Investmentor Securties Ltd., Ahmedabad V. The ACIT.,Circle-3, Ahmedabad

CO 121/AHD/2011

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9512 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-04-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-04-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 03-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MARMIK G SHAH
• Assessee Lawyers: P L KUREEL
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO.1112 /AHD/2011 & C.O.NO.121/AHD/ 2011 (ASSESSMENT YEAR: 2008-09) ACIT, CIRCLE-3, 5 TH FLOOR, INSURANCE BUILDING, ASHRAM ROAD, AHMEDABAD V/S INVESTMENTOR SECURITIES LTD. 38-B, AJANTA COMM. CENTRE, ASHRAM ROAD, AHMEDABAD (APPELLANT) (RESPONDENT) INVESTMENTOR SECURITIES LTD. 38-B, AJANTA COMM. CENTRE, ASHRAM ROAD, AHMEDABAD V/S ACIT, CIRCLE-3, 5 TH FLOOR, INSURANCE BUILDING, ASHRAM ROAD, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACI 4334 A APPELLANT BY : SHRI P.L. KUREEL, SR. D.R. RESPONDENT BY : SHRI MARMIK G. SHAH ( )/ ORDER DATE OF HEARING : 02-04-201 4 DATE OF PRONOUNCEMENT : 29 -04-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A)-XVI, AHMEDABAD DATED 15.02.2011 FOR A.Y. 2008-09 AND ASS ESSEE HAS ALSO FILED C.O. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF SH ARE BROKER. IT ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 08-09 ON 26.09.2008 ITA NO 1112/A/2011 & CO NO. 121/A/2011 . A.Y. 2008-09 2 DECLARING TOTAL INCOME OF RS. 2,41,73,230 / -. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U NDER SECTION 143(3) VIDE ORDER DATED 30.11.2010 AND THE TOTAL INCOME WA S DETERMINED AT RS. 2,68,73,880/-. AGGRIEVED BY THE ORDER OF A.O, ASSES SEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 01.05.2011 P ARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF C IT(A), THE REVENUE IS NOW IN APPEAL BEFORE US AND THE GROUNDS RAISED BY T HE REVENUE READS AS UNDER:- 1. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELETIN G THE DISALLOWANCE OF RS. 15,85,238/- MADE BY THE A.O ON ACCOUNT OF BAD DEBTS. 4. ASSESSEE HAS ALSO FILED A C.O. WHICH IS BASICALLY I N SUPPORT OF THE ORDER OF CIT(A). 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAD DEBITED BAD DEBTS AMOUNTING TO RS. 15,85,238/- IN ITS PROFIT AND LOSS ACCOUNT. THE A.O. ASKED THE ASSESSEE TO PROVE THE G ENUINENESS OF BAD DEBTS IN VIEW OF THE PROVISIONS OF SECTION 36(1) AN D 36(2) OF THE ACT. THE ASSESSEE INTERALIA SUBMITTED THAT THE BROKERAGE REC EIVED FROM THE CONCERNED PARTY WAS OFFERED TO TAX IN THE RELEVANT YEAR. IT WAS FURTHER SUBMITTED THAT THE AMOUNT WAS IRRECOVERABLE AND THE REFORE THE SAME WAS WRITTEN OFF. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. A.O WAS OF THE VIEW THAT THE BUSINESS OF S HARE BROKING IS DIFFERENT FROM GENERAL TRADING BUSINESS AND THE STOCK BROKER ACTS AS AN AGENT FOR PURCHASE AND SALE ON BEHALF OF HIS CLIENTS AND IN T HE ORDINARY COURSE OF BUSINESS MAKES PAYMENT ON BEHALF OF HIS CLIENTS AND ONLY COMMISSION/BROKERAGE IS THE INCOME OF THE ASSESSEE. THE BAD DEBTS WHICH HAS BEEN CLAIMED BY ASSESSEE IS NOT ACCOUNTED FOR AS HIS INCOME AND THEREFORE THE SAME IS NOT ALLOWABLE. HE THEREF ORE HELD THAT THE BAD DEBT WAS NOT ALLOWABLE AS THE CONDITION LAID DOWN U NDER SECTION 36(2) HAS ITA NO 1112/A/2011 & CO NO. 121/A/2011 . A.Y. 2008-09 3 NOT BEEN SATISFIED BY THE ASSESSEE AND ACCORDINGLY DISALLOWED THE CLAIM OF BAD DEBTS AMOUNTING TO RS. 15,85,238/-. AGGRIEVED B Y THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD THAT THE ISSUE WAS SQUARELY COVERED BY THE DECISION OF HONBLE ITAT SPECIAL BENCH IN THE C ASE OF SHREYAS S. MORAKHIA 40 SOT 432. HE ACCORDINGLY DELETED THE DI SALLOWANCE. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NO W IN APPEAL BEFORE US. 6. BEFORE US, THE LD. D.R. RELIED ON THE ORDER OF A.O. AND ALSO PLACED RELIANCE ON THE DECISION OF BOMBAY TRIBUNAL IN THE CASE OF G .R. PANDYA SHARE BROKING LTD. VS. ITO (2008) 26 SOT 431 (MUM). HE AL SO PLACED RELIANCE ON THE DECISION IN THE CASE OF VINODIRAM BALCHAND A ND COMPANY VS. CIT(2001) 251 ITR 819 (MP) AND PLACED ON RECORD THE COPY OF THE AFORESAID DECISIONS. THE LD. A.R. ON THE OTHER HAN D REITERATED THE SUBMISSIONS MADE BEFORE A.O AND CIT(A). HE FURTHER PLACED RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. BONANZA PORTFOLIO ITA NO. 269/AHD/2009 ORDER DATED 27.08.20 09 AND THE SPECIAL BENCH DECISION IN THE CASE OF SHREYAS S. MORAKHIA ( SUPRA). HE THUS SUPPORTED THE ORDER OF CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS A SHA RE BROKER. IT IS ALSO A FACT THAT DURING THE COURSE OF BUSINESS, ASSESSEE MAKES PURCHASE OF SHARE ON BEHALF OF THE PARTIES AND EARNS COMMISSION WHICH IS OFFERED TO TAX. IT IS THE CLAIM OF THE ASSESSEE THAT THE PURCHASE AMOUNTS DUE FROM THE CLIENTS COULD NOT BE RECOVERED BY ASSESSEE. THE AFORESAID S UBMISSION OF THE ASSESSEE HAS NOT BEEN CONTROVERTED BY REVENUE BY BR INGING ANY CONTRARY MATERIAL ON RECORD. WE FURTHER FIND THAT THE ISSUE OF WRITE OFF OF BAD DEBTS IN CASE OF SHARE BROKER WAS BEFORE THE SPECIAL BENC H OF TRIBUNAL IN THE ITA NO 1112/A/2011 & CO NO. 121/A/2011 . A.Y. 2008-09 4 CASE OF SHREYAS S. MORAKHIA (SUPRA). THE ISSUE BEFO RE THE SPECIAL BENCH WAS AS UNDER: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSEE, WHO IS A SHARE BROKER, IS ENTITLED TO DEDUCTION BY WAY OF BA D DEBTS UNDER SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE INCOME TAX ACT, 1961 IN RESPEC T OF THE AMOUNT WHICH COULD NOT BE RECOVERED FROM ITS CLIENTS IN RESPECT OF TRANSACTIO NS EFFECTED BY HIM ON BEHALF OF HIS CLIENT APART FROM THE COMMISSION EARNED BY HIM. 8. THE AFORESAID ISSUE WAS DECIDED BY THE HONBLE SPEC IAL BENCH BY HOLDING AS UNDER:- 32. KEEPING IN VIEW ALL THE FACTS OF THE CASE AND THE LEGAL POSITION EMANATING FROM THE VARIOUS JUDICIAL PRONOUNCEMENTS AS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE AMOUNT RECEIVABLE BY THE ASSESSEE, WHO IS A SHARE BROKER, FROM HIS CLIENTS A GAINST THE TRANSACTIONS OF PURCHASE OF SHARES ON TH EIR BEHALF CONSTITUTES