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TMI Blog2010 (5) TMI 785X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to the disallowance of deduction of ₹ 21,40,390/- on account of misappropriation of cash/shares by the accountant of the firm. 3. In this case, the assessee filed his return of income on 31.10.97 declaring total income at ₹ 22,11,660/-. The AO then completed the assessment u/s 143(3) on 28.2.2000 determining the total income at ₹ 45,39,526/-. In the assessment, the AO made addition of ₹ 21,40,390/- by way of disallowance of assessee s claim on account of misappropriation of cash/shares by Sandeep Gupta. In the assessment, the AO has mentioned that the assessee was engaged in the business of share broking. Apart from above, the assessee was deriving income from house property, capital gain and income from other sources. On scrutiny of the profit and loss account for the year ending on 31.3.1997 filed by the assessee, the AO noticed that the assessee has debited an amount of ₹ 21,40,390/-, being misappropriation of cash and difference in clearing of shares by Shri Sandeep Gupta. Assessee vide AO s letter dated 16.12.99 was specifically asked to file a detailed note in respect of the aforesaid claim. In reply thereto, the assessee vide let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 7th December, 2005 disposed of the appeal. Regarding this issue about the claim of deduction on account of embezzlement of cash or shares by the accountant of the assessee, the Tribunal set aside the CIT(A) s order and restored the matter back to him for taking decision afresh in accordance with law and after providing a proper and reasonable opportunity of being heard to the assessee. While setting aside the matter back to the file of the CIT(A), it was observed by the Tribunal that the CIT(A) has not examined the claim in right perspective and appears to have taken a decision on assessee s appeal in undue haste. In the light of the Tribunal s order, the matter again came up before the CIT(A), who has heard the matter afresh and passed the impugned order dated 21st October, 2009. With regard to this issue regarding disallowance of loss of ₹ 21,40,390/-, the CIT(A) has discussed the matter in para 6 to 6.4.5. In para 6.3 of his order, the CIT(A), in his opinion, has summarized the facts as under: 6.3.1 M/s Wazir Chand Nand and Co. was earlier a partnership firm, with the appellant and his father, Shri Wazir Chand Nanda, as partners, carrying on business as stocks and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veral copies of letters dated October and November 1995 and January 1996 written by the members of Kochhar Group to the appellant to release among other things their capital amounts lying with the appellant for the purpose of investment. Serious allegations of violating SEBI instructions, incomplete books of accounts and removal of books of account from office for making duplicate accounts are also levied by the members of the Kochhar Group against the appellant. 7. In the light of the aforesaid facts narrated by the CIT(A), the learned CIT(A) had drawn the following inferences: (i) The claims and counter claims with regard to the embezzlement of shares were made by the assessee and his clients. (ii) As per letter dated 11.1.96 written by the Kochhar Group (assessee s client), it was stated that shares were transferred by the assessee in his name and in the name of his wife and daughter while the assessee claimed before the Delhi Stock Exchange and Income-tax Department that the irregularities were in fact committed by Shri Sandeep Kumar Gupta. (iii) No FIR was lodged at any time against Sandeep Kumar Gupta. (iv) The assessee s letter dated 26.12.95 addressed to Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Sandeep Kumar Gupta in December, 1995. The assessee also informed the public on 23.11.95 that Sandeep Kumar Gupta has been restrained from acting as an authorized assistant in Delhi Stock Exchange. The assessee had also given letter on 16.12.1995 to Delhi Stock Exchange as well as to police dated 30.12.95. All these documents have been considered as self- serving document by the learned CIT(A). We fail to understand that how the letter written to the employee accusing him of misappropriation of funds, giving a notice to the public about expulsion of employee and intimating the matter to Delhi Stock Exchange as well as to the police can be called self-serving documents. All these are relevant documents with regard to the event actually taken place at the relevant point of time. It is not the case that there was any conspiracy between assessee and Shri Sandeep Kumar Gupta for creating false claim particularly in view of the fact that a claim of ₹ 51.38 lacs was discharged by the assessee towards the claim made by his clients. and assessee has also made a claim before the insurance company to indemnify the assessee under Indemnity Insurance Policy. It is also not the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x in the relevant assessment year. We, therefore, delete the disallowance of ₹ 21,40,390/- disallowed by the AO and allow this ground raised by the assessee. 10. At this stage, be it mentioned that in the original assessment, the AO also disallowed the sum of ₹ 2 lacs on account of expenses. On an appeal, in the first round, the CIT(A) reduced the disallowance to ₹ 50,000/- by granting a relief of ₹ 1,50,000/-. This issue was not carried further before the Tribunal and, therefore, this issue is not a subject matter of the impugned CIT(A) s order passed in the second round. Therefore, we are not concerned with this issue, which has been finally settled by disallowing the expenses of ₹ 50,000/- only as against ₹ 2 lacs made by the AO. 11. Now, we come to the issue about the determination of capital gain on sale of stock exchange ticket. 12. In the return of income, the assessee had shown sale of stock exchange ticket for ₹ 25 lacs. The assessee adopted the cost of stock exchange card at ₹ 6 lacs as on 1.4.81. Applying the cost inflation index, the assessee determined the indexed cost of acquisition at ₹ 16.86 lacs. Reduci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Special bench of Incometax Appellate Tribunal, Chennai Bench in the case of Valliappan (R.M.) vs ACIT (2006) 281 ITR (AT) 203 (Chennai)(SB), where it has been held- that the membership card is a valuable property which entitles the members to deal in transactions on the floor of the stock exchange and without which one cannot transact such business. This right can be disposed of by a member by nomination, though subject to the rules and regulations of the stock exchange and settlement of debts and liabilities of the members of the stock exchange. The judgment of the Supreme Court in Stock Exchange, Ahmedabad vs ACIT (2001) 248 ITR 209 applies only to cases where the membership has ceased and has vested with the stock exchange authorities. It cannot apply to cases of continuing membership. Accordingly, in the present case, the transfer of membership card by the assessee to A Ltd. was a transfer of a capital asset within the meaning of Section 2(14) of the Act and consequently the consideration for the transfer is exigible to capital gains tax. 14. In the present case, the assessee has sold the membership of stock exchange. Therefore, any capital gain arising on sale of stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mine the indexed cost of acquisition by applying the cost inflation index for the purpose of computing capital gain from sale of stock exchange card. The sale consideration shall be taken at ₹ 25 lacs as was declared by the assessee. Thus, the issue with regard to the computation of capital gain n sale of stock exchange membership card stands decided in the manner as indicated above. 16. The next issue is with regard to the computation of capital gain on sale of house No.S-302, Greater Kailash II, New Delhi, which was sold for ₹ 40 lacs and ₹ 36 lacs. The assessee had taken the fair market value of the property at ₹ 13,82,000/- as on 1.4.1981. Applying the cost inflation index, the assessee worked out the capital gain at ₹ 37,16,580/-. In the second round of appeal before the ld. CIT(A), the CIT(A) has accepted the assessee s claim and directed the AO to accept the valuation report of the registered valuer filed by the assessee with regard to the cost of acquisition of the property as on 1.4.81 and compute the capital gain accordingly. It is, thus, seen that grievance of the assessee in this regard has been met out at the stage of learned CIT(A). In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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