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Issues Involved:
1. Claim about trading loss amounting to Rs. 36,73,251 incurred in share trading and having been written off. 2. Non-allowance of deduction of Rs. 3,75,000 under section 48. Issue-wise Detailed Analysis: 1. Claim about Trading Loss Amounting to Rs. 36,73,251: The assessee, engaged in the business of iron and steel, commenced share trading during the assessment year 1994-95. The shares were purchased from a sub-broker, Mr. O.P. Tripathi (OPT), and a significant portion of these shares were later found to be bad deliveries. The assessee claimed a trading loss of Rs. 28,77,767 in the assessment year 1995-96, which was accepted by the department. For the assessment year 1998-99, the assessee claimed an additional trading loss of Rs. 36,73,251 due to further bad deliveries discovered. The Assessing Officer disallowed this claim, arguing that the loss did not pertain to the current assessment year as the assessee was aware of it earlier. The CIT(A) upheld this disallowance, stating that the purchase of stolen goods is an offense, and the assessee was aware of the risks involved due to the lower purchase price. Additionally, the CIT(A) referenced an amendment under section 37(1) that disallows expenditures on illegal activities. The assessee countered that the loss was recognized in the current year based on newly discovered bad deliveries and forgeries. The argument was made that the amendment to section 37(1) pertains to expenditures, not losses, and the assessee was not aware of any offense at the time of the transaction. The tribunal concluded that the lower authorities misunderstood the distinction between trading loss and business expenditure. It was clarified that trading loss is allowed under section 28, not section 37. The tribunal noted that the department had accepted a similar loss in the assessment year 1995-96, and the circumstances were consistent. The tribunal cited the Supreme Court ruling in CIT v. S.C. Kothari, which allows losses incurred in the same business transactions to be deducted. Consequently, the tribunal allowed the trading loss of Rs. 36,73,251 for the current assessment year. 2. Non-allowance of Deduction of Rs. 3,75,000 under Section 48: The assessee sold a flat and claimed Rs. 4,00,000 as an expenditure under section 48, arguing it was paid to the housing cooperative society for obtaining an NOC. The Assessing Officer allowed only Rs. 25,000, treating the remaining Rs. 3,75,000 as a voluntary contribution to the society. The assessee contended that the entire amount was demanded by the society as a condition for transferring the flat. Supporting documents included a Memorandum of Understanding (MOU) with the buyer, letters from the society demanding Rs. 4,00,000, and proof of payment. The tribunal found that the society demanded Rs. 4,00,000 for issuing the NOC, and the payment was necessary for the transfer of the flat. The tribunal emphasized that the nature of the transaction between the assessee and the society, not the society's accounting treatment, determined the deductibility under section 48. Thus, the tribunal allowed the deduction of Rs. 3,75,000 as an expenditure incurred wholly and exclusively in connection with the transfer of the flat. Conclusion: The tribunal allowed both claims of the assessee: 1. The trading loss of Rs. 36,73,251 was recognized as incurred during the course of business and allowable in the current assessment year. 2. The deduction of Rs. 3,75,000 under section 48 was allowed as it was deemed a necessary expenditure for the transfer of the flat.
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