ACIT CIR 4(2), MUMBAI V. RISHTI STOCK AND SHARES P. LTD, MUMBAI

ITA 112/MUM/2012

• Counselvise Citation: 11219914 RSA 2012
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 31-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 05-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Question of law; Bad and doubtful debts

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI .. , ! ' # , $ ', % BEFORE SHRI R.S.SYAL, AM AND SHRI VIVEK VARMA, JM ITA NO.112/MUM/2012 : ASST.YEAR 2008-2009 THE ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE 4(2) MUMBAI. M/S.RISHTI STOCK AND SHARES PVT.LTD. MASKATI MAHAL, GROUND FLOOR 119, K.M.SHARMA MARG (LOHAR CHAWL) MUMBAI 400 002. PAN : AABCR5439G. ( &' / // / APPELLANT) ) ) ) ) / VS. ( *+&'/ RESPONDENT) CO NO.263/MUM/2012 : ASST.YEAR 2008-2009 M/S.RISHTI STOCK AND SHARES PVT.LTD. MASKATI MAHAL, GROUND FLOOR 119, K.M.SHARMA MARG (LOHAR CHAWL) MUMBAI 400 002. THE ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE 4(2) MUMBAI. ( *+% / // / CROSS OBJECTOR) ) ) ) ) / VS. ( *+&'/ RESPONDENT) , , , , - -- - . . . . / REVENUE BY : SHRI KISHAN VYAS $) /0 $) /0 $) /0 $) /0 - . - . - . - . / ASSESSEE BY : SHRI SANJAY R.PARIKH ) - 0! / / / / DATE OF HEARING : 31.07.2013 123 - 0! / DATE OF PRONOUNCEMENT : 02.08.2013 ' 4 ' 4 ' 4 ' 4 / / / / O R D E R PER R.S.SYAL (AM) : THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY T HE ASSESSEE ARISE OUT OF THE ORDER PASSED BY THE COMMISSIONER O F INCOME-TAX (APPEALS) ON 28.10.2011 IN RELATION TO THE ASSESSME NT YEAR 2008- 2009. 2. FIRST GROUND OF THE REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION OF ` 20,05,328 ON ACCOUNT OF BAD DEBTS. BRIEFLY STATED T HE FACTS OF THIS GROUND ARE THAT THE ASSESSEE, A STOCK BROKER, CLAIMED ITA NO.112/M/2012 & CO 263/M/2012. M/S.RISHTI STOCK & SHARES PVT.LTD. 2 CERTAIN DEDUCTION ON ACCOUNT OF BAD DEBTS. THE ASSE SSING OFFICER RESTRICTED THE ALLOWANCE TO THE EXTENT OF BROKERAGE WHICH PASSED THROUGH PROFIT AND LOSS ACCOUNT AMOUNTING TO ` 19,00,789. THE REMAINING AMOUNT OF ` 20,05,328 WAS DISALLOWED. THE LEARNED CIT(A) DELETED THE DISALLOWANCE. 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SED THE RELEVANT MATERIAL ON RECORD WE FIND THAT IN PRINCIPLE THE QU ESTION OF BAD DEBT IN THE HANDS OF STOCK BROKER STANDS SETTLED IN ASSE SSEES FAVOUR BY THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN CIT VS. D.B. (INDIA) SECURITIES [(2009) 318 ITR 26 (DELHI)] HOLDING THAT THE UNRECOVERED AMOUNT BY THE SHARE BROKER ON BEHALF OF ITS SUB-BRO KER HAS TO BE TREATED AS DEBT AND DEDUCTION IS ALLOWABLE. IT HAS FURTHER BEEN LAID DOWN IN THIS CASE THAT THE SHARES REMAINING IN THE POSSESSION OF THE ASSESSEE CAN BE SOLD IN THE MARKET FOR WHATEVER CON SIDERATION AND ADJUSTED AGAINST THE BALANCE OUTSTANDING PAYABLE B Y THE DEBTORS AND THE NET FIGURE WHICH RESULTS THEREAFTER, HAS TO BE ALLOWED AS BAD DEBT. THE SPECIAL BENCH OF THE TRIBUNAL IN DCIT VS. SHREYAS S.MORAKHIA [(2010) 5 ITR (TRI.) 1 (MUM.) (SB)] HAS ALSO DECIDED THIS ISSUE IN ASSESSEES FAVOUR BY HOLDING THAT THE SUM RECEIVABL E BY SHARE BROKER FROM CLIENTS FOR TRANSACTIONS UNDERTAKEN ON THEIR B EHALF IS A TRADING DEBT. UNRECOVERED PART HAS TO BE ALLOWED AS DEDUCTI ON. IN VIEW OF THE ABOVE JUDGMENT AND SPECIAL BENCH ORDER, WE HOLD THA T THE ASSESSEE IS ENTITLED TO DEDUCTION IN RESPECT OF THE AMOUNT BECO MING UNRECOVERABLE FROM ITS CLIENTS. HOWEVER THE DEDUCTI ON HAS TO BE RESTRICTED TO THE AMOUNT DETERMINED AFTER REDUCING THE SUM ITA NO.112/M/2012 & CO 263/M/2012. M/S.RISHTI STOCK & SHARES PVT.LTD. 3 RECOVERABLE FROM SALE PROCEEDS OF SHARES WITH ASSES SEE, IF ANY, IN TERMS OF THE JUDGMENT IN D.B. (INDIA) SECURITIES (SUPRA) . WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER ON THIS ISS UE AND RESTORE THE MATTER TO THE FILE OF A.O. FOR TAKING A FRESH DECIS ION ACCORDINGLY, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. 4. SECOND GROUND OF THE REVENUES APPEAL IS AGAINST THE DELETION OF DISALLOWANCE OF ` 98,198 U/S 40(A)(IA) ON ACCOUNT OF `TRANSACTION CHARGES. THE LEARNED AR WAS FAIR ENOUGH TO CONCEDE THAT THIS ISSUE NEEDS TO BE DECIDED AGAINST THE ASSESSEE IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT V. KOTAK SECURITIES LIMITED [(2012) 340 ITR 333 (BOM.)] . IN VIEW OF THE CANDID ADMISSION BY THE LEARNED AR, WE SET ASIDE TH E IMPUGNED ORDER ON THIS ISSUE AND RESTORE THE ADDITION MADE BY THE ASSESSING OFFICER. 5. THE ONLY ISSUE IN THE ASSESSEES CROSS OBJECTION IS AGAINST SUSTENANCE OF THE ABOVE ADDITION OF ` 98,198 U/S 40(A)(IA) ON THE GROUND THAT NO AMOUNT WAS OUTSTANDING AT THE END OF THE YEAR AND HENCE THE DISALLOWANCE COULD NOT HAVE BEEN MADE U/S 40(A)(IA). THIS GROUND IS BASED ON THE MAJORITY VIEW OF THIS SPECIA L BENCH DECISION IN MERILYN SHIPPING AND TRANSPORTS. THE LD. AR WAS FAIR ENOUGH TO ACCEPT DURING THE COURSE OF HIS ARGUMENTS THAT THE HONBLE CALCUTTA HIGH COURT, BY A RECENT JUDGMENT IN CIT V. CRESCENT EXPORT SYNDICATE, HAS REVERSED THE MAJORITY VIEW OF THIS SPECIAL BEN CH DECISION IN MERILYN SHIPPING AND TRANSPORTS. HE ACCEPTED THAT THE ITA NO.112/M/2012 & CO 263/M/2012. M/S.RISHTI STOCK & SHARES PVT.LTD. 4 ADDITION BE CONFIRMED ON THIS SCORE. HOWEVER, AFTER THE CONCLUSION OF HEARING BUT BEFORE THE RISING OF THE COURT, THE LD. AR CAME BACK TO CONTEND THAT THE HONBLE ALLAHABAD HIGH COURT HAS V ERY RECENTLY DECIDED SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE AND IN VIEW OF THE CONFLICTING DECISIONS, THE VIEW IN FAVOUR OF THE AS SESSEE SHOULD BE FOLLOWED. THE LD. DR OPPOSED THE SUBMISSIONS MADE O N BEHALF OF THE ASSESSEE. 