IIT INVESTMENT LTD, MUMBAI V. DCIT RG 4(1), MUMBAI

ITA 1488/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48412 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2004-2005
• Appeal Filed On: 24-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV DUTT
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, I, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI T R SOOD, ACCOUNTANT MEMBER I T A NO: 1488/MUM/2010 (ASSESSMENT YEAR: 2004-05) IIT INVESTRUST LIMITED, MUMBAI APPELLANT (PAN: AAACI1080R) VS DEPUTY COMMISSIONER OF INCOME TAX RESPONDENT RANGE 4(1), MUMBAI APPELLANT BY: SHRI NITESH JOSHI RESPONDENT BY: SHRI SANJEEV DUTT O R D E R R V EASWAR, PRESIDENT: THIS APPEAL BY THE ASSESSEE RELATES TO THE ASSESSM ENT YEAR 2004-05 AND ARISES OUT OF THE ASSESSMENT ORDER PASS ED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, ON 31.1 0.2006. THE ASSESSEE IS CARRYING ON BUSINESS AS SHARE AND STOCK BROKER. 2. THE FIRST TWO GROUNDS BEFORE THE TRIBUNAL ARE DI RECTED AGAINST THE REFUSAL TO ALLOW THE CLAIM FOR BAD DEBTS OF ` 4,05,01,530/-. ACCORDING TO THE DEPARTMENTAL AUTHORITIES, THE DEBT S HAD NOT BEEN TAKEN INTO ACCOUNT IN COMPUTING THE ASSESSEES INCO ME FOR THE RELEVANT PREVIOUS YEAR OR ANY OF THE EARLIER PREVIO US YEARS AS REQUIRED BY SECTION 36(2)(I) AND THEREFORE THEY WER E NOT ALLOWABLE AS BAD DEBTS. IT WAS POINTED OUT BY THE ASSESSEE T HAT THE BROKERAGE INCOME EARNED BY THE ASSESSEE IN RESPECT OF THE DEBTS, WHICH AROSE OUT OF THE BUSINESS DONE BY THE ASSESSE E FOR ITS CLIENTS, HAD BEEN TAKEN INTO ACCOUNT IN COMPUTING T HE ASSESSEES ITA NO: 1488/MUM/2010 2 INCOME AND THEREFORE THE CONDITION PRESCRIBED BY SE CTION 36(2)(I) WAS SATISFIED. IT WAS THEREFORE PLEADED THAT THE E NTIRE DEBTS WERE ALLOWABLE AS BAD DEBTS. THE CIT(A) AGREED WITH THE VIEW TAKEN BY THE ASSESSING OFFICER BUT HELD THAT THE CLAIM OF BA D DEBT WAS ALLOWABLE ONLY UP TO THE AMOUNT OF BROKERAGE SHOWN AS INCOME IN THE EARLIER YEARS. 3. THE ASSESSEE IS IN FURTHER APPEAL BEFORE US TO C ONTEND, ON THE BASIS OF THE ORDER OF THE MUMBAI SPECIAL BENCH IN THE CASE OF DCIT VS. SHREYAS S MORAKHIA [(2010) 40 SOT 432 / (2 010) 5 ITR 1] THAT THE ENTIRE DEBTS HAVE TO BE ALLOWED AS A DEDUC TION WITHOUT LIMITING THE ALLOWANCE OF BAD DEBTS ONLY TO THE AMO UNT OF BROKERAGE INCOME EARNED AND ASSESSED IN THE EARLIER YEARS. I T HAS BEEN HELD IN THIS DECISION THAT THE CONDITION LAID DOWN BY SE CTION 36(2)(I) GETS SATISFIED IF THE BROKERAGE INCOME RELATING TO THE D EBTS CLAIMED TO HAVE BECOME BAD IS TAKEN INTO ACCOUNT WHILE COMPUTI NG THE ASSESSEES INCOME AND IT IS NOT NECESSARY THAT THE DEBTS THEMSELVES SHOULD HAVE BEEN INCLUDED AS THE ASSESSE ES INCOME IN THE RELEVANT PREVIOUS YEAR OR IN ANY OF THE EARLIER PREVIOUS YEARS. IN COMING TO THIS CONCLUSION THE SPECIAL BENCH HAS FOL LOWED THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT VS . T VEERABHADRA RAO, K KOTESWARA RAO & CO. (1985) 155 I TR 152 (SC), IN WHICH IT WAS HELD IN THE CONTEXT OF A LOAN THAT IF THE INTEREST IS OFFERED TO TAX IT AMOUNTS TO THE LOAN HAVING BEE N TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE AND THUS THE LOAN QUALIFIES FOR DEDUCTION AS BAD DEBT. THIS PRINCIPL E HAS BEEN APPLIED ITA NO: 1488/MUM/2010 3 BY THE SPECIAL BENCH TO A CASE OF DEBT ARISING ON A CCOUNT OF SHARE BROKING BUSINESS. 4. IN RESPECT OF THE ASSESSMENT YEAR 2003-04 IN THE ASSESSEES OWN CASE, THE TRIBUNAL HAS PASSED AN ORDER, TO WHIC H ONE OF US WAS A PARTY ON 22.10.2010 IN ITA NO: 5786/MUM/2007. IN THIS ORDER THE TRIBUNAL FOLLOWED THE SPECIAL BENCH DECIS ION AND UPHELD THE BAD DEBTS CLAIMED BY THE ASSESSEE. 5. WE MAY ALSO CLARIFY THAT THE SPECIAL BENCH HAS, WHILE UPHOLDING THE ASSESSEES CLAIM, HELD THAT ANY RECOV ERY MADE BY THE ASSESSEE FROM THE AMOUNT WRITTEN OFF AS BAD SHOULD BE REDUCED FROM THE BAD DEBT ALLOWANCE AND HAS DIRECTED THE AS SESSING OFFICER TO VERIFY THIS FACTUAL ASPECT WHILE GIVING EFFECT T O THE ORDER. SIMILAR DIRECTIONS ARE GIVEN BY US ALSO, AS RIGHTLY POINTED OUT BY THE LEARNED DR. 6. THUS THE ASSESSEES FIRST TWO GROUNDS ARE ALLOWE D, SUBJECT TO THE DIRECTION AS GIVEN IN THE PRECEDING PARAGRAPH. 7. GROUND NOS: 3 TO 5 ARE IN THE ALTERNATIVE. SINC E WE HAVE ALLOWED THE ASSESSEES CLAIM AS BAD DEBTS, THOSE GR OUNDS DO NOT ARISE FOR CONSIDERATION AND HAVE BECOME ACADEMIC. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED IN THE TERMS INDICATED ABOVE WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH APRIL 2011. SD/- SD/- (T R SOOD) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI, DATED 13 TH APRIL 2011 SALDANHA ITA NO: 1488/MUM/2010 4 COPY TO: 1. IIT INVESTRUST LTD. 28, RAJABAHADUR MANSION BOMBAY SAMACHAR MARG, MUMBAI 400 001. 2. DCIT, RANGE 4(1), MUMBAI 3. CIT-4, MUMBAI 4. CIT(A)-8, MUMBAI 5. DR I BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI