Standard Chartered Bank allowed deduction towards loss of Rs 1427 Crores on account of securities scam: ITAT Bombay




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Standard Chartered Bank allowed deduction towards loss of Rs 1427 Crores on account of securities scam: ITAT Bombay

Recently, Standard Chartered Bank was allowed deduction towards loss of Rs 1427 Crores on account of securities scam by ITAT Mumbai. The case detail is as under:

Standard Chartered Bank (ITA No.884/Mum/2003) (AY 1993-94)

Let us have a short overview of the case:

Facts:
1. In the return of income the Assessee had claimed loss of INR 1,427.59 Crores on account of securities transaction scam. During the assessment proceedings, the Assessee claimed that during the security scam various payments were made by the Assessee for purchase of securities which were never delivered to the Assessee. Similarly, the Assessee had sold several securities but did not receive the sale consideration. The loss was perpetrated by brokers in collusion with the bank employees.

2. The aforesaid amounts, represented loss suffered by the Assessee during normal course of business which was allowable as deduction under Section 28 of the Act. Alternatively, it was contended by the Assessee that Assessee should be allowed deduction for the aforesaid amount under Section 36(1)(vii) of the Act being bad debts.

3. After examining each of the transactions in respect of which the Assessee has made a claim for loss, the Assessing Officer allowed deduction for INR 333.45 Crores only.

4. As regards balance claim of deduction for Loss of INR 1,094.14 Crores the Assessing Officer concluded that the Loss of INR 1,094.14 Crores pertained to transactions which were irregular and were not undertaken in the normal course of business by the Assessee. Therefore, the Assessee was not entitled to claim deduction Section 28 or Section 36(1)(vii) of the Act.

Assessee placed reliance on Circular No. 35-D (XLVII-20) [F. No. 10/48/65-IT(A-1)], dated 24/11/1965 wherein it was clarified by the CBDT that loss arising due to embezzlement by the employees should be treated as incidental to the business.

ITAT Mumbai held as below:
1. There is no dispute that the Assessee had written off the amount to this extent of deduction for loss allowed by the CIT(A) during the relevant previous year and, therefore, the CIT(A) was correct in holding that the losses can be said to have crystallized during the relevant previous year.

2. Even during the appellate proceedings before us noting has been placed on record to show that the transactions in respect of which claim of loss has been made by the Assessee were in violation of any of the guidelines issued by RBI.

3. The transactions under consideration were regular transactions undertaken by the Assessee during the ordinary course of business.

4. Thus, we do not find any infirmity in the order passed by CIT(A) in allowing deduction for such loss under Section 28 or Section 36(1)(vii) of the Act. Accordingly, the ground raised by the Revenue is dismissed.

 

 

1692015069-ITA No 884-Mum-03 Standard Chartered Bank




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