6. HAVING HEARD THE RIVAL SUBMISSIONS AND PERU SED THE RELEVANT MATERIAL ON RECORD, THERE IS NO DISPUTE IN PRINCIPL E THAT THE AMOUNT IS OTHERWISE DISALLOWABLE ON MERITS AS HAS BEEN ACCEPT ED BY THE LD. AR IN RESPONSE TO THE SECOND GROUND OF THE REVENUES A PPEAL. NOW, THE SUSTENANCE OF SUCH DISALLOWANCE HAS BEEN CHALLENGED ON THE GROUND THAT THE AMOUNT WAS PAID DURING THE YEAR AND HENCE NO DISALLOWANCE BE MADE AS PER THE VERY RECENT JUDGMENT OF THE HON BLE ALLAHABAD HIGH COURT IN CIT VS. VECTOR SHIPPING SERVICES (P) LTD . IT IS NOTICED THAT THE SPECIAL BENCH OF THE TRIBUNAL IN MERILYN SHIPPING AND TRANSPORTS HELD THAT UNLESS THE AMOUNT IS PAYABLE AT THE END OF THE YEAR, NO DISALLOWANCE CAN BE MADE U/S 40(A)(I) OF T HE ACT. THIS VIEW CAME UP FOR CONSIDERATION BEFORE THE HONBLE CALCUT TA HIGH COURT IN CIT V. CRESCENT EXPORT SYNDICATE AND THE HONBLE HIGH COURT WAS PLEASED TO DISAPPROVE THE VIEW TAKEN BY THE SPECIAL BENCH AFTER CONSIDERING THE VERY SAME ORDER. IT IS FURTHER NOTE D THAT THE HONBLE CALCUTTA HIGH COURT HAS REITERATED THE SAME VIEW VI DE ITS JUDGMENT DATED 4.4.2013 IN CIT VS. MD. JAKIR HOSSAIN MANDAL . IT IS STILL FURTHER RELEVANT TO NOTE THAT THE HONBLE GUJARAT H IGH COURT, VIDE ITS ITA NO.112/M/2012 & CO 263/M/2012. M/S.RISHTI STOCK & SHARES PVT.LTD. 5 JUDGMENT DATED 9.5.2013, IN A SERIES OF CASES LED B Y CIT VS. SIKANDARKHAN N. TUNVAR HAS DISPROVED THE SPECIAL BENCH ORDER IN THE CASE OF MERILYN SHIPPING (SUPRA) . 7. THE LD. AR HAS RELIED ON THE JUDGMENT DA TED 9.7.2013 RENDERED BY THE HONBLE ALLAHABAD HIGH COURT IN CIT VS. VECTOR SHIPPING SERVICES (P) LTD. TO CONTEND THAT IN THIS CASE A VIEW FAVOURABLE TO THE ASSESSEE HAS BEEN TAKEN. WE HAVE G ONE THROUGH THE SAID JUDGMENT. IT IS OF PARAMOUNT IMPORTANCE TO NO TE THAT THE ONLY QUESTION PRESSED BY THE REVENUE IN THAT CASE HAS BE EN REPRODUCED AS UNDER : - THE DEPARTMENT HAS PRESSED THE ONLY QUESTION OF LA W AS FOLLOWS:- '(A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HON'BLE ITAT HAS RIGHTLY CONFIRMED THE OR DER OF THE CIT (A) AND THEREBY DELETING THE DISALLOWANCE O F RS.1,17,68,621/- MADE BY THE ASSESSING OFFICER UNDE R SECTION 40 (A) (IA) OF THE I.T. ACT, 1961 BY IGNORI NG THE FACT THAT THE COMPANY M/S MERCATOR LINES LTD. HAD PERFORMED SHIP MANAGEMENT WORK ON BEHALF OF THE ASSESSEE M/S VECTOR SHIPPING SERVICES (P) LTD. AND THERE WAS A MEMORANDUM OF UNDERSTANDING SIGNED BETWEEN BOTH THE COMPANIES AND AS PER THE DEFINITION OF MEMORANDUM OF UNDERSTANDING, IT INCLUDED CONTRACT ALSO.' ITA NO.112/M/2012 & CO 263/M/2012. M/S.RISHTI STOCK & SHARES PVT.LTD. 6 8. FROM THE FACTUAL MATRIX OF THIS CASE IT CAN BE NOTICED AS AN ADMITTED POSITION THAT M/S MERCATOR LINES LIMITED H AD DEDUCTED TAX AT SOURCE ON SALARIES PAID BY IT ON BEHALF OF ASSES SEE, IN RESPECT OF WHICH THE DISALLOWANCE WAS MADE BY THE AO U/S 40(A) (IA). BY ANSWERING THE QUESTION AS REPRODUCED ABOVE, THE HON BLE HIGH COURT HELD THAT : `IN THE PRESENT CASE TAX WAS DEDUCTED AS TDS FROM T HE SALARIES OF THE EMPLOYEES PAID BY M/S MERCATOR