ITO 4(3)(2), MUMBAI V. KHANDWALA SECURITIES LTD, MUMBAI

ITA 1574/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8397 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2014
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 05-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 06-03-2012
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Keywords: Depreciation; Opportunity of being heard; Bad and doubtful debts; Unabsorbed depreciation
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A , MUMBAI BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A.NO. 998/M/2012 (AY: 2008 - 2009 ) KHANDWALA SECURITIES LTD., GR. FLOOR, VIKAS BLDG., GREEN STREET, FORT, MUMBAI 400 023. PAN:AAACK2214P VS. ITO - 4(3)(2), AAYAKAR BHAVAN, MUMBAI 400 020. (APPELLANT) (RESPONDENT) I.T.A.NO. 1574 /M/2012 (AY: 2008 - 2009 ) ITO - 4(3)(2), AAYAKAR BHAVAN, MUMBAI 400 020. VS. KHANDWALA SECURITIES LTD., GR. FLOOR, VIKAS BLDG., GREEN STREET, FORT, MUMBAI 400 023. PAN: AAACK2214P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PRAYAG JHA REVENUE BY : SHRI ASGHAR ZAIN DATE OF HEARING: 5.11.2014 DATE OF ORDER: 21 .11.2014 O R D E R PER D. KARUNAKARA RAO, AM : THERE ARE TWO APPEALS UNDER CONSIDERATION AND THEY ARE CROSS APPEALS. THESE TWO APPEALS ARE FILED AGAINST THE ORDER OF THE CIT (A) - 8, MUMBAI DATED 28.11.2011 FOR THE ASSESSMENT YEAR 2008 - 2009. SINCE, THE ISSUES RAISED IN BOTH THE APPEALS ARE CONNECTED, THEREFORE, THEY ARE CLUBBED, HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS. 2. FIRSTLY, WE SHALL TAKE UP THE ASSESSEES APPEA L ITA NO.998/M/2012. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: I. 1. THE CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE U/S 14A OF RS. 4,45,665/ - . 2. THE APPELLANT PRAYS THAT THE DISALLOWANCE U/S 14A BE DELETED. 2 II. 1. THE CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 12,98,744/ - ON ACCOUNT OF TRANSACTION CHARGES BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA). 2. THE APPELLANT PRAYS THAT THE DISALLOWANCE U/S 40(A)(IA) BE DELETED. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARE BROKING. ASSESSMENT WAS COMPLETED U/S 143(3) DETERMINING THE TOTAL INCOME AT RS. 4,07,78,484/ - AFTER ALLOWING UNABSORBED DEPRECIATION OF RS. 4,02,63,395/ - . ASSESSING OFFICER MA DE VARIOUS DISALLOWANCE INVOKING THE PROVISIONS OF SECTION 14A AND U/S 40(A)(IA) OF THE ACT. AGGRIEVED WITH THE SAME, ASSESSEE FILED AN APPEAL BEFORE THE CIT (A). 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE, CIT (A) PARTLY ALLOWED THE APPEAL. CIT (A) CONFIRMED THE DISALLOWANCE OF RS. 4,45,665/ - U/S 14A. HE ALSO CONFIRMED THE DISALLOWANCE TO THE TUNE OF RS. 12,98,744/ - ON ACCOUNT OF PAYMENT OF TRANSACTION CHARGES WITHOUT TDS INVOKING TH E PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. AGGRIEVED WITH THE SAME, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. DURING THE PROCEEDINGS BEFORE US, REFERRING TO GROUND NO.1 WHICH RELATES TO THE DISALLOWANCE U/S 14A, LD COUNSEL FOR THE ASSESSEE MENTIONE D THAT THE ISSUE NEEDS TO BE REMANDED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. IN THIS REGARD, GIVING THE REASONS FOR THE SAME, LD COUNSEL SUBMITTED THAT THE ASSESSING OFFICER HAS NOT MENTIONED HIS SATISFACTION BEFORE REJECTING THE ASS ESSEES CLAIM U/S 14A OF THE ACT. IN THIS REGARD, LD COUNSEL MENTIONED TH AT WHEN SUCH ASSESSING OFFICER FAILED TO EXPRESS HIS DISAPPROVAL / DIS SATISFACTION OF ASSESSMENT ORDER , THE TRIBUNAL CONSISTENTLY REMANDING SUCH MATTER S TO THE FILE OF THE ASSESSING O FFICER FOR FRESH ADJUDICATION AFTER MENTIONING THE REASONS FOR REJECTING THE ASSESSEES CLAIM. 6. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES . ON HEARING BOTH THE PARTIES, WE FIND FROM THE ORDER OF THE ASSESSING OFFICER THAT ASSESSEE RECEIVED DIVIDEND INCOME OF RS. 3,93,594/ - FROM THE SHARES HELD AS STOCK - IN - TRADE. ASSESSEE HAS NOT QUANTIFIED ANY AMOUNT TOWARDS EXPENSES 3 INCURRED FOR EARNING O F THE SAID DIVIDEND INCOME. IN RESPONSE TO THE ASSESSING OFFICERS QUERY ABOUT THE QUANTIFICATION OF EXPENSES, ASSESSEE FURNISHED THE WORKING FOR SECTION 14A AND QUANTIFIED THE EXPENSES A T RS. 79,327/ - . CONSIDERING THE FACT THAT ASSESSEE HAS NOT DISALLOWED ANY AMOUNT FROM THE INTEREST EXPENSE ACCOUNT (RS.78,05,994/ - ), THE ASSESSING OFFICER APPLIED THE PROVISIONS OF RULE 8D OF THE IT RULE, 1962 AND QUANTIFIED THE DISALLOWANCE AT RS. 4,45,6 65/ - WHICH WAS SUBSEQUENTLY CONFIRMED BY THE CIT (A) IN THE FIRST APPELLATE PROCEEDINGS. IN THE CON TEXT OF THE ABOVE FACTS, LD COUNSEL ARGUED THAT THE ASSESSING OFFICER FAILED TO EXPRESSLY MENTION THE DIS SATISFACTION ABOUT THE INCORRECTNESS OF THE WORKING GIVEN BY THE ASSESSEE. WE AGREE WITH THE SAME. IT IS THE REQUIREMENT OF THE LAW THAT ASSESSING OFFICER HAS TO REJECT THE CLAIM / QUANTIFICATION GIVEN BY THE ASSESSEE BEFORE THE PROVISIONS OF RULE 8D OF IT RULES, 1962 ARE INVOKED . CONSIDERING THE SETTLED PROPOSITION IN LAW, WE ARE OF THE OPINION, AS REQUESTED BY THE ASSESSEE, THE MATTER IS REMANDED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN THE MATTER. ASSESSING OFFICER SHALL GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. ACCORDINGLY, GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO.2 RELATES TO THE INVOKING OF PROVISIONS OF SECTION 40(A)(IA) OF THE ACT IN CONNECTION WITH THE PAYMENT OF TRANSACTIONS CHARGES WITHOUT MAK ING TDS. IN THI S REGARD, AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE FAIRLY MENTIONED THAT THIS ISSUE HAS TO BE DECIDED AGAINST THE ASSESSEE CONSIDERING THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KOTAK SECURITIES LTD 304 ITR 333. 9. ON THE OTHER HAND LD DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND THE CIT (A). 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED JUDGMENT OF THE BOMBAY HIGH COURT (SUPRA). ON PERUSAL OF THE ORDER OF THE CI T (A) IN GENERAL AND CONTENTS OF PARA 5.11 IN PARTICULAR, WE FIND THE CIT (A) DECIDED THE ISSUE IN FAVOR OF THE REVENUE RELYING ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF KOTAK SECURITIES LTD (SUPRA). FOR THE SAKE OF COMPLETENES S OF T HIS ORDER, WE EXTRACT THE RELEVANT PARAS 5.11 AND 5.12 OF THE SAID ORDER OF THE CIT (A), WHICH READ AS UNDER: 4 5.11. AS REGARDS TRANSACTION CHARGES THE ISSUE HAS BEEN DECIDED RECENTLY BY THE MUMBAI HIGH COURT IN THE CASE OF CIT VS. KOTAK SECURITIES LTD (IT A NO.3111 OF 2009) HAS HELD: 29) IN THE RESULT, WE HOLD THAT WHEN THE STOCK EXCHANGES ARE ESTABLISHED UNDER THE SECURITIES CONTRACTS (REGULATION) ACT, 19 56 WITH A VIEW TO PREVENT UNDESIRABLE TRANSACTIONS IN SECURITIES BY REGULATING THE BUSINESS OF DEALING IN SHARES, IT IS OBVIOUS THAT THE STOCK EXCHANGE HAVE TO MANAGE THE ENTIRE TRADING ACTIVITY CARRIED ON BY ITS MEMBERS AND ACCORDINGLY MANAGERIAL SERVICES ARE RENDERED BY THE STOCK EXCHANGES. THEREFORE, IN THE FACTS OF THE PRESENT CASE, THE TRANSACTIONS C HARGES WERE PAID BY THE ASSESSEE TO THE STOCK EXCHANGE FOR RENDERING THE MANAGERIAL SERVICES WHICH CONSTITUTES FEES FOR TECHNICAL SERVICES U/S 1941 R.W. EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT AND HENCE THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE BEFORE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXCHANGE. 