SRI SIBENDU BASU,KOLKATA vs. ITO, WARD 54(4), KOLKATA, KOLKATA

Ground Nos. 3 and 4 were not pressed and the same are dismissed as not pressed. Ground no.5 is general in nature calling for no special adjudication. Ground No.1 raised by the assessee reads as follows :- “1. For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the action of the Ld. A.O. in making disallowance of loss Rs.7,.13,392/- out of the total loss of Rs.15,80,213.70 suffered by the assessee due to brazen embezzlement during the course of share trading business by the errant officials of Religare Securities Ltd.”

The Assessee is an individual. He is an advocate by profession. For A.Y.2009-10 he filed return of income declaring total income of Rs.4,33,400/-. In computing total income the assessee had claimed deduction a sum of Rs.15,80,125/- being the loss on account of share trading. The assessee had appointed M/s. Religare Securities Ltd, who is carrying on share and share brokerage activity as a corporate member of Bombay

The AO called upon the assessee to give contract notes evidencing the loss in share trading in Future and Option segment. The assessee was able to file evidence of 3 Sri Sibendu Basu A.Yr.2009-10 contract notes to the extent of loss of Rs.8,66,821/-. Since the evidence relating to the contract notes and other documents for the remaining loss of Rs.7,13,392/- was not furnished, the AO was of the view that the said loss cannot be allowed as deduction. The assessee pointed out that it had raised a dispute for Arbitration with regard improper execution of contracts by M/s. Religare Securities Ltd and had made a claim against M/s. Religare Securities Ltd for a sum of Rs.15,76,022.07 which was the unauthorized transaction carried out by the stock broker which resulted in the loss to the assessee. The assessee claimed that the loss in question was in respect of transaction the details of which has already been furnished to the AO and he was not in a position to give the exact contract notes for some of the transactions as the broker has not furnished the same to the assessee in view of the pending dispute before the arbitrator. The AO was of the view that since the assessee had not filed any supporting evidence to prove the remaining loss the claim of the assessee cannot be entertained. Hence, loss to the extent of Rs.7,13,392/- was not allowed as deduction in computing total income of the assessee.

On appeal by the assessee the CIT(A) confirmed the order of the AO. Aggrieved by the order of CIT(A) the assessee is in appeal before the Tribunal.

The ld. counsel for the assessee reiterated the submissions made before the CIT(A). He also filed a copy of the arbitrator award dated 10.06.2008 in which the claim of the assessee was rejected by the arbitrators. He pointed out that in the said award at page 5 para-vii, the arbitrator has referred to the fact that the loss of Rs.15,76,022/- could not have been averted by M/s Religare Securities Ltd because the assessee had not given proper instructions to the broker for taking position in future and option segment. This submission according to the ld. Counsel for the assessee in the arbitrary award is sufficient to conclude that even the brokers have accepted that the loss incurred by the assessee was a sum of Rs.15,76,022/- owing to dealings by M/s. 3

I have considered the rival submissions. I have also perused the award dated 10.06.2008 filed by the ld. Counsel for the assessee before me. It appears that the claim of the assessee against M/s. Religare Securities Ltd was that they had incurred a loss of Rs.15,76,022/- in the matter of trading on behalf of the assessee in future and option segment and that because of the negligence in not taking proper position in future and option segment of buying and selling securities, the loss has occurred. The plea of M/s. Religare Securities Ltd was that the assessee did not give proper instructions of taking position in future and option segment and therefore he cannot disown the loss. M/s. Religare Securities Ltd had not disputed the quantum of loss as of Rs.15,76,022/-. The arbitrator ultimately found no substance in the claim of the assessee and dismissed the claim of the assessee against M/s. Religare Securities Ltd. In my opinion this evidence is sufficient to prove the claim of the assessee that he had incurred a loss of Rs.15,76,022/-. The loss is directed to be allowed as deduction. Ground no.1 is allowed.

Ground No.2 raised by the assessee reads as follows :- “2. For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the disallowance of Rs.85,743/- made by the A.O. on account of interest on IL & FS for margin funding in Future and Option Trading of Share”

As far as ground no.2 raised by the assessee is concerned the facts are as follows :- The assessee in income and expenditure account showed interest of Rs.85,743/- paid to IL and FS during the relevant previous year. This borrowing from IL and FS for acquiring investments and the interest of Rs.85,743/- had been capitalized by debiting the investment account. In the above circumstances the AO was of the view that since

Before CIT(A) the assessee submitted that the interest was wrongly capitalized as cost of investment in the books of accounts and the treatment shown by the accountant was erroneous. The assessee pointed out that it does not desire to capitalize the interest expenses as revenue expenditure.

The CIT(A) however rejected the claim of the assessee by observing as follows :- “I have considered the findings of the AO and the written submission filed by the AR. During the assessment proceedings, despite repeated request and opportunities given. The assessee did not file auditor's certificate in support of the revised balance sheet. During the appellate proceedings also the assessee has not filed any such certificates from its auditor regarding revised balance sheet. In such situation how can a claim made by the assessee on the basis of revised balance sheet e accepted. Accordingly, assessee's appeal on ground no 3 is dismissed.”

Aggrieved by the order of CIT(A) the assessee has raised ground no.2 before the tribunal.

After considering the rival submissions, I am of the view that the assessee claims that interest need not be capitalized as cost of investment . Therefore the claim for allowing as revenue expenditure ought to have been allowed by the Revenue authorities. I therefore direct the AO to allow the claim of the assessee. However it is made clear that the assessee cannot claim this interest as cost of investment in future. The ld. Counsel for the assessee has made a statement across the bar that the assessee undertakes not to make such a claim. Ground No.2 is accordingly allowed.

In the result the appeal by the assessee is partly allowed.