ITO 1(1)(1), MUMBAI V. AXIOM SHARE BROKING P.LTD, MUMBAI

ITA 1198/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3155 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 11-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A RAMCHANDRAN
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI BEFORE SRI MAHAVIR SINGH, JM AND SRI RAMIT KOCHAR, AM ITA NO.1198/MUM/2013 (A Y: 2009-10) THE INCOME TAX OFFICER-1(1)- (1), ROOM NO.534/579, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI 400 020 VS. M/S. AXIOM SHARE BROKING PVT. LTD., 819/820, 8 TH FLOOR, P. J. TOWERS, STOCK EXCHANGE, MUMBAI SAMACHAR MARG, MUMBAI 400 020 PAN: AAFCA 0309 Q APPELLANT .. RESPONDENT APPELLANT BY SRI A. RAMCHANDRAN, DR RESPONDENT BY MS. AARTI VISSANJI, AR DATE OF HEARING 09-06-2016 DATE OF PRONOUNCEMENT 15-06-2016 O R D E R PER MAHAVIR SINGH, JM : THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE OR DER OF CIT (A)-1, MUMBAI PASSED IN APPEAL NO.CIT (A)-I/IT-84/2011-12 DATED 0 7.11.2012. ASSESSMENT WAS FRAMED BY THE INCOME TAX OFFICER WARD-1(1)(1), MUMB AI FOR ASSESSMENT YEAR 2009-10 VIDE HIS ORDER DATED 01.12. 2011 U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE ONLY ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF THE CIT (A) DELETING THE DISALLOWANCE OF BAD DEBTS MADE BY THE AO. FOR THIS, THE REVENUE HAS RAISED THE FOLLOWING GROUND:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE OF RS.67 ,23,141/- CLAIMED BY THE ASSESSEE AS BAD DEBTS WHILE SUCH AMOUNT WAS NOT INCLUDED IN THE TAXABLE INCOME EARLIER AS MANDATED IN SECTION 36(1) (VII) R. W. S. 36(2)(I) OF THE I. T. ACT, 1961. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE AO HAS DISALLOWED THE CLAIM OF BAD DEBTS FOR ITA NO.1198/MUM/2013 2 THE REASON THAT NO ALLOWANCE OF BAD DEBTS CAN BE MA DE IF THE DEBT HAS BEEN WRITTEN OFF IS NOT CONSIDERED AS INCOME IN ANY OF THE PREVIOUS YEA RS. ACCORDING TO THE AO, THE ASSESSEE AS A BROKER RECEIVES COMMISSION FROM ITS C LIENTS FOR PURCHASE AND SALES OF SHARES ON HIS BEHALF. ACCORDING TO THE AO, AT THE E ND OF SETTLEMENT PERIOD, THE BROKER RAISES THE BILL FOR THE TOTAL AMOUNT DUE FROM/TO TH E CLIENTS INCLUDING BROKERAGE. ACCORDING TO HIM, THIS BROKERAGE FORMS PART OF THE TURNOVER AND ONLY PART IS THE DEBT, WHICH IS TREATED AS INCOME OF THE STOCK BROKER AND THE BALANCE AMOUNT OF BILLS RAISED BY THE BROKER IS NOT TREATED AS THE TURNOVER OF THE BR OKER AND IS NOT CREDITED TO THE PROFIT & LOSS ACCOUNT. ACCORDINGLY, HE MADE DISALLOWANCE BY HOLDING THAT OUT OF THE TOTAL AMOUNT RECEIVABLE FROM DEBTORS, ONLY AMOUNT OF BROKERAGE W ILL BE ELIGIBLE FOR CLAIM OF BAD DEBTS U/S 36(1)(VII) READ WITH SECTION 36(2)(I) OF THE ACT. AGGRIEVED AGAINST THE ACTION OF THE AO, THE ASSESSEE PREFERRED BEFORE THE CIT (A), WHO ALLOWED THE CLAIM OF THE ASSESSEE VIDE PARA 5.5, 5.6 AND 5.7 OF HIS APPELLAT E ORDER. 4. BEFORE US, THE LEARNED SR. DR HEAVILY RELIED ON THE ASSESSMENT ORDER. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE AR GUED THAT THIS ISSUE WHETHER THE ENTIRE AMOUNT OF BILL RAISED HAS TO BE CONSIDERED FOR THE PURPOSE OF CLAIM OF BAD DEBTS OR ONLY PART OF INCOME HAS TO BE CONSIDERED, HAS BEEN SETTL ED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT, CENTRAL II VS. SHREYAS S. MORAKHIYA [342 ITR 285 (BOM.)] AND ALSO BY THE DECISION OF THE HONBLE DELHI HIGH COUR T IN THE CASE OF CIT VS. BONANZA PORTFOLIO [320 ITR 178 (DEL.)]. ALTERNATIVELY, SHE ARGUED THAT IN CASE THE BAD DEBTS ARE NOT ALLOWED, IN THAT CASE THIS SHOULD BE ALLOWED AS BUSINESS LOSS IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HARSAD J. CHOKSI V. CIT (2012) 349 ITR 250 (BOM). 5. WE HAVE GONE THROUGH THE FACTS OF THE CASE AND L IMITED ISSUE FOR ADJUDICATION BEFORE US IS THAT WHETHER THE ENTIRE TURNOVER OF TH E BROKER WHO DEALS IN SALES AND PURCHASES OF SHARES OR ONLY THE COMMISSION/BROKERAG E PART, DUE FROM/TO CLIENTS AND NOT ITA NO.1198/MUM/2013 3 REALIZED, HAS TO BE CONSIDERED FOR THE CLAIM OF DED UCTION AS BAD DEBTS U/S 36(1)(VII) READ WITH SECTION 36(2)(I) OF THE ACT. WE FIND THAT THE ARGUMENT OF LD. DR THAT U/S 36(2) OF THE ACT, NO DEDUCTION ON ACCOUNT OF BAD DEBTS CAN B E ALLOWED UNLESS SUCH DEBTS OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING TH E INCOME OF THE ASSESSEE IS NOT CONVINCING. IT WAS ALSO ARGUED THAT AS ASSESSEE HAD OFFERED ONLY BROKERAGE INCOME TO TAX BUT NOT THE VALUE OF THE SHARES PURCHASED ON BEHALF OF THE CLIENTS, THE LATTER COULD NOT BE ALLOWED AS A BAD DEBTS U/S 36(1) (VII) OF THE ACT. WE FIND FROM THE PROVISION OF SECTION 36(2) (I) OF THE ACT IS THAT A DEDUCTION ON ACCOUNT OF A BAD DEBT CAN BE ALLOWED ONLY WHERE SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING INCOME OF ASSESSEE OF PREVIOUS YEAR IN WHICH AMOUNT OF DEBT I S WRITTEN OFF AND DEBT OF ASSESSEE COMPRISED, INTER ALIA, OF VALUE OF SHARES TRANSACTE D AND BROKERAGE PAYABLE BY CLIENT ON WHOSE BEHALF TRANSACTION TOOK PLACE. THE BROKERAGE HAVING BEEN CREDITED TO PROFIT AND LOSS ACCOUNT OF ASSESSEE, IT WAS EVIDENT THAT A PAR T OF DEBT WAS TAKEN INTO ACCOUNT IN COMPUTING INCOME OF ASSESSEE FOR PREVIOUS YEAR AND THEREFORE, REQUIREMENTS OF SECTION 36(2) (I) OF THE ACT WERE FULFILLED. THEREFORE, IN OUR VIEW, THE ASSESSEE WAS ENTITLED TO DEDUCTION CLAIMED UNDER SECTION 36(1) (VII), READ W ITH SECTION 36(2) OF THE ACT. WE ARE OF THE VIEW THAT IN ORDER TO SATISFY THE CONDITION STIPULATED IN SECTION 36(2) (I) OF THE ACT, IT IS NOT NECESSARY THAT THE ENTIRE AMOUNT OF DEBT HAS TO BE TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE AND IT WILL BE SUFFICIENT EVEN IF PART OF SUCH DEBT IS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE A SSESSEE. THIS PRINCIPLE APPLIES TO THE SHARE BROKER. THE AMOUNT RECEIVABLE ON ACCOUNT OF B ROKERAGE OF SHARE AND ONCE SUCH BROKERAGE IS CREDITED TO THE P&L A/C. AND TAKEN INT O ACCOUNT IN COMPUTING THIS INCOME, THE CONDITION STIPULATED IN SECTION 36(2) (I) OF TH E ACT IS FULFILLED. WHETHER THE GROSS AMOUNT IS REFLECTED IN THE CREDIT SIDE OF THE P&L A /C OR ONLY THE NET AMOUNT IS FINALLY REFLECTED AS PROFIT AFTER DEDUCTING THE CORRESPONDI NG EXPENSES OR ONLY THE NET AMOUNT OF BROKERAGE RECEIVED BY THE SHARE BROKER IS REFLECTED IN THE CREDIT SIDE OF THE P&L A/C ITA NO.1198/MUM/2013 4 MAKES NO DIFFERENCE BECAUSE THE ULTIMATE EFFECT IS THE SAME. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE JURISDICTIONAL HIGH COURT I N THE CASE OF SHREYAS S. MORAKHIA(SUPRA) AND ALSO BY THE DECISION OF THE DEL HI HIGH COURT IN THE CASE OF BONANZA PORTFOLIO(SUPRA). 6. WE FURTHER FIND THAT ON THE FACTS OF THE CASE TH E ALTERNATIVE CONTENTION OF THE ASSESSEE THAT THIS CAN ALSO BE CONSIDERED AS BUSINE SS LOSS IS ACCEPTABLE AS THE QUESTION HAS BEEN ANSWERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HARSAD J. CHOKSI (SUPRA). IN VIEW OF THE ABOVE DECISION OF THE HONB LE BOMBAY HIGH COURT, WE FIND THAT HONBLE HIGH COURT HAS HELD THAT EVEN IF THE DEDUCT ION WAS NOT ALLOWABLE AS A BAD DEBT, THE ASSESSEES CLAIM FOR DEDUCTION AS A BUSINESS LO SS IS TO BE ALLOWED. FOR ARRIVING THE CONCLUSION HONBLE HIGH COURT REFERRED THE RATIO OF APEX COURT IN BADRIDAS DAGA V. CIT (1958) 34 ITR 10 (SC) AND BOMBAY HIGH COURT JUDGMEN T IN CIT V. R.B. RUNGTA AND CO. (1963) 50 ITR 233 (BOM.) AND THE FACTS OF THE CASE BEFORE US, WE CONFIRM THE ORDER OF THE CIT (A) DELETING THE DISALLOWANCE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/06/2016 . SD/- SD/- (RAMIT KOCHAR) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 15/6/2016 LAKSHMIKANTA DEKA/SR.PS ITA NO.1198/MUM/2013 5 COPY OF THE ORDER FORWARDED TO : BY ORDER, ASSISTANT REGISTRAR ITAT, MUMBAI DATE INITIAL DICTATION PAD ATTACHED WITH THE DRAFT ORDER YES 1. DRAFT DICTATED ON 09-06-16 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 10-06-16 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT (A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//