1. This is an appeal of the assessee that is moved with reference to assessment that was framed under the provisions of Chapter XIV-B of the IT Act.
2. One of the issues that has been raised by the assessee in the appeal is with regard to non-allowing of deduction for compensation of Rs. 11,90,960 that was paid to M/s Sabari Builders. This ground was not insisted upon during the course of hearing. Accordingly, this ground is dismissed.
3. On behalf of the appellant, Mr. Mohandass contended that the assessee is aggrieved with regard to two issues of Rs. 7.5 lakhs and Rs. 3.43 lakhs which were added to the income of the assessee. The first item of Rs. 7.5 lakhs was an advance that was made by the appellant's wife for purchase of a land. It was realised subsequent to the payment that the person who received the amount claiming that he was a power of attorney-holder of the property, was a fraud. It was also reported subsequently that the land which the person had committed to buy for the assessee's wife in fact, belonged to the Government. The assessee had approached the concerned legal authorities and the police for tracking the person and recovery of the amount. Because the investment in the property was treated as unexplained investment during the block period, the assessee claimed the loss to be set off against the income on the reasoning that even money paid by the assessee has been lost. It was contended that it was not a case of an asset being acquired, though, no doubt the intention was to acquire the asset. For this proposition, the assessee relied on the decision in CIT vs.-Anjani Kumar Co. Ltd. . In this case, the assessee paid advance for acquiring land for setting up a factory. There was breach of agreement and consequently the loss of advance was held to be a business loss. The assessee submitted that because the income is being considered for the block period, the loss should be allowed which the CIT(A) treated as capitalised loss. Identical facts apply to another property that the assessee intended to buy at Koyambedu. In that case sale deed was prepared and it was later realised that the sale deed was a forgery. In both the cases amount having been lost in the light of the decision quoted above, the plea was that deduction should be allowed as loss. The Departmental Representative submitted that the claim of bad debt deduction arises only in the case of regular assessment. In the case of assessment that is made with reference to provisions under Section 158BC of the Act, the loss cannot be allowed.
He further submitted that for the loss that is stated to have been claimed, sufficient evidence is not available.
4. Rival contentions in regard to the above have been carefully considered. The Supreme Court in CIT v. Piara Singh was considering a question of claim of business loss in regard to smuggling contending that the goods, the smuggled items, was confiscated by the customs authorities. The assessee claimed that consequent to confiscation the assessee suffered loss in its illegal business and, therefore, the assessee should be allowed deduction as business loss. The Supreme Court accepted the contention of the assessee. In the case cited by the assessee in Anjani Kumar Co. Ltd. (supra) the amount was paid for acquiring land for setting up factory and consequent to breach, the assessee lost the amount of advance and claimed the same as business loss and the Rajasthan High Court upheld the claim. In the instant case, the addition has been made by treating the unexplained investment as deemed income. Chapter XIV-B talks of undisclosed income. When we put both these together and examine the claim of the assessee in that light, it appears that the claim of the assessee may not be accepted. The issue is with regard to addition on account of undisclosed income including such unexplained investment that are deemed as income of the assessee. Apparently on that basis the loss suffered by the assessee consequent to the fraud played on the assessee is outside the ambit of Chapter XIV-B of the Act. If it were a situation where the unexplained investment is found to have been made from out of some other undisclosed income, perhaps, the assessee could have sought for telescoping of the unexplained investment as arising out of addition made on account of undisclosed income. That being not the situation, in the instant case, we are of the opinion that the claim of the assessee for allowing deduction of the loss suffered on account of fraud played may not be allowable. We accordingly uphold the orders of the authorities on this issue.
5. One other issue raised is with regard to levy of surcharge. In the instant case searches were made on 23rd Nov., 2000 and is stated to have been concluded on 14th March, 2001. Section 113 was inserted with a proviso that reads as under : "Provided that the tax chargeable under this section shall be increased by a surcharge, if any, levied by any Central Act and applicable in the assessment year relevant to the previous year in which the search is initiated under Section 132 or the requisition is made under Section 132A." This proviso was inserted by the Finance Act, 2002, indicating that it would be effective from 1st June, 2002. The CIT(A) in his order stated that Finance Act, 2001, levied tax at the rate prescribed in Section 113 as well as surcharge for the asst. yr. 2001-02. He further noted that Finance Act, 2001, applied to income that had arisen during the previous year ending March, 2001. He further stated that since search was made on 23rd Nov., 2000, which falls within the previous year ending 31st March, 2001, the surcharge that is made by Finance Act, 2001 is applicable. In our opinion, this claim of the Revenue is not justified because the proviso was added by Finance Act, 2002 and made effective from 1st June, 2002. Therefore, surcharge, if any, is applicable only in case of search that is made after 1st June, 2002 and not earlier. In the present case as is noted above search had been made on 23rd Nov., 2000 and concluded on 14th March, 2001. In the light of our observations above surcharge is not leviable for this year.
1. I agree with my learned Brother in allowing the appeal partly. I want to add the following reasons for supporting the view on my behalf.
2. The assessee is a medical doctor, carrying on the business of running and maintaining a hospital as a proprietary concern under the name Sridevi Hospital at Anna Nagar, Chennai. The issue is with regard to non-allowance of deduction alleged being business loss which was occurred on the advance that was made to the parties in purchase of properties. The investment of Rs. 7.5 lakhs was not disclosed by the assessee in the return of income. Therefore, the AO treated it as an investment out of undisclosed income and for the asst. yr. 1997-98, it was treated as undisclosed income of the assessee. The assessee raised an alternate plea that the assessee lost the entire sum of Rs. 7.5 lakhs paid towards the purchase of the land. The attempt of the assessee by making the complaints to the police and issuing of power of attorney was in vain and he could not recover the advance paid. Hence, it is the prayer of the assessee that the advanced sum of Rs. 7.5 lakhs be allowed as a loss in the computation of the undisclosed income of the assessee. On appeal, the CIT(A) observed that the assessee advanced the money for the purchase of the land. The advance was given for acquiring a capital asset. The loss if any incurred by the assessee can only be considered as a capital loss and the CIT(A) has distinguished the decision of the Rajasthan High Court in the case of CIT v. Anjani Kumar Co. Ltd. (2002) 124 Taxman 429 (Raj). Further, the CIT(A) found in the assessee's case that the amounts were advanced not in the course of the business and therefore, it cannot be considered as an expenditure incurred for the profession or business of the assessee.
Further, the CIT(A) held that the amount was advanced for the purchase of a capital asset and therefore, the loss incurred in connection with the acquisition of a capital asset can only be considered as a capital loss. Hence, he rejected the claim.
3. On considering the rival submissions, perusal of the materials on record as well as the precedents relied upon, we find that the decision of the CIT(A) is fully supported by the decision of the Hon'ble Supreme Court in the case of Hasimaia Industries Ltd. v. CIT .
The Hon'ble Supreme Court on the same issue considered this loss as a capital loss which cannot be deducted from the assessee's income as business loss. The decision of the Hon'ble Supreme Court in the case of Hasimara Industries Ltd. v. CIT also supports the same view. Under the circumstances, I agree with the learned Brother in deciding this issue against the assessee treating it as a capital loss which could not be deducted from the assessee's income as business loss.