE CONTINUED FOR A FURTHER PERIOD O R IT SHOULD BE WITHDRAWN WILL BE TAKEN. HE SUBMITTED THAT SEBI PASSED AN ORDER DA TED 8.3.2004 CANCELLING THE CERTIFICATE OF REGISTRATION GRANTED TO THE COMPANY. THE COMPANY THEN PREFERRED AN APPEAL TO THE SECURITIES APPELLATE TRIBUNAL (SAT ) IN APRIL 2004 AGAINST THE ORDER DATED 8.3.2004 PASSED BY SEBI AND THE APPEAL OF THE ASSESSEE WAS DISMISSED VIDE ORDER DATED 11.5.2007. HE SUBMITTED THAT THE COMPANY HAS NOT 19 TRIUMPH SECURITIES LTD BEEN DELISTED AS MEMBER OF THE STOCK EXCHANGE. HE S UBMITTED THAT THE COMPANY HAS NOT DISCONTINUED ITS BUSINESS OPERATIONS BUT HA S BEEN FORCED NOT TO UNDERTAKE ANY BUSINESS ACTIVITY BY VIRTUE OF THE AF ORESAID ORDER OF THE SEBI WHICH WAS CONFIRMED BY THE SAT. ACCORDING TO THE L D AR THOUGH THERE IS SUSPENSION OF BROKING ACTIVITY BY VIRTUE OF THE ORD ER OF THE SEBI THE COMPANY CANNOT BE SAID TO BE NOT CARRYING ON BUSINESS DURIN G THE PERIOD UP TO MAY 2007OR AT LEAST TILL 8.3.2004 BEING THE DATE OF CAN CELLATION OF CERTIFICATE OF REGISTRATION BY THE SEBI. RELYING ON A COUPLE OF D ECISIONS AND MORE PARTICULARLY THE ORDER OF THE TRIBUNAL IN THE CASE OF KNP SECUR ITIES P LTD VIDE ITA NOS. 5008 & 5009/MUM/2007 HE SUBMITTED THAT UNDER IDENTICAL FACTS AND CIRCUMSTANCES THE TRIBUNAL AFTER CONSIDERING A NUMBER OF DECISION S HAS HELD THAT VARIOUS EXPENSES INCURRED BY THE ASSESSEE ARE ALLOWABLE AS DEDUCTION. HE ACCORDINGLY SUBMITTED THAT THIS BEING A COVERED MATTER THE AS SESSEE IS ENTITLED TO THE BUSINESS LOSS INCURRED BY IT AND ALSO FOR CARRY FOR WARD OF THE SAME. 16.1 THE LD DR ON THE OTHER HAND SUPPORTED THE OR DER OF THE CIT(A). 17 AFTER HEARING BOTH THE PARTIES WE FIND IDENTIC AL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF KNP SECURITIES P LTD (SUPRA) WHEREIN THE ASSESSING OFFICER HAD DISALLOWED VARIOUS EXPENSES C LAIMED 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 DAT ED 11.4.2001. IN APPEAL THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER A ND ON FURTHER APPEAL THE TRIBUNAL VIDE ORDER DATED 29.5.2009 ALLOWED THE VAR IOUS EXPENSES CLAIMED BY THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL READS AS UNDER: 20 TRIUMPH SECURITIES LTD 5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDER ED THEM CAREFULLY. WE HAVE ALSO PERUSED THE MATERIAL O N RECORD ALONG WITH VARIOUS CASE LAWS RELIED BY BOTH THE PAR TIES. AFTER CONSIDERING THE RELEVANT MATERIAL IT IS SEEN THAT T HE ASSESSEE WAS DOING BUSINESS OF SHARE TRADING AND SECURITY ET C. VARIOUS BUSINESS EXPENSES INCURRED FOR THE PURPOSE OF ITS BUSINESS ACTIVITIES WERE HELD AS ALLOWABLE IN PAST. IN THE YEAR UNDER CONSIDERATION THE LD AO NEGATIVED THE C LAIM OF THE ASSESSEE FOR THE REASON THAT THERE IS NO BUSINE SS ACTIVITY DURING THE YEAR UNDER CONSIDERATION AS SEBI HAS IMP OSED RESTRICTION VIDE ORDER DATED 11.4.2001. COPY OF THE ORDER ISSUED BY SEBI IS PLACED AT PAGES 82 TO 84 OF THE P APER BOOK. IT IS MENTIONED IN THIS ORDER THAT THE ASSE SSEE IS BARRED FROM UNDERTAKING ANY FRESH BUSINESS AS STOCK BROKER TILL FURTHER ORDER AS ON ACCOUNT OF INDICATIONS OF THE PRIMA FACIE INVOLVEMENT OF MR KETAN PAREKH IN MANIPUL ATING CERTAIN SCRIPS OF VARIOUS COMPANIES. IT HAS BEEN NO TICED THAT M/S V N PAREKH SECURITIES LTD AND M/S KNP SECURITIE S LTD ARE ALSO THE ENTITIES CONTROLLED BY AND CONNECTED W ITH MR KETAN PAREKH OR MR KARTIK PAREKH. THEREFORE IN VI EW OF THE POWERS CONFERRED UNDER THE PROVISIONS OF SUB SECTI ON (3) OF SEC. 4 R.W.S 11 AND 11B OF THE SEBI ACT 1902 THE ASSESSEE WAS BARRED FROM UNDERTAKING ANY FRESH BUSINESS AS S TOCK BROKERS TILL FURTHER ORDERS AS STATED ABOVE. THEREA FTER SEBI PASSED ANOTHER ORDER ON 21 ST JUNE 2001 STATING THAT IN VIEW OF THE ORDER OF SEBI DATED 4.4.2001 AND 10.4.2001 DEBARRING THEM FROM UNDERTAKING ANY FRESH BUSINESS AS A STOCK BROKER AND MERCHANT BANKERS TILL FURTHER ORDE RS SHOULD BE CONTINUED. THIS ACTION OF THE SEBI HAS BEEN CHAL LENGED BY THE ASSESSEE BEFORE THE APPROPRIATE AUTHORITIES. COPY OF THE PETITION FILED BEFORE THE SECURITIES APPELLATE TRIBUNAL IS PLACED AT PAGE 94 OF THE PAPER BOOK. IN VIEW OF THE SE FACTS AND CIRCUMSTANCES THE ASSESSEE WAS NOT ALLOWED TO DO ITS BUSINESS ACTIVITY IN SHARE ON THE STOCK EXCHANGE FL OOR. 5.1 NOT DOING BUSINESS ACTIVITY WAS NOT ON ACCOUNT OF ASSESSEES WILL BUT ON ACCOUNT OF FORCED CIRCUMSTAN CES; THEREFORE IT CANNOT BE SAID THAT THE ASSESSEE HAS CLOSED/DISCONTINUED ITS BUSINESS ACTIVITY ITS OWN. THE ESTABLISHMENTS OF THE ASSESSEE WERE INTACT AND THEY WERE TO 21 TRIUMPH SECURITIES LTD BE MAINTAINED. STAFF MEMBERS WERE KEPT AND SALARIES WERE PAID TO THEM. LOANS TAKEN FROM VARIOUS BANKS AND OT HERS FOR THE PURPOSE OF BUSINESS ACTIVITY IN PAST WERE OUTST ANDING DURING THE YEAR UNDER CONSIDERATION; THEREFORE ANY INTEREST ACCRUED WAS TO BE PAID DURING THE YEAR UNDER CONSID ERATION OR WAS PAYABLE. THE ASSESSEE IS HAVING VALID BSE CA RD WHICH COULD NOT BE USED FOR THE REASON THAT SEBI HA S PASSED AN ORDER BARRING THE ASSESSEE NOT TO DO ANY BUSINESS ACTIVITY. THEREFORE IT ALSO CANNOT BE SAI D THAT THE ASSESSEE COULD NOT USE THE BSE CARD ITS OWN WHICH W AS READY TO USE. IN THESE CIRCUMSTANCES WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEES BUSINESS DOES N OT 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 ON ACCOUNT OF VOLUNTARY ACT OF THE ASS ESSEE NOR THE SAME HAS PUT TO STOP ITS OWN. THE BUSINESS COUL D NOT BE DONE FOR THE REASON THAT SEBI HAS BARRED THE ASSESS EE NOT TO DO ANY BUSINESS ACTIVITY TILL FURTHER ORDERS. TH E ASSESSEE WAS BARRED TILL FURTHER ORDERS CLEARLY MEAN THAT TH E ASSESSEE WAS NOT BARRED PERMANENTLY. THE PERMANENT ORDER ISS UED IN THE YEAR 2007 AND FROM THE YEAR OF 2007 THE ASSESS EE CANNOT DO ANY BUSINESS ACTIVITY; THEREFORE AT THE MOST IT CAN BE SAID THAT NO EXPENSES CAN BE ALLOWED FROM THAT Y EAR. HOWEVER FOR THE EARLIER YEAR IN OUR CONSIDERED VI EW THE EXPENSES INCURRED BY THE ASSESSEE FOR THE PURPOSE O F ITS BUSINESS ACTIVITY ARE ALLOWABLE AS THE ESTABLISHMEN T WAS NOT SCRAPED AND THE ASSESSEE WAS STILL HOPEFUL TO S TART ITS BUSINESS ACTIVITY. 