Itta/171/2007 Of M.vinayak v. Dy Commissioner Of Income Tax

IN THE HIGH COURT FOR THE STATE OF TELANGANAAT HYDERABAD FRIDAY, THE TWENTY SECOND DAY OF NOVEMBERTWO THOUSAND AND TWENTY FOUR PRESENT THE HONOURABLE THE CHIEF JUSTICE ALOK ANDTHE HONOURABLE SRI JUSTICE J SREENIVAS INCOME TAX TRIBUNAL APPEAL NO: [171 OF ][2OO7] lncome Tax Tribunal Appeal under Section [260-A ][of ][the ][lncome Tax ][Act,]'1961 , against the Order of the lncome Tax Appellate Tribunal, Hyderabad Bench 'A',(SMC), Hyderabad in l.T.A. No. 1173 I Hyd. 12005 for Assessment [Year ][2002-03]dated 21-09-2006, [preferred against ][the ][Order ][of ][the ][Deputy Commissioner ][of]lncome Tax Circle 6[1], Hyderabad dated [30-09-2005 ][in ] [/ ] [No. ] 980/AC.6(1). Between: M. Vinayak, Hyderabad, R/o. H.No. [8-2-32411, ][Green ][Valley, ][Road ][No- ][3,]Banjara Hills, Hyderabad - 34 ...Appellant AND Dy Commissioner of lncome Tax, Circle [6 ][1], [Hyderabad] ...Respondent Mr Duwa Pavan KumarRep. MrY Ratnakar Counsel for the Appellant Counsel for the RespondentMr J V PrasadSr. SC for lncome Tax DePartment The Court delivered the following [Judgment ][:] I THE HON'B LE THE CHIEF JUSTICE ALOK ARADHEANDTHE HON'BLE SRI JUSTICE J.SREENTVAS RAO I.T.T.A. No. I7l of 2OO7 JUDGMENT | (Per the Hon'ble the Justice J.Sreeniuas Raol Mr. Duwa [pavan ]Kumar, learned counsel represents Mr. Y. Ratnakar, learned counsel for the appellant Mr. J.V. [prasad, ]learned Senior Standing Counsel forIncome Tax Department for the respondent. 2. This appeal under Section 260A of the Income Taxappeal under Section 260A of the Income Taxunder Section 260A of the Income TaxSection 260A of the Income Tax260A of the Income Taxof the Income Taxthe Income TaxIncome TaxTaxAct, 196 1 (hereinafter referred to as .,the Act,,) has beenfiled by the assessee. The subject matter of the appealpertains to assessment year 2OO2_2OO3. The appeal wasadmitted on the following substantial question of law: This appeal under Section 260A of the Income Taxappeal under Section 260A of the Income Taxunder Section 260A of the Income TaxSection 260A of the Income Tax260A of the Income Taxof the Income Taxthe Income TaxIncome TaxTax the loss of of Rs.26,15,569/_ "Whetherthe loss of of Rs.26,15,569/_sustaiued bythe appellant on account ofmoneys deposited in Krishi Bank being lost dueto liquidationof the Bank is allowable as ato liquidationof the Bank is allowable as adeduction asthe same is a trading ioss orbusiness lossunder Section 2g of the IncomeTax Act, 196 1or in the a-lternative bad debtunder Section36(i)(vii) of the Income Tax Act,196r?"business lossunder Section 2g of the IncomeTax Act, 196 1or in the a-lternative bad debtunder Section36(i)(vii) of the Income Tax Act,196r?" 3. [The ][factual ][background][ in ][which ][the ][aforesaid]substantial [question ][of ][1aw ][arises ][for ][our ][consideration]need [mention.] The [[assessee ]][[is ][engaged ][in ][the ][business ][of ][sale ][of]][[engaged ][in ][the ][business ][of ][sale ][of]][[in ][the ][business ][of ][sale ][of]][[the ][business ][of ][sale ][of]][[business ][of ][sale ][of]][[of ][sale ][of]][[sale ][of]][[of]] 3. [The ][factual ][background][ in ][which ][the ][aforesaid]substantial [question ][of ][1aw ][arises ][for ][our ][consideration]need [mention.] The [[assessee ]][[is ][engaged ][in ][the ][business ][of ][sale ][of]][[engaged ][in ][the ][business ][of ][sale ][of]][[in ][the ][business ][of ][sale ][of]][[the ][business ][of ][sale ][of]][[business ][of ][sale ][of]][[of ][sale ][of]][[sale ][of]][[of]] 4. The [[assessee ]][[is ][engaged ][in ][the ][business ][of ][sale ][of]][[engaged ][in ][the ][business ][of ][sale ][of]][[in ][the ][business ][of ][sale ][of]][[the ][business ][of ][sale ][of]][[business ][of ][sale ][of]][[of ][sale ][of]][[sale ][of]][[of]]electrical [goods, ][money ][lending and ][deal'ing ][in ][shares ][and]mutual [funds' ][The ][assessee ][has filed ][his ][returns ][of ][income]on 08.10.2002 [for the ][assessment ][year ][2OO2-2O03]declaring [loss ][of ][Rs'24 ]'7 [4 ]'584/ [- ][on account ][of ][the fact ][that]fixed [deposits ][with ][Krishi ][Bank having ][been ][lost ][on account]of liquidation [of ][the ][said ][Bank' ][The ][assessee ][claimed ][the]aforesaid [amount ][of ][Rs'24'74'584/- as ][d'eduction ][on ][the]ground [that ][the ][same ][is ][a ][trading loss ][or ][bad debt ][under]Sections [27 ][and ][28 of the ][Act'] The [[assessment ]][[under][ Section ][1a3(3) ][of ][the ][Act ][was]][[ Section ][1a3(3) ][of ][the ][Act ][was]][[1a3(3) ][of ][the ][Act ][was]][[of ][the ][Act ][was]][[the ][Act ][was]][[Act ][was]][[was]] 5. The [[assessment ]][[under][ Section ][1a3(3) ][of ][the ][Act ][was]][[ Section ][1a3(3) ][of ][the ][Act ][was]][[1a3(3) ][of ][the ][Act ][was]][[of ][the ][Act ][was]][[the ][Act ][was]][[Act ][was]][[was]]completed [by ][the ][Assessing ][Officer ][ot ][3lJ.22O04 ][and]aforesaid [loss was ][disallowed ][on ][the ][ground ][that the ][said]Being [aggrieved, ][the]amount [constitutes][ a ][capital ][loss']assessee [filed ][an ][appeal ][before ][the Commissioner ][of ][lncome]Tax [(Appeals)' ][The ][appeal ][was dismissed ][by ][an ][order ][dated] I 30.09.2O05. Thereupon, the assessee filed arl appeal beforethe Income Tax Appellate Tribunal (hereinafter referred toas "the Tribunat").the Income Tax Appellate Tribunal (hereinafter referred toas "the Tribunat"). 6. The Tribunal by an order dated 21.09.2006 inter aliaheld that the amount of Rs.24,74,584/- cannot be claimedas bad debt or trading loss and upheld the order of theCommissioner of Income Tax (Appeals) and dismissed theappeal. In the aforesaid factual background, the assesseehas approached this Court by filing this appeal. 7 . Learned counsel for the assessee submitted that theassessee is engaged in the business of dealing in shares aswell as mutual funds and money lending. Therefore, theloss, which was sustained by the assessee, is incidental tocarrying on his business and should be deducted incomputing the profits. Reliance has been placed in caseswhere the amount was lost in the course of business onaccount of misappropriation and it has been c:ontendedthat in similar analory the loss sustained by the assesseedeserves to be treated as trading loss. 8. [In ][support ][of ][the ][a-foresaid ][submissionS' reliance ][has]been [placed ][on ][the ][decisions ][of the ][Supreme ][Court ][in]Badridas [Daga ][vs' ][Commissioner ][of ][Income ][Taxl']Commissioner [of ][Income-Tax' ][U'P' ][vs' ][Nainital ][Bank]vs.Commissioner [of]Ltd.2, [Ramchandar ][ShivnaraYan]ChhotulalAjitsinghvs.lncome-Tax, [A'P'3' ]andIncome-Tax'Rajasthan+Commissioner [of ]Commissioner[of ][Income-Tax, ][Poona ][vs' ][P'V' ][Gore ][&]Co.s. 8. [In ][support ][of ][the ][a-foresaid ][submissionS' reliance ][has]been [placed ][on ][the ][decisions ][of the ][Supreme ][Court ][in]Badridas [Daga ][vs' ][Commissioner ][of ][Income ][Taxl']Commissioner [of ][Income-Tax' ][U'P' ][vs' ][Nainital ][Bank]vs.Commissioner [of]Ltd.2, [Ramchandar ][ShivnaraYan]ChhotulalAjitsinghvs.lncome-Tax, [A'P'3' ]andIncome-Tax'Rajasthan+Commissioner [of ]Commissioner[of ][Income-Tax, ][Poona ][vs' ][P'V' ][Gore ][&]Co.s. g . 