Shri Mahendra N.Patel, Baroda V. The Income tax Officer,Ward-2(3), Baroda

ITA 1364/AHD/2008

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85765 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 23-12-2014
• Assessment Year: 1994-1995
• Appeal Filed On: 15-04-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: M K PATEL
• Keywords: Business income; Bad and doubtful debts; Revised return
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI ANIL CHATURVEDI, ACCOUNTAN T MEMBER SHRI MAHENDRA N. PATEL, C/O, SURESH THAKKAR & CO., CA MATRU SMRUTI OPP. KOTHI BLDG., RAOPURA, VADODARA PAN: ACZPP3892Q (APPELLANT) VS INCOME TAX OFFICER, WARD-2(3) AAYAKAR BHAVAN, RACE COURSE CIRCLE, VADODARA (RESPONDENT) ASSESSEE BY: SHRI M.K. PATEL, A.R. REVENUE BY: SHRI B.L. YADAV, SR.D.R. DATE OF HEARING : 23-12-2014 DATE OF PRONOUNCEMENT : 04-03-20 15 / ORDER PER : ANIL CHATURVEDI, ACCOUNTANT MEMBER:- THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)- II, BARODA DATED 03-01-2008 FOR A.Y. 1994-95. ITA NO. 1364/AHD/2008 ASSESSMENT YEAR 1994-95 I.T.A NO. 1364/AHD/2008 A.Y. 1994-95 PAGE NO SHRI MAHENDRA N. PATEL VS. ITO 2 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON REC ORD ARE AS UNDER. 3. ASSESSEE IS AN INDIVIDUAL STATED TO BE A SHARE-B ROKER REGISTERED WITH VADODARA STOCK EXCHANGE. ASSESSEE FILED HIS RETUR N OF INCOME DECLARING TOTAL INCOME AT RS. 1,37,700/-. THE ASSESSMENT WAS ORIGINALLY FRAMED U/S. 143(3) VIDE ORDER DATED 27-03-1997 AND THE TOTAL IN COME WAS DETERMINED AT RS. 18,86,840/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO DISMISSED THE APPEAL O F THE ASSESSEE. THEREAFTER ASSESSEE PREFERRED APPEAL BEFORE HONBLE TRIBUNAL. HONBLE TRIBUNAL VIDE ORDER IN ITA NO. 270/AHD/1997 AND ITA NO. 568/AHD/2002 ORDER DATED 03-02-2005 RESTORED THE ISSUE TO THE FI LE OF AO TO DECIDE THE ISSUE AFRESH AS PER LAW. PURSUANT TO THE DIRECTION S OF HONBLE TRIBUNAL, AO PASSED ORDER U/S. 143(3) R.W.S. 254 OF THE ACT VIDE ORDER DATED 26-12-2006 AND AGAIN DETERMINED THE TOTAL INCOME AT RS. 18,86, 840/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE ONCE AGAIN CARRIED THE MA TTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 03-01-2008 DISMISSED THE APPEA L OF THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASS ESSEE IS NOW IN APPEAL BEFORE US IN SECOND ROUND AND HAS RAISED THE FOLLOW ING GROUND. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) IS NOT JUSTIFIED BOTH IN LAW AND ON FACTS IN UPHOLDING THE ORDER OF LD. ITO, DISALLOWING LEGITIMATE BUSINESS LOSS OF RS. 35 ,31,918/- ARISEN OUT OF BUSINESS TRANSACTIONS OF SUB BROKERS DURING THE YEAR. THE LD. CIT(A) OUGHT TO HAVE ALLOWED BUSINESS LOSS INCURRED BY THE APPELLANT. IT IS PRAYED THAT THE IMPUGNED BUSINESS LOSS OF RS. 3531918/- BE ALLOWED. 4. AO NOTICED THAT ASSESSEE HAD CLAIMED BUSINESS LO SS OF RS. 35,31,918/- ON ACCOUNT OF FINANCIAL FAILURES OF HIS THREE SUB-BROKERS. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM TO WHICH AS SESSEE INTER ALIA SUBMITTED THAT HE HAD APPOINTED SUB-BROKERS NAMELY, PATNI INVESTMENT I.T.A NO. 1364/AHD/2008 A.Y. 1994-95 PAGE NO SHRI MAHENDRA N. PATEL VS. ITO 3 CENTRE, MOSUM INVESTMENTS AND BHARAT B. PATEL & CO. THESE SUB-BROKERS FAILED TO DISCHARGE THEIR FINANCIAL OBLIGATION AT T HE TIME OF VARIOUS SETTLEMENTS. THE AMOUNT DUE ON SETTLEMENTS WAS THE REFORE PAID BY THE ASSESSEE ON ACCOUNT OF FAILURE OF THE SUB BROKERS T O MEET THEIR COMMITMENTS. THE BROKERS HAD GIVEN POST DATED CHEQ UES TO THE ASSESSEE TOWARDS THE DUES BUT THE CHEQUES BOUNCED. SINCE AS SESSEE COULD NOT RECOVER THE MONEY, THE BUSINESS LOSS OF RS. 35,31,9 18/- DUE FROM THE THREE SUB-BROKERS WAS CLAIMED AS BUSINESS LOSS. THE SUBM ISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO AS HE W AS OF THE VIEW THAT THE AMOUNT OUTSTANDING WERE IN RESPECT OF SHARE TRA NSACTIONS AND THE CLAIM OF THE ASSESSEE SHOULD HAVE BEEN OF BAD DEBTS AND NOT AS BUSINESS LOSS. AO WAS FURTHER OF THE VIEW THAT THE BAD DEBT S COULD NOT BE ALLOWED TO THE ASSESSEE BECAUSE TO CLAIM THE EXPENDITURE OF BA D DEBTS, THE ASSESSEE HAS TO WRITE OFF THE BAD DEBTS IN THE BOOKS OF ACCO UNTS. SINCE THE ASSESSEE HAD NOT COMPLIED WITH THE PROVISIONS OF SE CTION 36(1)(VII), HE COULD NOT BE ALLOWED THE DEDUCTION AS BAD DEBTS. W ITH RESPECT TO THE CLAIM OF BUSINESS LOSS, AO WAS OF THE VIEW THAT ASSESSEE HAD NEITHER CLAIMED THE BUSINESS LOSS IN HIS BOOKS OF ACCOUNTS NOR IN T HE RETURN OF INCOME THAT THE CLAIM WAS MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HE WAS FURTHER OF THE VIEW THAT DURING THE COURSE OF A SSESSMENT PROCEEDINGS, SINCE THE ASSESSEE COULD NOT EXPLAIN SUBSTANTIAL CA SH CREDITS OF RS. 17.13 LACS, THE CLAIM OF BUSINESS LOSS WAS MADE BY ASSESS EE AND THUS THE CLAIM WAS AN AFTERTHOUGHT. HE ACCORDINGLY DENIED THE CLAI M OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO UPHELD THE ADDITION MADE BY THE AO BY HO LDING AS UNDER: 2.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE COUNS EL AND FACTS OF THE CASE. IT IS A FACT THAT APPELLANT NEITHER CLAI MED BAD DEBTS OR BUSINESS LOSS IN RESPECT OF RS. 35,31,918/- IN THE RETURN OF INCOME FILED FOR A.Y. 1994-95. IT IS ALSO NOT IN DISPUTE THAT APPELLANT MADE THE CLAIM OF BUSINESS LOSS FOR THE FIRST TIME ON 21 ST MARCH 1997 DURING THE FINALIZATION OF ASSESSMENT PROCEEDINGS. IT IS CLEAR THAT THE I.T.A NO. 1364/AHD/2008 A.Y. 1994-95 PAGE NO SHRI MAHENDRA N. PATEL VS. ITO 4 SAID CLAIM WAS MADE AFTER THREE YEARS FROM THE END OF THE ACCOUNTING YEAR. THE BACK GROUND OF RAISING SUCH CL AIM WAS MENTIONED BY THE ASSESSING OFFICER THAT SUBSTANTIAL CASH CREDITS WERE FOUND TO BE UNEXPLAINED AND TO REDUCE THE TAX LIABILITY OF THE YEAR SUCH CLAIM WAS MADE. IN SUPPORT OF THIS CLAIM, APPELLANT SUBMITTED THAT CHEQUES ISSUED BY THE SUB BROKERS WE RE BOUNCED TILL JUNE 1994. IF THE CLAIM WOULD HAVE BEEN RELATING TO THE A.Y. 1994- 95, APPELLANT COULD HAVE REVISED THE RETURN FOR THI S YEAR AS EARLY AS IN THE YEAR 1994 ITSELF. HOWEVER, APPELLANT MADE TH E CLAIM OF BUSINESS LOSS BY FILING REVISED RETURN FOR A.Y.1995 -96. EVEN SUCH CLAIM OF LOSS WAS NOT MADE IN THE ORIGINAL RETURN F OR A.Y. 1995-96, THEREFORE, CONSIDERING THE CLAIM OF BUSINESS LOSS I N A.Y. 1994-95 IS NOT AS PER APPELLANT'S OWN CLAIM OR RECORDS. 2.3.1 COMING TO THE SUBMISSIONS MADE BY THE APPELLA NT, IT IS ARGUED THAT THE BUSINESS LOSS OCCURRED DURING F.Y. 1993-94. HOWEVER, AS DISCUSSED EARLIER, TILL MARCH 1997 NO SUCH CLAIM WA S MADE. EVEN CHEQUES ISSUED BY THESE SUB BROKERS WERE BOUNCED IN NEXT F.Y. I.E. IN 1994-95. FURTHER, THE SUB BROKERS WERE INDEPEN DENT AND THEY WERE NOT DOING BUSINESS FOR THE APPELLANT. THE PAYMENT O UTSTANDING IN THEIR NAMES WERE ON ACCOUNT OF SHARE TRANSACTION S DONE BY THEM THROUGH APPELLANT AND THEREFORE OUTSTANDING DEBT IN THEIR NAME WERE RIGHTLY TREATED BY THE ASSESSING OFFICER AS DEBTOR. THE APPELLANT SUFFERED LOSS BECAUSE THE THREE SUB BROKERS DID NOT MAKE THE PAYMENT OF DEBTS OWED BY THEM TO THE APPELLANT. EVE N THIS WAS NOT CLEAR TILL THE END OF THIS ACCOUNTING YEAR. THE SUB BROKERS HAVE ALSO SUBMITTED DECLARATION THAT THEY WERE THE DEBTORS OF THE APPELLANT THEREFORE THESE DEBTORS DEFAULT IS COVERED UNDER BA D DEBTS. OBVIOUSLY THE CONDITIONS PRECEDENTS FOR ALLOWING AN Y BAD DEBTS IS NOT FULFILLED IN THE SENSE THAT SUCH DEBTS WERE NOT WRITTEN OFF AS REQUIRED U/S. 36(L)(VII) AND THEREFORE THE APPELLAN T'S CLAIM IS NOT ALLOWABLE AS BAD DEBTS. 2.3.2. COMING TO THE APPELLANT'S CLAIM OF BUSINES S LOSS, THE SAME IS APPLICABLE IN THE CASE OF LOSES FOR WHICH THERE IS NO SPECIFIC PROVISION FOR ALLOWANCE. IN THE CASE OF BAD DEBTS, THE SPECIFIC PROVISIONS ARE THERE U/S.36(1)(VII) READ WITH SECTION 36(2) AND THEREFORE THE CLAIM OF BAD DEBTS CANNOT BE CONS IDERED UNDER GENERAL CLAIM U/S.28 ON ACCOUNT OF TRADING/BUSIN ESS LOSS. THE DECISIONS REFERRED BY THE APPELLANT IN THE CASE OF KEDARNATH JUTE MFG, THAT THE WRITING OFF IN THE BOOKS OF ACCOUNTS IS NOT NECESSARY IN THE CASE OF BUSINESS LOSS, IS NOT RELEVANT IN THE F ACTS OF THE APPELLANT'S CASE. APPELLANT HIMSELF CLAIMED SUCH L OSS IN SUBSEQUENT I.T.A NO. 1364/AHD/2008 A.Y. 1994-95 PAGE NO SHRI MAHENDRA N. PATEL VS. ITO 5 YEAR BY WAY OF REVISED RETURN AND AS SUCH LOSS WAS NEVER CLAIMED IN THE BOOKS OF ACCOUNTS. AS FAR AS THIS YEAR IS CONCE RNED, SUCH CLAIM WAS MADE AFTER THREE YEARS. ALL THESE FACTS PROVE THAT THE LOSS IS NOT AT ALL RELATING TO THIS YEAR AND THEREFORE ALL THE DECISIONS REFERRED BY THE APPELLANT IN SUPPORT OR ITS CLAIM DO NOT HELP. APPELLANT HIMSELF MENTIONED SEVERAL CASE LAWS WHEREIN BUSINESS LOSS W ERE NOT ALLOWED IF THE SAME WERE NOT INCURRED IN THE PREVIO US YEAR. IN VIEW OF THE FACTS MENTIONED BY THE ASSESSING OFFICER AND A LSO DISCUSSED EARLIER, THE LOSS IS ON ACCOUNT OF NON-PAYMENT OF D UES FROM THE SUB BROKERS AND SUCH EVENTS HAPPENED IN SUBSEQUENT YEAR AND THEREFORE THE LOSS, IS NOT RELATING TO THE PREVIOUS YEAR. SIMILARLY, THE LOSS IS NOT ON ACCOUNT OF MISTAKE COMMITTED BY THE APPELLANT OR HIS EMPLOYEES. SINCE THE CLAIM OF LOSS IS MADE ONLY IN THE ASSESSMENT PROCEEDINGS AFTER THREE YEARS AND ALSO BY MAKING TH E SAME CLAIM IN THE NEXT ASSESSMENT YEAR, IT IS CLEAR THAT SUCH LOS S IS NOT INCURRED/ RELEVANT TO THIS YEAR AND HENCE NOT ALLOWABLE. 2.3.3. FIRSTLY, THE APPELLANT'S CLAIM IS CONSIDERED WITHIN THE PROVISIONS OF SECTION 36(1)(VII) READ WITH 36(2) W HEREIN THE SAME IS FOUND TO BE PRIMA FACIE REJECTABLE SINCE THE AMOUNT S WERE NOT WRITTEN OFF IN THE BOOKS OF ACCOUNTS. SECONDLY, T HE APPELLANT'S CLAIM AS BUSINESS LOSS IS NOT ALLOWABLE O N TWO COUNTS - I) BUSINESS LOSS ON ACCOUNT OF BAD DEBT IS NOT A LLOWABLE SINCE THERE IS SPECIFIC PROVISION GOVERNING THE S AME AND II) THE CLAIM IS NOT RELATING TO THE CURRENT YEAR IN VIEW OF THE FACTS MENTIONED. 5. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE I S NOW IN APPEAL BEFORE US. 6. BEFORE US LD. AR REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD. CIT(A). HE FURTHER SUBMITTED THAT THE THREE SU B-BROKERS WERE PART OF THE BUSINESS ACTIVITIES OF THE ASSESSEE AND THEREFO RE NON PAYMENT BY THEM AMOUNTED TO BUSINESS LOSS AND FURTHER THERE WAS DIR ECT NEXUS BETWEEN THE BUSINESS TRANSACTION OF THE SUB-BROKERS AND THE BUS INESS LOSSES OF THE ASSESSEE. LD. AR FURTHER SUBMITTED THAT ASSESSEE E ARNED BROKERAGE ON TRANSACTIONS MADE BY SUB-BROKER AND THE INCOME FROM SUCH BUSINESS IS TREATED AS THE BUSINESS INCOME. LD. AR FURTHER SUB MITTED THAT THE SUB- I.T.A NO. 1364/AHD/2008 A.Y. 1994-95 PAGE NO SHRI MAHENDRA N. PATEL VS. ITO 6 BROKERS HAD GIVEN POST DATED CHEQUES TO ASSESSE TO CLEAR THE DUES BUT ALL OF THE POST DATED CHEQUES GOT DISHONORED. HE POINT ED TO THE COPY OF THE CHEQUES AND THE MEMO RECEIVED FROM THE BANK WITH RE SPECT TO THE DISHONORING OF CHEQUES. THE LD. AR THEREFORE SUBMI TTED THAT THE LOSS INCURRED BY THE ASSESSEE WAS IN THE NORMAL COURSE O F BUSINESS AND THEREFORE SHOULD HAVE BEEN ALLOWED AS DEDUCTION. L D. DR ON THE OTHER HAND SUPPORTED THE ORDER OF AO AND LD. CIT(A) AND F URTHER SUBMITTED THAT NO CLAIM OF BUSINESS LOSS WAS MADE BY THE ASSESSEE IN THE RETURN OF INCOME. HE FURTHER SUBMITTED THAT THE CLAIM OF BUS INESS LOSS CANNOT BE ACCEPTED BY THE ASSESSEE AS IT IS A CASE OF BAD DEB TS AND THAT THE LOSS OF BAD DEBTS CAN ONLY BE ALLOWED ONLY AFTER COMPLYING WITH THE CONDITIONS PRESCRIBED U/S. 36(1)(VII) OF THE ACT. HE THUS SUP PORTED THE ORDER OF AO AND LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE DISPUTE IN THE PRESENT CASE IS ABOUT T HE ALLOWABILITY OF LOSS AS BUSINESS LOSS. IT IS AN UNDISPUTED FACT THAT THE A SSESSEE WAS ENGAGED AS A SHARE BROKER AND WAS MEMBER OF THE VADODARA STOCK EXCHANGE AND FURTHER ITS SUBMISSION THAT THE THREE SUB-BROKERS W ERE APPOINTED BY HIM AS PER RULES AND REGULATIONS OF STOCK EXCHANGE. THE A MOUNT DUE FROM THESE SUB-BROKERS WHICH COULD NOT BE RECOVERED ON ACCOUNT OF THEIR INABILITY TO PAY HAS BEEN CLAIMED AS BUSINESS LOSS. BEFORE US, T HOUGH IT WAS ORALLY SUBMITTED THAT ASSESSEE HAD EARNED INCOME FROM BROK ERAGE (INCLUDING THE PARTIES FROM WHOM THE AMOUNT HAS BEEN CLAIMED AS LO SS) IN EARLIER YEARS BUT HOWEVER NO SUCH DETAILS OF THE INCOME EARNED IN EARLIER YEARS HAVE BEEN FURNISHED. FURTHER, IT IS ALSO A FACT THAT TO CLEAR THE OUTSTANDING DUES AGAINST THEIR RESPECTIVE NAMES, THE SUB-BROKERS HAD ISSUED POST DATED CHEQUES WHICH SUBSEQUENTLY GOT DISHONOURED. IT IS THE SUBMISSION THAT SOME OF THE CHEQUES WERE DISHONORED DURING THE YEAR UNDER REVIEW AND I.T.A NO. 1364/AHD/2008 A.Y. 1994-95 PAGE NO SHRI MAHENDRA N. PATEL VS. ITO 7 SOME CHEQUES GOT DISHONOURED IN SUBSEQUENT YEARS. HOWEVER THE AMOUNT OF CHEQUES WHICH HAVE BEEN DISHONOURED DURIN G THE YEAR UNDER REVIEW NEEDS VERIFICATION AND THE INCOME EARNED BY THE ASSESSEE AS BROKERAGE FROM THE 3 PARTIES AND OTHER PARTIES. WE THEREFORE REMIT THE ISSUE TO THE FILE OF AO SO THAT HE CAN EXAMINE THE INCOME EARNED BY THE ASSESSEE FROM BROKERAGE IN EARLIER YEARS AND THE CH EQUES WHICH HAVE BEEN DISHONOURED DURING THE YEAR. THE ASSESSEE SHA LL BE FREE TO PRODUCE ANY ADDITIONAL DOCUMENTS BEFORE AO. THE AO AFTER EX AMINING THE AFORESAID DECIDE THE ISSUE IN ACCORDANCE WITH LAW. IN THE RESULT, THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED FOR STATIS TICAL PURPOSE. 8. THUS THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FO R STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (G.C. GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER DATED :04/03/2015 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,