LINE S LTD., AND THE CIRCUMSTANCES IN WHICH SUCH SALARIES WERE PAID BY M /S MERCATOR LINES LTD., FOR M/S VECTOR SHIPPING SERVICES, THE A SSESSEE WERE SUFFICIENTLY EXPLAINED. HAVING ANSWERED THE QUESTION RAISED BEFORE IT IN ABOVE TERMS, THE HONBLE HIGH COURT INCIDENTALLY NOTICED THAT FOR DISALLOWING EXPENSES FROM BUSINESS AND PROFESSION O N THE GROUND THAT TAX HAS NOT BEEN DEDUCTED, THE AMOUNT SHOULD BE PAY ABLE AND NOT WHICH HAS BEEN PAID BY THE END OF THE YEAR. THESE PASSING REMARKS, WHICH ARE ONLY OBITER DICTA , SEEM TO HAVE BEEN MADE BECAUSE THE TRIBUNAL IN THE IMPUGNED ORDER BEFORE THE HONBLE H IGH COURT, APART FROM DELETING THE DISALLOWANCE ON THE GROUND THAT ` M/S MERCATOR LINES LIMITED HAD DEDUCTED TDS ON SALARIES PAID BY IT ON BEHALF OF ASSESSEE. UNDER SUCH CIRCUMSTANCES ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS ON REIMBURSEMENT BEING MADE BY IT TO M/S MERCATOR LINES LIMITED. , ALSO REFERRED TO THE SPECIAL BENCH DECISION IN TH E CASE OF MERILYN SHIPPING (SUPRA) . AS IT IS MANIFEST FROM THE SOLITARY QUESTION OF LAW REPRODUCED ABOVE THAT THERE IS NO R EFERENCE TO THE DELETION OF DISALLOWANCE U/S 40(A)(IA) WHEN THE EXP ENDITURE HAS BEEN PAID, SUCH REMARKS OF THE HONBLE HIGH COURT CAN B E CONSIDERED AS OBITER DICTA . ON THE CONTRARY, THE HONBLE CALCUTTA HIGH COURT IN THE ITA NO.112/M/2012 & CO 263/M/2012. M/S.RISHTI STOCK & SHARES PVT.LTD. 7 AFORENOTED TWO JUDGMENTS AND THE HONBLE GUJARAT HI GH COURT IN THE ABOVE REFERRED CASE HAVE DEALT WITH THIS ISSUE ON M ERITS ARISING OUT OF THE SPECIAL BENCH ORDER IN MERILYN SHIPPING (SUPRA) AND SPECIFICALLY DISPROVED IT. SUCH DECISION CONSTITUTES THE RATIO DECIDENDI OF THESE CASES. THERE IS HARDLY ANY PRIZE FOR GUESSING THAT IT IS THE RATIO DECIDENDI OF A JUDGMENT WHICH PREVAILS UPON THE CONTRARY OBITER DICTA OF ANOTHER JUDGMENT. IN VIEW OF THE FOREGOING DISCU SSION, WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO MERI T IN THE GROUND RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION. 9. / 05 , 6 74 0 - ,0 89 : $) /0 - *+% !/, ,0 89 IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLO WED AND THE C.O. OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THIS 02 ND DAY OF AUGUST, 2013. ' 4 - 123 ;')5 2 - < SD/- SD/- (VIVEK VARMA) (R.S.SYAL) $ ' $ ' $ ' $ ' / JUDICIAL MEMBER ! ' ! ' ! ' ! ' / ACCOUNTANT MEMBER MUMBAI ; ;') DATED : 02 ND AUGUST, 2013. DEVDAS* ITA NO.112/M/2012 & CO 263/M/2012. M/S.RISHTI STOCK & SHARES PVT.LTD. 8 ' 4 - *$07# = #30 ' 4 - *$07# = #30 ' 4 - *$07# = #30 ' 4 - *$07# = #30/ COPY OF THE ORDER FORWARDED TO : 1. &' / THE APPELLANT 2. *+&' / THE RESPONDENT. 3. > () / THE CIT, MUMBAI. 4. > / CIT(A)-8, MUMBAI 5. #A< *$0$) , , / DR, ITAT, MUMBAI 6. < B / GUARD FILE. ' 4) ' 4) ' 4) ' 4) / BY ORDER, +#0 *$0 //TRUE COPY// C C C C/ // /8 , 8 , 8 , 8 , ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI