2012 (10) TMI 118 - AT - Income Tax

Disallowance of written off of employee advance Assessee has given advance to an employee director No ostensible purpose has been stated for the instant advance - Held that - As the company used to give money for incurring expenditure on behalf of the company without narrating any change in facts, it could not have been held that this money was not the advance made in the course business. Therefore, it represented that money advanced to an employee as advance for the purpose of business of the assessee, which could not be recovered and written off. This is a loss incurred in the course of business. Decision in favour of assessee Disallowance of WDV of asset u/s 28 Assessee has given asset to employee for office use Assessee claim that since asset could not be recovered from the ex- employee Held that - As per sec. 43(6), In case of a depreciable asset falling within a block up assets, any loss occurring on account of loss of the asset has to be reduced from the opening WDV of the block up assets. It does not represent any expenditure incurred wholly and exclusively for the purpose of business. Therefore same cannot be treated as a business loss u/s 28. Decision in favour of revenue Disallowance of advance written-off u/s 28 Assessee has given only a general explanation that the amount was advanced to party for doing some business, which did not fructify Held that - As neither the year of advance nor the purpose of advance is known. The burden of adducing requisite evidence in claiming an expenditure or loss to the deductible is on the assessee. This burden has not been discharged merely by general explanation. Therefore assessee has not proved the admissibility of this amount. Appeal decide in favour of revenue Disallowance of speculative loss from derivatives u/s 28 Whether deeming provision of Sec. 43(5)(d) can be carried forward to section 73 regarding loss in speculation business Held that - As per provision of Sec 43(5)(d) deems transactions in derivatives at recognized stock exchanges not to be speculative transactions. It is applicable only in respect of such trading in derivatives and not in respect of any other goods, articles or things. Such transactions in the derivatives were taken out of the definition of a speculative transactions . Therefore, the loss is to be taken as the business loss, which can be set off against other business profit of the assessee. Decided in favour of assessee.

Summary

Issues:
1. Deduction claimed for amounts written off by the assessee.
2. Treatment of loss incurred in trading in derivatives (F & O) segments.

Issue 1: Deduction claimed for amounts written off by the assessee:

The appeal involved three grounds. Ground No. 1, a general issue, was dismissed as it was not argued. Ground No. 2 concerned two amounts written off by the assessee, Rs. 5,82,802/- and Rs. 2.00 lacs, which were claimed as deduction but disallowed by the AO and the Ld. CIT(A). The first amount was written off as a bad debt in the name of an employee-director, Shri G.P. Aggarwal, and the second amount was related to a sum standing in the name of M/s. Wimco Monnet Ltd. The tribunal found that the first amount represented a business loss and was deductible, while the second amount lacked evidence to prove it was for business purposes, thus not allowed as a deduction. The tribunal allowed the deduction for the first amount but dismissed the deduction for the second amount.

Issue 2: Treatment of loss incurred in trading in derivatives (F & O) segments:

Ground No. 3 dealt with the treatment of a loss of Rs. 85,398/- incurred in trading in futures and options segments. The AO did not consider this issue, but the Ld. CIT(A) classified it as speculation loss, disallowing it to be set off against business income. The tribunal analyzed the amendment to section 43(5) by the Finance Act, 2005, which deemed transactions in derivatives at recognized stock exchanges not as speculative transactions. It concluded that such transactions were business transactions and not speculative. The tribunal harmoniously interpreted the provisions of section 43(5) and section 73(1), allowing the loss to be treated as a business loss eligible for set off against other business profits. Therefore, ground No. 3 was allowed.

In conclusion, the tribunal partly allowed the appeal, permitting the deduction for the written-off amount related to the employee-director but dismissing the deduction for the amount standing in the name of M/s. Wimco Monnet Ltd. Additionally, the tribunal allowed the treatment of the loss incurred in trading in derivatives as a business loss eligible for set off against other business profits.