TaxTMI 
TaxTMI 
2025 (6) TMI 2002
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....TA No.1158/Del/2023 for AY 2003-04 filed by the assessee is directed against order dated 23.02.2023 of the CIT(A), NFAC, New Delhi. 3. Following grounds have been raised in appeal ITA No. 1717/Del/2019: "Ground No: 1 a) That the Ld. CIT(Appeal), New Delhi has erred both on law as well as on facts, while affirming the disallowance of the loss on account of loss on security transactions amounting to Rs.150,45,32,696/ on the alleged contention that the loss is of capital loss without properly appreciating the explanations and documents filed by the appellant and the fact that the securities under consideration were held for trading as a part of the appellant's business activity and not as investments. b) That the Ld. CIT(Appeal), New Delhi has erred both on law as well as on facts, while affirming that the loss claimed did not pertain to the assessment year 2003-04. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other." 3.1 The sole ground has been raised in appeal ITA No. 1158/Del/2023: "Penalty u/s 271....
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....rsuance thereof. The said settlement became final by the order dated 30.10.2002 of the Hon'ble Supreme Court. Consequentially, the assessee was required to pay Rs. 353.78 Crores. The part of the settlement amount was adjusted out of the sum of Rs. 131.20 Crores given to State Bank of Saurastra on 13.07.1998 and interest @ 12% per annum thereon and remaining sum of Rs. 150.45 Crores was paid to the SBI vide a Cheque No.209919 dated 17.12.2002. The said sum Rs. 150.45 Crores was claimed as loss/expenditure in the relevant year. However, the said claim was not allowed by the AO on the reasoning that the nature of the said loss (whether the said loss was incurred due to loss of investment or stock-in-trade) was not established by the assessee. Further, the AO also held that the said loss had been incurred on account of illegal activities carried out by the assessee to provide benefit to Late Mr. Harshad Mehta, etc. The AO also held that the said loss could not be allowed as business loss because the same had neither crystalized nor discovered during the relevant year. Subsequently, the AO, on addition of Rs. 150.45 Crores, levied penalty under section 271(1)(c) of the Act. 4.2 Aggri....
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....to HSM in the Investment Division of the Bombay Main branch which facilitated irregular operation HSM. Shri R. Sitaraman, Officer in Scale, virtually looked after his interests single handedly. Similarly, in Stanchart (as pointed out in the fourth Report of the Committee) there have been significant violations of internal control procedures. The deliveries were effected without receiving sale proceeds, payments were made without receiving securities, BRs or SGL transfer forms, and even where BRs were received, discharged receipts were handed over to the broker to be exchanged against bonds and there was inadequate follow-up to ensure that bonds were in fact ultimately delivered to Stanchart. (d) In almost all banks a market practice developed whereby there was no independent confirmation of contracts between counterparty banks and in many cases, deliveries of securities, BRs and SGL transfer forms were made to and received from brokers, and even cheques for settlement of dues were given to or received from brokers. Incidentally this resulted in brokers delaying delivery of securities, BRs and SGL transfer forms as also cheques for settlement." (pg. 287 of Paper Book-II)." ....
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....rchase of security and lost then it may be considered as business loss provided same is incurred during the course of the business of the assessee. If the same is incurred during the course of the business of the assessee, then same shall be allowable as revenue loss in the year in which it is incurred. In the present case it is not available before us that assessee was engaged in business of trading of the securities for which money was paid to the state bank of India. As the assessee itself claims that it is managing two portfolios of securities: one as trader and another as investor then if the funds were given for purchase of securities which are to be held as stock in trade, then it can be considered as allowable loss and if it is given for the purpose of purchase of securities to be held as investor it cannot be allowed as business loss. Furthermore, if the loss is held to be business loss, then it can be allowed only in the year in which it is incurred. As the reason for the loss is Shri Harshad Mehta Scam it also needs to be examined whether the loss is allowable in the year it is detected or in the year in which it crystallized. All these issues need to be examined afresh ....
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....7.12.2002. 10. In fact, the assessee has paid of Rs. 353.78 Crores to the SBI in the relevant year on account of loss on security transactions of FY 1991-92. The sum of Rs. 150.45 Crores out of the said loss of Rs. 353.78 Crores has been claimed as expenditure routed through the Profit & Loss Account. It appears that the remaining balance amount; Rs. 150.12 Crores (Rs.353.78 Crores minus Rs. 150.45 Crores) has been routed through the Balance Sheet. The dispute before us is only the claim of 'Expenditure on account of loss on security transactions of FY 1991-92 amounting to Rs. 1,50,45,32,696/-' in its Profit & Loss Account. Hence, we are refraining to make any comment on the sum of Rs. 150.12 Crores (Rs.353.78 Crores minus Rs. 150.45 Crores) routed through the Balance Sheet. 11. In view of the foregoing discussion, we are of the considered opinion that the issue that whether the claimed loss of Rs. 150.45 Crores is allowable in the relevant year is squarely covered by the decision of the Hon'ble J & K High Court in the case of J & K Bank Ltd. (supra). The relevant part of that decision reads as under: "6. We have considered the submissions made by both the sides and ....
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.... it was lost. Since the above circulars were issued, the Supreme Court has further considered the matter and laid down the law in this regard in the following two cases: - (1) Badri Das Daga vs. CIT (1958) 34 ITR 10(SC): TC 14R 202 (2) Associated Banking Corporation of India Ltd vs. CIT (1965) 56 ITR 1 (SC): TC 14R.211. In the first case, the Supreme Court has affirmed the view that the loss resulting from embezzlement by an employee or agent of a business is admissible as a deduction under s. 10(1) of the IT Act, 1922 (corresponding to s.28 of the IT Act, 1961) if it arises out of the carrying on of the business and is incidental to it. In the second case the decision is that loss must be deemed to have arisen only when the employer comes to know it and realizes that the amounts embezzled cannot be recovered. 2. In the light of the above decisions of the Supreme Court, the legal position now is that loss by embezzlement by employees should be related as incidental to a business and this loss should be allowed as deduction in the year in which it is discovered." 8. From a conjoint reading of the decision of the Supreme Court in the case of Associ....