By Jagdish D. Shah
Jagdish T. Punjabi
Chartered Accountants
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27 Mehul H. Mehta vs ITO
ITAT ‘B’ Bench, Mumbai
Before R. K. Gupta (J. M.)
and Rajendra Singh (A. M.)
ITA No. 8531 / M / 2004
A. Y.: 2001-02. Decided on 15.06.09
Counsel for Assessee / Revenue: Pradip Kapasi / Malathi R.
Sridharam
Section 28 — Non realisability of balances lying with a bank in
FD and current accounts held to be allowable as business loss.
Per Rajendra Singh:
Facts:
The assessee was conducting business as a proprietor. His
banker was Madhavpura Mercantile Co-op. Bank Ltd. From the balance in his
current account with the bank, on 12.03.2001, he received a pay order of Rs.
6.75 lakhs favouring a company in which he was a director. On the very next day,
the bank collapsed due to a securities scam and the RBI suspended all its
operations with immediate effect. Consequently, the pay order was not cleared.
In addition, the assessee also had fixed deposits worth Rs. 4 lakhs with the
bank with provision for availing credit facilities for business purposes. As
there was no hope to recover any money, he claimed sum of Rs. 0.3 lakhs towards
balance in his current account, the Rs. 6.75 lakhs pay order and the fixed
deposit worth Rs. 4 lakhs as a business loss.
The AO disallowed the claim for the following reasons:
• The bank had not denied its liability to pay while
confirming the above balance in May 2001;
• On 7.9.2001, the assessee himself had applied for
revalidation of the pay order;
• The fixed deposit was a surplus fund withdrawn from the
business by the assessee.
The CIT (A) confirmed the AO’s order, as according to him,
the amount claimed as loss was out of the loans received by the assessee just a
few days prior to the collapse of the bank. Further, he observed that even if it
was accepted that the FDRs had been pledged for business, based on the decision
of the Madras High Court in the case of Menon Impex Ltd., it did not show any
direct nexus of the FDR with business.
Before the Tribunal, the revenue justified the orders of the
lower authorities and submitted that the amounts written-off were in fact loans
taken; and hence, it was a loss of capital and not a business loss.
Held:
According to the Tribunal, though the money in the bank
account was accountable as mainly loans received by the assessee, there was no
dispute that the current account was being operated for the purpose of carrying
on business. Therefore, according to the Tribunal, the money lost was during the
course of carrying on business. Hence, the loss was a business loss. Further,
relying on the decision of the Mumbai High Court in the case of Goodlass Nerolac
Paints Ltd. that once it was established that an amount related to trade and had
become bad, the decision of the assessee to write-off the amount in a particular
year should not be interfered with, it allowed the claim of the assessee.
Cases referred to:
1. Goodlass Nerolac Paints Ltd. 188 ITR 1 (Mum)
2. Menon Impex Ltd. 259 ITR 406 (Mad)
