2010 (5) TMI 785 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of loss claimed due to misappropriation of cash/shares by the accountant.
2. Determination of long-term capital gain on the sale of a Delhi Stock Exchange membership card.
3. Computation of capital gain on the sale of house property.

Summary:

1. Disallowance of Loss Claimed Due to Misappropriation of Cash/Shares by the Accountant:

The assessee challenged the CIT(A)'s order confirming the disallowance of Rs. 21,40,390/- claimed as a loss due to misappropriation by the accountant, Shri Sandeep Gupta. The AO disallowed the claim, stating the matter was sub judice. The CIT(A) upheld the disallowance, citing lack of details, timing of the loss, and that the loss did not constitute a business debt u/s 36(1)(vii) read with Section 36(2). The Tribunal initially set aside the CIT(A)'s order for fresh consideration. Upon re-examination, the CIT(A) again disallowed the claim, but the Tribunal found the loss to be allowable as it occurred in the course of business and directed the AO to allow the claim, with the condition that any recovery from the insurance company should be taxed in the relevant year.

2. Determination of Long-Term Capital Gain on Sale of Delhi Stock Exchange Membership Card:

The assessee declared a capital gain of Rs. 8.14 lacs on the sale of a stock exchange membership card, taking the cost of acquisition as Rs. 6 lacs as on 1.4.81. The AO accepted this, but the CIT(A) reduced the cost of acquisition to Rs. 2 lacs. The Tribunal set aside the CIT(A)'s order for fresh consideration. Upon re-examination, the CIT(A) maintained the cost of acquisition at Rs. 2 lacs. The Tribunal, however, directed the AO to adopt a reasonable fair market value of Rs. 4 lacs as on 1.4.81 and an additional Rs. 2 lacs paid on 17.12.1990 as the cost of improvement, and compute the indexed cost of acquisition accordingly.

3. Computation of Capital Gain on Sale of House Property:

The assessee sold house No.S-302, Greater Kailash II, New Delhi, and declared a capital gain based on a fair market value of Rs. 13,82,000/- as on 1.4.1981. The CIT(A) accepted the assessee's valuation and directed the AO to compute the capital gain accordingly. The assessee's claim for deduction u/s 54 was also accepted. Thus, this issue was resolved in favor of the assessee and was not a matter of further consideration in this appeal.

Conclusion:

The appeal was partly allowed, with the Tribunal directing the AO to allow the loss due to misappropriation and to recompute the capital gain on the sale of the stock exchange membership card based on the revised cost of acquisition and improvement.