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 fxed]deposit [investments' ][the ][assessing ][oflicer ][has ][rightly]treated [the ][same ][as ][capital ][loss ][and ][added back ][the ][same]tototalincome.ltisalsoarguedthatthefindingsoffactrecorded [by the ][Assessing ][Oflicer' ][Commissioner ][of Income]Tax [(Appeals) ][as ][well ][as ][the ][Tribunal ][do ][not ][suffer ][from ][any]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 fxed]deposit [investments' ][the ][assessing ][oflicer ][has ][rightly]treated [the ][same ][as ][capital ][loss ][and ][added back ][the ][same]tototalincome.ltisalsoarguedthatthefindingsoffactrecorded [by the ][Assessing ][Oflicer' ][Commissioner ][of Income]Tax [(Appeals) ][as ][well ][as ][the ][Tribunal ][do ][not ][suffer ][from ][any] I (1958) 34 ITR 10 [(SC)]:i*:l:ll+;*'fi1,:i*:l:ll+;*'fi1, o irsz:i sg ITR 178 (Ral)' [irse:i ][t+: ][IrR ][922 (Bom)]' [irse:i ][t+: ][IrR ][922 (Bom)] '0 infirmity warranting interference of this Cour-t in thisappeal under Section 26OAof the Act. We have considered considered the submissions submissions madt: on both on both both 10We have considered considered the submissions submissions madt: on both on both bothsides and have perused the recordBefore proceedingfurther it is the submissions submissions madt: on both on both bothsides and have perused the recordBefore proceedingfurther it is apposite to take note of the relevant statutoryprovrsrons which are reproduced below for the lacility ofreference:lacility ofreference: .Section 361Ulyiil :.Subject to the prouisittns ofsub-section (2), the amo.whichis*i,il,'.i""i:::{::rr,::,:i;!,"2:::":,,'^:;",;[asses-see/or the preuious gearl : [Provided ctause(uiia)"iui.",",L"tr:y:!.rt:;;:;:;;:::;"W:that in the tang such debt or part thereof shait a" u^ii"'i"i"'inZ".onlountbaLance bg which i" th;;r;;;;.;', such debt orPart b ad thereof a n d d ou exceed's bttu t d e b ts the a c <:reditcou nt^ " [a.,,.il,' ][r ][n:;""";;:J ][f ]["' ] port [Provided thereof further has been that take^n.into u.there the account amount of such d.ebt ortncome of the a.ssessee of the preuious o."r-^r,li,*n ii ";iorirg ,n",nI!.!r"r^!:":h or oJ an earlier debt preuiou:or part thereof becomes inecouerabtecomputotion ana ?" -the [bctsis ][of ][income]dbclosu)^a:."' section(2).r".ii,1"{!i*;ffy::"::;T;:::::,;i:;accounts, then, such debt cth. pre'i.ous'o;;;';';;'oart [thereof ][shalt ][be ][altouteri ]inbecomes trrecouerable 'debt [or ][part ][thereof]debtorpart,;;;.,;;;,"";:.:;::::"t:oX'tr:".,:::;;::"r;l:y"!' the accounts for the purposes ol nb "Uur",.1 deito,o"n'in"ni1';"^#':Z);{',T"::::;Z:"lr,Xi[Explanation 1.]- For the, n port [Provided thereof further has been that take^n.into u.there the account amount of such d.ebt ortncome of the a.ssessee of the preuious o."r-^r,li,*n ii ";iorirg ,n",nI!.!r"r^!:":h or oJ an earlier debt preuiou:or part thereof becomes inecouerabtecomputotion ana ?" -the [bctsis ][of ][income]dbclosu)^a:."' section(2).r".ii,1"{!i*;ffy::"::;T;:::::,;i:;accounts, then, such debt cth. pre'i.ous'o;;;';';;'oart [thereof ][shalt ][be ][altouteri ]inbecomes trrecouerable 'debt [or ][part ][thereof]debtorpart,;;;.,;;;,"";:.:;::::"t:oX'tr:".,:::;;::"r;l:y"!' the accounts for the purposes ol nb "Uur",.1 deito,o"n'in"ni1';"^#':Z);{',T"::::;Z:"lr,Xi[Explanation 1.]- For the, n accountsoftheassesseeslnllnotinclud'eangprouisionforii ora [doubtfut ][debts ][made ][in ][the ][accounts ][of ][the]assessee./E;;;;;i"" [2.- ][For ][the remouat ][of ][doubts' ][it ][is ][herebs]ctaified [that ]for [the ][purposes ][of ][the irouiso ][to ][clause.^(,ui) ][of]"ii*"""ua "*J*"i- "".iion [ond ]["lous,n (u) ][of ][sub-section ][(2)' ][the]*."d to therein [shall ][be onlg one ][account ][in]:;:r;;;'Ji-o,o"*^" [for ][bad ond ][doubtfut ][debts ][under]clause [(uiia) ][and ][such ][account ][sholl ][relate ][to ][atl ][tgpes ][of]";;;;;";"", i,nctuding aduances made bg rural branchesJ; ts and [qal][ns ][of][ busines][sor] Sectlon28profession: - The follouting [income ][sltall be ][chargeoble ][to ][income-tax]under [the ][heod ]["Profits ][and ][gains ][of ][business ][of]profession",'iii" ond [goins ][ol ][ang ][business ][or ][profession.ushich]prolir, uas coried [on bg ][the ][ot"J""t" ][at ][anA ][time during ][the] ';:T':;il:"sation *oitk""o [or ][other ][poament ]1y'.* ":3:*'d).r"on, [bg ][uhateuer ][name ][called' ][managing the]u,hole or [substantiallg the ][uhole ][of ][the ][affairs of on ][lndian]cofipanA' [at or ][in ][connechon ][uiin ][tne ][tennination ][of ][hi's];;;;t:;;; or the [modiftcation of ][the terms ][and ][conditions]'b);';;,; retating [thereto; ]bA uholeuer name called' mandgtng the0,"r"." "futhole [or ][substantiatlg ][tre ttllnle ][of ][tne ][yfly,rs ]:" !!'" ;;;";;r-..*oana, [ot ][or ][in ][connection rt'rith ][tle ][termination]ai7'"otion [of the terms ][and ][conditions]:;'^;" :frt;; [;: ][lnJ' ]^o relating [[tlereto;]] relating [[tlereto;]]'[ir^o-ou*", ba uhateuer name called' holding an agencgin lndia for [ang ][pan ][oJ ][me ][actiuities ][retoting ][t.? ][th: b::iness]of ang [other ][person, ][ot ][or ][in ][connection t'uith ][the termination]of the [agencA ][or the ][modification ][of ][the ][term^s ][and]"Ai7*i ion ditions [re ] [ating ]io' [the ]o' [r ][eto :]in connection tuith t-he uesting [in ][the]i","n buGouemment, [or ][in ang ][corporction otaned' ][or ][.controlled ]the Gouernment, [und'er ][ong ][to- ][7o' ][th: ][ti:le-!:.:nS ][in ][force']of the [management o[ ][ony properlg ][or ][bustness'l] bi.";;a [oi,:on ]. 4::;:; conn.ection [uith ][the ]", [tem]"iTI,ilJii",,!^'i,# terms and conditions, of ang contract relating to hbbusiness;l llj)income deiuedbA d trade, professionaL orsimilarassociation fromspectfic seruices performedfor [its]members;members; {!jja)l [profits ]on saleof a licence granted. und.er the [mports(Control) Order, 1955, made under the Imports and Exports(Control) Act, t g47 (18 of 1947t:1 finu['[ ]cash assistance (bg uhatiuer name called) rece,iued orreceiuable by any person aI ann-st exports under angscherne of the Gouemment of India;lltna)t ang dutg of custon:rs or exci-se re-paid or re pagable asdrawback to anA person agatnst exports under the Astom,sand ()entral Excbe Duties Drawback RuLes, 1971;l tiiid)[ anA profit on the transfer of the DutA Entitlemen.t passBook Scheme, being the Dutg Remission Scheme under theBook Scheme, being the Dutg Remission Scheme under theexport and import policg formulated and announced undersection 5 of the Foreen Trade (Deuelopment and_ Regulation)Act, 1 992 122 of j 992t:tAct, 1 992 122 of j 992t:t {!jja)l [profits ]on saleof a licence granted. und.er the [mports(Control) Order, 1955, made under the Imports and Exports(Control) Act, t g47 (18 of 1947t:1 finu['[ ]cash assistance (bg uhatiuer name called) rece,iued orreceiuable by any person aI ann-st exports under angscherne of the Gouemment of India;lltna)t ang dutg of custon:rs or exci-se re-paid or re pagable asdrawback to anA person agatnst exports under the Astom,sand ()entral Excbe Duties Drawback RuLes, 1971;l tiiid)[ anA profit on the transfer of the DutA Entitlemen.t passBook Scheme, being the Dutg Remission Scheme under theBook Scheme, being the Dutg Remission Scheme under theexport and import policg formulated and announced undersection 5 of the Foreen Trade (Deuelopment and_ Regulation)Act, 1 992 122 of j 992t:tAct, 1 992 122 of j 992t:t I]LeX ang profit on the transfer of the Dutg FreeReplenishment Certificate, betng the Dutg RemissjonScheme under Replenishment Certificate, betng the Dutg RemissjonScheme under the export and import policy formutated andannounced under section S of the Foreign Trade( D e ue Lopme nt and Re gulation) Ac| 19922o1 000fiy)[ the ualue of ang benefit or perquisite, ultether( D e ue Lopme nt and Re gulation) Ac| 19922o1 000fiy)[ the ualue of ang benefit or perquisite, ultetherconuertible into moneA or not, aising from business or theexercise of a profession;lexercise of a profession;l L4t a.nA interest, salary, bonus, commtssior,,. orremuneration, bg uhateuer name called, d.ue to, or receiuetllO'.:^17":* [of ][a ][firm ][from ][such ]firm: [Section ]tl (u,t.e.J..1.4. 1993 ).lproutded that utcommissionorr.mun"rotio'::r;Z;::":;:'r:1:*;r?;';,"';anA part thereof has not been allouted. to be deducted ttnd.erlausy [lb) of section ][4O, ][the ][income ][und.er ]thi.s ctoul" ,niltb," iaiy"t"_a b the extent of the amount n",,o oiio_ni ,o r.deducted;l actiuitg lpe)[ kind, [anA ]under in sum, relation to an whether agreement ang receiued. bisines", for_ (a)not or receiuable, orfAjno", carrying in out cash ,rOunAorknow-how, potent, "lno;;n copAright, trade-mark, tic"nce, llaic nrseor or ang infonnation other busrness or techntque or commercial likelg ight to of assisf sim-illr jn naturethe manufacture [or ][processing ][of ][goods ][or ][prouision ][for]seruices:[[to- ]] that [[sub-clause ]][(a) ][slalt ][not ][applg ][[to- ]] i"ii.o i"ii.o that [[sub-clause ]]-tr) '**i'in [anA ][sum' ]o".oun' [uhether ]of transfer [receiued ]of [the'nght ][or ][receiuabte' ][t? ].mlnufacture'[in ][cash or]or [process ][ang ][arttcte ][or ][thing ][or ][right to ][cdmt ][on];;.;;r* chnrseabte [under ][the ][head' ]["copitat]'::;;:":".:;: [*i*i ]' nn?,'T^*,,^,"":::::,f.:,#""T{Jii;[li!"'i;.3::i::ff:tZi^| -io.' fund [of the Montteal ][Protoc]under [the ][IJnited' ][Nattons ][Enuironment]^.*i",r.O ;;;;*;, in occordance [.,,ith ][the ][terms ][of ][agreement]into tuith tuith [the ][Gouernment ][of ][India'] into tuith tuith "i*ptonotion' - For the purposes o/this clause'- (i)"agreement" [includes ][ong ][oningn^"nt ][or understanding]"l-;;;;;;-o' or action [in ][concert'-]orrangement' [understandins or]noi 'u"n action [b ]formal [or ][tn ][utnttng: ][or];;';:;;,;;;';."":'",*,;.::"*f ,!ii;"]"?i7"2:::i;;2,"action [is intended ][to ][be er](ii) "seruice" ';le''"" [of ][any ][descnption ],tn'::.':: [^"O']^"ont auaitable [to potential ]'"-"'" [o'ia ][inctuies tlte ][prouision ][of]seruices [in ][connection ][*ffu ][A"in.at" ][of ][ong ][industial ][or]comm.ercial [nature ][such ][as ][accounting' ][banking']communication' [ton"gia of ][nettts ][o'- ][tnformation']aduertising, [entertainm'int' ][amusement' ][education']fr;;;;;,"','*"'"""r*,.l,in:"";r';;";':::*:Z;':i:T,transPort, [storage' ][Proce]ener)Y, [boarding ][and ][lodging;l] ener)Y, uti':i;';;,;;::":i,i-;i,-7il":;T:;:::"'z::7^including [the ][sum ][aurt]policg ' ' [[of ]][[rhis ct( ][se' ][the]][[se' ][the]][[the]] ener)Y, uti':i;';;,;;::":i,i-;i,-7il":;T:;:::"'z::7^including [the ][sum ][aurt]policg ' ' [[of ]][[rhis ct( ][se' ][the]][[se' ][the]][[the]] policg ' ' 7e [purposes ][[of ]][[rhis ct( ][se' ][the]][[se' ][the]][[the]]lF;xplonation'...- [*! ]",2;;'"'"--pai.g,' shatl haue [the]exoression ["Kegman ][t]T;7;;';';;;Za [* ][u'^ ][ctause ][(1o'D) ][of ][section ]'1o;l'i;-;;;'P';^"\"',;li:,':,T::X::"::f .*i':,"';::uthich it [is ][anuerted ][']determined [in ][the ][prescibed ][manner)] i;t;";;-;"^,:;::y:]Z*;f ,Zi:':;"f :i;::",n!*",ZilZi,";I;*'^'^t) beins d.emotished'2l!!;J,i,'::";',:":;;; iestroged, [discarded"*'i*'op*"a' if ][the ][ttlate ][of ][the] deduction expenditure under on such section capital 3S_AD;la-sset has been a owed. as a[Explanatton 1.4. 1989).1I omitted bg Act 4 of tg|7, Section 28 (w.e.f. Expranation 2. - where specutatiue transaction_s ca,ried onbusiness, bg an assessee,h" o" of such a nafure as to constitttto n,,speatationrr.,roJ"li"r'i,r,:.#:!:;r::t":;";"i:*business, bg an assessee,h" o" of such a nafure as to constitttto n,,speatationrr.,roJ"li"r'i,r,:.#:!:;r::t":;";"i:*separate from ong other business. FollouLing Explanatton 3 shalL be insened. 2 to ,sectton 28 ba the Finance W;;;;,Zoz+, ajl.er Expktnationut.e,.1. t_+_Expla.nation 3.- It is lettinq out of a resid.entia-tlr""" _herebg claified. that ang incom.e from2 to ,sectton 28 ba the Finance W;;;;,Zoz+, ajl.er Expktnationut.e,.1. t_+_Expla.nation 3.- It is lettinq out of a resid.entia-tlr""" _herebg claified. that ang incom.e fromthe ouLner shatt not be chargeabte ", ;;;;r; "' [i"i ]"f head. [the house ][,.profi.ts][bg]ad gains of business ad gains of business chargeabte under the h""d "1"";^; "io or"f"."r"n)"'ona shall bef;;;'nou". prop.rtg,.f;;;'nou". prop.rtg,. 1 1. After having noticed the relevant statutory provisions, we may aclvert to the facts of the case in hand. Theassessee ha.s engaged in the business of sa_le of electricalgoods, money lending, dealing in shares and mutuai fundsand he deposited arr amount of Rs.24,74,SgO/- with KrishiCo-operative Bank and the said barrk went into liquidation.The assessee: claimed the above said amount as deductionon the ground that the same is trading loss or bad debt.The assessing oflicer after going through the statementsand records passed order on 31.12.2OO4, holding that thedeposits made by the assessee were in the nature of fixeddeposit investments out of available profits/ capital of the AS capital [loss ][and]assessee [and ][the ][same][ was ][treated]denied [the ][clarm ][of ][the ][assessee ][as][ a ][trading ][loss' ][The]above[saidorderwasconfirmedbytheCommissionerof]Income [Tax ][(Appeals) ][by ][its ][order ][dated ][30'09'2005 ][and the]said [order]was further [confirmed ][by ][the ][Income ][Tax]Tribunal [(Hyderabad) ][by its ][order ][dated]Appellate2t.o9.2006. 12. In [Badridas Daga's case (supraf ][the ][Hon'ble ][Apex]Court [held ][that ][the ][marn principle ][in ][this ][case ][revolves]around [whether ][an ][embezzlement ][loss ][caused ][by ][an]employee's [misconduct ][is ][deductible as ][a ][business ][expense]under [Section ][10 ][of ][the ][Income ][Tax ][Act' ][Specifrcally' ][it]questions [whether such ][a ][loss' incidental to ][the ][conduct ][of]the business, [can ][be ][considered ][a "trading ][1oss" ][and ][thus]deductible, [as ][it ][a-rose ][from ][the ][risks ][inherent ][in ][business]operations[. ][The ][primary ][issue ][is ][whether ][the ][loss ][resulting]from [the]employee [Chandratan's misappropriation ][of]could [be ][claimed ][as][ a][ deductible ][buslness]Rs.2,O2,442exPense [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] iJ l. incidental to and inseparable from business [operations,]thereby qualifyingasatrading loss deductib [e underSection 1O(1) of the Income Tax Act. iJ l. incidental to and inseparable from business [operations,]thereby qualifyingasatrading loss deductib [e underSection 1O(1) of the Income Tax Act. 13. In Commissioner of Income-Tax, U.P.'s [case](supra|, the Hon'lcle Apex Court held that under Section1O(1) of the Income Tax Act, a trading loss is deductible if itis incidental to the business operations. The loss must beclosely connected to the nature of the business and therisks inherent in carrying it out. In the case of a bank, theretention of money on its premises inherently carries riskssuch as theft, embezzlement, or dacoit5z, which areconsidered part of the normal business operations. TheCourt emphasized that the frequency or degree of the riskrs less important than its direct relationship to thebusiness, ald the loss due to dacoity in this case wasdeemed a deductible trading loss as it was incidental tobanking operations. 14. In Ramchandar Shivnarayan's case (supra), the Hon'ble Apex Court held that a loss arising from theft canbe considered a trading loss and deductible when it is directly connected to ar [incidental ][to ][the ][business]operations of the assessee. [In ][this ][case, ][the ][loss ][of ][Rs.]30,000 was a result of money brought [for the ][purpose ][of]purchasing Government securities, [which ][is ][an ][integral]part of the assessee's business [activities. ][The ][court]emphasized that the loss, although [not explicitly ][covered in]the tax laws, was part of the ordinary [course ][of ][business]and, therefore, should be [treated ][as ][a ][trading ][loss' ][This]principle was reinforced by [previous ][rulings such ][as]Badridas Daga [(supra| ][and ][Nainital ][Bank ][Ltd' ][(supraf,]where it was established [that ][any loss ][that ][is ][inherently]linked to the business operations [and ][is ][necessar5r ][for]conducting those operations [is ][deductible, even ][if it ][is]caused by unforeseen [events ][like ][theft. ][The ][judgment]rejected narrow interpretations [that ][failed ][to ][recognize ][the]loss as incidental to business [operations, ][affirming ][that]such losses should be accounted [for ][in ][calculating the ][true]taxable profits. 15. In Chhotulal Ajitsingh's [case ][(supra), the ][Rajasthan]High Court held that loss due [to ][theft ][is ][deductible under]Section 1O{J)1lf the Income [Tax ][Act ][if ][it ][arises ][directly ][from] t the business and is incidental to the business operations.The timing of the theft, such as whether it occurs duringbusiness hours or after, is not crucial that matters pertainsin connection between the loss and the business activityand the main principle is whether the loss causr:d by theftof cash from the business premises, after the business hadclosed for the day, could be considered a deductiblebusinessexpense" The Income Tax authorities initiallydenied the deduction, arguing that the theft occurredoutside of business hours, but the case ultimatelyturnedon whether the loss was incidenta-l to the businessoperations 16. In Commissioner of Income_Tax, poonars case (supraf, the Bombay High Court held that a loss incurredby a business due to an incident, such as the theft of cash,is deductible if there is a direct ald proximate connectionby a business due to an incident, such as the theft of cash,is deductible if there is a direct ald proximate connectionbetween the loss and the business operations. The courtfoliowed the principletnRamchandar Shivnarayan(supraf, foliowed the principletnRamchandar Shivnarayan(supraf, emphasizing that when a loss is incidental to thebusiness ancl arises from acts necessary for carrying on thebusiness,. it-js considered a trading loss and should bebusiness ancl arises from acts necessary for carrying on thebusiness,. it-js 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'] 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]theCaSeonthegroundthatthedepositsmadebytheassessee [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]1oss. It is is [pertinent ][to ][mention ][that ][the ][Assessing Officer] 18.It is is evidence [has ][sPecifrcallY ][gave a]after[going ][through ][the]finding [that ][the ][loss suffered ][by ][the ][assessee ][is ][only capital]Ioss [and ][the ][same ][was ][co][nfirmed ][by ][the ][appellate ][authority]as well [as ][tribunal' ][The ][said ][finding ][of ][the ][fa't ][cannot ][be][in ][the ][appeal, ][while ][exercising ][the ][powers]adjudicated, [as ][the ][scoPe of ][the]conferred [under ][Sectio ][n ][260A ][of ][the Act]appeal [is ][very ][limited'] :t.{i: 19 ' In view of the preceding anarysis, the substa,tialanarysis, the substa,tialquestion of raw is arrswered against the assessee in favourof revenueof revenue 20.In the result, we do not find any merit in this appeal.Accordingly, the same tails arrd is hereby dismissed.Accordingly, the same tails arrd is hereby dismissed. Miscellaneousapplications, if any pending, sha,llstand closed.There shall be no order as to costs. i sdfiq.y.s.s.6.s. M. SATRMA SATRMAJOINT REGISTRAR ,/SECTION OFFICER //TRUE COPY// To, 1The lncome Tax Appellate Tribunal, A Bench, SMC, Hyderabad2The Deputy Commissioner of lncome Tax Circle 6[1], Hyderabad 5One CC to lrlr Y Ratnakar, Advocate 49^rlg 9^9 [to ][Mr.J ] [Prasad, Sr. Standing Counsel for lncome Tax ]DepartmentloPUCl 49^rlg 9^9 [to ][Mr.J ] [Prasad, Sr. Standing Counsel for lncome Tax ]DepartmentloPUCl 5Two CD Copies VA/gh\* HIGH COURT DATED:2211112024 JUDGMENTlTTA.No.171 of 2007 DISMISSING THE ITTA n[z]IAfF(rl-all: { li Lj:L,202{ol"tt. "1t,- \! \\...;, [', ]-J]l_la,. -'"'