6 IN THE CASE OF CIT VS VELLORE ELECTRIC CORPORATIO N LTD REPORTED IN 243 ITR 529 THE HONBLE MADRAS HIGH CO URT HAS HELD THAT: 22 TRIUMPH SECURITIES LTD IT COULD NOT BE SAID THAT THERE WAS A PERMANENT CL OSURE AS THE VALIDITY OF THE ACT WAS YET TO BE FINALLY SETTL ED BY THE SUPREME COURT. IN THE EVENT OF THE ACT BEING STRUCK DOWN THE ASSESSEE COULD RESUME BUSINESS. THE FACT THAT I T HAD CONTINUED TO MAINTAIN AN ESTABLISHMENT WAS INDICATI ON OF ITS INTENTION TO RESUME BUSINESS IF AN OPPORTUNITY FOR IT AROSE BY REASON OF THE SUPREME COURT HOLDING IN ITS FAVOU R. THE EXPENSES INCURRED BY IT WHILE AWAITING THE DECISION OF THE SUPREME COURT COULD NOT ALTOGETHER BE REGARDED AS UNCONNECTED WITH THE BUSINESS THAT IT HAD BEEN CARR YING ON BY SUPPLY OF ELECTRICITY AND THAT BUSINESS WAS INTE RRUPTED ONLY BY REASON OF THE ACT. THE POSSIBLE RESUMPTION OF THE BUSINESS WAS DEPENDENT ON THE OUTCOME OF THE APPEAL S PENDING BEFORE THE SUPREME COURT. THE AMOUNTS CLAIM ED WERE ALSO NOT VERY SUBSTANTIAL. THE TRIBUNAL HAD TA KEN A BROAD VIEW OF THE MATTER AND HAD HELD IN FAVOUR OF THE ASSESSEE. THERE WAS NO GROUND TO DIFFER 6.1 THE FACTS BEFORE THE HONBLE HIGH COURT WERE TH AT THE ASSESSEE WAS A PRIVATE ELECTRIC COMPANY. ITS UNDERT AKING VESTED WITH THE STATE GOVERNMENT BY REASON OF THE ENACTMENT OF THE TAMIL NADU ELECTRICITY SUPPLY UNDERTAKINGS (ACQUISITION) ACT 1973. AFTER AN UNSU CCESSFUL ATTEMPT TO CHALLENGE THE VALIDITY OF THAT ACT IN TH E HIGH COURT THE ASSESSEE HAD FILED APPEALS BEFORE THE SU PREME COURT WHICH WERE PENDING DURING THE RELEVANT YEARS I.E. AYS 1975-76 TO 1979-80. THE AO HELD THAT THE ASSESSEE W AS NOT CARRYING ON ANY BUSINESS AND LIMITED THE SALARY PAI D TO THE EMPLOYEES OF THE ASSESSEE TO 10% AND THE AUDIT FEE WAS LIMITED TO 15%. THAT WAS AFFIRMED BY THE FIRST APPE LLATE AUTHORITY. HOWEVER THE TRIBUNAL HELD THAT THE ASSE SSEE WAS CARRYING ON BUSINESS AND WAS ENTITLED TO THE DEDUCT IONS CLAIMED BY THE ASSESSEE. ON REFERENCE THE HONBLE MADRAS HIGH COURT AFFIRMED THE VIEW TAKEN BY THE TRIBUNAL. 6.2 THE RATIO OF THE DECISION OF THE HONBLE MADRAS HIGH COURT IS SQUARELY APPLICABLE ON THE FACTS OF THE PR ESENT CASE AS IN THE PRESENT CASE ALSO THE ASSESSEE WAS RESTRI CTED BY THE ORDER OF THE SEBI NOT TO DO ANY BUSINESS ACTIVI TY HOWEVER ESTABLISHMENT OF THE ASSESSEE WAS MAINTAIN ED AND VARIOUS EXPENSES WERE INCURRED WHICH WERE NECES SARY 23 TRIUMPH SECURITIES LTD AND THEY WERE CONNECTED WITH THE BUSINESS ACTIVITY OF THE ASSESSEE. 7 IN THE CASE OF SREE MEENAKSHI MILLS LTD IN 63 I TR 207 THE APEX COURT HAS ALLOWED VARIOUS EXPENSES ON ACCOUNT OF EXPENDITURE FOR PROSECUTING CIVIL PROCEE DINGS. IN THIS CASE THE ASSESSEE COMPANY WHICH CARRIED ON TH E BUSINESS OF COTTON SPINNING AND WEAVING FINDING IT S OWN HANDLOOMS IN ITS FACTORY PREMISES INADEQUATE DISTR IBUTED YARN PRODUCED BY IT TO WEAVERS OUTSIDE THE FACTORY. UNDER CLAUSE 18B OF THE COTTON CLOTH AND YAN (CONTROL) OR DER 1945 THE TEXTILE COMMISSIONER WAS AUTHORISED TO DIRECT A NY MANUFACTURE OR DEALER OR ANY CLASS OF MANUFACTURERS OR DEALERS