N.V. Vasudevan, Judicial Member. - ITA No. 421/B/96 is an appeal by the assessee while ITA No. 141/B/96 is an appeal by the revenue. Both these appeals are directed against the order dated 27-10-1995 of CIT(A),VII, Mumbai relating to assessment year 1992-93. First we will take up for consideration the appeal by the assessee in ITA No. 421/B/1996.

2. Ground No. 1 raised by the assessee reads as follows:

"1.1 The learned Commissioner of Income-tax (Appeals) VII, Bombay (hereinafter referred to as the ["CIT(Appeals)"] erred in confirming the disallowance of Rs. 533,235 being losses incurred in respect of securities transactions in which brokers were counterparties, on the ground that your appellants had not conformed to the provisions of section 15 of the Securities Contracts (Regulations) Act, 1956, having failed to appreciate that a careful reading of this provision would clearly indicate that it is the responsibility of the broker, who is a member of a recognized stock exchange, and not that of your appellants, to conform to the provisions of section 15 of the Securities Contracts (Regulations) Act, 1956.

1.2 Without prejudice to the above, and assuming whilst denying that the transactions were illegal, the losses incurred thereon ought to have been set off against your Appellant’s total income.

1.3 Without prejudice to the above, and assuming whilst denying that the transactions were illegal, the losses incurred thereon ought to have been set off against profits from similar transactions entered into by your appellants."

3. The assessee is a foreign banking company assessed in the status of non-resident. The assessee carries on the business of banking. For detailed reasons mentioned in the assessment order for assessment year 1991-92, the losses arising in the securities transactions with brokers as counter parties were disallowed by the Assessing Officer. As per the Audit Report under section 142(2A) and as per the details filed by the assessee, on 22-3-1995, the details of profit and losses arising out of such transactions were as follows:

3.1 The net loss of Rs. 5,33,235 was disallowed and added back to the income of the assessee. Under section 15 of the Securities Contracts (Regulation) Act, 1956 (SCR Act), no member of a recognized stock exchange shall in respect of any securities enter into any contract as a principal with any person other than a member of a recognized stock exchange, unless he has secured the consent or authority of such person and discloses in the note, Memorandum or agreement of sale or purchase that he is acting as a principal.

3.2 The assessee entered into transactions of purchase as well as sale of securities where the counter party was a broker and where they were acting as principals. The assessee incurred loss on purchase and sale in respect of some of the transactions of Rs. 5,34,235 and profit in respect of the some of the transactions of Rs. 5,33,235. The loss was reported by the special auditors.

3.3 According to the Assessing Officer the loss incurred on transactions in violation of SCR Act being loss incurred violating a law should not be allowed to be set off against business income and he therefore refused to allow the loss. The profit on sale and purchase transaction was however brought to tax as business income. Alternatively, the assessee submitted that even if the loss is not allowed to be set off against business income it should at least be allowed to be set off against the profit on purchase and sale of transactions through brokers and only the resultant remainder loss should be held to be not allowable as deduction. Even this plea was not accepted by the Assessing Officer.

4. On appeal by the assessee the CIT(A) confirmed the order of the Assessing Officer following the order of the CIT(A) for assessment year 1991-92. Aggrieved by the order of the CIT(A) the assessee has raised ground No. 1 before the Tribunal.

5.