ITO, Ward - 12(3), Kolkata, Kolkata V. M/s. Thakorlal Hiralal Exports Pvt. Ltd., Kolkata

ITA 1511/KOL/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3124 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2013
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 08-11-2011
• Court: TRIBUNAL
• Department Lawyers: K N JANA
• Assessee Lawyers: S JHAJHARIA
• Keywords: Business income; Speculation loss; Bad and doubtful debts

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C , KOLKATA [ () . .. . . .. . , ,, , , ! ' #!' ' #!' ' #!' ' #!', ,, , ] ]] ] [BEFORE HONBLE SRI N.S.SAINI AM & HONBLE SRI M AHAVIR SINGH, JM] !% !% !% !% /ITA NOS.1511 & 1512/KOL/2011 #& '(/ ASSESSMENT YEARS : 2005-06 & 2006-07 (*+ / APPELLANT ) - - ( -.*+ /RESPONDENT) I.T.O., WARD-12(3) M/S.THAKORLAL HIRALAL EXPORTS KOLKAT - VERSUS- PVT.LTD,.KOLKATA (PAN:AABCT 1521 H) *+ / 0 / FOR THE APPELLANT: SHRI K.N.JANA, SR.DR -.*+ / 0 / FOR THE RESPONDENT: SHRI S.JHAJHARIA, 1 2 / 3 /DATE OF HEARING : 13.06.2013 4' / 3 /DATE OF PRONOUNCEMENT : 18.06.2013 5 / ORDER PER SHRI N.S.SAINI, AM THESE ARE APPEALS FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)-XII, KOLKATA BOTH DATED 05.08.2011 FOR A.YRS.2005-06 AND 2006-07. 2. THE FIRST GROUND OF APPEAL IN THE A.YR. 2005-06 AND THE ONLY GROUND OF APPEAL IN A.YR.2006-07 IS DIRECTED AGAINST THE ORDER OF TH E LD. CIT(A) IN ALLOWING RELIEF OF RS.2,27,495/- IN A.YR. 2005-06 AND RS.14,64,632/- I N A.YR.2006-07 BY OBSERVING THAT THE PROVISIONS OF SECTION 73 IS NOT APPLICABLE WHIL E THE AO HAS ACTUALLY RELIED UPON THE RECOMPUTATION OF SPECULATION PROFIT SUBMITTED B Y THE ASSESSEE DURING THE SCRUTINY ASSESSMENT PROCEEDINGS OF THE CASE. 3. THE BRIEF FACTS OF THE CASE ARE THAT IN THE ASS ESSMENT YEAR 2005-06 THE AO OBSERVED THAT ON SCRUTINY OF THE BOOKS OF ACCOUNTS LOCATED AT KOLKATA IT IS OBSERVED THAT THE ASSESSEE COMPANY HAS SUFFERED NET LOSS OF RS.6,73,870/-. THE ASSESSEE WAS SHOW CAUSED AS TO WHY SUCH LOSS SHOULD NOT BE TREAT ED AS SPECULATION LOSS IN DEALING ITA NOS.1511&151 2/KOL/2011 ITO. WARD-12 (3),KOL VS M/S.THAKORLAL HIRALAL EXPORTS PVT. LTD. A. YRS.2005-06 & 2006-07 2 WITH SHARES AND SECURITIES. IN REPLY TO THE SHOW CA USE NOTICE ON 20.12.2007 THE ASSESSEE SUBMITTED THAT DURING THE YEAR ENDING 31.3 .2005 THE KOLKATA BRANCH HAS EARNED A PROFIT OF RS.99,34,677/- ON SALE OF INVEST MENT. THIS COMPRISES OF LONG TERM CAPITAL GAIN OF RS.90,33,310/- AND SHORT TERM CAPIT AL GAINS OF RS.9,01,367/-. SINCE KOLKATA ACTIVITY WAS BEING CONSIDERED AS SPECULATIO N SHORT TERM GAIN AS SPECULATION AND INSTEAD OF RS.673870/- SHOWN BY AO AS SPECULATI ON LOSS AS PER LETTER DATED 7.1.2007 HAS BEEN ARRIVED WRONGLY AND SPECULATION L OSS /PROFIT SHOULD BE CALCULATED AS DEBITED BELOW : PROFIT OF KOLKATA BRANCH RS.9922334 LESS : DIVIDEND RS. 661529 RS.9260805 LESS: L.T. PROFIT ON SALE OF SHARES RS.9033310 PROFIT OF KOLKATA BRANCH DUE TO RS. 227495 SPECULATION. IT APPEARS THAT THE ASSESSEES ABOVE CALCULATION OF SPECULATION PROFIT IS CORRECT. 3.1. THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A ) AND SUBMITTED THAT IF THE GROSS TOTAL INCOME OF THE ASSESSEE COMPRISES OF DIVIDEND INCOME FROM LONG TERM CAPITAL GAIN ETC, THEN THE EXPLANATION TO SECTION 73 OF THE ACT WOULD NOT APPLY. THE LD. CIT(A) OBSERVED THAT THE BUSINESS ACTIVITIES ARE CONDUCTED BY THE ASSESSEE AT MUMBAI AND KOLKATA AS TWO DISTINCT BUSINESS ACTIVITIES. WHILE TREATING THE BUSINESS ACTIVITY AT KOLKATA AS INDEPENDENT ACTIVITY THE AO HAD APPLIED EXPLANATION TO SECTION 73 OF THE ACT FOR WHICH HE HAS NOT GIVEN ANY JUSTIFICATION IN HIS ORDER. THE MAIN ARGUMENT OF THE ASSESSEE IS THAT FOR COMPUTING THE TOTAL INCOME THE COMPANY AS A WHOLE HAS TO BE CONSIDERED AND NO BRANCH CAN BE TREATED AS INDEPEND ENT AND SINCE THE INCOME FROM DIVIDEND INCOME AND CAPITAL GAINS EXCEEDED BUSINESS INCOME THE EXPLANATION TO SECTION 73 WAS NOT APPLICABLE. THEREFORE HE HELD T HAT EXPLANATION TO SECTION 72 WAS NOT APPLICABLE AND ALLOWED THE GROUND OF APPEAL OF THE ASSESSEE. 3.2. IN THE ASSESSMENT YEAR 2006-07 THE AO TREATED THE SHORT TERM CAPITAL GAINS EARNED FROM SHARE TRANSACTIONS OF RS.14,64,632/- AT KOLKATA OFFICE AS SPECULATIVE PROFIT. ITA NOS.1511&151 2/KOL/2011 ITO. WARD-12 (3),KOL VS M/S.THAKORLAL HIRALAL EXPORTS PVT. LTD. A. YRS.2005-06 & 2006-07 3 3.3. ON APPEAL THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HELD THAT THE ASSESSEE WAS CARRYING ON SHARE ACTIVITY AT MUMBAI OFFICE AS WELL AS KOLKATA BRANCH. HE OBSERVED THAT THE AO WAS NOT JUSTIFIED I N TREATING THE BUSINESS ACTIVITY AT KOLKATA AS INDEPENDENT ACTIVITY BY APPLYING EXPLANA TION TO SECTION 73 OF THE IT ACT. THE LD. CIT(A) OBSERVED THAT THE TOTAL INCOME OF TH E COMPANY AS A WHOLE HAS TO BE CONSIDERED AND IF THAT IS DONE THEN THE TOTAL INCOM E OF THE ASSESSEE COMPRISES MAINLY OF INCOME FORM OTHER SOURCES AND THEREFORE EXPLANAT ION TO SECTION 73 WAS NOT APPLICABLE AND ALLOWED THE GROUND OF APPEAL OF THE ASSESSEE. 3.4. BEING AGGRIEVED THE REVENUE IS IN APPEAL BEFOR E US. 4. THE LD. DR SUPPORTED THE ORDER OF THE AO WHEREAS THE LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT(A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT DURING THE A,YR. 2005-06 THE AO TREATED THE PROFIT FROM SHARE TRANSACTIONS AT KOLKATA BRANCH OF THE ASSESSEE AMOUNTING TO RS.2,27,495/- A S SPECULATIVE PROFIT BY APPLYING EXPLANATION TO SECTION 73 OF THE IT ACT. SIMILARLY FOR A.YR. 2006-07 THE AO TREATED THE PROFIT FORM SHARE TRANSACTIONS AT KOLKATA OFFICE AM OUNTING TO RS.14,64,632/- AS SPECULATIVE PROFIT BY APPLYING EXPLANATION TO SECTI ON 73 OF THE IT ACT. 5.1. BEING AGGRIEVED THE ASSESSEE FILED APPEAL BEFO RE THE LD. CIT(A) AND CONTENDED THAT WHILE APPLYING THE EXPLANATION TO SECTION 73 T HE AO HAS WRONGLY CONSIDERED THE INCOME OF THE KOLKATA BRANCH ONLY AND HAS NOT CONSI DERED THE INCOME OF THE ASSESSEE OF MUMBAI OFFICE AND HENCE NOT CONSIDERED THE INCOM E OF THE COMPANY AS A WHOLE. IF THE INCOME FROM MUMBAI AND KOLKATA OFFICE ARE TAKEN TOGETHER THEN THE INCOME OF THE ASSESSEE COMPRISES MAINLY OF CAPITAL GAINS AND INCO ME FROM OTHER SOURCES WHICH IS COVERED BY EXCEPTION AS CARVED OUT IN EXPLANATION T O SECTION 73 OF THE ACT AND HENCE THE PROVISIONS OF SECTION 73 OF THE ACT ARE NOT APP LICABLE TO THE ASSESSEE. BEFORE THE LD. CIT(A) THE ASSESSEE FILED COPY OF COMPUTATION OF IN COME FOR BOTH THE ASSESSMENT ITA NOS.1511&151 2/KOL/2011 ITO. WARD-12 (3),KOL VS M/S.THAKORLAL HIRALAL EXPORTS PVT. LTD. A. YRS.2005-06 & 2006-07 4 YEARS AND BEING SATISFIED WITH THE SAME THE CIT(A) HELD THAT AS THE INCOME OF THE ASSESEE COMPRISES MAINLY OF INCOME FROM OTHER SOURC ES AND CAPITAL GAINS, THEREFORE SECTION 73 WAS NOT APPLICABLE TO THE ASSESSEE AND A LLOWED THE APPEAL OF THE ASSESSEE. 5.2. BEING AGGRIEVED THE REVENUE HAS FILED THIS APP EAL. THE LD. DR HAS RELIED ON THE ORDER OF THE AO AND THE LD. AR OF THE ASSESSEE HAS SUPPORTED THE ORDER OF THE LD. CIT(A). WE FIND THAT NO SPECIFIC ERROR IN THE ORDER OF THE LD. CIT(A) COULD BE POINTED OUT BY THE LD. DR. WE FURTHER FIND THAT SECTION 73 DOES NOT PERMIT THE REVENUE TO COMPARE THE ASSESSEES INCOME BRANCH WISE OR OFFICE WISE. THE ENTIRE INCOME OF THE ASSESSEE COMPUTED HEAD WISE AS PER THE PROVISIONS O F THE ACT IS TO BE COMPARED TO CONSIDER THE APPLICABILITY OF SECTION 73 OF THE ACT OR OTHERWISE. IN THE INSTANT CASE IT IS NOT IN DISPUTE THAT ON SO COMPARING BY TAKING INTO CONSIDERATION THE ENTIRE INCOME OF THE ASSESSEE PROVISIONS OF SECTION 73 OF THE ACT IS NOT ATTRACTED IN THE CASE OF THE ASSESSEE. WE THEREFORE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) WHICH IS CONFIRMED AND THE GROUNDS OF AP PEAL OF THE REVENUE FOR BOTH THE YEARS UNDER CONSIDERATION ARE DISMISSED. 6. IN THE A.YR. 2005-06 THE OTHER ISSUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF BAD DEBT OF RS.15,00,000/- OBSERVIN G THAT PROVISIONS OF SECITON 36(1)(VII) READ WITH SECTION 36(2) ARE SATISFIED WH ILE THE AO RIGHTLY TREATED THE SAID AMOUNT AS CAPITAL LOSS. 7. THE BRIEF FACTS OF THE CASE ARE THAT THE AO OBSE RVED THAT THE ASSESSEE HAS CLAIMED BAD DEBT OF RS.15,00,000/-. ON SHOW CAUSE N OTICE THE ASSESSEE SUBMITTED THE DETAILS OF BAD DEBTS AND SUBMITTED THAT THE AMOUNT WAS DUE FORM M/S.SUN EARTH CARRIERS LTD. AND WERE ADVANCED AS INTER CORPORATE DEPOSITS ON OR ABOUT 30.08.2001. THE AO OBSERVED THAT THE ASSESSEE FILED XEROX COPY OF THE LETTER ADDRESSED TO INSPECTOR IN CHARGE DATED 16 TH MAY, 2003 WHEREIN THE ASSESSEE HAS FILED A COMPLAI NT IN THE 33 RD COURT BALLORD PIER, MUMBAI BEARING NO.C.C.NO.1896/ S/2002 U/S 138 OF THE ACT. THE ASSESSEE DID NOT SUBMIT JUDGMENT OF THE CO URTS ORDER BEFORE HIM. THEREFORE THE AO HELD THAT THE AMOUNT OF LOAN OF RS.15,00,000 /- WRITTEN OFF AS BAD DEBT CANNOT ITA NOS.1511&151 2/KOL/2011 ITO. WARD-12 (3),KOL VS M/S.THAKORLAL HIRALAL EXPORTS PVT. LTD. A. YRS.2005-06 & 2006-07 5 BE ALLOWED DEDUCTION TO THE ASSESSEE. THE AO OBSER VED THAT A SUM OF RS.15,00,000/- GIVEN AS LOAN TO M/S. SUN EARTH CARRIERS LTD. WAS O UT OF THE CAPITAL FUND OF THE ASSESSEE AND NON-RECOVERY OF THE SAID LOAN WAS A CA PITAL LOSS AND DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE. 7.1. ON APPEAL THE LD. CIT(A) OBSERVED THAT THE ASS ESSEE HAD GIVEN INTER CORPORATE DEPOSITS IN THE NORMAL COURSE OF BUSINESS TO M/S. S UN EARTH CARRIERS LTD. OF RS.15,00,000/- AND COULD NOT RECOVER THE SAME IN SP ITE OF ITS BEST EFFORTS. THEREFORE HE ALLOWED THE DEDUCTION OF RS.15,00,000/- AS BAD DEBT TO THE ASSESSEE. 8. THE LD. DR HAS SUPPORTED THE ORDER OF THE AO. 9. THE LD. AR OF THE ASSESSEE SUPPORTED THE ORDER O F THE LD. CIT(A). 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD, WE F IND THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.15,00,000/- AS BAD DEBTS BEING INTE R CORPORATE DEPOSITS GIVEN TO M/S.SUN EARTH CARRIERS LTD. ON OR ABOUT 30.08.2001. AS THE AMOUNT HAD BECOME IRRECOVERABLE THE ASSESSEE CLAIMED DEDUCTION OF THE SAME AS BAD DEBT. THE AO HAS DISALLOWED THE DEDUCTION FOR THE SAME BY TREATING I T AS CAPITAL LOSS. ON APPEAL THE LD. CIT(A) HAS HELD THAT THE SAME WAS ADVANCED AS INTER CORPORATE DEPOSITS BY THE ASSESSEE IN THE NORMAL COURSE OF BUSINESS AND THERE FORE ALLOWED THE SAME AS DEDUCTION TO THE ASSESSEE AS BAD DEBT. THE LD. AR OF THE ASSE SSEE SUBMITTED THAT THE INTEREST EARNED ON THESE DEPOSITS HAS BEEN SHOWN AS BUSINESS INCOME AND THE SAME HAS BEEN ASSESSED TO TAX AS BUSINESS INCOME. HENCE HE SUBMIT TED THAT THE CONDITIONS OF SECTION 36(2) OF THE ACT WERE SATISFIED IN THE CASE OF THE ASSESSEE. THEREFORE THE LD. CIT(A) HAS RIGHTLY ALLOWED THE CLAIM FOR BAD DEBT TO THE A SSESSEE OF RS.15,00,000/-. THE LD. DR COULD NOT CONTROVERT THE SUBMISSIONS OF THE LD. AR OF THE ASSESSEE DURING THE COURSE OF HEARING. THE LD. DR ALSO COULD NOT POINT OUT ANY ERROR IN THE FINDINGS OF THE LD. CIT(A) THAT THE INTER CORPORATE DEPOSIT IN QUES TION WAS ADVANCED BY THE ASSESSEE DURING THE COURSE OF ITS NORMAL BUSINESS. THEREFOR E WE DO NOT FIND ANY GOOD AND ITA NOS.1511&151 2/KOL/2011 ITO. WARD-12 (3),KOL VS M/S.THAKORLAL HIRALAL EXPORTS PVT. LTD. A. YRS.2005-06 & 2006-07 6 11. IN THE RESULT THE APPEALS OF THE REVENUE FOR BO TH THE YEARS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.06.2013. SD/- SD/- [ .' #!' , ] [ .., ,, , ] [MAHAVIR SINGH ] [N.S.SAINI] JUDICIAL MEMBER ACCOUNTANT MEMBER ( (( (3 3 3 3) )) ) DATE: 18.06.2013. R.G.(.P.S.) 5 / -##6 76'8- COPY OF THE ORDER FORWARDED TO: 1. M/S. THAKORLAL HIRALAL EXPORTS PVT. LTD., 1A, ASHUT OSH MUKHERJEE ROAD, 101, ELGIN CHAMBER, KOLKATA-700020. 2 I.T.O., WARD-12(3), KOLKATA 3 . CIT KOLKATA 4. CIT (A)-XII, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. .6 -#/ TRUE COPY, 51/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES