Madras High Court
Express Newspapers Ltd. vs Deputy Commissioner Of Income-Tax. on 31 January, 1997
Equivalent citations: (1997)59TTJ(MAD)516
ORDER
C. L. BOKOLIA, A.M. :
This appeal is preferred against the order passed by the CIT(A). The assessee in this appeal has taken various grounds which are being discussed and decided on merits.
Loss from Potato Division
2. The first ground of appeal relates to non-allowance of loss suffered by the assessee from potato business, amounting to Rs. 74,65,319. The details of this ground of appeal is discussed in detail at pp. 5 to 32 of the assessment order. The assessee has preferred appeal against this ground of appeal and the statement of facts are reproduced at pp. 15 to 22 of the statement of facts before the CIT(A) and the CIT(A) has decided this ground of appeal in his order, discussing the details at paras 22 to 54 at pp. 24 to 52.
3. On the basis of discussions with one Shri Gopal Agarwal of Calcutta who happens to be the Director of Navin Cold Storage (P) Ltd. and Nirmal & Navin (P) Ltd., handling the business of sale and purchase of potatoes depicted a rosy picture, an understanding was reached between the assessee and Shri Gopal Agarwal for carrying on the business of potatoes wherein Shri Gopal Agarwal would act as the agent of the assessee in the business for which Shri Gopal Agarwal was paid a sales commission of Rs. 1,15,510.68 and a storage charge of Rs. 21,29,710. Shri Gopal Agarwal was authorised to buy potatoes, store and sell them on behalf of the assessee. Shri Gopal Agarwal was to maintain proper records both for the purchase and sales of potatoes, the names of the seller, buyer, quantity and price. All the payments and receipts by Shri Gopal Agarwal should be made only by cheques/demand drafts. The contracts for purchase of potatoes were entered into on 17th October, 1984, and the list of the persons, the quantity and the consideration for the purchase as well as sales are available at pp. 6A and 6B of the assessment order itself.
4. The total amount spent for the purchase of potatoes during the accounting period was Rs. 1.51 crores. There was a sudden crash in the prices of potatoes in mid-November, 1984, and the sluggish condition continued till February, 1985. The assessee, therefore, had to sell the potatoes at a loss, whereby the assessee incurred a loss of Rs. 74.65 lakhs. The AO did not accept the loss and proceeded to make enquiries. He also recorded statements from the sellers of potatoes, Shri Gopal Agarwal and others and the conclusions derived are summarised below :
(i) The alleged agreements for purchase between Shri Gopal Agarwal and sellers are false because the signatures of the sellers have been forged by Mr. Agarwal.
(ii) The sellers are either not traceable or even if traced, had denied the sales.
(iii) Potatoes are claimed to have been stored at a time when the cold storages had to remain closed under the Cold Storage Act.
(iv) The signatures of the so-called sellers appearing on the cheques (issued to them towards the price of potatoes purchased from them) while encashing them and the sworn deposition given by them before the Department do not tally. To enable the sellers to encash their cheques, Shri Gopal Agarwal had attested the signatures of the purchasers, because he knew them. That being so, the appearance of different signatures of the same person at different places is inexplicable.
(v) Shri Gopal Agarwal was a man of questionable character and had cheated Union Bank of India, other financial institutions and the Government of West Bengal by claiming subsidy.
(vi) Shri Gopal Agarwal did not produce the books of accounts of Nirmal & Navin (P) Ltd. Only the ledger and cash book of Navin Cold Storage was produced and there are various discrepancies in the accounts.
(vii) Though Shri Gopal Agarwal had stated that prices of potatoes had crashed following the assassination of the Prime Minister, Mrs. Indira Gandhi, he had painted different picture to his bankers.
(viii) Shri Gopal Agarwal had stated that he was incharge of the operations, yet he averred that only the assessee knew why it incurred a loss.
(ix) The money transactions relating to the dealing in potatoes was circular in character and, therefore, unbelievable.
(x) All the concerned bank accounts had been opened with a single branch, viz., the Burra Bazaar Branch of the Catholic Syrian Bank, that too on the introduction given by the appellant.
(xi) One of the accounts stands in the name of one K. K. Sukhani who was a hawala operator. Another account stands in the name of Jethmull Chogmull, a proprietary concern of the said Sukhani.
(xii) There was a definite link between the cash withdrawn by the alleged sellers of potatoes and cash deposits in the bank accounts of the said Sukhani and his proprietary concern.
(xiii) A part of the money required for purchasing potatoes was obtained by the appellant from Trades & Services - a concern closely associated with the Express Group. In its turn, Trades & Services had borrowed money from the said Sukhani and his proprietary concern.
(xiv) Such circular cash flow was also noticed in relation to the sale of potatoes allegedly effected by the appellant. There was a definite link between the repayment of the loan by ENP to its creditors (Trades & Services and NPBS Ltd.) and the receipt of the sale consideration for potatoes from the buyers and thus the transactions are circular in nature.
In view of the above, the AO held that the loss was not genuine and disallowed the same.
5. Before the CIT(A), the assessee submitted that :
(i) Payments to Shri Gopal Agarwal were by account payee cheques.
(ii) Shri Gopal Agarwal had admitted the receipt of the money.
(iii) The source for the payments was fully explained.
(iv) The appellant never dealt with any of the sellers directly but was operating only through Shri Gopal Agarwal. Therefore, the denial of the sellers cannot lead to an adverse inference against the assessee. The sellers might have been shy of any close investigation into their affairs.
(v) Shri Gopal Agarwal had deposed that loss had ensued. But the AO had read the answer of Shri Gopal Agarwal in isolation to come to the conclusion that Mr. Gopal Agarwal had stated that only the assessee knew why it incurred the loss.
(vi) Shri Agarwal might have adopted sharp practices against the appellant too.
(vii) Shri K. K. Sukhani was financially sound enough. His other activities should not throw suspicion on the genuineness of the transactions of the appellant.
(viii) Even assuming that the appellant was imprudent, still the loss was allowable.
The CIT(A) decided this issue against the appellant. The reasons given by him in this regard in the opinion of the learned counsel for the assessee are, nothing but an improved version of the AOs findings.
6. Shri Ramachandran, the learned authorised representative of the assessee submits before us that :
(i) As already urged before the lower authorities, the assessee started to deal in potato because it was given to understand by Gopal Agarwal that the market for potatoes was good. What was more it asked Gopal Agarwal to act as its agent. Gopal Agarwal was not a man of straw. He had been controlling two cold storages for more than two decades at the relevant point of time. Both he and the two companies controlled by him are income-tax assessees. Thus, the identity of the assessees agent had been established.
(ii) The transactions relating to both the purchase and sale of potatoes were put through the said Gopal Agarwal who acted as the assessees agent. The Department has recorded statements from certain sellers of the potatoes and buyers. The AO has stated that the signature found in the statements and on the reverse of the cheques do not tally. Some of the deponents signed in Bengali whereas the signatures on the reverse of the cheques are in English. However, the AO failed to compare the signatures on the cheques with that of the agreement. If the AO had chosen to get hold of a wrong person, it is quite natural that the signatures on the reverse of the cheques would not tally. In this connection it is pertinent to note that the only person who could identify the sellers/buyers of potatoes is Gopal Agarwal. The identification has not been done in his presence. It is relevant to note answers to question Nos. 25 and 26 put to Gopal Agarwal at p. 1839 at paper-book No. VII.
(iii) The money part of the transactions relating to both the purchase and the sale of potatoes were effected only through banking channels.
(iv) Gopal Agarwal had nowhere denied the said facts. Yet, the AO wrongly disbelieved the major role played by Gopal Agarwal. In this regard he had placed reliance on Gopal Agarwals answers to question Nos. 87 and 88.
(v) Thus, the assessee had clearly proved the source. It was not for the assessee to prove the source of source.
(vi) The so-called discrepancies relied upon by the lower authorities only go to show that Gopal Agarwal, had cheated appellant by inflating the purchase price and by deflating the sale price. Since admittedly Gopal Agarwal had been in the cold storage business for over two decades at the relevant point of time, he could well have passed of his own potatoes as that of others.
7. To elaborate, since at a given point of time, the stock of potatoes belonging to many persons are kept stored in the cold storage, and since the owners of potatoes do not take delivery of the potatoes all simultaneously and in a single day, Gopal Agarwal could easily have sold the potatoes to the appellant when the price was high and purchased the same goods from the assessee when the price was low, all the while making it appear as though he was making purchases/sales on behalf of the assessee from third parties. Since he was unauthorisedly selling potatoes belonging to others he would naturally use fictitious names to record purchases/sales. Further, he could have used potatoes over which he had a lien in his capacity as the bailee.
8. Before the CIT(A); the assessee contended that the agent, Shri Gopal Agarwal, might have adopted sharp practices against the assessee and in the process the assessee had been cheated. This contention has not been considered by the CIT(A). The AO as well as the CIT(A) have elaborated how Gopal Agarwal had cheated various banks and the State financial institutions. If that was the fate of the governmental agencies operating in Calcutta itself, it was contended by the learned counsel for the assessee that, why could he not adopt the same tactics with the assessee. The lower authorities have further cited certain instances where instead of paying the sellers, he had diverted the money to people who are his close associates. This would only support the case of the assessee not the Department.
9. The learned counsel for the assessee also contended that in deed, the more the assessee thought over the matter the more the assessee was satisfied that it had been cheated by Gopal Agarwal. It, therefore, filed a suit vide C.S. No. 88 of 89 in the Calcutta High Court against the cold storages controlled by Gopal Agarwal, claiming Rs. 1,47,20,165. The High Court of Calcutta was pleased to pass a preliminary decree on 10th July, 1990, which is placed at p. 1,422 of paper-book No. VI, directing Nirmal & Navin (P) Ltd., to pay Rs. 45 lakhs and Navin Cold Storage (P) Ltd., a sum of Rs. 35 lakhs. The rest of the claim was directed to be adjusted at the time of trial of the suit. These facts and materials were before the Settlement Commission, when in May, 1990, it passed an order allowing the settlement application filed by the assessee to be proceeded with. The assessee had already taken steps for execution of the preliminary decree and for adjudication of the balance claim amount.
10. It was further highlighted by the learned counsel for the assessee that the preliminary decree in an aggregate sum of Rs. 80 lakhs came to be given on the basis of admission of Gopal Agarwal. What is more till date Gopal Agarwal had not challenged the decree. The learned counsel for the assessee further submits that the two cold storages filed settlement applications before the Settlement Commission and the Settlement Commission was pleased to admit the applications under s. 245D(1) of the IT Act by its order dt. 24th June, 1988, in the case of Cold Storages (P) Ltd., and order dt. 14th July, 1988, in the case of Nirmal & Navin (P) Ltd., which are available at pp. 848 and 850 of paper-book No. IV. In the said applications, the Cold Storages have in terms admitted that they had cheated the assessee. These vital facts have been ignored by the CIT(A). The learned counsel also invited our attention to the fact that the Department had launched prosecution proceedings against the assessee, its directors and Gopal Agarwal. Gopal Agarwal filed an application before the trial court, i.e., magistrate, explaining how he had cheated the assessee and prayed for necessary orders for discharge of the accused, viz., Express Newspapers and its directors. The said application is placed at pp. 1195 to 1211 of paper-book No. V. It was, therefore, contended that Gopal Agarwals idea was that he being the perpetrator of the fraud, the assessee and its directors should not be penalised. It was also submitted that though the assessees counsel contended before the CIT(A) that the sellers and buyers of potatoes might have avoided a close scrutiny of their affairs, the CIT(A) had merely stated that it does not hold water since the assessee had not proved the purchases and sales. It was contended by the assessees counsel that it shows non-application of mind by the CIT(A) and submitted that the CIT(A) ought to have seen that this possibility cannot be ruled out totally when we find that some of the buyers and sellers are close associates of Gopal Agarwal who have borrowed huge amounts from financial institutions.
11. It was further submitted by the assessees counsel that the lower authorities have observed that normally between November and February, the cold storages are closed and, therefore, these transactions could not have taken place. However, they have not introduced any evidence to prove even prima facie that the cold storages were closed during this period. Mere assumptions cannot decide an issue. In fact, when Mr. Ravi Shankar Agarwal was examined, he stated that the cold storages worked during this period and that he got evidence to prove the said fact. This averment had not been controverted. It was stated that the lower authorities have stated that the assessee had taken a plunge into this venture imprudently and, therefore, the loss was in the nature of speculation. It was also submitted that the profit of a business is the reward for risk taking. Even the loss occasioned by an imprudent venture was loss in the eye of law and cannot, therefore, be ignored. The learned counsel for the assessee placed reliance on the decision of the Supreme Court in the case of CIT vs. Dhanarajgiri (1973) 91 ITR 544 (SC), the decision of the Gauhati High Court in the case of Narasingdas Suraj Mal Properties (P) Ltd. vs. CIT (1987) 127 ITR 221 (Gau) and the decision of the Orissa High Court in the case of CIT vs. Belpahar Refractories Ltd. (1981) 128 ITR 610 (Ori).
12. It was the contention of the learned counsel for the assessee that in coming to the conclusion that the loss incurred by the assessee in purchase and sale of potatoes was only bogus, the AO was influenced by his own consideration that the transactions with Trades & Services were bogus. In this regard, he had made the following points :
(i) The so-called borrowals made by the assessee from Trades & Services are traceable to the loans allegedly taken by the said Trades & Services from K. K. Sukhani who was a hawala dealer and his proprietary concern Jethmull Chogmull.
(ii) The monetary transactions relating to the said parties are circular in nature.
(iii) The circular transactions were facilitated by opening 4 bank accounts, all in the Burra Bazaar branch of the Catholic Syrian Bank.
13. In this connection the assessees counsel submits that the assessee had borrowed money for potato dealings not only from Trades & Services but also from the following parties :
Rs.
I.E. Newspaper (Madurai) (P) Ltd.
46,50,000 Nariman Point B. S. & T. P. Ltd.
31,61,000 Trades & Services 72,89,000 It is pointed out that the lower authorities have not doubted the genuineness of the borrowings. It is a matter of record that the borrowed money from the above concerns was also used for financing potato purchases. Hence, it was contended, that the AO was not justified in disallowing the entire loss of Rs. 74.65 lakhs arising out of potato dealings, simply because he doubted the genuineness of the borrowings from Trades & Services. It is further added that the AO had not controverted the fact that the assessee had borrowed from Trades & Services. The assessee has discharged his onus of proving the borrowals from Trades & Services since the sums were paid through account payee cheques. It was also submitted that the AO relied on immaterial considerations and mere conjectures while doubting the source of the source.
14. The learned counsel for the assessee submits that the bank accounts referred to above have been opened in the Burra Bazaar branch of the Catholic Syrian Bank just for business convenience. Similarly, the allegation that the money transactions were circular in nature was incorrect for the reason that the transaction was lienear in nature and only cases where the purchases are financed entirely out of own funds of businessman. But the stark reality of business is that large scale investments are not possible without borrowed funds. Therefore, when purchases are financed by borrowed funds, the money flows from the lender or through the businessmen. When sales are affected, sales consideration will pass in the reverse direction from the purchaser of the goods either directly to the lender or through the businessman indirectly. Therefore, nothing turns to on the circular nature of the transaction.
15. It was also contended that much had been made by the AO of the fact that the money lent to the assessee by Trades & Services came out of the money borrowed by Trades & Services in its turn from Sukhani, the hawala dealer. It was submitted that Sukhani was not a hundi dealer. May be he has indulged in sharp transactions with regard to s. 35CCA matters. But, it is a matter of record that the said Sukhani and his proprietary concern were controlling large sums of money. Even the commission charged by them on the accommodation entries made in relation to s. 35CCA matters was large enough to enable them to advance monies to Trades & Services. It is noteworthy that at the relevant point of time, the net assets of Sukhani was in the neighbourhood of Rs. 55 lakhs. Our attention was also drawn to a letter dt. 1st February, 1988, written by Trades & Services which is placed at p. 1767 of paper-book VII, enclosing the relevant extracts from a book "The Marwaris" wherein it is stated that the family of K. K. Sukhani were financiers for a long time right from 1845. The letter dt. 2nd February, 1988, written by Trades & Services shows that Sukhani is a man of substantial means. The assessee, though is not obliged to prove the source of source, in this case, the source of source had also been shown to be in possession of funds large enough to lend to Trades & Services. It was further submitted that the fact that Sukhani was a hawala dealer in relation to s. 35CCA cannot entail the AO to reject the potato loss claimed by the assessee. This apart, the assessee is also supported by legal position. Simply because a particular person admitted himself to be a hawala dealer, the AO cannot brand everyone whose names appear in the books of the hawala dealer, have actually indulged in hawala transactions. In other words, a general confession by the hawala dealer cannot be used as a brush to tar all the clients. In support of this contention, the assessees counsel relies on the decision of the High Court in the case of M. Varadharajulu vs. ITO (1974) 97 ITR 476 (Mad) wherein the High Court has held, that unless a person identifies that he had hawala transactions specifically with a particular person, the AO would not be entitled to use his statement.
16. In the assessees case, Sukhani had nowhere said that he had accommodated Trades & Services, not to speak of the appellant. On the contrary, in answer to question No. 33 at p. 1684 of paper-book VII, Sukhani had clearly stated that "I had withdrawn money in cash within two or three days of deposit, as I was using that money for my benefit. I had given temporary loan to some persons and I was getting interest sometimes". The AO, however, rejected this statement outright which shows that there was nothing wrong even about the source of source. The assessee submits that the lower authorities were moved by the totally irrelevant consideration that K. K. Sukhani was indulging in racket in matters relating to s. 35CCA. The question was not whether Sukhani was justified morally or otherwise. What was relevant was whether Sukhani was in a position to lend money to Trades & Services.
17. Apart from the above, the assessee contends that there are vital missing links in the circular nature of the transactions as visualised by the lower authorities. For example, on the top of pp. 15 and 16 of the assessment order, the AO states that cash obtained by encashing the bearer cheques issued to the parties (sellers of potatoes) have been deposited into the bank accounts of K. K. Sukhani & Jethmull Chogmull. The basis on which the AO drew this conclusion is not clear. There are only two people who could be able to answer. One is Sukhani and the other is the banker. Though the banker has been examined more than once by the AO, nothing tangible transpired to establish this surmise. Thus, there is a vital missing link in the chain propounded by the CIT(A) at p. 44 of his order. The assumption of the lower authorities that the amounts withdrawn by the potato sellers came to be deposited in the accounts of K. K. Sukhani and Jethmull Chogmull remains a suspicion or a surmise.
18. It was further contended by the assessees counsel that may be on the date on which the seller of potatoes encashed the cheques issued to them there were credits in the bank accounts of K. K. Sukhani & Jethmull Chogmull. The mere fact that the cash withdrawals by the sellers of potatoes and deposits in the bank accounts of K. K. Sukhani and Jethmull Chogmull have taken place on the same day can only be said to be a matter of coincidence. Such coincidence is not enough to take a decision against the appellant. It is necessary to establish with the help of acceptable proof that the very same money withdrawn by the sellers came to deposited in the accounts of K. K. Sukhani and Jethmull Chogmull. The lower authorities have not brought on record any evidence to come to the conclusion. This is the position with regard to other deposits also. The assessee further submits that the lower authorities have fared no better in challenging the genuineness of the sales of potatoes effected by the appellant. As pointed out earlier, potatoes were sold only through the appellants agent Gopal Agarwal. As already pointed out, again Gopal Agarwal cheated the appellant by selling potatoes at low prices to persons known to him or to his nominees. Even in relation to the so-called circular monetary transactions relating to sales, the vital link between the sales proceeds of potatoes on the one hand and the money available with K. K. Sukhani and his proprietary concern on the other hand was totally missing. Again, as in the case of purchase of potatoes so in the case of sale of potatoes, the lower authorities have been influenced almost exclusively by the irrelevant consideration that K. K. Sukhani was a hawala dealer in matters relating to s. 35CCA. Here again the assumption on which the AO has proceeded and the CIT(A) has propounded a circle at p. 48 of his order is that the money withdrawn by K. K. Sukhani, Jethmull Chogmull and Swastik enterprises gets converted into pay orders in favour of the assessee as sales proceeds of potatoes. There is absolutely no evidence to support this. The only circumstances which the Department presses into service is that the accounts of K. K. Sukhani of Jethmull Chogmull and that of the assessee are in the same bank.
19. The assessees counsel invited our attention to the answer to question No. 76 put to Gopal Agarwal seen at p. 1846 of paper-book No. VII which is reproduced below :
"Did you instruct the parties to take D.D. in particular bank ? We instruct them to take demand draft in favour of Catholic Syrian Bank Ltd., account Express Newspapers Ltd. But we did not ask them to go to a particular bank to get demand drafts. It was left to them."
It was contended that if the buyers of potatoes have chosen to take demand drafts in one particular bank, it can only be viewed as a matter of convenience. Our attention was also drawn to the fact that the amounts for purchase of potatoes represented borrowing from Nariman Point Building Services and Trading (P) Ltd., and Indian Express (Bombay) (P) Ltd. and the repayment of the amounts previously lent to Trades & Services. All the three accounts got reduced to nil balance in the end of the year. These facts have been placed before the CIT(A). Thus, the allegation of the Department that the money comes back to the appellant at both the stages, i.e., purchases as well as sales in totally unfounded and this allegation has been rendered ignoring the account copies given at p. 18 of the statement of facts.
20. Finally, the assessee contends that the power authorities have not proved that the purchases and sales and the related money transaction taken separately were bogus. In particular, the lower authorities have not proved first that the funds deployed by the assessee to make purchases came back to the assessee as expeditiously as possible. Similarly, the lower authorities have not proved that it was the assessees funds that came back to it in the guise of not sale proceeds. The main source of income of the assessee is income from three properties at Madras, Bombay and Delhi. Thus, the assessee is getting fixed income. The Department has alleged that the assessee had generated bogus loss to reduce property income. This allegation is totally unfounded. Normally the practice of buying losses is resorted to only in the fag end of the accounting year or when there is a sudden spurt in the profits or when there is a windfall. This is not the case here. The contracts for purchases were entered into as early as in October, 1984, and the payment for the purchases started in November, 1984. The payment have all been made by account payee cheques. Then, the transactions are contemporaneous. Thus, the reliance placed by the CIT(A) on the decision of the Supreme Court in the case of Mc Dowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 is totally unwarranted.
21. Shri Subramanian, the learned senior standing counsel for the Department, on the other hand, submitted that the assessee has failed to discharge the primary onus in regard to purchase and sale of potatoes and the loss arising in its transaction has not been fully established. It is also submitted that purchase and sales have taken place when the cold storages ought to be closed under the relevant legislation and that the assessees own money was circulated twice, once at the time of purchase of potatoes and again at the time of sales of potatoes. It is also submitted by the learned senior standing counsel that the Department has established beyond doubt that the assessees money has come back to it. While making these contentions, the learned senior standing counsel has extensively used relevant part of the order passed by the CIT(A) and tried to prove that :
(a) the purchase of potatoes have not been proved;
(b) the loss said to have arisen in this transaction has not been established;
(c) purchases and sales have taken place when the cold storages ought to have been closed under the relevant legislation;
(d) the assessees own money is circulated twice, once at the time of purchase of potatoes and again at the time of sales of potatoes; and
(e) the Department has established beyond any doubt that the assessees money has come back to it.
22. Shri Ramachandran, the learned counsel for the assessee, submitted that the submission of the learned senior standing counsel for the Department that the assessee is not doing any business is a wild imagination. The Department itself has admitted that the assessee has been doing business in purchase and sale of shares even in the earlier years. Further, the assessee has been turning a publication division this year and the earlier years. Hence, there was and there can be no intention to create business loss to set off the other income. In the course of the assessment, the AO wanted the assessee to file separate working result of each Division. Since, a consolidated P&L a/c was prepared by the assessee, it expressed its inability to do so. However, subsequently such working was made and only on that basis the AO has segregated the loss from the each of the Divisions and disallowed certain losses. This, by no stretch of imagination, could lead to the conclusion that no accounts are maintained. In fact, the learned senior standing counsel for the Department forgot the fact that the accounts of the assessee had been audited and an audit report had been filed. It was also submitted that the arguments of the Department that the assessees own money is circulated and that the transactions are circular in nature have already been met and that the money had been lost irretrievably by the assessee and it has not come back to it. It is true that it is the burden of the assessee to prove the loss. This has been discharged by the assessee as contended by the assessees counsel. As regards the cold storage in operation the assessees counsel submitted that he has already submitted that the cold storages in fact worked during November to February. The learned senior standing counsel for the Department, has however, failed to produce the relevant legislation which prohibits the working of the cold storages during November to February.
23. At the end of the hearing, the learned senior standing counsel for the Department produced two orders of the Settlement Commission passed under s. 245D(4) of the IT Act, one in the case of Naveen Cold Storage and the other in the case of Nirmal & Nervin (P) Ltd. The learned counsel for the assessee, however, objected the admission of these evidences for the following reasons :
1. No additional document could be entertained unless the person seeking to produce the same convinces the Tribunal the reasons why it should be admitted. Neither any application for admission of additional evidence had been filed nor even a oral prayer indicating the reasons was made.
2. The order of the Settlement Commission proceeds various correspondence and various documents with the assessee. Hence, unless the background of the order is known, nobody would be in a position to appreciate the order of the Settlement Commission.
3. The proceedings before the Settlement Commission are not public and nobody is entitled to inspect the documents of the Settlement Commission without the permission of the Commission.
