Somayajulu & Co. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1115/CHNY/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8338 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 12-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V NANDA KUMAR
• Assessee Lawyers: T BANUSEKAR
• Keywords: Depreciation; Bad and doubtful debts; Unabsorbed depreciation

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.1115/MDS/2015 ( )( / ASSESSMENT YEAR : 2010-11 M/S SOMAYAJULU & CO. LTD., II FLOOR, MOOKAMBIKA COMPLEX, 4-LADY DESIKACHARY ROAD, MYLAPORE, CHENNAI - 600 004. PAN : AAACS 7053 G V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(3), CHENNAI. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SH. T. BANUSEKAR, CA -.+, / 0 / RESPONDENT BY : SH. V. NANDA KUMAR, JCIT 1 / 2% / DATE OF HEARING : 17.08.2016 3') / 2% / DATE OF PRONOUNCEMENT : 07.10.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 15, CHEN NAI, DATED 20.02.2015 AND PERTAINS TO ASSESSMENT YEAR 2010-11. 2. SH. T. BANUSEKAR, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE HAS CLAIMED BAD DEBTS T O THE EXTENT OF 2 I.T.A. NO.1115/MDS/15 ` 1,35,77,266/-. THE ASSESSING OFFICER, HOWEVER, DIS ALLOWED THE CLAIM OF THE ASSESSEE. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) FOUND THAT TO THE EXTENT OF ` 32,68,147/-, THE ASSESSEE COULD NOT PRODUCE THE LEDGER EXTRACT TO SUBSTANTIAT E THE EXISTENCE OF DEBT. EVEN BEFORE THE CIT(APPEALS), THE ASSESSEE C OULD NOT PRODUCE ANY EVIDENCE TO ESTABLISH THE EXISTENCE OF DEBT. SINCE THE EXISTENCE OF DEBT IS NOT ESTABLISHED, THE CIT(APPEA LS) FOUND THAT THE DEBT WRITTEN OFF IS NOT GENUINE, THEREFORE, HE CONF IRMED THE ORDER OF THE ASSESSING OFFICER. ACCORDING TO THE LD. REPRES ENTATIVE, THE COMMITMENT MADE BY THE ASSESSEE TO THE STOCK EXCHAN GE NEEDS TO BE FULFILLED IRRESPECTIVE OF THE FULFILLMENT OF COM MITMENT BY THE RESPECTIVE CUSTOMERS OF THE ASSESSEE. THE ASSESSEE , IN FACT, PRODUCED THE LEDGER TO THE EXTENT OF BAD DEBT OF ` 1,03,09,119/-. THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, THE EXISTENCE OF DEBT WAS ESTABLISHED. THE ASSESSEE WRITTEN OFF THE AMOU NT OF ` 1,03,09,119/-, THEREFORE, IT IS NOT CORRECT TO SAY THAT THE ASSESSEE HAS NOT ESTABLISHED THE EXISTENCE OF DEBT. ACCORDI NG TO THE LD. REPRESENTATIVE, IT IS NOT IN DISPUTE THAT THE ASSES SEE HAS WRITTEN OFF THE BAD DEBT. ONCE IT IS ESTABLISHED THAT THE BAD DEBT WAS WRITTEN OFF, ACCORDING TO THE LD. REPRESENTATIVE, THE CIT(A PPEALS) OUGHT TO HAVE DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 3 I.T.A. NO.1115/MDS/15 3. THE LD. REPRESENTATIVE FOR THE ASSESSEE FURTHER SUBMITTED THAT THERE WAS DIFFERENCE BETWEEN THE SHARE TRADER AND SHARE BROKER. ACCORDING TO THE LD. REPRESENTATIVE, A TRA DER TRADES IN SHARES BY PURCHASING AND SELLING THE SHARES ON HIS OWN BEHALF. IF A TRADER FAILS TO RECOVER THE SHARE PROCEEDS OF THE S HARES, IT BECOMES DEBT AND THE TRADER CAN CLAIM THE SAME AS BAD DEBT ON WRITING IT OFF THE SAME AS BAD DEBT IN THE BOOKS OF ACCOUNT. IN T HE CASE OF SHARE BROKER, HE IS CONCERNED ONLY WITH BROKERAGE ACCRUED . TRANSACTION OF SALE OR PURCHASE OF SHARES IS ARRANGED BY HIM ON BEHALF OF HIS CLIENTS. SINCE THE TRANSACTION OF SALE OR PURCHASE IS ARRANGED, THE RIGHT TO RECEIVE THE BROKERAGE ACCRUES TO THE ASSES SEE. THE LIABILITY TO MAKE THE PAYMENT DOES NOT ACCRUE TO THE ASSESSEE AT ALL. BOTH THE AUTHORITIES BELOW HAVE MIXED UP BOTH THE TRANSA CTIONS. THEREFORE, THE CIT(APPEALS) OUGHT TO HAVE EXAMINED THE ISSUE IN THE LIGHT OF THE TRANSACTION ENTERED INTO BY THE AS SESSEE. THE ASSESSEE, IN FACT, TRADED IN SHARES AND ALSO ACTED AS BROKER. THE LD. REPRESENTATIVE FURTHER SUBMITTED THAT THE CIT(A PPEALS) WITHOUT EXAMINING FACTS CORRECTLY, CONFIRMED THE ORDER OF T HE ASSESSING OFFICER. 4 I.T.A. NO.1115/MDS/15 4. SHRI V. NANDA KUMAR, THE LD. DEPARTMENTAL REPRES ENTATIVE, SUBMITTED THAT THE CIT(APPEALS), APPRECIATING THE F ACTS AND RELEVANT MATERIAL AVAILABLE ON RECORD, FOUND THAT THE BAD DE BTS WERE NOT REALLY WRITTEN OFF IN THE BOOKS MAINTAINED BY THE A SSESSEE. ON VERIFICATION OF THE LEDGER, THE CIT(APPEALS) FOUND THAT THE AMOUNTS WERE STILL OUTSTANDING AND IT WAS NOT WRITTEN OFF A S CLAIMED BY THE ASSESSEE. MOREOVER, THE ASSESSEE COULD NOT PRODUCE ANY MATERIAL INCLUDING THE LEDGER TO SUBSTANTIATE THE EXISTENCE OF DEBT TO THE EXTENT OF ` 32,68,147/-. IN THE PROFIT & LOSS ACCOUNT PRODUCED BEFORE THE CIT(APPEALS), THE TOTAL BAD DEBTS WERE S AID TO BE ` 1,35,77,266/-. THE 18 PARTIES LEDGER ACCOUNT, WHIC H WAS PRODUCED BEFORE THE CIT(APPEALS), SHOWS THAT THE AMOUNT WAS NOT WRITTEN OFF. IN THOSE CIRCUMSTANCES, THE CIT(APPEALS) HAS RIGHTL Y FOUND THAT THE CLAIM OF THE ASSESSEE THAT THE BAD DEBTS WRITTEN OF F IS NOT CORRECT. IN SOME OF THE PARTIES, THE VERY EXISTENCE OF DEBTS AR E NOT SUBSTANTIATED. THEREFORE, ACCORDING TO THE LD. D.R ., THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE 5 I.T.A. NO.1115/MDS/15 CLAIMED BAD DEBTS OF ` 1,35,77,266/-. THE ASSESSEE COULD NOT PRODUCE ANY LEDGER EXTRACT TO SUBSTANTIATE THE EXIS TENCE OF BAD DEBTS TO THE EXTENT OF ` 32,68,147/-. THEREFORE, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE. FOR THE REMAINING ` 1,03,09,119/-, THE ASSESSEE PRODUCED LEDGER ACCOUNT BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER OBSERVED THAT THE ASSESSEE-COMPANY HAS WRITTEN OFF TO THE EXTENT OF ` 1,03,09,119/-. THE ASSESSING OFFICER HAS ALSO OBSE RVED THAT THE BAD DEBTS AROSE TO THE ASSESSEE DUE TO NON-PAYMENT OF DUES BY THE CLIENTS. THIS TRIBUNAL IS OF THE CONSIDERED OPINIO N THAT WHEN THE ASSESSEE WAS IN THE BUSINESS OF SHARE TRADING, EITH ER AS TRADER OR AS BROKER, THE BAD DEBT CLAIMED BY THE ASSESSEE HAS TO BE EXAMINED IN THE LIGHT OF THE PROVISIONS OF LAW. IN VIEW OF THE VOLUMINOUS TRANSACTION ENTERED INTO BY THE ASSESSEE , THERE MAY BE A LITTLE DIFFICULTY IN PRODUCING NECESSARY MATERIAL BEFORE THE ASSESSING OFFICER. HOWEVER, WHEN THE ASSESSEE CLAI MS THAT THERE WAS DEBT, AND BAD DEBT WAS WRITTEN OFF DUE TO DIFFI CULTY IN RECOVERING THE SAME, THE SAME HAS TO BE ALLOWED ESPECIALLY WHE N THE ASSESSING OFFICER HIMSELF ADMITS THAT THE ASSESSEE HAS WRITTEN OFF THE DEBT TO THE EXTENT OF ` 1,03,09,119/-. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE EXISTENCE OF DEBT AND I TS WRITTEN OFF IN 6 I.T.A. NO.1115/MDS/15 THE BOOKS WAS ESTABLISHED TO THE EXTENT OF ` 1,03,09,119/-. HOWEVER, THE EXISTENCE OF DEBT TO THE EXTENT OF ` 32,68,147/- WAS NOT SUBSTANTIATED. ACCORDINGLY, WHILE CONFIRMING THE D ISALLOWANCE OF ` 32,68,147/-, THE DISALLOWANCE MADE TO THE EXTENT OF ` 1,03,09,119/- IS DELETED. 6. THE NEXT GROUND OF APPEAL IS WITH REGARD TO ALLO WANCE OF STAFF ADVANCES TO THE EXTENT OF ` 4,06,844/-. 7. SH. T. BANUSEKAR, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ADVANCES MADE TO STAFF TO THE EX TENT OF ` 4,06,844/- WAS ALSO CLAIMED AS BAD DEBT AND ALSO CL AIMED TO BE WRITTEN OFF IN THE BOOKS OF ACCOUNT. THE CIT(APPEA LS) DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT STAFF ADVANCES WRITTEN OFF CANNOT BE ALLOWED UNDER SECTION 36(1)(VII) OR 3 6(2) OF THE ACT. 8. HAVING HEARD THE LD. DEPARTMENTAL REPRESENTATIVE ALSO, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT IN THE A BSENCE OF THE NATURE OF ADVANCE GIVEN TO THE EMPLOYEES, THE ASSES SING OFFICER SHALL RE-EXAMINE THE MATTER AFRESH. ACCORDINGLY, T HE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE, THE DISALLOWANCE O F ` 4,06,844/- IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. 7 I.T.A. NO.1115/MDS/15 9. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISAL LOWANCE OF BROUGHT FORWARD BUSINESS LOSS OF ` 20,89,939/- AND UNABSORBED DEPRECIATION LOSS OF ` 10,34,056/-. 10. SH. T. BANUSEKAR, THE LD. REPRESENTATIVE FOR TH E ASSESSEE, SUBMITTED THAT THE UNABSORBED LOSS AND DEPRECIATION PERTAINING TO ASSESSMENT YEAR 2009-10 WERE NOT SET OFF AGAINST TH E INCOME OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE LD. REPRESENTATIVE SUBMITTED THAT THIS WAS NOT PRESSED BEFORE THE CIT(APPEALS). ACCORDING TO THE LD. REPRESENTATIVE, EVEN THOUGH IT WAS NOT PRESSED BEFORE THE CIT(APPEALS), THE SAME H AS TO BE SET OFF AGAINST THE INCOME OF THE ASSESSEE. 11. WE HAVE HEARD SHRI V. NANDA KUMAR, THE LD. DEPA RTMENTAL REPRESENTATIVE ALSO. THE CIT(APPEALS) DISALLOWED T HE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT FU RNISHED ANY DETAILS WITH REGARD TO UNABSORBED BUSINESS LOSS AND UNABSORBED DEPRECIATION. FOR THE PURPOSE OF SETTING OFF OF BR OUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION, IT IS FO R THE ASSESSEE TO FURNISH NECESSARY DETAILS BEFORE THE AUTHORITIES BE LOW. EVEN BEFORE THIS TRIBUNAL, THE ASSESSEE HAS NOT FURNISHED ANY D ETAILS. IN THE 8 I.T.A. NO.1115/MDS/15 ABSENCE OF ANY DETAILS, THIS TRIBUNAL IS OF THE CON SIDERED OPINION THAT THE CIT(APPEALS) HAS RIGHTLY DISALLOWED THE CL AIM OF THE ASSESSEE. MOREOVER, THE ASSESSEE ITSELF HAS NOT PR ESSED THE ISSUE BEFORE THE CIT(APPEALS). THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 7 TH OCTOBER, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 7 TH OCTOBER, 2016. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-15, CHENNAI-34 4. 1 92 /CIT-6, CHENNAI 5. 7: -2 /DR 6. ;( < /GF.