Income Tax Appellate Tribunal - Pune
The Nasik Road Deolali Vyapari Sahakari ... vs Assessee on 22 April, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE: SHRI G. S. PANNU, ACCOUNTANT MEMBER
AND
SHRI R.S. PADVEKAR, JUDICIAL MEMBER
ITA No.1499/PN/2011
Assessment Year : 2008-09
The Nashik Road Deolali Jt. Commissioner of Income
Vyapari Sahakari Bank Ltd., Tax, Range-1, Nashik
16, Kalparuksha, Asha Nagar, Vs.
Nashik Road, Nashik
(Appellant) (Respondent)
PAN No.AAAAT4688C
Appellant By: Shri Pramod Shinghate
Respondent By: Shri S. Praveena
Date of hearing : 22-04-2013
Date of pronouncement : 30-05-2013
ORDER
PER R.S. PADVEKAR, JM:-
In this appeal, the assessee has challenged the impugned order of Ld. CIT(A)-I, Nashik dated 27-09-2011 for the A.Y. 2008-09.
2. The first issue is treatment of the profit/gain on sale of the land. This issue arises from Ground nos. 1 to 4. The contention of the assessee is that profit/gain on sale of the plot of land is to be assessed under the Head Capital Gain and cannot be assessed as business income of the assessee's bank. The assessee is the Co-operative Bank. The assessee's bank has purchased a plot of land on 28th March, 2002 for a total consideration of Rs.3,66,69,660/- which was admittedly reflected in the Balance Sheet under the head "Fixed Asset". The said plot was purchased for construction of the building, but due to poor economical conditions, the Board of Directors decided to sale of the same. The assessee credited the profit on sale of the land to the profit and loss account but in computation the assessee separately shown as a Long Term Capital Gain.
2ITA No.1499/PN/2011, The Nashik Road
DeolaliVyapari Sahakari Bank Ltd, Nashik
3. The assessee sold the said plot on 18-01-2008 for the gross sale consideration of Rs.4,44,00,000/-. The assessee declared capital loss of Rs.8,01,303/- after deducting indexed cost of acquisition which is worked out at Rs.4,52,01,303/-. The assessee contended before the Assessing Officer that though the profit realized on the sale of the plot of land was credited to the profit and loss account but it was an investment by the assessee and in the balance sheet also it was grouped under the head Building. The assessee also pleaded before the Assessing Officer that even though in the computation the capital gain/loss and the sale of the said plot was separately worked out and shown but the amount credited to the profit/loss account was not reduced and the same may be reduced. The Assessing Officer has noted that as the gain/loss on the sale of the plot of land cannot be assessed under the Head Capital Gain and hence, there is no question for further reducing the profit included by the assessee in the total income pertaining to sale of the plot of land.
4. In sum and substance, the Assessing Officer rejected the claim of the assessee that profit/gain on sale of the plot is to be assessed under the Head Capital Gain and not as a Business income. The assessee carried the issue before Ld. CIT(A) but without success. The Ld. CIT(A) rejected the claim of the assessee and confirmed the assessment order on this issue.
5. We have heard the parties and perused the record. As per the facts on record, it is seen that the assessee has purchased the plot of land in the Nashik Municipal Corporation area admeasuring total area 11128.56 Sq. Mtrs on 28-03-2002 at the cost of 3,66,69,660/- including stamp duty and registration charges etc. The said plot of land was purchased for construction of Administrative Building (HO) but due to poor economical conditions, the assessee dropped the idea of going with the said project and finally the plot was sold out on 18-01-2008. The 3 ITA No.1499/PN/2011, The Nashik Road DeolaliVyapari Sahakari Bank Ltd, Nashik assessee worked out the Long Term Capital Loss at Rs.8,01,303/- after availing the benefit of indexed cost of acquisition by treating said plot as Long Term Asset which was held for more than 36 months. We find that in the computation statement along with the return of income, the assessee claimed the said plot as Capital Asset but the Assessing Officer treated the same as a Business asset. We fail to understand unless it is a business of assessee to do the trading in the land how the said plot of land can be treated as a part of the business activity of the assessee's Bank.
6. In our opinion, as the facts are clear, atleast Ld. CIT(A) should have taken a correct view by setting aside the assessment order on this point. It is not the case of both the authorities below that the assessee was holding that plot as stock-in-trade. Moreover, the balance sheet filed before us clearly shows that it was shown as a fixed asset. We therefore, hold that gain/loss on the sale of the plot of land is to be assessed under the Head Capital Gain and it cannot be assessed as a part of the profit of the trading activity of the assessee. We therefore allow the ground taken by the assessee and direct the Assessing Officer to assess the gain/loss on the sale of the said plot under the Head Capital Gain.
7. It is also seen that the assessee has included the profit on the sale of the said plot in the profit and loss account. There cannot be double taxation of the same transaction. We therefore direct the Assessing Officer to reduce the element of the profit on sale of the plot from the profits of business of the assessee's Bank. Accordingly, the respective grounds taken by the assessee are allowed.
8. Now the next issue is the claim of the loss of Rs. 22,00,000/- due to embezzlement/cash shortage which pertains to earlier year. The facts 4 ITA No.1499/PN/2011, The Nashik Road DeolaliVyapari Sahakari Bank Ltd, Nashik which are revealed from the record as under. There was misappropriation of cash of Rs.22,00,000/- by Bank staff in the year 2004. The assessee bank registered FIR with the Police by filing the Complaint no. 158 of 2004. The assessee bank also filed the case in the Co-operative Court for recovery of the said amount being Case no. 340/04 on 02-07-2004 and the said case is still pending and amount is not yet recovered. The said amount was reported to the RBI on regular basis. The assessee bank claimed the same as a bad debt during the year. The Assessing Officer referred to the decision of the Hon'ble High Court of Bombay in the case of Associated Banking Corporation of India Ltd. Vs. CIT 40 ITR 210 and as noted by him it is observed that the loss suffered by embezzlement is deductible in the year in which the loss is suffered.
9. The Assessing Officer also noted that the FIR was registered with Police on 17-06-2004 and case for recovery for the ex-employee was filed on 02-07-2004. It is therefore held that loss cannot be allowed as it pertains to the earlier year. The Ld. CIT(A) confirmed the action of the Assessing Officer. The Ld. CIT(A) referred to the CBDT Circular 35-D (XLPVII-20) (F.No. 10/48/65/-IT(A-I) dated 24-11-1965. The Ld. CIT(A) confirmed the disallowance made by the Assessing Officer. Now the assessee is in appeal before us.
10. We have heard the rival submissions of the parties and perused the record. So far as the allowability of loss on embezzlement it is not the issue before us. The only issue is relating to the year in which the said loss is to be allowed. Both the authorities below held that the assessee filed the FIR on 17-06-2004 and also filed case/suit for recovering the said amount against the concerned employee being case no. 340/04 dated 02-07-2004 and hence, in this year nothing has further happened as the assessee could claim the loss. The only reason 5 ITA No.1499/PN/2011, The Nashik Road DeolaliVyapari Sahakari Bank Ltd, Nashik given by the assessee for claiming the loss is that till 2007 the said amount was shown in the sundry debtors and as per the direction of the RBI the amount was transferred to provision for bad and doubtful debts.
11. In the case of Bombay Forgings Pvt. Ltd. Vs. CIT 206 ITR 562 (Bom) the Hon'ble High Court of Bombay has considered when the loss from the embezzlement can be allowed. In the said case the assessment year involved was 1975-76. In the year 1976, the said assessee suspected the commission of a fraud by two of its principal officers. The matter was referred to a Detective Agency which submitted its report in the February, 1977. It was found that during the relevant previous year these employees had embezzled or misappropriated goods worth Rs.6,54,777/-. It was done by manipulating the accounts and as a result, the aforesaid goods were neither reflected in the closing stock nor as goods in transit. The said fact was came to the notice of the management but only after the appointment of the Detective Agency which submitted its report in February, 1977 and confirmed the fact of the embezzlement in the previous year. The total loss by embezzlement was determined at Rs.9,07,230/- out of which the embezzlement to the extent of Rs.6,54,777/- related to the A.Y. 1975-76. The Assessing Officer made the addition in A.Y. 1975-76 to the extent of Rs.6,54,777/- on the reason that loss was not detected in that year but there was only suspicion in the background of these facts. Their Lordships held that as per the admitted position, the embezzlement had taken place during the relevant previous year and the same was dully reflected in the books of account by omission of the value of such goods from the sales as well as the closing stock while preparing the final account and in such situation even if the detection would subsequently but the loss was allowed in the year in which embezzlement is actually happened.
6ITA No.1499/PN/2011, The Nashik Road
DeolaliVyapari Sahakari Bank Ltd, Nashik
12. We also find that the CBDT also issued a circular being Circular No. 35/D(XLVII-20)(F. No.10/48/65 IT (A1) dated 24-11-1965 and as per the said circular the loss of embezzlement by the employee is allowable as relating to incidental to the business and the said loss should be allowed as deduction in the year in which it is discovered. Nothing has been placed before us to show why the loss was claimed in the A.Y. 2008-09 when the said loss was detected in the previous year 2004. In our opinion, no interference is called for in the order of Ld. CIT(A) on this issue. Accordingly the same is confirmed.
13. In the result, the assessee's appeal is partly allowed.
Pronounced in the open Court on 30-05-2013
Sd/- Sd/-
(G.S. PANNU) (R.S. PADVEKAR)
ACCOUNTANT MEMBER JUDICIAL MEMBER
RK/PS
Pune, Dated: 30th May, 2013
Copy to
1 Assessee
2 Department
3 The CIT(A)-I, Nashik
4 The CIT-I, Nashik
5 The DR, ITAT,"B" Bench, Pune.
6 Guard file.
//True Copy//
By Order
Private Secretary
Income Tax Appellate Tribunal
Pune