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TMI Blog2024 (11) TMI 1163X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 260A of the Act, as the scope of the appeal is very limited. Substantial question of law is answered against the assessee in favour of revenue. - THE HON BLE THE CHIEF JUSTICE ALOK ARADHE AND THE HON BLE SRI JUSTICE J.SREENIVAS RAO FOR THE PETITIONER : Y RATNAKAR FOR THE RESPONDENT : J V PRASAD SR. SC FOR INCOME TAX JUDGMENT ( Per the Hon ble the Justice J. Sreenivas Rao ) Mr. Duvva Pavan Kumar, learned counsel represents Mr. Y. Ratnakar, learned counsel for the appellant. Mr. J.V. Prasad, learned Senior Standing Counsel for Income Tax Department for the respondent. 2. This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act ) has been filed by the assessee. The subject matter of the appeal pertains to assessment year 2002-2003. The appeal was admitted on the following substantial question of law: Whether the loss of Rs.26,15,569/- sustained by the appellant on account of moneys deposited in Krishi Bank being lost due to liquidation of the Bank is allowable as a deduction as the same is a trading loss or business loss under Section 28 of the Income Tax Act, 1961 or in the alternative bad debt under Section 36(i)(vii) of the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income-Tax, Rajasthan (1973) 89 ITR 178 (Raj) and Commissioner of Income-Tax, Poona vs. P.V. Gore Co. (1983) 143 ITR 922 (Bom) . 9. Learned counsel for the Revenue submitted that the loss of the assessee cannot be termed as the loss in the course of the business. It is further submitted that the deposits made by the assessee were in the nature of fixed deposit investments, the assessing officer has rightly treated the same as capital loss and added back the same to total income. It is also argued that the findings of fact recorded by the Assessing Officer, Commissioner of Income Tax (Appeals) as well as the Tribunal do not suffer from any infirmity warranting interference of this Court in this appeal under Section 260A of the Act. 10. We have considered the submissions made on both sides and have perused the record. Before proceeding further it is apposite to take note of the relevant statutory provisions which are reproduced below for the facility of reference : Section 36(1)(vii): Subject to the provisions of sub-section (2), the amount of [any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year] : [Provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the termination of his office or the modification of the terms and conditions relating thereto; (c)any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relating thereto; (d)[ any person, for or in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business; ] (e)[ any person, by whatever name called, at or in connection with the termination or the modification of the terms and conditions, of any contract relating to his business; ] (iii)income derived by a trade, professional or similar association from specific services performed for its members; (iiia)[ profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947); ] (iiib)[ cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India; ] (iiic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r or not such arrangement, understanding or action is formal or in writing; or (B)whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings; (ii) service means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature such as accounting, banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging;] (vi)[ any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. ] Explanation. - For the purposes of this clause, the expression Keyman insurance policy shall have the meaning assigned to it in clause (10-D) of section 10;] [(vi-a) the fair market value of inventory as on the date on which it is converted into, or treated as, a capital asset determined in the prescribed manner;] (vii)[ any sum, whether received or receivable, in cash or kind, on account of any capital asset (o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the risks inherent in business operations. The primary issue is whether the loss resulting from the employee Chandratan's misappropriation of Rs.2,02,442 could be claimed as a deductible business expense by the appellant, considering the loss stemmed from the employee's unauthorized withdrawal of business funds. The case hinges on determining if such a loss is incidental to and inseparable from business operations, thereby qualifying as a trading loss deductible under Section 10(1) of the Income Tax Act. 13. In Commissioner of Income-Tax, U.P. s case (supra), the Hon ble Apex Court held that under Section 10(1) of the Income Tax Act, a trading loss is deductible if it is incidental to the business operations. The loss must be closely connected to the nature of the business and the risks inherent in carrying it out. In the case of a bank, the retention of money on its premises inherently carries risks such as theft, embezzlement, or dacoity, which are considered part of the normal business operations. The Court emphasized that the frequency or degree of the risk is less important than its direct relationship to the business, and the loss due to dacoity in this case was deeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s incidental to the business and arises from acts necessary for carrying on the business, it is considered a trading loss and should be allowed as a deduction in computing the business profits. In this case, the loss of cash, which was being carried for safe custody after business hours, was deemed to be incidental to the firm's business. 17. The principles laid down in the above said judgments are not applicable to the present facts and circumstances of the case on the ground that the deposits made by the assessee were in the nature of fixed deposit investments. Therefore, the loss suffered by the assessee when the bank went to liquidation is only a capital loss. Hence, the claim of the assessee cannot be treated as bad debt or trading loss. 18. It is pertinent to mention that the Assessing Officer after going through the evidence has specifically gave a finding that the loss suffered by the assessee is only capital loss and the same was confirmed by the appellate authority as well as tribunal. The said finding of the fact cannot be adjudicated in the appeal, while exercising the powers conferred under Section 260A of the Act, as the scope of the appeal is very limited. 19. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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