2013 (11) TMI 265 - AT - Income Tax

Writing off of scrips of shares held by him as stock Business loss - Held that - Loss in question is relatable to the bad deliveries ie difference in signature of transferor, forged / fake share certificate etc. Assessee analyses his stock position periodically and consistently over the years and quantifies the loss for debiting to the P & L account. It is a business decision - In fact, the stocks delivered in respect of Vipul Securities are found to be fake certificates and the assessee filed an FIR in this regard too - Assessee furnished the list of the scips involving the above said bad deliveries/fake certificates and also submitted the reasons for such write. Therefore, the assessee discharged the primary onus and it is for the revenue to rebut the same. As such they have not brought or collected any incriminating information against the business decision of the assessee Decided in favor of Assessee.

Issues:
1. Disallowance of claim in respect of stock written off by the appellant
2. Justification of claim of write off of stock in respect of Vipul Securities
3. Admissibility of loss as business loss
4. Business decision taken by the assessee in claiming the loss
5. Applicability of Tribunal's previous orders in similar cases

Issue 1: Disallowance of claim in respect of stock written off by the appellant

The appellant raised grounds against the CIT (A) confirming the AO's decision of disallowing the claim in respect of stock written off. The AO disallowed a significant amount out of the total claim made by the appellant, stating that the appellant failed to provide evidence to substantiate that the loss had specifically arisen during the relevant previous year. The AO emphasized that the onus lies on the assessee to prove the loss occurred during the year. The Tribunal observed that the appellant consistently followed an accounting policy of writing off shares lost due to various reasons, such as wrong deliveries and fake certificates. The Tribunal upheld the CIT (A)'s order, emphasizing the business decision taken by the appellant and the absence of contrary material brought by the Department, thereby allowing the claim.

Issue 2: Justification of claim of write off of stock in respect of Vipul Securities

The appellant contested the disallowance of the claim for write off of stock in respect of Vipul Securities by the AO. The appellant argued that the stock was found to be fake certificates, leading to a loss. The Tribunal noted that the appellant consistently analyzed its stock position and quantified losses for debiting to the profit and loss account. The Tribunal found that the appellant had provided a list of securities involved in bad deliveries and fake certificates, along with reasons for the write-offs. The Tribunal held that the appellant had discharged the primary onus, and as the revenue failed to rebut the appellant's evidence, the claim was justified. The Tribunal set aside the CIT (A)'s order in favor of the appellant.

Issue 3: Admissibility of loss as business loss

The appellant contended that the loss incurred was incidental to business and should be allowed as a business loss. The AO and CIT (A) had raised concerns about the lack of evidence to prove the loss specifically arose during the relevant year. However, the Tribunal, relying on previous orders and the appellant's consistent accounting practices, found that the loss was a result of business decisions taken by the appellant. The Tribunal emphasized that the appellant's analysis and decision-making process regarding stock write-offs were justifiable business practices, leading to the allowance of the claim.

Issue 4: Business decision taken by the assessee in claiming the loss

The Tribunal highlighted the importance of considering the business decisions made by the appellant in claiming the loss. It noted that the appellant had a consistent accounting policy regarding stock write-offs, indicating a deliberate and informed approach to managing losses related to wrong deliveries and fake certificates. The Tribunal appreciated the appellant's business acumen and upheld the claim based on the appellant's demonstrated understanding of their business operations.

Issue 5: Applicability of Tribunal's previous orders in similar cases

The Tribunal extensively referenced its previous orders in the appellant's own case for different assessment years. It noted that the appellant had been consistently following accounting practices regarding stock write-offs, which were upheld in previous decisions. The Tribunal reiterated that the appellant's approach to analyzing and quantifying losses for stock write-offs was a valid business decision. By aligning with its earlier judgments, the Tribunal confirmed the allowance of the appellant's claims, emphasizing the importance of consistent business practices in such matters.

In conclusion, the Tribunal allowed the appeal of the assessee based on the justifiability of the claims, the business decisions taken, and the consistent accounting practices followed by the appellant. The Tribunal's decision was supported by the appellant's evidence and the absence of contradictory material from the revenue authorities, leading to the allowance of the appellant's claims regarding stock write-offs and losses incurred during the relevant assessment year.

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