There is no provision in the Income-tax Act which permits the allowance of a loss which was suffered by an assessee to be adjusted and set off or deducted from the profits of another assessee

Deduction on account of loss of Rs.60 lacs as result of dacoity which took place on 7^th January 1999. It was explained that the aforesaid amount in cash formed part of the business receipts and that while it was being taken to the bank for being deposited was lost due to dacoity.

Since the conditions of section 36 (2)(i) of the Income-tax Act have not been satisfied the advance of RS.60 lacs cannot be successfully claimed as bad debts written off.

The alternative claim that the amount has to be allowed as a business loss under section 28 of the Act as loss incidental to the business cannot also be accepted because the loss, if at all, is that of Balaji Enterprises to whom the cash belonged, and not that of the assessee. There is no provision in the Income-tax Act which permits the allowance of a loss which was suffered by an assessee to be adjusted and set off or deducted from the profits of another assessee. The argument in the present case is that the business of Balaji Enterprises was taken over by the assessee-company and thus the loss suffered by Balaji Enterprises can be allowed in the assessment of the assessee-company. But the assessees are different. It is only in respect of the same assessee that losses, if they are assessed under the head “Business” and allowed to be carried forward to the subsequent year, can be set off against the business income for a later year; and this is because of the specific provisions of section 72 of the Income-tax Act. There is no similar provision permitting the loss suffered by one assessee to be adjusted against the income of another assessee. Section 72A was a specific provision made to permit carry-forward and set-off of accumulated loss and depreciation in cases of amalgamation of companies. The fact that the a specific provision had to be made permitting the loss suffered by an amalgamating company to be adjusted against the profits of the amalgamated company, itself shows that but for such specific provision the loss could not have been adjusted. The assessee’s claim is opposed to the basic postulates of income-tax law and, therefore, cannot be countenanced. No direct decision in support of the assessee’s plea has been brought to our notice by the assessee. The judgments which have been compiled in the assessee’s paper-book filed on 14.2.2008 (pages 21 to 36) are cases of debts taken over by an assessee from another entity. Even these cases are not applicable, as we have already seen that the conditions of section 36(2)(i) have not been satisfied in the present case, whereas in the decided cases such conditions were found to be satisfied. No case was cited in support of the proposition that a business loss of one entity can be carried forward and adjusted against the profits of an entirely different entity. The cases listed in the “Brief Synopsis” filed by the learned representative for the assessee are not cases matching the assessee’s case on facts. They are cases where it was held that loss on account of theft of cash belonging to the business must be allowed as business loss. There can be no quarrel with such a proposition but the controversy in the case before us is different. Herein, we are concerned with a loss which, even if it is assumed to be a business loss, is sought to be claimed as a deduction in the hands of a different entity/assessee in a different year. There is no direct authority which was brought to our attention in support of this proposition.

IN THE INCOME TAX APPELLATE TRIBUNAL

(DELHI BENCH ‘A’ : NEW DELHI)

ITA No.2839/Del./2004
(Assessment Year: 2001-2002)

 O   R   D   E   R

PER R. V. EASW AR, VICE PRESIDENT:

This appeal by the assessee pertains to the assessment year 2001-2002. The assessee is a company engaged in the business as jewellers and bullion dealers. In the return, it claimed deduction on account of loss of Rs.60 lacs as result of dacoity which took place on 7^th January 1999. It was explained that the aforesaid amount in cash formed part of the business receipts and that while it was being taken to the bank for being deposited was lost due to dacoity. It was further stated that during the relevant time, the business was being carried on by one Umesh Chand Gupta as his proprietary business and later on the business was taken over by the assessee -company with the said Umesh Chand Gupta as one of the Directors. It was pleaded that the business of the proprietary concern having been taken over by the assessee-company along with the losses, assets & liabilities, the loss of Rs.60 lacs was allowable in the hands of the assessee-company. To complete the ‘record, it maybe added that the loss was debited to the profit & loss account for the year ended 31.3.2001 under the head “Administrative & other expenses”. Apparently, there was a sub-head to this main head, which was described as “Bad debts written off’ and it was in this sub-head that the amount of Rs.60 lacs was placed. The Assessing Officer first held that the amount was not a debt at all and, therefore, there was no question of writing off and claiming the same as bad debt. Secondly, and alternatively, he also held that even if the claim is to be treated as a claim for loss of Rs.60 lacs as incidental to the business, it did not relate to the assessment year under consideration but related to an earlier period in which the business was owned by Umesh Chand Gupta as proprietor. He thus held that on either count, the amount was not allowable as a deduction.

2. On appeal, the CIT (Appeals) found that the money was actually stolen from the residence of one Shri Madan Jain, who was a resident of GD-l02. Pitampura, New Delhi and that there was nothing to show that the money belonged to Umesh Chand Gupta who was now a director of the assesseecompany. He observed that the assessee-company had not shown any payment to Madan Jain either as salary or as commission for introduction of bullion dealers and that there was also no explanation as to why the money was kept at the residence of Madan Jain and not in the residence of Umesh Chand Gupta. He disbelieved the story put up by the assessee. Alternatively, he also held, agreeing with the Assessing Officer, that the loss, even if genuine, pertains to the period when the business was run by Umesh Chand Gupta and, therefore, the same cannot be allowed as a deduction in the assessee-company’s hand. Thereafter, he proceeded to make certain observations to the effect that the money stolen from Madan Jain’s residence appears to be his unaccounted money and so on but with these observations, we are not concerned in the present appeal. The CIT (Appeals) having thus upheld the disallowance the assessee is in further appeal before the Tribunal.

3. The learned representative for the assessee drew our attention to the main object of the assessee company according to its memorandum of association, which was to acquire and take over the business with all its assets from Umesh Chand Gupta who was carrying on the business under the name and style of Balaji Enterprises. It is submitted that the business and all its assets having been taken over by the assessee company, the loss must be allowed in the assessment of the assessee company. In support of the genuineness of the loss, our attention was drawn to the First Information Report lodged with the police station Shalimar Bagh (page 20 of the paper book), the “untrace report” dated 13 .1.2000 submitted by the Station House Officer reporting that the culprits could not be traced (page 21 of the paper book), newspaper reports about the dacoity (pages 17 & 18 of the paper book), the decision taken at the meeting of the board of directors of the assessee-company held on 15.3.2001 to write off the amount of Rs. 60 lacs on the basis of “untrace report” from the police station (page 22 of the paper book) and the affidavit filed by Madan Jain (page 16 of the paper book) to the effect that he had taken the amount of Rs.60 lacs from Umesh Chand Gupta on 6th January (Rs 40,00,000) and ih January 1999 (Rs.20,00,000) for depositing the same into the current account ofBalaji Enterprises and that the money was lost on account of robbery which took place in his residence on 7.1.1999 at 10.30 AM. It was stated further that he was providing the service of taking the money to the bank on account of the business relations with Umesh Chand Gupta and also because the bank was en route to his residence. He has reiterated that the loss was that of the Balaji Enterprises only. On the basis of these papers, it was contended before us that the loss was genuine and the same having been taken over by the assessee-company from Balaji Enterprises of which Umesh Chand Gupta was the proprietor, the same has to be allowed in the assessee-company’s assessment. At our instance, the extracts from the cash book maintained by Umesh Chand Gupta from 1.1.1999 to 10.1.1999 were furnished before us. We have perused the same and found that Umesh Chand Gupta was maintaining substantial cash balance every day and the same was being deposited in the bank on the following day. We further find that Madan Jain was given some commission on sales and entries to this effect are found on 6.1.1999. On the same day, the last entry is of handing over the amount of Rs.60 lacs to Madan Jain. This runs contrary to the affidavit in which it was averred that Rs 40,00,000 was given to Madan Jain on the evening of 6-1-99 and Rs.20,00,000 was given to him on the next day, i.e., 7-1-99. Be that as it may, it is the assessee’s case that this amount was stolen from the residence of Madan Jain the next day i.e. on 7.1.1999. In the balance sheet of Balaji Enterprises as on 31.3.1999, the amount of Rs.60 lacs was shown as advance recoverable from Madan Jain and grouped under the head “Loans & advances”. This advance was taken over by the assessee-company and claimed as a deduction in the relevant accounting year.

4. On the above facts, the question is whether amount is allowable as a deduction in the assessee’s assessment. We are afraid that the assessee is not entitled to succeed in its claim. As the accounts show, Umesh Chand Gupta has treated the amount of Rs.60 lacs as advance recoverable from Madan Jain. The advance has been taken over by the assessee-company and written off. In order to claim the same as a bad debt, it should have been a debt which arose in the course of the assessee’s business and should have gone to swell its profits. Section 36(2)(i) says that the debt or part thereof should have been “taken into account” in computing the income of the assessee for the previous year in which it is written off or of an earlier previous year. This condition has not been satisfied in the present case. Even the basic condition that it should be a debt in the proper sense has not been satisfied. The amount represented money handed over to Madan Jain for being deposited into the bank. It was not a debt which arose in the course of the business of Balaji Enterprises. The amount of Rs.60 lacs also does not represent money lent either by Balaji Enterprises or by the assessee in the course of banking or money lending business. The assessee does not carry on any such business nor did Balaji Enterprises carryon such business. Since the conditions of section 36 (2)(i) of the Income-tax Act have not been satisfied the advance of RS.60 lacs cannot be successfully claimed as bad debts written off.

5. The alternative claim that the amount has to be allowed as a business loss under section 28 of the Act as loss incidental to the business cannot also be accepted because the loss, if at all, is that of Balaji Enterprises to whom the cash belonged, and not that of the assessee. There is no provision in the Income-tax Act which permits the allowance of a loss which was suffered by an assessee to be adjusted and set off or deducted from the profits of another assessee. The argument in the present case is that the business of Balaji Enterprises was taken over by the assessee-company and thus the loss suffered by Balaji Enterprises can be allowed in the assessment of the assessee-company. But the assessees are different. It is only in respect of the same assessee that losses, if they are assessed under the head “Business” and allowed to be carried forward to the subsequent year, can be set off against the business income for a later year; and this is because of the specific provisions of section 72 of the Income-tax Act. There is no similar provision permitting the loss suffered by one assessee to be adjusted against the income of another assessee. Section 72A was a specific provision made to permit carry-forward and set-off of accumulated loss and depreciation in cases of amalgamation of companies. The fact that the a specific provision had to be made permitting the loss suffered by an amalgamating company to be adjusted against the profits of the amalgamated company, itself shows that but for such specific provision the loss could not have been adjusted. The assessee’s claim is opposed to the basic postulates of income-tax law and, therefore, cannot be countenanced. No direct decision in support of the assessee’s plea has been brought to our notice by the assessee. The judgments which have been compiled in the assessee’s paper-book filed on 14.2.2008 (pages 21 to 36) are cases of debts taken over by an assessee from another entity. Even these cases are not applicable, as we have already seen that the conditions of section 36(2)(i) have not been satisfied in the present case, whereas in the decided cases such conditions were found to be satisfied. No case was cited in support of the proposition that a business loss of one entity can be carried forward and adjusted against the profits of an entirely different entity. The cases listed in the “Brief Synopsis” filed by the learned representative for the assessee are not cases matching the assessee’s case on facts. They are cases where it was held that loss on account of theft of cash belonging to the business must be allowed as business loss. There can be no quarrel with such a proposition but the controversy in the case before us is different. Herein, we are concerned with a loss which, even if it is assumed to be a business loss, is sought to be claimed as a deduction in the hands of a different entity/assessee in a different year. There is no direct authority which was brought to our attention in support of this proposition.

6. In the result, the disallowance of the deduction of Rs.60 lacs is confirmed  and the orders of the income-tax authorities are upheld. The appeal of the assessee is dismissed with no order as to costs.

Order pronounced in the open court this 7^th day of March 2008.

NF