INTER-ALIA NOT TO SELL OR DELIVER ANY YAR N OR CLOTH OF SPECIFIED DESCRIPTION EXCEPT TO SUCH PERSON OR PERS ONS AND SUBJECT TO SUCH CONDITIONS AS HE MIGHT SPECIFY. ACC ORDINGLY THE ORDER PASSED BY THE TEXTILE COMMISSIONER DIRECT ING THE COMPANY NOT TO SELL OR DELIVER YARN MANUFACTURED BY IT EXCEPT TO SUCH PERSON OR PERSONS AS HE MIGHT SPECIF Y. HOWEVER THE COMPANY CONTINUED TO DELIVER YARN TO W EAVERS OUTSIDE FACTORY. THE ACTION OF THE COMMISSIONER WAS CHALLENGED BEFORE THE APPELLATE AUTHORITY AND THE S AME WAS REJECTED BY THE HIGH COURT AS WELL AS THE SUPREME C OURT. ON APPELLATE PROCEEDINGS THE EXPENSES INCURRED BY THE ASSESSEE WERE CLAIMED AS BUSINESS EXPENDITURE AND T HEY WERE NOT ALLOWED BY THE AO BY OBSERVING THAT THESE EXPENSES WERE NOT FOR THE PURPOSE OF BUSINESS AND W ERE NOT INCURRED DURING THE YEAR UNDER CONSIDERATION. MATTE R REACHED UP TO THE STAGE OF THE HONBLE SUPREME COUR T WHO HAS ALLOWED THE EXPENDITURE INCURRED BY THE COMPANY AS BUSINESS EXPENDITURE BY HOLDING AS UNDER: THAT THE OBJECT OF THE PETITION WAS T SECURE A DEC LARATION THAT THE ORDER DATED FEB 20 TH 1946 IN SO FAR AS IT SOUGHT TO PUT RESTRICTIONS UPON THE RIGHT OF THE COMPANY TO C ARRY ON ITS BUSINESS IN THE MANNER IN WHICH IT WAS ACCUSTOMED T O DO WAS UNAUTHORISED AND TO PREVENT ENFORCEMENT OF THA T ORDER. THEREBY THE COMPANY WAS SEEKING TO OBTAIN AN ORDER FROM THE COURT ENABLING THE BUSINESS TO BE CARRIED ON WI THOUT INTERFERENCE. THE AMOUNTS EXPENDED BY THE COMPANY N THAT BEHALF WERE EXPENDITURE LAID OUT WHOLLY AND EXCLUSI VELY FOR 24 TRIUMPH SECURITIES LTD THE PURPOSE OF ITS BUSINESS AND WERE DEDUCTIBLE U/S 10(2)(XV). IT WAS FURTHER HELD THAT; THE QUESTION OF ADMISSIBILITY U/S 10(2)(XV) HAD TO BE DECIDED NOT ON WHAT WAS FOUND OR OBSERVED BY THE HIGH COURT IN APPEAL FROM THE ORDER IN THE PROCEEDI NGS U/S 45 OF THE SPECIFIC RELIEF ACT OR BY THE PRIVY C OUNCIL BUT UPON THE FINDINGS OF FACT RECORDED BY THE TRIBU NAL. EXPENDITURE INCURRED TO RESIST IN A CIVIL PROCEEDIN GS THE ENFORCEMENT OF A MEASURE LEGISLATIVE OR EXECUT IVE WHICH IMPOSES RESTRICTIONS ON THE CARRYING ON OF A BUSINESS OR TO OBTAIN A DECLARATION THAT THE MEAS URE IS INVALID WOULD IF OTHER CONDITIONS ARE SATISFIE D BE ADMISSIBLE AS A DEDUCTION U/S 10(2)(XV) 7.1 THE RATIO OF THE DECISION OF THE APEX COURT ALS O GOES IN FAVOUR OF THE ASSESSEE AS THE LITIGATION EXPENSES I NCURRED IN RESPECT TO ITS BUSINESS WERE HELD AS BUSINESS EXPE NDITURE. 7.2 IN THE PRESENT CASE ALSO ALL THE EXPENSES INCUR RED ARE CONNECTED WITH THE BUSINESS OF THE ASSESSEE ONLY; T HEREFORE 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 DAT ED 2.12.2008 THE TRIBUNAL BY FOLLOWING THE DECISION I N 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 ENTITLE D TO DEDUCTION IN RESPECT OF ADMINISTRATIVE AND OTHER EX PENSES WHICH ARE REQUIRED TO BE INCURRED FOR KEEPING THE B USINESS ALIVE. 9 WE HAVE ALSO TAKEN INTO CONSIDERATION VARIOUS CA SE 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 61 6 THE HONBLE BOMBAY HIGH COURT HAS HELD THAT THE ASSESSE E COMPANY COULD NOT BE ENTITLED FOR ANY DEDUCTION OF EXPENSES 25 TRIUMPH SECURITIES LTD CLAIMED BY IT AS BUSINESS EXPENDITURE U/S 37 AS TH E ASSESSEE COMPANY HAS STOPPED CARRYING ON ITS BUSINE SS AT THE END OF DECEMBER 1969. THE MERE FACT THAT IT CO NTINUED TO HOLD ITS INVESTMENTS WOULD NOT BE SUFFICIENT FOR THE PURPOSE OF ESTABLISHING THAT IT CONTINUED TO CARRY ON BUSINESS. 10.1 IN THE PRESENT CASE THE ASSESSEE HAS NOT STOP PED THE BUSINESS ACTIVITY ITS OWN BUT IT WAS FORCED BY SEB I NOT TO DO ANY BUSINESS ACTIVITY. THEREFORE THE RATIO OF THIS DECISION OF THE HONBLE BOMBAY HIGH COURT IS NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. 11 SIMILARLY THE DECISION OF THE HONBLE GUJARAT H IGH COURT IN THE CASE OF NATHALAL ASHARAM IN 194 ITR 1 10 IS ALSO NOT APPLICABLE ON THE FACTS OF THE PRESENT CAS E AS THE COMPANY PAID COMPENSATION TO ITS EMPLOYEES UNDER TH E PROVISIONS OF SEC. 25 FFF OF INDUSTRIAL DISPUTES AC T 1947 ON ACCOUNT OF RETRENCHMENT WHICH WERE HELD AS NOT REL ATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE. 11.1 WE HAVE ALSO TAKEN INTO CONSIDERATION VARIOUS OTHER CASE LAWS RELIED UPON BY THE LD DR AND FOUND THAT T HEY ARE DISTINGUISHABLE ON FACTS. 12 IN THE PRESENT CASE NO SUCH FACTS ARE INVOLVED AS ALL THE EXPENSES INCURRED WERE IN CONNECTION WITH THE B USINESS ACTIVITY ONLY AND FOR KEEPING THE BUSINESS ALIVE T O MAINTAIN ITS BUSINESS ESTABLISHMENT AND TO MEET THAT THE OBL IGATION OF INTEREST ON LOAN ETC TAKEN FOR ITS BUSINESS ACTIVIT Y; THEREFORE WE HOLD THAT VARIOUS EXPENSES INCURRED BY THE ASSES SEE ARE ALLOWABLE AS DEDUCTION. HOWEVER ADMISSIBILITY OF T HE EXPENDITURE WAS NOT EXAMINED BY THE AO FOR THE REAS ON THAT HE HAS DISALLOWED THE EXPENDITURE ON THE GROUND THA T THEY ARE NOT ALLOWABLE AS THE ASSESSEE HAS NOT DONE ANY BUSINESS ACTIVITY. THEREFORE FOR THE PURPOSE OF EX AMINING THE ADMISSIBILITY/GENUINENESS OF THESE EXPENSES TH E MATER IS SENT TO THE FILE OF THE AO. THE ASSESSEE HAS CO NTENDED THAT DEPRECIATION AND INTEREST HAVE BEEN ALLOWED BY THE TRIBUNAL AS ALLOWABLE WHILE PASSING ORDER FOR AY 20 00-01. THE AO WILL TAKE INTO CONSIDER THE ORDER OF THE TR IBUNAL AND IF IT IS FOUND THAT FACTS ARE SIMILAR THEN OF COURS E IN VIEW OF 26 TRIUMPH SECURITIES LTD THE DECISION OF THE TRIBUNAL THE CLAIM OF THE ASSE SSEE ON ACCOUNT OF DEPRECIATION AND INTEREST HAS TO BE ALLO WED. 17.1 SINCE THE FACTS OF THE IMPUGNED APPEAL ARE I DENTICAL TO THE FACTS IN THE CASE OF THE SISTER CONCERN OF THE ASSESSEE I.E KNP SECURITIES P LTD ; THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF T HE TRIBUNAL WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM VARIOUS EXPENSES DEBI TED IN THE P&L ACCOUNT. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY T HE ASSESSEE IS ACCORDINGLY ALLOWED. 18 IN GROUNDS OF APPEAL NO.1 THE ASSESSEE HAS CHA LLENGED THE ORDER OF THE CIT(A) IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING DEPRECIATION OF ` . 