M/s Neptune securities Pvt.Ltd., Ahmedabad V. The ACIT.,Circle-3, Surat

ITA 1184/AHD/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9917 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 09-09-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 16-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K JHA SRDR
• Keywords: Search and seizure; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH SMC AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.1184/AHD/2010 ASSESSMENT YEAR :2006-07 DATE OF HEARING:9.9.10 DRAFTED:9.9.10 M/S. NEPTUNE SECURITIES PVT. LTD., 104, SHSYAMAK COMPLEX, AHMEDABAD PAN NO.AAACN6965E V/S . ACIT, CIRCLE-3, AHMEDABAD (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI TUSHAR P HEMANI, AR RESPONDENT BY:- SHRI S.K. JHA, SR-DR O R D E R THIS APPEAL BY ASSESSEE IS ARISING OUT OF THE ORDE R OF COMMISSIONER OF INCOME-TAX (APPEALS)-GANDHINAGAR IN APPEAL NO.CIT(A )GNR/42/052/2009-10 DATED 26-02-2010. THE ASSESSMENT WAS FRAMED BY ACIT, CIRC LE-3, AHMEDABAD U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED T O AS THE ACT) VIDE HIS ORDER DATED 23-12-2008 FOR THE ASSESSMENT YEAR 2006-07. 2. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN DISAL LOWING BAD DEBTS. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.1 :- 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN CONFIRMING ACTION OF AO IN DISALLOWING BAD DEBTS AMOUNTING TO RS.3,75,89 8/- WHICH IS WHOLLY UNSUSTAINABLE IN LAW AND ON FACTS. IT IS TOTALLY UN CALLED FOR, DESERVES TO BE QUASHED. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT ASSESSEE FILEDS ITS RETURN OF INCOME DECLARING INCOME AT RS.1,33,710/- ON 19-12-2 006, WHICH WAS SUBSEQUENTLY REVISED ON 09-03-2007. SUBSEQUENTLY, THE RETURN WAS SELECTED FOR SCRUTINY U/S.142 OF ITA NO.1184/AHD/2010 A.Y. 2006-07 M/S. NEPTUNE SECURITIES PVT LTD. V. ACIT CIR-3, ABD PAGE 2 THE ACT ON 28-09-2007. THE ASSESSEE-COMPANY IS EN GAGED IN THE BUSINESS OF SHARE BROKING. THE ASSESSEE HAS CLAIMED BAD DEBT OF RS.3,75,898/- IN THE PROFIT AND LOSS ACCOUNT, AND ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS NOT BROUGHT ANY EVIDENCE ON RECORD WHICH SUGGESTS THAT ASSESSEE HAS MADE ANY EFFORT FOR RECOVERY AND ACCORDINGLY CLAIM OF DEDUCTION U/S.36(1)(VIII) OF THE ACT CANNOT BE ALLOWED. HE ALSO NOTED THAT THE PROVISIONS OF SECTION 36(1)(VII I) IS NOT APPLICABLE TO BROKERAGE INCOME AND SUB-BROKERAGE AS THE BROKER IS ENTITLED FOR BROKERAGE ONLY AND NOT FOR ENTIRE FINANCIAL TRANSACTIONS. THE AO RELIED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF A.V. THOMAS & CO. LTD. V. CIT (1963) 48 ITR 67 (SC). ACCORDINGLY, AO DISALLOWED THE CLAIM OF BAD DEBT. THE CIT(A) FURTHE R CONFIRMED THE ACTION OF AO VIDE PARA-2.4., 2.4.2 & 2.4.3 AS UNDER:- 2.4 THE MATTER HAS BEEN CONSIDERED AND I AM AFRAID I DO NOT AGREE WITH THE AUTHORIZED REPRESENTATIVE. ALTHOUGH IT HAS BEEN NOW ACCEPTED JUDICIALLY THAT MERELY WRITING OFF OF THE DEBTS IN THE BOOKS OF ACC OUNT IS A SUFFICIENT COMPLIANCE OF SECTION 36(1)(VII), AS THE LAW STANDS NOW, BUT ONE CAN NOT IGNORE THE FACT THAT FOR SECTION 36(1)(VII) R.W.S.S 36(2), THE DEBT IN QUESTION SHOULD HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTING TH E INCOME OF THE ASSESSEE. AS PER INFORMATION, A SUM OF RS.1,20,735/ - HAS BEEN CHARGED IN FINANCIAL YEAR 2004-05 AS BROKERAGE TO MR. R.B. VOR A, THE PERSON WHO HAS DEFAULTED. TAKING THE BROKERAGE @ 1%, THE TOTAL TRA NSACTION VALUE COMES ABOUT OVER RS.1.20 CR. IN SUCH SITUATION, HOW A MER E RS.3,75,898/- CAME TO BE DEFAULTED IS NOT CLEAR. THIS IS IMPORTANT BECAUS E THAT WILL DETERMINE FIRSTLY WHETHER THERE EXISTED A DEBT OR NOT AND SECONDLY WH ETHER THERE EXISTED A DEBT COVERABLE BY SECTION 36(2). 2.4.1 .. 2.4.2 THE AUTHORIZED REPRESENTATIVES ALTERNATIVE S UBMISSIONS WAS THAT AT LEAST TO THE EXTENT OF BROKERAGE, THE BAD DEBT BE A LLOWED. EVEN THIS MAY NOT BE POSSIBLE. IT IS NOT THE CASE OF THE APPELLANT TH AT THE CONCERNED PARTIES HAVE DEFAULTED FOR EACH TRANSACTION. AS STATED EARLIER, WE DO NOT HAVE ANY DETAILS OF TO WHICH THE DEFAULT HAS TAKEN PLACE AND WHAT RESID UARY ENFORCEABLE/ ENCASHABLE RIGHTS THE APPELLANT HAS. 2.4.3 IN VIEW OF THIS LEGAL AND FACTUAL SITUATION, I THINK THE ASSESSING OFFICER HAS BEEN CORRECT IN NOT ALLOWING THE APPELLANTS CL AIM OF BAD DEBT. 4. NOW BEFORE ME LD. COUNSEL FOR THE ASSESSEE, SHR I TUSHAR P HEMANI STATED THAT THIS ISSUE IS SQUARELY COVERED IN THE CASE OF TRF LIMITED V CIT (2010) 323 ITR 397 (SC) AND IN THE CASE OF VIJAYA BANK V. CIT AND ANOTHER (2010) 323 ITR 166 (SUPREME COURT). I FIND THAT THE ASSESSING OFFICER HAD MADE THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE HAS NOT PRODUCED SUFFICIEN T EVIDENCE TO SHOW THAT ITA NO.1184/AHD/2010 A.Y. 2006-07 M/S. NEPTUNE SECURITIES PVT LTD. V. ACIT CIR-3, ABD PAGE 3 REASONABLE STEPS WERE TAKEN TO RECOVER THE DEBT. H OWEVER, THERE IS NO DISPUTE THAT THE ABOVE AMOUNT WAS DULY WRITTEN OF IN THE ASSESSE ES BOOKS OF ACCOUNT. ON THE ABOVE FACTS THE DECISION OF HONBLE APEX COURT IN T HE CASE OF T.R.F. LIMITED (SUPRA) WOULD BE SQUARELY APPLICABLE WHEREIN, THEIR LORDSHI PS HELD AS UNDER: AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE IN COME-TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 1989, IN ORDER TO OBTAIN A DED UCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTA BLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE : IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. FOR THE PROPOSITION THAT THE BAD DEBTS IN THE CASE OF SHARE BROKER WILL BE ALLOWED, THE TRIBUNAL IN THE CASE OF ACIT V. H. NYALCHAND FINANCIAL SERVICES LTD. AHMEDA BAD IN ITA NO.2631/AHD/2004 DATED 27-02-2009 HAS ALREADY ALLOWED THE BAD DEBTS . RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF THE H ONBLE APEX COURT AND THAT OF ITAT IN THE CASE OF H. NYALCHAND FINANCIAL SERVICES LTD. (SUPRA), WE REVERSE THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) O N THIS POINT AND ALLOW THIS GROUND OF THE ASSESSEES APPEAL. 5. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 09/09/2010 SD/- (MAHAVIR SIN GH) (JUDICIAL MEMBER) AHMEDABAD, DATED : 09/09/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-GANDHINAGAR 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD