TaxTMI 
TaxTMI 
2010 (11) TMI 507
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....accommodation and writ ten of f is a business loss and the same is not accordance with the conditions provided u/s 36(2) (i) and 28 of the IT Act " 3. Brief facts of the case are that the assessee claimed Rs.50 lakhs in respect of rental deposit paid by Broad Band Solutions Pvt ltd (in short BSPL) for the residential premises taken on behal of its employees. The BSPL was promoted by ENRON Group and incorporated on 29.12.1999. M/s Reliance Data Exchange Pvt Ltd a group concern of the assessee acquired 100% equity stake in BSPL and subsequently, BSPL was merged with assessee-company (REAL) with ef fect from 01.04.2002. The assessee submitted before the AO that the employees for whom the rental deposit was given left the service of t....
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....ed to any tax, therefore not allowable as bad debt u/s 36(2)(i). 5. On appeal, the CIT(A) has allowed the claim of the assessee as business loss. 6. Before us, the learned DR has submitted that the assessee has not produced any documentary evidence and details regarding the persons to whom the deposits were given. Secondly, the deposits were not the debts which has been taken in to account in computing the income of the previous year. Therefore, the claim of the assessee is not allowable as bad debts. He further contended that the company is rendering services for set ting up of industrial infrastructure Project related activities. Thus, it is clear that the assessee is not carrying business on banking or money lending. ....
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....he case of Jwala Prasad Radha Kishan V/s CIT reported in 79 ITR 530 and submitted that in the facts and circumstances of the case, unrecoverable amount is in the nature of business loss as deductible u/s 28 of the Act. Since the advances were for the business which is not disputed and the assessee has no details whatsoever about the persons to whom the advances were given, therefore, there is no likelihood to recovery of the said amount in near future. Under these facts the entire advances given has become business loss and can be allowed u/s 28. He has supported the order of the learned CIT(A). 8. We have considered the rival content ions and relevant record. As far as the explanation regarding the facts of taking over of the BSP....
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.... reproduced as under: "Though this amount is not a debt arising out of sales made during the year, but the fact that the deposit was given for obtaining accommodation for the employees of the erstwhile BSPL and such deposits was given for use of such rental accommodation by the employees of the company, this deposits is in fact a deposit given for the purposes of business and the non- recovery thereof is a loss to the business, which is not allowable e u/s 36(1) (vii) as baddebs should be allowed" 9. From the above content ions of the assessee i t is clear that the assessee has claimed the said unrecoverable deposits of Rs.50 lakhs as business loss u/s 28 whereas while deciding the issue, the AO has considered the same o....
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....fore the Hon. Jurisdictional High Court was whether the loss due to embezzlement of money by the employees should be permitted as trading loss or not? The Hon. Jurisdictional High Court at page 706 of the report has observed as under: "6. Now, in order to decide whether we should permit this loss as a trading loss, we must look at one or two facts which have been established. It was necessary for the business of the assessee company to employ Chhaganbhai as its cashier. It was also necessary for the business of the assessee company to delegate to the cashier certain duties. It was necessary for the cashier to go to the bank and bring money from the bank so that the money could be kept in the office of the assessee company, because....
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...., then there can be no doubt that it was necessary for the assessee company to employ the cashier, it was necessary for the assessee company to deputise the duty of getting the money from the bank to the cashier and that the loss directly arose from the necessity of deputising these duties to the cashier. Therefore, in our opinion, on the facts of this case the loss caused by the embezzlement is a trading loss and the assessee is entitled to claim deduction." 12. Similarly, the Hon. Allahabad High Court in the case of Jwala Prasad Radha Kishan V/s CIT (supra) has held that the payment of security money cannot be regarded as capital expenditure. I t was in fact, not an expenditure much less the capital expenditure because the depos....