13 71 094/- ON MEMBERSHIP RIGHTS OF BSE. 19 AFTER HEARING BOTH THE SIDES WE FIND THIS GROU ND IS IDENTICAL TO GROUNDS OF APPEAL NO.2 IN ITA NO.1053/MUM/2008. WE HAVE RE STORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TECHNO SHARES & STOCKS LTD & OTHERS (SUPRA). FOLLOWING THE SAME RATIO THIS GROUND OF T HE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 20 IN GROUNDS OF APPEAL NO.2 THE ASSESSEE HAS CHA LLENGED THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF BAD DE BTS OF ` 8 4 514/- BY THE ASSESSING OFFICER U/S 36(1)(VII) R.W.S 36(2) OF THE ACT. 27 TRIUMPH SECURITIES LTD 21 AFTER HEARING BOTH THE SIDES WE FIND THE ASSES SEE DEBITED AN AMOUNT OF ` 8 40 514/- AS BAD DEBTS. THE ASSESSING OFFICER A SKED THE ASSESSEE TO JUSTIFY THE ALLOWABILITY OF THE SAME. IT WAS SUBMI TTED THAT THE ASSESSEE HAS FULFILLED THE CONDITIONS SPECIFIED IN SEC. 36(1 )(VII) R.W.S 36(2) HOWEVER THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE E XPLANATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM THE ASSESSEE IS A SHAR E BROKER AND ITS CREDITS ONLY THE BROKERAGE INCOME ARISING FROM THE PURCHASE OR SALE OF SHARES ON BEHALF OF THE CLIENTS. THE SHARE AND STOCK BROKER B UYS AND SELLS ON BEHALF OF CLIENTS FROM THE STOCK EXCHANGE FOR WHICH IT EAR NS BROKERAGE INCOME. THE SHARE BROKER IS LIABLE TO TAX ON ITS BROKERAGE INCOME SUBJECT TO ALLOWANCE OF EXPENSES AND OTHER ITEMS. THE VALUE OF PURCHASE OR SALE ON BEHALF OF THE CLIENTS IS NOT CREDITED OR DEBITED TO P&L ACCOUNT. ACCORDING TO THE ASSESSING OFFICER PART OF THE DEBIT BALANCE WHICH DOES NOT PERTAIN TO BROKERAGE AND PERTAINS TO VALUE OF SHARES PURCHA SED BY CLIENT IS NOT COVERED BY SECTION 36(2). THEREFORE IN CASE THE CL IENT DOES NOT PAY IN FUTURE THIS DEBIT CANNOT PARTAKE THE NATURE OF BA D DEBT ALLOWABLE U/S 36(1)((VII) AS THIS AMOUNT OF DEBT HAS NOT BEEN INC LUDED IN THE COMPUTATION OF INCOME AS REQUIRED U/S 36(2). SINCE THE DEBT NOT COLLECTIBLE FROM THE CLIENT DOES NOT FALL UNDER TH E AMBIT OF SEC. 36(2) IT REMAINS OUTSIDE THE PURVIEW OF SEC. 36(1)(VII). ON THIS BASIS THE ASSESSING OFFICER DISALLOWED THE CLAIM OF BAD DEBTS MADE BY T HE ASSESSEE. 28 TRIUMPH SECURITIES LTD 21.1 IN APPEAL THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE YEAR. AGGRIEVED WITH SUCH ORDER OF THE C IT(A) THE ASSESSEE IS IN APPEAL HERE BEFORE US. 22 THE LD COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT THE ISSUE OF BAD DEBTS IN THE CASE OF SHARE BROKER IS C OVERED BY THE DECISION OF THE SPECIAL BENCH IN THE CASE OF DCIT VS SHRI SHREYAS S MORAKHIA REPORTED IN (2010) TIOL 390 (MUM)(SB). 22.1 THE LD DR ON THE OTHER HAND SUBMITTED THAT SI NCE THE CIT(A) HAD HELD THAT THE ASSESSEE HAS NOT CARRIED OUR ANY BUSINESS ACTIVITY DURING THE YEAR THE SAME CANNOT BE ALLOWED AS ALLOWABLE DEDUCTION FROM THE OTHER INCOME. 23 AFTER HEARING BOTH THE PARTIES WE FIND THE ISS UE OF CARRYING ON OF BUSINESS HAS ALREADY BEEN DECIDED BY US IN FAVOUR O F THE ASSESSEE IN GROUNDS OF APPEAL NO.4(A). WE FIND THE ASSESSING OFFICER DISA LLOWED THE BAD DEBT ON THE GROUND THAT THE ASSESSEE IS A SHARE BROKER AND CRED ITS ONLY BROKERAGE INCOME TO ITS P&L ACCOUNT. SINCE THE ASSESSEE HAS NOT CREDIT ED THE ENTIRE AMOUNT RECEIVABLE FROM THE CLIENTS ON ACCOUNT OF PURCHASE ON HIS BEHALF; THEREFORE SUCH BAD DEBT NOT COLLECTIBLE FROM THE CLIENTS DOES NOT FALL UNDER THE AMBIT OF SEC. 36(2). WE FIND THE ISSUE IS NOW DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SHRI SHREYAS S MORAKHIA 29 TRIUMPH SECURITIES LTD (SUPRA WHEREIN IT HAS BEEN HELD THAT A SHARE BROKER CAN CLAIM THE AMOUNT RECEIVABLE FROM ITS CLIENTS AS BAD DEBTS. 23.1 RESPECTFULLY FOLLOWING THE DECISION OF THE SPE CIAL BENCH OF THE TRIBUNAL IN THE CASE OF SHRI SHREYAS S MORAKHIA (SUPRA) WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM THE AMOUNT OF BAD DEBTS . THE GR OUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 24 IN THE GROUNDS OF APPEAL NO.3 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF ` 3 750/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PENALTY DEBITED TO THE P&L A CCOUNT ON THE GROUND THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE YEAR. 24.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE HAS DEBITED AN AMOUNT OF `. 3 750/- ON ACCOUNT OF PENALTY/FINE C HARGED BY THE NSE FOR VIOLATION OF RULES AND REGULATIONS VIZ. VIOLATION OF GROSS EX POSURE LIMIT PENALTY FOR FUND SHORTAGE DELAY IN REPORTING ETC. THE ASSESSEE BEIN G A MEMBER OF NSE HAS PAID THIS AMOUNT FOR CONTRACTUAL VIOLATIONS. SINCE THE AMOUNT WAS PAID UNDER THE HEAD PENALTY THE ASSESSING OFFICER DISALLOWED THE SAME AS NON-ALLOWABLE EXPENDITURE. 30 TRIUMPH SECURITIES LTD 24.2 IN APPEAL THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BU SINESS ACTIVITY DURING THE YEAR. 25 THE LD COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT PENALTY PAID TO NSE IS AN ALLOWABLE EXPENDITURE AS HAS BEE N HELD BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS CLASS IC SHARES & STOCK BROKING SERVICES LTD VIDE ITA NO.4258/MUM/04 ORDER DATED 2 8.7.2006 FOR ASSESSMENT YEAR 2000-01. REFERRING TO PARA 10 OF THE ORDER OF THE TRIBUNAL HE SUBMITTED THAT THE ASSESSING OFFICER IN THE SAID DECISION DIS ALLOWED AN AMOUNT OF ` 4 75 335/- ON ACCOUNT OF PENALTY PAID BY THE ASSESS EE FOR VIOLATION OF THE PROVISIONS OF NSE AND IN APPEAL THE CIT(A) DELETE D THE ADDITION. ON FURTHER APPEAL BY THE REVENUE THE TRIBUNAL IN THE SAID DEC ISION UPHELD THE ACTION OF THE CIT(A) AND DISMISSED THE GROUND RAISED BY THE REVEN UE. 25.1 REFERRING TO THE ORDER OF THE TRIBUNAL IN THE CASE OF KNP SECURITIES P LTD VIDE ITA NOS. 5008 & 5009/MUM/2007 ORDER DATED 29.5.2009 FOR AYS 20-34 AND 2004-05 HE SUBMITTED THAT THE TRIBUNAL UNDER I DENTICAL FACTS AND CIRCUMSTANCES HAS HELD THAT THE ASSESSEE IS CARRYIN G OUT BUSINESS ACTIVITY. IN VIEW OF THE ABOVE TWO DECISIONS HE SUBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE. 25.2 THE LD DR ON THE OTHER HAND SUPPORTED THE ORD ER OF THE CIT(A). 31 TRIUMPH SECURITIES LTD 26 AFTER HEARING BOTH THE SIDES WE FIND THE ASSES SING OFFICER DISALLOWED THE AMOUNT OF `3 750/- PAID TO BSE FOR VIOLATION O F ITS RULES AND REGULATIONS ON THE GROUND THAT THE SAME IS IN THE NATURE OF PENALT Y AND IS NOT AN ALLOWABLE DEDUCTION. IN APPEAL THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE IS NOT CONDUCTING ANY BUSI NESS ACTIVITY DURING THE YEAR. 27 THE ISSUE OF CARRYING ON THE BUSINESS HAS ALREA DY BEEN DECIDED BY US IN FAVOUR OF THE ASSESSEE IN GROUNDS OF APPAL 4(A). AS REGARDS TO ALLOWABILITY OF EXPENDITURE THE ISSUE HAS BEEN DECIDED BY THE COO RDINATE BENCH OF THE TRIBUNAL IN THE CASE OF THE SISTER CONCERN I.E. CLASSIC SHAR ES & STOCK BROKING SERVICES LTD. (SUPRA). RESPECTFULLY FOLLOWING THE DECISION OF TH E COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ANOTHER SISTER CONCERN OF T HE ASSESSEE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE BY THE DR WE HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF CLAIM OF ` 3 750/- BEI NG PENALTY PAID TO STOCK EXCHANGE FOR VIOLATION OF ITS RULES AND REGULATION S. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 28 IN THE GROUNDS OF APPEAL NO.4(B) THE ASSESSEE H AS CHALLENGED THE ORDER OF THE CIT(A) UPHOLDING THE ACTION OF THE ASSESSING O FFICER IN HOLDING THAT MISCELLANEOUS INCOME COMPRISING OF INTEREST ETC. W OULD ALSO BE LIABLE TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. 29 AFTER HEARING BOTH THE PARTIES WE FIND THE ASSE SSEE HAS TREATED THE MISCELLANEOUS INCOME OF ` 94 40 620/- AS BUSINESS INCOME. FROM THE DETAILS 32 TRIUMPH SECURITIES LTD FURNISHED BY THE ASSESSEE WE FIND THE AMOUNT OF ` 94 40 620 COMPRISES AS UNDER: I) INTEREST INCOME ` 39 98 256/- II) SUNDRY BALANCE WRITTEN BACK ` 23 680/- III)SUNDRY BALANCE WRITTEN BACK(BSE) ` 49 86 634/- IV) OTHER INCOME ` 11 942/ V) COMMISSION; BANK CHARGES STOCK EX. CLEARING CH ARGES ` 616/- VI) DIVIDEND INCOME ` 37 707/- VII) MISCELLANEOUS INCOME ` 3 79 027/- VIII) TURNOVER CHARGES COLLECTED ` 2 763/- THE ASSESSING OFFICER TREATED THE ENTIRE INCOME AS BUSINESS INCOME AS CLAIMED BY THE ASSESSEE. HOWEVER IN APPEAL THE CIT(A) HEL D THAT THE SAME HAS TO BE TREATED AS INCOME FROM OTHER SOURCES. 29.1 FROM THE VARIOUS DETAILS FURNISHED BY THE ASSE SSEE WE ARE OF THE OPINION THAT ONLY SUNDRY BALANCE WRITTEN BACK ON ACCOUNT OF PROVISIONS U/S 41(1) CAN BE TREATED AS BUSINESS INCOME AND THE REST OF THE IT EMS LIKE INTEREST DIVIDEND MISCELLANEOUS INCOME TURNOVER CHARGES COLLECTED C OMMISSION INCOME BANK CHARGES AND DE-MAT CHARGES ETC. HAS TO BE TREATED A S INCOME FROM OTHER SOURCES. WE HOLD AND DIRECT ACCORDINGLY. THIS GRO UND OF THE ASSESSEE IS ACCORDINGLY ALLOWED PARTLY. 33 TRIUMPH SECURITIES LTD 30 IN THE RESULT ITA NO.1053/MUM/2008 FOR ASSESSME NT YEAR 2001-02 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND ITA NO.2 111/MUM/08 IS PARTLY ALLOWED. ORDER PRONOUNCED ON THE 31 ST DAY OF DEC 2010. SD/- SD/- ( (( ( D MANMOHAN D MANMOHAN D MANMOHAN D MANMOHAN ) )) ) VICE PRESIDENT ( (( ( R K R KR K R K PANDA PANDA PANDA PANDA ) )) ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 31 ST DEC 2010 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI 34 TRIUMPH SECURITIES LTD