ACIT, New Delhi v. Sh. Sachin Kataria, New Delhi

ITA 5487/DEL/2011 | 2008-2009
Pronouncement Date: 10-11-2014 | Result: Partly Allowed

Appeal Details

RSA Number 548720114 RSA 2011
Assessee PAN AAJPK2212K
Bench Delhi
Appeal Number ITA 5487/DEL/2011
Duration Of Justice 2 year(s) 11 month(s) 2 day(s)
Appellant ACIT, New Delhi
Respondent Sh. Sachin Kataria, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 10-11-2014
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted G
Tribunal Order Date 10-11-2014
Date Of Final Hearing 05-11-2014
Next Hearing Date 05-11-2014
Assessment Year 2008-2009
Appeal Filed On 08-12-2011
Judgment Text
ITA NO. 5487/ DEL/ 2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI H.S. SIDHU JUDICIAL MEMBER AND SHRI T.S. KAPOOR ACCOUNTANT MEMBER I.T.A. N O. 5487 /DEL/201 1 A.Y. : 200 8 - 0 9 ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 20(1) ROOM NO. F - 308 VIKAS BHAVAN NEW DELHI VS. SH. SCHIN KATARIA 1279 DR. MUKHERJEE NAGAR DELHI 110 009 (PAN: AAJPK2212K) (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. VIKRAM SAHAY SR. DR ASSESSEE BY : SH. RAJ KUMAR GUPTA CA DATE OF HEARING : 05 - 11 - 2014 DATE OF ORDER : 10 - 11 - 2014 ORDER PER H.S. SIDHU : J M TH IS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) - X XII NEW DELHI DATED 16 . 9 .201 1 P ERTAINING TO ASSESSMENT YEAR 2008 - 09 ON THE FOLLOWING GROUNDS: - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 60 62 443/ - MADE BY THE AO IN ITA NO. 5487/ DEL/ 2011 2 REGARD TO THE DISALLOWANCE U/S. 54F OF THE I.T. ACT BY ADMITTING THE ADDITIONAL EVIDENCES. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 10 15 252/ - ON ACCOUNT O THE BUSINESS LOSS PERTAINI NG TO THE AMOUNT RECOVERED BY THE POLICE FROM THE ALLEGED CULPRITS. 3 . THE APPELLANT CRAVES LEAVE S TO AMEND OR ALTER OR AY OF THE AFORESAID GROUND OF APPEAL AND AMEND AFTER OR ADD ANY OTHER GROUND OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSEESSEE IS ENGAGED IN THE BUSINESS OF DECORATIVE HANDICRAFTS ITEMS. THE ASSESSEE FILED ITS RETURN OF INCOME SHOWING A LOSS OF RS. 22 59 021/ - ON 30.9.2008. IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS DISALLOWED CLAIM OF EXEMPTION U/S. 54F OF TH E ACT. THE ASSESSING OFFICER HAS ALSO DISALLOWED CLAIM OF BUSINESS LOSS OF RS. 20 15 252/ - CLAIMED ON ACCOUNT OF FRAUD. THE ASSESSING OFFICER ALSO DISALLOWED RS. 58 565/ - OUT OF VEHICLE MAINTENANCE EXPENSES AND RS. 35 310/ - OUT OF TELEPHONE EXPENSES AN D RS. 20 000/ - OUT OF STAFF WELFARE FESTIVAL AND GENERAL EXPENSES. 3 . AGAINST THE ASSESSING OFFICER S ORDER DATED 1.12.2010 PASSED U/S. 143(3) OF THE I.T. ACT 1961 ASSESSEE APPEALED BEFORE THE LD. CIT(A) WHO VIDE IMPUGNED ORDER DATED 16.9.2011 PART LY ALLOWED THE APPEAL OF THE ASSESSEE. 4 . AGAINST THE ABOVE ORDER OF THE LD. CIT(A) DATED 16.9.2011 REVENUE IS IN APPEAL BEFORE US. ITA NO. 5487/ DEL/ 2011 3 5 . AT THE TIME OF HEARING LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE ASSESSING OFFICER. HE ALSO RE ITERATED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL THAT LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 60 62 443/ - MADE BY THE AO IN REGARD TO DISALLOWANCE U/S. 54F OF THE I.T. BY ADMITTING THE ADDITIONAL EVIDENCES AND STATED THAT THE CIT(A) HAS N OT PROVIDED SUFFICIENT OPPORTUNITY TO THE ASSESSING OFFICER WHILE ADMITTING THE ADDITIONAL EVIDENCES. ON THE OTHER HAND LD. COUNSEL OF THE ASSESEE HAS RELIED UPON THE ORDER OF THE LD. CIT(A) AND STATED THAT THE SAME SHOULD BE UPHELD. 6 . WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT LD. D.R. IN GROUND NO. 1 HAS FORCE IN HIS CONTENTION THAT LD. CIT(A) HAS NOT PROVIDED SUFFICIENT OPPORTUNITY TO THOROUGHLY EXAMINE THE ADDITIONAL EVIDENCES WHICH IS ARBITRARY IN THE EYES OF LAW. IN OUR CONSIDERED OPINION IN THE INTEREST OF NATURAL JUSTICE THIS ISSUE REQUIRES THOROUGH INVESTIGATION AT THE LEVEL OF THE ASSESSING OFFICER. HENCE WE REMIT THE GROUND NO. 1 RELATING TO ADDITION RS. 60 62 443/ - MADE BY THE AO IN REGARD TO THE DISALLOW ANCE U/S. 54F OF THE I.T. ACT WITH THE DIRECTIONS TO CONSIDER THE SAME AFTER GIVING ADEQUATE OPPORTUNITY OF BEING HEARD. 7 . WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WITH REGARD TO GROUND NO. 2 RELATING TO ADDITION ON ACCOUNT OF BUSINES S LOSS PERTAINING TO THE AMOUNT RECOVERED BY THE POLICE FROM THE ALLEGED CULPRITS WE FIND THAT LD. CIT(A) HAS ELABORATELY DISCUSSED THE ISSUE IN QUESTION AND ADJUDICATED THE SAME AS UNDER: - I HAVE CONSIDERED THE OBSERVATION OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER SUBMISSIONS OF THE APPELLANT COPY OF THE BANK ACCOUNT OF THE CULPRIT AND COPY OF THE BANK ACCOUNT OF M/S ORNET HOMES ITA NO. 5487/ DEL/ 2011 4 FROM WHERE AMOUNT HAS BEEN TRANSFERRED FRAUDULENTLY. IT IS SEEN THAT AN AMOUNT OF RS.48 82 0001 - WAS TRANSFERRED FRA UDULENTLY FROM THE APPELLANT'S BANK ACCOUNT RUNNING WITH HSBC BANK. IN CONNECTION WITH THIS FRAUD POLICE ARRESTED ONE MR. RAMESH OF VILLAGE BAROLA DISTRICT NOIDA AND FROM HIS POSSESSION AN AMOUNT OF RS.70 000/ - IN CASH AND RS.9 45 252/ - WERE TRACED IN HI S BANK ACCOUNT RUNNING WITH STATE BANK OF INDIA GHAZIPUR DELHI. IN THE ASSESSMENT ORDER IT IS MENTIONED BY THE ASSESSING OFFICER THAT POLICE SEIZED RS.70 000/ - IN CASH AND RS.L9 45 252/ - HAVE BEEN TRACED IN HIS BANK ACCOUNT. THE AR OF THE APPELLANT HAS SUBMITTED THAT DUE TO TYPING MISTAKE A SUM OFRS.9 45 252/ - AS REPORTED BY THE POLICE WAS STATED AS RS.19 45 252/ - WHICH IS IN FACTS RS.9 45 252/ - . IN SUPPORT OF THIS THE APPELLANT HAS FILED COPY OF THE ACCUSED'S BANK ACCOUNT FROM THE STATE BANK OF INDIA AND COPY OF THE PETITION FILED BY THE APPELLANT BEFORE THE SUPREME COURT. THE BALANCE AMOUNT WHICH IS NOT YET TRACED IS RS.38 66 748/ - . THE APPELLANT HAS SUBMITTED THAT TILL DATE HE HAS NOT RECEIVED ANY AMOUNT FROM THE POLICE AND THE MATTER IS STILL PENDIN G IN THE SUPREME COURT AS THE APPELLANT HAS MADE BANKERS AS PARTY WITHOUT WHOSE CONNIVANCE THE ACCUSED COULD NOT HAVE SUCCEEDED IN TRANSFERRING THE AMOUNT FROM APPELLANT'S BANK ACCOUNT. IT IS ALSO CLAIMED BY THE AR OF THE APPELLANT THAT MORE THAN FOUR YEA RS HAVE ELAPSED TO THE INCIDENT BUT TILL DATE NOT A SINGLE PAISA HAS BEEN RECEIVED BY THE APPELLANT. THEREFORE THE TOTAL LOSS ITA NO. 5487/ DEL/ 2011 5 ON ACCOUNT OF FRAUD OF RS.48 82 000/ - HAS TO BE ALLOWED AS CAPITAL LOSS. I HAVE CONSIDERED THE FACTS OF THE CASE IT IS SEEN THAT ENTIRE AMOUNT OFRS.48 82 000/ - HAVE BEEN FRAUDULENTLY TRANSFERRED FROM THE APPELLANT'S PROPRIETARY CONCERN M/S OMET HOMES IN NOVEMBER 2007. THOUGH THE POLICE HAVE CAUGHT THE CULPRIT WHO HAS COMMITTE D FRAUD BUT TILL DATE THE APPELLANT HAS NOT RECEIVED A SINGLE PAISA. M/S OMET HOMES IS ENGAGED IN THE BUSINESS OF EXPORTING DECORATIVE HANDICRAFTS ITEMS. THEREFORE THIS LOSS OCCURRED TO THE PROPRIETARY FIRM IS INCIDENTAL TO CARRYING ON BUSINESS AND THERE IS A DIRECT AN PROXIMATE CONNECTION AND NEXUS BETWEEN THE MONEY LO - ST BY FRAUD AND THE BUSINESS. HENCE THE ENTIRE MONEY LOST BY THE APPELLANT IN FRAUD HAS TO BE ALLOWED AS BUSINESS LOSS. THE AMOUNT RECOVERED BY THE POLICE OF RS.70 000/ - IN CASH AND RS.9 45 252/ - TRACED IN THE BANK ACCOUNT OF THE ACCUSED HAS NOT BEEN RECEIVED BY THE APPELLANT TILL DATE. AS AND WHEN IT WILL BE RECEIVED BY THE APPELLANT THE SAME WILL BE OFFERED AS INCOME IN THE YEAR OF RECEIPT THEREFORE THE ASSESSING OFFICER'S ACTION OF R ESTRICTING THE CLAIMED OF BUSINESS LOSS TO RS.28 66 748/ - WAS NOT CORRECT. THE APPELLANT IS ENTITLED TO SET OFF FULL LOSS OCCURRED IN THE FRAUD. IN SUPPORT OF THE ABOVE VIEW RELIANCE IS PACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: - CIT V. SMT. PUKHRA J WATI RUBBER [2007J 199 TAXATION 107 (PUNJ. & HAR.) ITA NO. 5487/ DEL/ 2011 6 THE ASSESSEE'S REPRESENTATIVE FOR RECOVERY OF SALE PROCEEDS EMBEZZLED RS. 2 64 795. THE ASSESSING OFFICER DISALLOWED THE LOSS HOWEVER AAC ALLOWED ASSESSEE'S APPEAL. THE TRIBUNAL CONFIRMED THE AAC'S ORDE R. ON REFERENCE THE HIGH COURT ANSWERED THE QUESTION AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE AS THE LOSS ON ACCOUNT OF EMBEZZLEMENT WAS INCIDENTAL TO CARRYING ON THE BUSINESS AND THERE WAS DIRECT AND PROXIMATE CONNECTION AND NEXUS BETWEEN THE LO SS AND THE BUSINESS. THE HIGH COURT SAID THAT THE LIABILITY TO TAX IS ON PROFIT OR GAINS OF BUSINESS COMPUTED IN ACCORDANCE WITH SECTIONS 30 TO 43D OF THE ACT. THOUGH THERE IS NO PROVISION FOR ALLOWING DEDUCTION OF A TRADING LOSS ON ACCOUNT OF EMBEZZLEMEN T YET SECTION 37 OF THE ACT PROVIDES FOR ANY EXPENDITURE FOR THE PURPOSE OF BUSINESS AND THERE HAS TO BE NEXUS BETWEEN THE BUSINESS OPERATION AND THE LOSS. IF LOSS WAS DIRECTLY CONNECTED WITH THE BUSINESS OPERATION AND INCIDENTAL TO CARRYING ON' OF BUSINE SS THE SAME HAS TO BE ALLOWED AS A DEDUCTION. BADRIDAS DAGA V. CIT [1958J34 ITR 10(SC) AN AGENT OF THE ASSESSEE WITHDREW AMOUNT FROM BANK AND MISAPPROPRIATED THE SAME. IT WAS HELD THAT HAVING REGARD TO ACCEPTED COMMERCIAL PRACTICE AND TRADING PRINCIPLES IT COULD BE HELD THAT LOSS AROSE OUT OF CARRYING ON OF BUSINESS AND WAS INCIDENTAL TO IT. SAME PRINCIPLE WAS FOLLOWED IN CIT V. NAINITAL BANK LTD. [1965J 55 ITR 707(SC). IN THE SAID CASE CASH ITA NO. 5487/ DEL/ 2011 7 AMOUNT WAS STOLEN IN A DACOITY. IN RAMCHANDAR SHIVNARAYAN V. CIT AP [1978J 111 ITR 263 (SC) AFTER REVIEW OF CASE LAW ON THE POINT IT WAS HELD THAT LOSS ON ACCOUNT OF THEFT HAD TO BE TREATED AS TRADING LOSS AS IT WAS DIRECTLY CONNECTED WITH THE BUSINESS OPERATION AND WAS INCIDENTAL TO CARRYING ON OF BUSINESS. FOL LOWING THE LAW LAID DOWN BY THE SUPREME COURT THE HIGH COURT HELD THAT THE TRIBUNAL WAS JUSTIFIED IN ALLOWING DEDUCTION ON ACCOUNT OF LOSS BY EMBEZZLEMENT WHICH WAS HELD TO BE INCIDENTAL TO THE CARRYING ON OF THE BUSINESS AND THERE WAS A DIRECT AND PROX IMATE CONNECTION AND NEXUS BETWEEN THE LOSS AND THE BUSINESS OPERATION OF THE ASSESSEE. IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENT IT IS ESTABLISHED THAT THE LOSS OCCURRED IN FRAUD WAS DIRECTLY CONNECTED WITH THE BUSINESS OPERATION AND INCIDENTIAL TO C ARRYING ON OF BUSINESS. HENCE ENTIRE AMOUNT OF BUSINESS LOSS OF RS.48 82 OOOI - HAS TO BE ALLOWED AS A DEDUCTION. AS A RESULT THE ASSESSING OFFICER IN DIRECTED TO DELETE THE ADDITION OF RS.20 15 252/ - . 7 .1 IN VIEW OF THE ABOVE WE FIND CONSIDERABLE FOR CE IN THE CONCLUSION DRAWN BY THE LD. CIT(A) THAT IN VIEW OF THE JUDICIAL PRONOUNCEMENT DISCUSSED AS AFORESAID IT IS ESTABLISHED THAT THE LOSS OCCURRED IN FRAUD WAS DIRECTLY CONNECTED WITH BUSINESS OPERATION AND INCIDENTAL TO CARRYING ON OF BUSINESS. HENCE ENTIRE AMOUNT OF BUSINESS LOSS OF RS. 48 82 000/ - HAS TO BE ALLOWED AS A ITA NO. 5487/ DEL/ 2011 8 DEDUCTION. THEREFORE WE FIND LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION OF RS. 20 15 252/ - WHICH DOES NOT NEED ANY INTERFERENCE ON OUR PART HENCE WE UPHOLD THE SAME. 8 . IN THE RESULT THE APPEAL FILED BY THE REVENUE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE O PEN C OURT ON 10/ 11 /20 1 4 . SD/ - SD/ - [ T.S. KAPOOR ] [ H.S. SIDHU ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 10 / 11 /201 4 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT DELHI BENCHES ITA NO. 5487/ DEL/ 2011 9