DEBT WHICH IS A TRADING DEBT. THE BROKERAGE/COMMISSION INCOME ARISING FROM SUCH TRANSACTIONS VERY MUCH FORMS PART OF THE SAID DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE/COMMISSION HAS BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVANT PREVIOUS YEAR OR ANY EARLIER YEAR, IT SATI SFIES THE CONDITION STIPULATED IN SECTION 36(2) (I) AND THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 36(L)(VII ) BY WAY OF BAD DEBTS AFTER HAVING WRITTEN OF THE S AID DEBTS FROM HIS BOOKS OF ACCOUNT AS IRRECOVERABLE. W E THEREFORE, ANSWER THE QUESTION REFERRED TO THIS SPECIAL BENCH IN THE AFFIRMATIVE THAT IS IN FAVOUR OF THE ASSESSEE. ' 9. WE ALSO FIND THAT IN THE CASE OF CIT VS. BONANZA PO RTFOLIO LTD.(SUPRA) THE QUESTION BEFORE THE HONBLE DELHI HIGH COURT WAS AS UNDER:- 'WHETHER IN VIEW OF THE PROVISIONS OF SECTION 36(1) (VII), THE TOTAL DEBIT BALANCE INCLUDING THE CONSIDERATION COLLECTIBLE BY THE ASSESSEE COMPANY F OR THE SALE PURCHASE OF SHARE CAN BE CLAIMED BY THE ASSESSEE AS BAD DEBTS WHEN THE ASSESSEE COMPANY HAD ONLY CREDITED BROKERAGE IN THE P & L ACCOUNT?' 10. THE AFORESAID ISSUE WAS DECIDED BY THE HONBLE HIGH COURT HOLDING AS UNDER:- 'FOLLOWING THE AFORESAID ORDER WE HOLD THAT THE MON EY RECEIVABLE FROM THE CLIENT HAS TO BE TREATED AS DEBT AND SINCE IT BECAME BAD, IT WAS RIGHTLY CONSID ERED AS BAD DEBT AND CLAIMED AS SUCH BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS. SINCE THIS BAD D EBT OCCURRED IN THE YEAR IN QUESTION, IT WAS SHOWN BY THE ASSESSEE IN THAT MANNER. SINCE THE BROKERAGE PA YABLE BY THE CLIENT IS APART OF THE DEBT AND THAT D EBT HAD BEEN TAKEN IN TO ACCOUNT IN THE COMPUTATION OF THE INCOME, THE CONDITIONS STIPULATED IN SUB-SECTIO N (2) OF SECTION 36 READ WITH SECTION 36(L)(VII) STAN D SATISFIED IN THIS CASE. HENCE, THE QUESTION OF LA W STANDS DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. THIS APPEAL IS ACCORDINGLY DISMISSED. ' 11. IN THE PRESENT CASE, WE FIND THAT CIT WHILE DELETING THE DISALLOWANCE HAS RELIED ON THE DECISION OF THE SPECIAL BENCH IN THE CASE OF SHRYAS S. MORAKHIA (SUPRA). BEFORE US THE REVENUE COULD NOT BRING ANY CONTRARY BINDING DECISION ITA NO 1112/A/2011 & CO NO. 121/A/2011 . A.Y. 2008-09 5 IN ITS SUPPORT, NOR COULD IT CONTROVERT THE FINDING OF CIT(A). FURTHER, THE DECISIONS RELIED BY THE REVENUE BEFORE US AS DISTIN GUISHABLE ON FACTS AND ARE THEREFORE NOT APPLICABLE. IN VIEW OF THE AFORESAID FACTS AND RELYING ON THE DECISION OF SPECIAL BENCH IN THE CASE OF SHREYAS S. MORAKHIA AND THE DECISION BY HONBLE DELHI HIGH COURT IN THE CASE OF BONANZA PORTFOLIO (SUPRA), WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CI T(A).. THUS THIS GROUND OF REVENUE IS DISMISSED. 12. SINCE THE C.O IS IN SUPPORT OF THE DECISION OF CIT( A). IT REQUIRES NO ADJUDICATION AND THE SAME IS DISMISSED. 13. IN THE RESULT, THE APPEAL OF REVENUE AND THE C.O. OF ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 29 - 04 - 2014. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,A HMEDABAD