24. The learned senior standing counsel for the Department submitted that both the cold storages have withdrawn the income offered originally in the statement of fact, viz., the income earned cheating Express Newspaper, the assessee and this has been accepted by the Commission. He also relied on certain observations made by the Commission to the effect that the transactions in potatoes between Gopal Agarwal and the assessee is bogus. The assessee submits that any observation made by the Commission behind the back cannot be used against the assessee. This is the well settled legal position. Nobody should be condemned unheard. The assessee further submits that the income originally offered by the cold storage has been capitalised in the books of accounts as per its own admission. There are various other evidence to support the stand originally taken by Gopal Agarwal. It was submitted that Gopal Agarwal himself admitted a liability of Rs. 80,00,000 when suit was filed by the assessee. He also filed an application before the Magistrate to discharge the assessee and its directors. It was submitted that it is pertinent to note that the settlement applications were filed by the cold storage very much earlier in point of time to that of the assessment in May, 1988 when the assessee did not even contemplated filing of any settlement application. The unilateral withdrawal of offer originally made that too after almost 7 years on the flimsy ground that it is the money he earned by cheating the financial institution which could not be used against the appellant. It is very difficult to comprehend how an income could be earned by taking loans fraudulently from the financial institutions. It was further submitted that, Gopal Agarwal got away by playing fraud even on the Settlement Commission. Hence, it was submitted that the order of the Settlement Commission does not have any relevance nor does it advance the case of the Department. Therefore, the additional evidence filed by the Department is liable to be rejected.
25. We have gone through all the relevant facts and arguments of the rival parties in regard to the loss suffered by the assessee on potatoes business. It is an accepted fact that for doing potato business the assessee engaged Shri Gopal Agarwal for sale and purchase of the potatoes. Gopal Agarwal was interrogated on oath by the Department and Shri Gopal Agarwal had accepted this fact. Shri Gopal Agarwal has received commission as well as storage charges which is not also disputed by the Department. The fact that Gopal Agarwal approached the Settlement Commission and filed a petition is also established and the withdrawal of petition on doubtful and debatable submissions is also a fact on record. The assessee sued Shri Gopal Agarwal in the Court of law and obtained a decree for Rs. 80 lakhs is also beyond doubt. In the prosecution proceedings, Shri Gopal Agarwal submitted before the magistrate that he or his institutions have tried to cheat the assessee is also borne out from records. All sales and purchase works have been done by Gopal Agarwal. Agreements with purchasers and sellers of potatoes have also been made by Gopal Agarwal. It is only Shri Gopal Agarwal who can identify the respective traders to whom the amount was paid through bearer or account payee cheques. The Department has not questioned Gopal Agarwal or examined the various purchasers and sellers of potatoes in the presence of Gopal Agarwal and, therefore, the parties examined by the Departmental Officer are not free from doubt. The signatures of the sellers and purchasers could be tallied with the signatures available on agreements and only then the fact whether the cheques were issued to the same parties or not could be established.
26. In regard to the objection of employment of funds are circulatory in nature, it is observed that in the type of business and the peculiar circumstances, this cannot be totally refuted. Besides this, the loan obtained by the assessee has not been doubted at any stage by the Department. The loan amount has come through account payee cheques and/or through bank drafts. The Department has failed to establish non-genuineness of any credits obtained by the assessee whether it is from IE Newspaper (Madurai) (P) Ltd. - Rs. 46,50,000, Nariman Point B.S. and T.P. Ltd. - Rs. 31,61,000 or Trades & Services - Rs. 72,89,000.
Nowhere in the assessment order it has been mentioned or proved that the loans obtained by the assessee is not genuine or not proved genuine, nor it is apparent from the assessment order that the AO of these parties were informed for conducting necessary enquiries on this account. Nor the AO has enquired about the source of these funds. Similarly, in the case of K. K. Sukhani or his proprietary concern this basic issue was raised by the AO. It is also observed that the assessee had produced all the relevant documents which were impounded by the Department as and when produced and that these documents at no stage were objected to by the Department or proved to be wrong. Under the circumstances, we fail to understand as to how the Department can say that the loans obtained was from hawala conductors. If the loans are proved to be not genuine, the conclusions drawn by the AO on this account are baseless.
27. After examining the full facts, we are of the opinion that the objections raised by the learned senior standing counsel for the Department have been clearly met by the learned counsel for the assessee. We are, therefore, of the opinion that the disallowance of the loss suffered by the assessee on account of business transactions on potatoes is not proper. This loss is held as suffered in the normal course of business activities and, therefore, to be allowed.
Loss in shares and securities
28. The next ground of appeal is regarding non-allowance of loss suffered by the assessee in shares and securities. The details of this ground of appeal are discussed in pp. 32 to 38 of the assessment order. The assessees statement of facts before the CIT(A) on this ground of appeal are at pp. 23 to 26 of the order of the CIT(A). The CIT(A) decided this ground of appeal in his order vide pp. 55 to 61. In this connection, the learned counsel for the assessee submits that the transactions relating to both purchase and sale of shares were one at arms length, that is to say, that the transactions were entered into not with any concern belonging to the Express Group but only with brokers. While purchasing shares or as the case may be selling them, delivery of the shares was taken/given along with share transfer forms as required in law. For a fact, delivery was taken/given by the assessees bank which also acted as the custodian of the shares during the interval between the date of purchase and date of sale. The prescribed charges were also paid to the bank for the services rendered by it. Thus, the purchase or sale of shares was completed in law. The money part of the transactions was all done through banking channels. The lower authorities have doubted the genuineness of the transactions for the reason inter alia that there was a long gap between the date of contract for purchase of shares and the date on which the shares were delivered.
29. It was further contended by the assessee that nothing turns on this aspect of the matter when orders are placed on the brokers for purchasing large quantities of shares it is but natural that the brokers take time to buy the required number of shares. The thrust of the arguments of the lower authorities is that the purchase contracts were back-dated. In this regard the lower authorities have sought to place reliance on the fact that in some cases, corresponding entries are not to be found in the Sauda Bahi of the brokers. The assessee also submits that the lower authorities have not brought on record any evidence to show that the contracts were back-dated. Further, the fault or default on the part of the brokers to make necessary entries in the Sauda Bahi cannot be used against the assessee. This is particularly so, when as pointed out earlier, delivery of shares purchased was taken by the assessees bank and the purchases were paid for through banking channels. One of the points made in this regard by the lower authorities was that according to the stock exchange regulations, scripts contracted to be purchased must be delivered within 15 days of the contract. However, the assessee is not aware of any such regulations of the Calcutta Stock Exchange nor has the CIT(A) cited the relevant regulation. In cases of actual purchase of shares, the normal practice is to await delivery of shares till the book closure date. It is only thereafter that the intending purchaser moves the stock exchange authorities either for arbitration of the matter or for arranging delivery of shares by purchasing them in auction. Our attention was also drawn to the answer given by Sushil Kumar Kayan to question Nos. 15, 16 and 17 placed at p. 894 of the paper-book No. IV.
30. It was also submitted that even if the shares are delivered after the book closure date, the brokers ensure that the benefits which accrue to the registered shareholder always reach the person who had entered into a contract for purchase of shares before the book closure date. The lower authorities have doubted the genuineness of the transactions because, according to them, the shares purchased by the assessee were sold immediately thereafter. Nothing turns on this aspect of the matter too. Clearly, the assessee is the best judge of the timing of purchase and sale of shares. In the instant case, the assessee sold the shares immediately with a view to minimise loss. Much has been made by the lower authorities of the fact that the person from whom the shares were purchased by the assessee, and the person to whom the shares came to be sold ultimately by the assessee was one and the same. The assessee submits that this view of the lower authorities is based on an incorrect appreciation of the share market. It is well known that orders for purchase/sale of shares are placed only on the authorised brokers. In their turn, the brokers purchase/sell shares from/to jobbers. There is no direct contact between the intending purchaser and the intending seller. If a person who sold particular shares happens to purchase the same set of shares, the matter can only be viewed as coincidence. Further, it is not uncommon for investors to sell shares of a particular company at a particular point of time and buy the shares of the same company some time later. Particularly, in a falling market same set of shares at the following market.
31. As in the case of transactions in potatoes, so in the case of transactions in shares, the assessee had utilised the money borrowed from Trades & Services and NPBS. As in the case of potatoes, so in the case of shares, the lower authorities have doubted the money transactions with Trades and Services, but they have not found fault with the transaction with NPBS. Even as regards the transactions with Trades & Services, the assessees contention is that the money transactions with Trades & Services are genuine.
32. It was submitted that the AOs view that all the transactions in shares were speculative in nature is without substance, especially in view of the fact that delivery of shares was taken or given as the case may be along with share transfer forms, and this fact has not been controverted by the AO. As in the case of potato transactions, in this case also, the lower authorities have given an adverse finding because money transactions are circular. As already pointed out while dealing with potatoes, nothing turns on circular nature of the money transaction. The assessee further submits that the conclusion of the CIT(A) that the assessee had circulated its own money is totally without basis. Not an iota of evidence has been brought on record by the lower authorities in this regard. In particular, it had not been shown that the money paid by the assessee to purchase shares came back to it immediately. Nor had it been shown with appropriate evidence that the sale consideration received by the appellant represented its own money which had earlier been clandestinely placed with the broker.
33. The CIT(A) has further observed that no material had been placed before him to substantiate that only due to financial constraints the delivery of the scrips was not taken. The CIT(A) himself had observed while dealing with potato loss that the assessee had borrowed huge money from others. Further, a sum of Rs. 1.51 crores had already been invested in potatoes transaction naturally there would be a fund constraint. Though this plea was raised before the AO, never did he disprove the same. That being so, the observation by the CIT(A) is unfounded. In any event, the observation had been recorded without calling upon the assessee to prove the statement.
34. The learned senior standing counsel again relied on the information based by the lower authorities and adjustably repeated and concluded the same arguments from the orders. In short, the arguments of the learned senior standing counsel for the Department can be summarised as follows :
(a) The appellant deals with the same broker even though it had not made any profits even in the earlier years.
(b) Payment to the brokers is made immediately whereas the appellant waits for two or three days apparently to facilitate its own money coming back.
(c) Delivery has not been taken within 15 days as per the stock exchange regulations gap, it gives delivery immediately.
(d) The same set of shares came back to the broker who originally sold them.
35. In reply to the arguments of the learned senior standing counsel, the learned counsel for the assessee argues that any person does not normally change his share broker, auditor, advocate unless there are compelling reasons to do so. The assessee cannot and need not change its share broker every now and then, first because it incurred loss. The incurring of loss is a normal incident of the business. Further, for a fact that the assessee had dealt with 6 brokers during this year. This apart from being incorrect, the statement that the assessee deals with some brokers has no relevance to the issue. It is further submitted that the transactions are contemporaneous inasmuch as the bank has taken delivery of the shares and payments have been effected by crossed cheques. Hence, the assessees counsel submitted that the loss incurred by the assessee in share dealings was genuine and was liable to be allowed as a deduction.
36. We have heard the arguments of the rival parties and have examined all the relevant documents relied upon and considering the facts of this ground of appeal. The fact that all purchases and sales of shares were got done through bank channels are not doubted. The assessee has paid custodian charges too to the bank who has acted as an agent of the assessee. The bank in turn has taken necessary permission from its head office for acting as an agent of the assessee. The source of the amount used for purchase of shares have not been doubted by the AO. This, in turn, brings out the fact that the Department has accepted the genuineness of the loans raised by the assessee for the purchase of the shares. The arguments or objections raised by the learned senior standing counsel for the Department have been clearly met by the learned counsel for the assessee. The non-making of entries in the Souda Bahi in the books of the brokers would not make much difference so far as the transaction conducted by the assessee in regard to purchase and sale of the shares. The AO has extensively examined the representatives of the brokers, copies of which were supplied by the assessee. None of these have denied the transactions conducted by the assessee and, therefore, the genuineness of these purchases and sales cannot be doubted.
37. In view of the above discussions, we are of the opinion that the assessee genuinely suffered the loss in the trading activities of purchase and sale of shares which cannot be disallowed nor these transactions can be held as speculative in nature. The conclusions drawn by the CIT(A) on this account are considered as unreasonable and unjustified. Hence, this ground of appeal is decided in favour of the assessee.
Loss on scrap dealings :
38. The next ground of appeal is in regard to the loss suffered by the assessee on scrap dealings, amounting to Rs. 17,97,081. The details of this ground of appeal is given in detail in p. 38 to 44 of the assessment order. The CIT(A) has discussed this ground of appeal in paras 62 to 69 of his order while deciding this issue.
39. The facts of this ground of appeal are that during the year under appeal, the assessee purchased and sold iron scrap. It purchased 3,496.143 MT at a cost of Rs. 102.48 lakhs from Bihar Merchandise Corporation and it sold the same to the following parties :
M.T. Rs. (Lakhs) A.K. Corporation 947.660 24.08 Pioneer Industries 682.960 17.07 P. K. Traders 728.140 18.21 Techno Industries 1,137.403 26.61 Total 85.97 Thus, the assessee incurred a loss of Rs. 17,97,081 after deduction of other expenses. The AO disallowed the loss for the reasons that the account books were not produced, purchases and sales are made on the same date, credentials of the dealers are questionable, disbursement for purchases and receipts of sale proceeds are not reflected in the general ledger of the assessee, all was not well with the books of accounts produced by the purchasers of scrap, only an amount of Rs. 5 lakhs was rotated, the seller and buyers are bogus, there was no evidence of actual delivery or supply of scrap by the dealers, etc. The CIT(A) confirmed the action of the CIT(A) holding that the AO was justified in his action for the reasons enumerated above.
Aggrieved by the order of the CIT(A) on this ground of appeal, the assessee is in appeal before us.
40. Before us the learned counsel for the assessee submits that the CIT(A) ought to have seen that the assessee never had the intention of withholding the books of accounts from the AO. He ought to have seen that very same set of books were required before the sales-tax authorities at Calcutta and this had been explained to the AO. In fact, the assessee produced before him the agreements entered into with the dealers and all the xerox copies of the records as early as 20th February, 1988. The agreements contained the dates, quantity contracted, the rates and other terms and conditions. Before the CIT(A), the assessee explained the reasons for the inability to produce the books before the AO. There was no demand by the CIT(A) either to produce the books of accounts. It was further submitted that though the return of income was filed as early as 2nd July, 1985, no proceedings were initiated till about June, 1987, when the first notice under s. 143(2) was issued. When the assessee produced the books of accounts relating to the potato division and share division which alone were called for in the said notice, they were impounded. It was only in November, 1987, that the AO calls for the books relating to the scrap division. Since the books of accounts were lying with the sales-tax consultant, the same could not be produced with the AO. It was submitted that the assessee was in a dilemma as to whether the books should remain in Calcutta till the sales-tax proceedings are over or bring it to Madras for production before the AO. The reason that the AO had been impounding whatever books produced could have very well prompted the assessee in favour of the books remaining with the consultant at Calcutta for production before the STO rather than risking its production before the AO. In any case, all details necessary for completion of assessment have been placed with the AO. It was further submitted that though the books of accounts, the non-production of which was according to the Department, fatal to the claim is lying with the Department for the past almost 8 years, during which the proceedings before the Settlement Commission was in progress. Nothing has been done with the books of accounts. It was contended that this would only show that the Department was finding an excuse to disallow the loss.
41. It was contended that the second reason given by the CIT(A) is that agreements were not produced. He should have seen that as early as on 29th February, 1988, the assessee had filed the agreements containing inter alia the quantity contracted for, the rates and the other terms. This had been explained in para VI. 3 at p. 28 of the statements of facts. The letter dt. 20th February, 1988, given at p. 439 of the paper-book No. II gives the list of documents produced. The other reasons given was that the details of loss had not been furnished. This flows from the reason that the books of accounts had not been produced. The assessee submits that though the books of accounts were not filed, all other details were filed with the AO. However, the AO confined his attention only to the general ledger and not to the other details filed.
42. Yet another reason given by the lower authorities was that the purchases and sales were made on the same day. The assessee explained that the sale contracts had been entered into before hand, i.e., before the assessee procured the material. After this, the assessee purchased scrap from the market and sold it. Naturally, once the buyer had been already identified, the scrap was sold on the same day. As otherwise, the assessee would be burdened with the storage charges of the godown. This would also avoid transport charges being incurred by the assessee. The CIT(A), however, rejected the explanation offered on the ground that copies of the agreements had not been filed. This document was already filed with the AO as submitted earlier. One of the reasons given by the lower authorities for disallowing this loss was that the purchaser and seller do exist only on paper. It is submitted that the dealers are all registered with the ST Department both under the WBST Act and Central ST Act. Kind attention of the Honble Tribunal is invited to pp. 97,172 and 178 of the paper-book No. I which are the copies of declaration filed by the dealers under the rules framed under the WBST Act. Further, all of them are IT assessees and their IT assessment particulars are given at p. 360 of paper-book No. II. In fact, the AO himself agrees that the Inspector had verified and found that Bihar Merchandise, the seller of scrap, had got a place of business. Scrap business does not take place in an office room or a showroom. Only for administrative purposes, they have an office. The entire purchase and sales takes place only at the godown or stockyard.
43. The lower authorities have recorded a finding that the same money given by the assessee to the seller had come back to it from the purchasers. This in our submission is nothing but an assumption. All the buyers have been examined by the AO and all of them have admitted that they have purchased scrap from the assessee. There was nothing unusual in the assessee paying the purchase price to the seller and receiving the sale consideration from the buyers on the same day, as both the transactions had taken place on the same day.
44. In this connection, the assessees counsel pointed out certain observations made by the AO in the assessment order which are as follows :
(1) The transaction has only resulted in a loss.
(2) The bank account of Union Bank of India, Chowringhee Road Branch is not shown in the general ledgers.
(3) The bank accounts does not show he receipt of the sale proceeds through the bank.
(4) Delivery notes have been signed by one Shri C. Seshan, who used to sit at Madras.
(5) All the buyers are related to Manoj Kumar Santhalia, one of the directors of the assessee-company.
These observations of the AO have been challenged in the statement of facts filed before the CIT(A). Paras. 6, 7, 11, 12 and 13, respectively may be referred. However, the CIT(A) ignored all these submissions in recording a finding that the AO is justified in ignoring the loss. The CIT(A) has remarked that the accounts of the assessee does not convey any meaning. He goes as far as to say that no steps were taken by the assessee to prove the nature of the entries. We would submit that the appellant cannot be expected to read what passes in the mind of the CIT(A). Having not put these things for clarification, the observation of the CIT(A) is unwarranted, if not perverse.
45. The learned senior standing counsel for the Department submitted that the entire transaction is only :
(a) a make-believe affair.
(b) systematic manoeuvre to manufacture loss.
(c) on 12 days, the appellant had only incurred loss.
It was submitted by the learned counsel for the assessee that the argument of the learned senior standing counsel for the Department is nothing but the reproducing of what the lower authorities have said. The observation is unfounded. While saying that on 12 days, the assessee had incurred a loss, he forgets that the fact that on other days profit has accrued. Profit/loss is normal incident of business. It was, therefore, prayed that the loss from scrap business was incorrectly disallowed.
46. An examination of the arguments of the rival parties and the facts of this ground of appeal leads to the conclusion that the AO has disallowed the loss suffered by the assessee on transactions of scrap mainly on the ground of non-production of books of accounts. It is, however, observed that except the cash book and the ledger book all other relevant documents were produced and available with the AO. From the documents placed on record, it is also observed that the AO has examined the various scrap dealers on oath. Their statements are duly recorded which are available in Vol. V from pp. 1089 to 1134 of the paper-book. All the traders examined by the AO or his authorised representative have confirmed the transactions conducted with the assessee. Even the remaining books of accounts were produced before the Asst. Director (Inspection), Calcutta on 6th February, 1989. These remaining books of accounts were impounded by the Asstt. Director (Investigation), Calcutta, the list of which is available at pp. 1058 and 1089 of paper-book Vol. IV. Though the assessments had already been completed before the date of impounding of the books of accounts, yet if no discrepancy was observed as detected, the same could have been brought on record at the time of proceedings before the Settlement Commission. Since none of such defects or discrepancies were observed or reported, it is proved that whatever stated by the assessee at earlier stages are supported by the documents seized by the Department on earlier occasions as reasonable and genuine.
47. It is also observed that since all the traders have confirmed the dealings with the assessee. The Department has not considered it reasonable even to intimate the transactions to the respective AOs. Since the matter, in question, is quite old and almost 12 years have already gone, no useful purpose would be served if the matter, in question, can be referred back. Since the material available on record and all the supporting documents clearly establish the fact of scrap dealings and all transactions are through account payee cheques, it can be genuinely believed that the assessee has suffered loss which should be allowed as part of normal business activities. We are, therefore, of the opinion that the CIT(A) is not justified in not allowing the loss suffered by the assessee on this account.
Disallowance of interest
48. The next ground of appeal is in regard to disallowance of the claim of the assessee towards interest paid by the assessee to its creditors. The details of this ground of appeal is discussed elaborately at pp. 46 to 50 of the assessment order. The assessee has preferred appeal against this ground of appeal before the CIT(A). The CIT(A) has decided this ground of appeal in paras 76 to 78 of his order, while dismissing the appeal of the assessee on this ground. Aggrieved by the order of the CIT(A), the assessee is in appeal before us.
49. The facts of this ground are that the assessee claimed interest paid amounting to Rs. 1,74,327 to Nariman Point Building Services Trading (P) Ltd. The AO disallowed the claim for the reason that the borrowals were utilised by the assessee in potato business and share business which had been held to be bogus by him. The CIT(A) upheld the view of the AO.
50. Before us, the learned counsel for the assessee submits that for the detailed submissions made earlier, the potato business and share business are not bogus as assumed by the lower authorities. Further, the lower authorities have at no point of time questioned the genuineness of the borrowals made by the assessee from NPBS. It is a matter of record that the money borrowed from NPBS, was utilised for the purpose of the assessees business in its merchandise division. Hence, it was submitted that the order passed by the CIT(A) is liable to be reversed.
51. The AO has disallowed the claim of the interest payment to Nariman Point Building Services Trading (P) Ltd., mainly on the ground that the AO has held that the potato business and share business are bogus. As per our discussions in the foregoing paragraphs, we have held that the loss suffered by the assessee in the business conducted on sale and purchase of potatoes and shares was genuinely suffered by the assessee and, therefore, allowable.
52. Under the circumstances, the claim of interest also becomes allowable. Besides this, it is also observed that the AO has accepted the credits obtained by the assessee from these parties as genuine. Had this not been accepted as genuine, the total amount of loan would have been added to the total income of the assessee. Once the credit has been accepted as genuine, it is not clear how the payment of interest can be disallowed. This ground of appeal is also decided in favour of the assessee.
Investment written off
53. The next ground of appeal is in regard to non-allowance of investments amounting to Rs. 20,000 which is discussed by the AO at para 50 of the assessment order. The CIT(A) has decided this issue in paras 79 to 81 of his order.
54. The facts of this ground of appeal are that the assessee invested Rs. 10,000 each in the equity shares of two companies, viz., Express Traders (P) Ltd., and Colaba Exports (P) Ltd. Express Traders (P) Ltd., was formed with a view to run a preview theatre at Express Estates. Subsequently, due to various practical difficulties, this idea was shelved. Similarly, Colaba Exports (P) Ltd., was formed with an intention of carrying on business in preservation of sea-foods and meat. Since Bombay Port Trust refused permission, the business did not take off. There was no prospect of reviving the idea at a later point of time either. Thus, the investment in both the companies proved futile. The companies also applied to the Registrar of Companies under s. 560 of the Companies Act on 11th March, 1985, to declare them as defunct companies. Hence, the assessee wrote off these investments.
55. It was submitted before us by the learned counsel for the assessee that the AO disallowed the loss on this account without discussions. The CIT(A) also declined to interfere in the matter because he thought that the issue was one of writing off of bad debt and that the bad debt should have been written off before it could be allowed as deduction and that since the assessee had not written off the bad debt, the assessee was not entitled to deduction.
56. We have examined the facts of this ground of appeal. The claim of the assessee is definitely not of bad debt. The assessee is decidedly dealing in purchase of shares and securities. Investments in the purchase of share, etc., are part of its business activities. During the accounting period relevant to the assessment year, in question, the assessee claimed a total loss of Rs. 20,000 for the purchase of equity shares of Express Traders (P) Ltd., and Colaba Exports (P) Ltd. of Rs. 10,000 each. Both these companies failed to take off during the accounting period itself. Under the circumstances, the assessee had to write off this investment of Rs. 20,000. It is decidedly not a case of bad debt but a case of loss on investment. The claim has been rightly made and, therefore, be allowed as such.
57. The next ground of appeal taken by the assessee is in regard to non-allowance of depreciation on electrical fittings and lift. The learned counsel for the assessee has submitted in writing that this ground of appeal is not pressed. This ground of appeal is, therefore, treated as dismissed as not pressed.
58. The next ground of appeal is treating the income from air-conditioning charges as income from other sources instead of business income as claimed by the assessee. This ground of appeal is covered by the decision of jurisdictional High Court at Madras in TC No. 940 of 1985 in the case of the same assessee for earlier assessment years, against the assessee. The AO, is directed to follow the decision of the jurisdictional High Court (supra) accordingly.
59. The next ground of appeal relates to replacement of transformer claimed as revenue expenditure, or even, if it is treated as capital expenditure, depreciation should have been allowed by the Department.
60. The next ground relates to non set off of business loss relating to earlier assessment years and non-allowance of relief on long-term capital gains.
61. These grounds of appeal at paras 59 and 60 though taken up by the assessee before the CIT(A) at para IV. 12(a), IV. 12(b), V. 1 and V. 2, the CIT(A) has not adjudicated these grounds of appeal and the order passed by the CIT(A) is totally silent on these issues. These grounds are, therefore, restored to the file of the CIT(A) for his consideration and passing a suitable order. These grounds of appeal are, therefore, treated as allowed for statistical purpose.
62. The last ground of appeal taken by the assessee is in regard to the claim of status of the company where the public are substantially interested. The CIT(A) has restored this ground of appeal to the file of the AO, as in his own opinion, the decision of the AO in regard to this ground of appeal is based on the basis of the decision in the case of ACE Investments Ltd., a company in which public are not substantially interested and, therefore, the assessee was also treated as a company where the public are not substantially interested. Since this aspect was not examined by the AO, the CIT(A) restored this ground of appeal to the file of the AO for a detailed examination and passing necessary speaking order.
63. Under the circumstances, we feel that this ground of appeal is premature to be taken up at this stage because the point of status is yet to be decided by the AO. We, therefore, decline to interfere on this account.
64. Except the grounds of appeal which are discussed and decided above, all other grounds of appeal are procedural in nature or not pressed otherwise by the assessee before us. We, therefore, dismiss these grounds of appeal as not pressed.
65. In the result, the appeal filed by the assessee, is allowed in part.