KETAN SHANTILAL SHAH, MUMBAI V. DCIT RG 4(1), MUMBAI

ITA 1330/MUM/2010

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6235 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 18-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G GURUSAMY
• Assessee Lawyers: RAJNIKANT V CHANIYARI
• Keywords: Bad and doubtful debts

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A.NO. 1330/MUM/2010 ASSESSMENT YEAR : 2006-07 SHRI KETAN SHANTILAL SHAH, 201, KRISHNA KUNJ, V.L. MEHTA MARG, JUHU, VILE PARLE(W), MUMBAI 400 056 PAN: AAEPS 1167 J VS. THE DY. COMMISSIONER OF INCOME- TAX, RANGE 491), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : RAJNIKANT V. CHANIYARI REVENUE BY : SHRI G. GURUSAMY O R D E R PER S.V. MEHROTRA, AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 07.01.2010 PASSED BY THE COMMISSIONER OF INCO ME-TAX (APPEALS)-VIII, MUMBAI, FOR THE ASSESSMENT YEAR 2006-07. THE ASSESS EE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DCIT HAS ERRED IN DISALLOWING RS. 6,32, 015/- U/S.36(1)(VII) BEING BAD DEBTS WRITTEN OFF DURING H E PREVIOUS YEAR. THE LEARNED CIT(A) HAS ERRED IN RESTRICTING T HE BAD DEBTS TO THE EXTENT OF BROKERAGE INCOME. THE LEARNED DCIT BE DIRECTED TO ALLOW ENTIRE CLAIM OF BAD DEBTS OF RS. 6,32,015/- U /S.3691)(VII) IN COMPUTING BUSINESS PROFITS AND REDUCE THE TOTAL INC OME ACCORDINGLY. WITHOUT PREJUDICE TO THE ABOVE THE LEARNED DCIT HAS ERRED IN NOT ALLOWING AD DEBTS AS BUSINESS LOSS U/S.28, THE LEAR NED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNED DCIT SAME . THE LEARNED DCIT BE DIRECTED TO ALLOW RS. 6,32,015/- AS BUSINES S LOSS WHILE COMPUTING BUSINESS PROFITS U/S.28 AND THE REDUCE TH E TOTAL INCOME ACCORDINGLY. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A MEMBER OF BOMBAY STOCK EXCHANGE AND ENGAGED IN THE BUSINESS OF SHARE BROKING, TRADING AND INVESTMENT IN SHARES. HE FILED HIS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT ITA NOS.1330/M/10 KETAN SHANTILAL SHAH 2 YEAR ON 31.10.2006 DECLARING TOTAL INCOME OF RS. 4, 00,58,910/-. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD CLAIMED BAD DEB TS OF RS. 6,32,015/-. THE ASSESSING OFFICER DID NOT ALLOW THE ASSESSEES CLAI M PRIMARILY ON TWO COUNTS, FIRSTLY THE AMOUNT WRITTEN OFF HAD NOT BECOME BAD A ND SECONDLY IN THE CASE OF SHARE AND STOCK BROKERS, THE BROKER ACT AS AGENT AN D FACILITATE TRANSACTIONS BETWEEN THE PRINCIPALS. ONLY BROKERAGE IS CREDITED TO THE PROFIT & LOSS ACCOUNT BUT NOT THE VALUE OF PURCHASE OR SALE ON BEHALF OF ITS CLIENT. THEREFORE, IN VIEW OF THE PROVISIONS OF SECTION 36(2), THE ASSESSEES STA Y WAS ALSO NOT ALLOWED. 3. THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE A SSESSING OFFICER. 4. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT THIS ISSUE IS NOW COVERED IN FAVOUR OF THE ASS ESSEE BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V. SHRI SHREYAS S. MORAKHIA IN ITA NO. 3374/MUM/2004 DATED 16 TH JULY, 2010, (131 TTJ 641)(BOM), WHEREIN THE TRIBUNAL HELD IN PARA 32 AS UNDER: KEEPING IN VIEW ALL THE FACTS OF THE CASE AND THE L EGAL 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 CL IENTS AGAINST THE TRANSACTIONS OF PURCHASE OF SHARE ON THEIR BEHA LF CONSTITUTES DEBT WHICH IS A TRADING DEBT. THE BROKERAGE/COMMISS ION INCOME ARISING FROM SUCH TRANSACTIONS VERY MUCH FORMS PART OF THE SAID DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE/COMMISSI ON HAS BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVANT PREVIOUS YEAR OR ANY EARLI ER YEAR, IT SATISFIES THE CONDITION STIPULATED IN SECTION 3692) (I) AND THE ASSESSEE IS ENTITLED TO DEDUCTION U/S.36(1)(VII) BY WAY OF BAD DEBTS AFTER HAVING WRITTEN OF THE SAID DEBTS FROM H IS BOOKS OF ACCOUNT AS IRRECOVERABLE. WE, THEREFORE, ANSWER THE QUESTION REFERRED TO THIS SPECIAL BENCH AFFIRMATIVE THAT IS IN FAVOUR OF THE ASSESSEE. 5. RESPECTFULLY FOLLOWING THE DECISION OF THE SPECI AL BENCH OF THE TRIBUNAL CITED SUPRA, WE SET ASIDE THE ORDER OF THE LEARNED CIT(A). ITA NOS.1330/M/10 KETAN SHANTILAL SHAH 3 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 3 0 TH DAY OF NOVEMBER, 2010. SD. SD. (ASHA VIJAYARAGHAVAN) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED THE 30 TH NOVEMBER, 2010. KN COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT-4, MUMBAI 4. THE CIT(A)-8, MUMBAI 5. THE DR G BENCH, MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR, ITAT, MUMBAI