TaxTMI 
TaxTMI 
2016 (9) TMI 15
X X X X Extracts X X X X
X X X X Extracts X X X X
.... intimation dated February 27,2003, wherein the assessing officer accepted the returned loss. Subsequently the assessee filed its revised return of income on March 31,2004 to make an additional claim for tax deducted at source of Rs. 6,49,930/-. 3. The Assessing Officer observed as under: "Assessee has not furnished the basis of arriving at the market value of the loss of the repossessed stock still in possession of the assessee at the end of the previous year relevant to the assessment year. He submitted that no other disclosure has also been made in the accounting policies attached with the annual accounts as Scherdule-14. The auditors have only commented that repossessed stock is valued at the lower of agreement value net of Installments received and unmatured finance charges and the estimated realizable value of the asset concerned." 3.1 The Ld. A.O. further observed as under: "The assessee may be governed by the statutory bodies regulating it's conduct in ordinary course of business but the income has to be computed strictly in accordance with the provision of the Income Tax Act, 1961. The investment constitute capital asset in the hands of the assessee, theref....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de his order dated March 14, 2005, wherein the assessee was assessed at a loss of Rs. 8,01,33,086/- on account of the following disallowances: Loss as per return, dated 31.10.2002 7,43,29,299/- Add: i) Loss on repossessed stock 69,19,000/- ii) Out of dividend income 1,567/- Loss on sale of investment 1,69,528/- Net 6,72,39,204/- Less: Principal amount included in lease Renal reduced by depreciation claimed In respect f lease transactions which Were held those of finance (para 7) 8,01,33,086/- Total income being loss 8,01,33,086/- However, this figure will be restricted to the returned loss of Rs. 7,43,29,299/- Rounded off 7,43,29,300/- 4. Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A). Ld. CIT(A) deleted the addition made by the Assessing Officer on account of loss on sale of reprocessed stock and confirmed the addition in respect of loss on sale of investments. He further made certain disallowances in respect of Section14A. 5. Aggrieved by the order of Ld. CIT(A), the Revenue as well as assessee ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ivables are shown as Stock - on - hire in the Balance Sheet of the company (Refer schedule 7 of the Audited Accounts). Ld. A.R. submitted that assessee has not claimed depreciation on the same in the computation of income for the F.Y. 2001- 02. 7.2 He submitted that under the Hire Purchase agreements, in case hirer makes a default in the payment of certain member of installments, the company has the right to repossess the stock given under the hire purchase transaction. He submitted that in case of hirers who do not pay/agree to pay the overdue installments, the company repossesses the hired assets. Since the repossessed assets are already used ones, i.e., they attain the commercial status of second-hand assets, the appellant searches for potential buyers of such assets, which sometimes could be the hirer himself, and thereafter sells such repossessed stock. Such stock, to the extent unsold, forms part of the appellant's current assets and valued, as per the appellant's accepted practice of valuation, i.e., agreement value net of installments received and immatured finance charges, and the estimated realizable value, whichever is lower. 7.3 Ld. A.R. submitted that dif....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rket price is an accepted commercial practice in the business of hire purchase. Losses incurred in this manner are incidental to, and are an inherent part of, the business of hire purchase. 7.8 Ld. A.R. submitted that the fact remains that goods purchased by the assessee and given to various hirers under hire purchase constitute assessee's stock in trade. H submitted that the assessee pays sales tax on the same (under hire purchase agreement) of its sales to the hirer at the maturity of the agreement. Ld. A.R. submitted that the hire purchase assets are stock-in-trade, as the amount recoverable from the hire purchaser' constitute business trade and the loss there of is allowable as business loss as' assessee is engaged into the business of money lending. He submitted that the loss incurred on disposal of repossessed hire purchase assets represents the installments, which could not be recovered from the hirers, less the sale proceeds recovered. The Ld. A.R. submitted that the amount written of and claimed by the assesses should be allowed under the Act as trading / business loss. Ld. A.R. submitted that such loss had been consistently been accepted by the Revenue in the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Hon'ble Supreme Court has held that the amount recoverable from the hirer, do constitute stock in trade. Relevant paras from the decision of Hon'ble Supreme Court in CIT Vs Nainital Bank Ltd. (supra) of the decision are reproduced herein below: "It is settled law, and indeed it is not disputed, that cash is the stock in tad of a banking company. In Arunachalam Chettiar Vs CIT, the Judicial committee was considering the basis of the right of an assessee to deduct irrecoverable loans before arriving at the profits of money-lending, and in that context it stated: The basis of the right to deduct irrecoverable loans before arriving at the profit of money-lending is that to the money-lender, as to the banker money is his stock-in trade or circulating capital: he is dealing in money In Commissioner of Income-tax v. Subramanya Pillai in a Division Bench of the Madras High Court, in explaining the principle why in money-lending business allowances for bad debts were given, observed: " In the case of banking or money-lending business .... allowance for bad and doubtful debts was given for the reason that all the moneys embarked in the money-lending business and lent out for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....appellant therein as a result of misappropriation by the agent was one which was incidental to the carrying on of the business and should, therefore, be deducted in computing the profits under section 10(1) of the Act. Venkatarama Ayyar j., speaking for the court, observed: "The result is that when a claim is made for a deduction for which there is no specific provision in section 10(2), whether it is admissible or not will depend on whether, having regard to accepted commercial practice and trading principles, it can be said to arise out of the carrying on of the business and to be incidental to it. If that is established, then the deduction must be allowed, provided of course there is no prohibition against it, express or implied, in the Act." 8.2 Applying the principles laid down by Hon'ble Apex Court to the present case, the assessee was carrying on the business of hire purchase / money lending activities. It is a part of the agreement entered into between the assessee and the hirer that; (i) possession of goods is delivered by the owner thereof to a person on condition that such persons pays the agreed amount in periodical installments; (ii) the property in the goo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nces of the case and in law, the Ld. CIT(A) erred in confirming disallowance of Rs. 1,69,528/-, on account of loss on sale of debentures and government securities, by upholding the same as capital loss as against business loss claimed by the Appellant. 2.1 Without prejudice to above, the Ld. CIT(A) has erred in not treating the same as long term capital loss under the head capital gains to be carried forward. 3 That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in confirming disallowance of Rs. 1,567/- under section 14A of the Act by erroneously holding that the appellant cannot earn dividend income without incurring administrative expenses." 10. Ground No.1 in general in nature. 11. Ground No.2: The brief facts of the case are that during the relevant Assessment Year the assessee had incurred loss on sale of investments aggregating to Rs. 1,69,528/-. During the assessment proceedings, the Ld. A.O. asked for an explanation as to why the loss on sale of investments claimed as Revenue expenses , be not disallowed? The Ld. A.O. held as under: "I have considered the submissions of the assessee. The assessee may be governed by the statutory b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....shares for earning business profits has been done or not. The assessee company fails this test." 11.1 Aggrieved by the order of Ld. Assessing Officer, the assessee preferred an appeal before Ld. CIT(A). The Ld. CIT(A) upheld the addition made by Ld. A.O. by holding as under: "I have considered the submissions of the appellant, the findings of the AO and the facts on record. Perusal of the facts on record show that reduction in assessed income compared to returned income is not on account of any claim preferred by the appellant but due to consequential effect of disallowances made in the earlier year. As per Circular No. 772 issued by Hon'ble CBDT in keeping with the Finance Act, 1998 it is seen that the Act has amended sub section 3 of section 143 and now it has been provided that the AO can examine the sums payable by the assessee as well as the refund of any amount due to him while making an order of assessment u/s 143(3). Furthermore the fact that assessed income can be less than the returned income is also made clear by a reading of Explanation 5 which has been added to section 32 of the I.T. Act w.e.f. A.Y. 2006-07 (held to be retrospective), according to which depre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the business of providing finance to industry, trade, etc. through hire purchase, lease and loan products. It is also engaged in bills discounting activity, dealing in -all kinds ofsecurities (including shares, debentures, commercial papers, government securities etc.). In short, the appellant undertakes whole gamut of activities related to the financial services industry. 12.2 Ld. A.R. submitted that Ld. A.O. has erred in The AO erred in coming to the conclusion that since the company is not dealing in shares for last many years, the loss on sale of shares cannot be construed as Business Loss. Further, attention is invited to the fact that the appellant is carrying on the activities of sale and purchase of securities regularly in contrast to what has been alleged by the AO. The profit and/or loss arising out of such activity has always been treated by the appellant as business income/business loss and assessed as such by the Department. The complete details of sale of shares affected by the Appellant and accepted by the AO are given hereunder: In this connection, reliance is placed on the decision of the Hon'ble Delhi High Court in the case of CIT Delhi Central Vs Bhar....