5.12. HENCE, RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT, THE TRANSACTION CHARGES PAID BY THE ASSESSEE TO THE STOCK EXCHANGE CONSTITUTE FEES FOR TECHNICAL SERVICES COVERED U/S 194J OF THE IT ACT, 1961 AND THEREFORE, THE ASSESSEE WAS LIABLE TO DEDUCT TAX A T SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF STOCK EXCHANGE. T HUS, THE SUM OF RS. 12,98,744/ - BEING TRANSACTION CHARGES, W AS RIGHTLY DISALLOWED BY THE ASSESSING OFFICER U/S 40(A)(IA) OF THE ACT. HENCE, DISALLOWANCE OF RS. 12,98,744/ - IS CONFIRMED. THUS, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 11. FROM THE ABOVE, WE FIND THE CIT (A) HAS RIGHTLY ADJUDICATE THE ISSUE RELYING ON THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF KOTAK SECURITIES LTD (SUPRA) WHICH IS RELEVANT FOR THE PROPOSITION THAT THE TRANSACTION CHARGES PAID BY THE ASSESSEE TO THE STOCK EXCHANGE CONSTITUTE FEES OF FOR TECHNICAL SERVICES AND THEREFORE, THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE. CONSIDERING THE SETTLED POSITION OF THE ISSUE, WE ARE OF THE OPINION THAT THE CIT (A)S DECISION IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.2 RAISED BY THE ASSESSE E IS DISMISSED. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 1574/M/2012 (AY 2008 - 2009) (BY REVENUE) 13. THIS APPEAL FILED BY THE REVENUE ON 6.3.2012 IS AGAINST THE ORDER OF THE CIT (A) - 8, MUMBAI DATED 28.12 .2011 FOR THE ASSESSMENT YEAR 2008 - 2009. 14. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DELETING THE DISALLOWANCE AMOUNTING TO RS. 19,52,304/ - ON ACCOUNT OF BAD DEBTS U/S 36(1)(VII). 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER OF THE LD CIT (A) IS CONTRARY TO LAW TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5 15. THE ONLY ISSUE RAISED IN THIS APPEAL RELATES TO THE DISALLOWANCE ON ACCOUNT OF BAD DEBTS AMOUNTING TO RS. 19,52,304/ - . THE CONTENTS OF PARAS 4 TO 4.5 OF THE IMPUGNED ORDER ARE RELEVANT IN THIS REGARD. IT IS THE CASE OF THE ASSESSEE THAT THE CLIENTS REFUSED TO PAY PART OF THE OUT STANDING AMOUNTS WHICH ARE TREATED BY THE ASSESSEE AS BAD DEBTS ALLOWABLE U/S 36(1)(VII) OF THE ACT. ASSESSING OFFICER DENIED THE ASSESSEES CLAIM OF DEDUC TION FOR WANT OF DETAILS, NATURE OF TRANSACTIONS ETC. OTHERWISE, ASSESSEE FURNISHED THE DETAILS OF THE DEBTS AND REASONS FOR WRITE OFF. THE CONTENTS OF PARA 4 OF THE ASSESSMENT ORDER ARE RELEVANT IN THIS REGARD. AGGRIEVED, ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 16. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AF TER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) HELD THAT THE BAD DEBTS ARE ALLOWABLE. FOR THIS PROPOSITION HE RELIED ON THE BINDING JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD. VS. CIT [2010] 323 ITR 397 (SC) FOR THE PROPOSI TION THAT IT IS NOT NECESSARY FOR ASSESSEE TO ESTABLISH THAT THE DEBT HAS BECOME BAD AND IRRECOVERABLE. AS PER THE SAID DETAILS, IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT OF ASSESSEE. CIT (A) CONSIDERED THE SAME AND ALLO WED THE CLAIM OF THE ASSESSEE AS PER THE DISCUSSION GIVEN IN PARA 4.5 OF THE IMPUGNED ORDER. 17. ON THE OTHER HAND, LD DR DUTIFULLY RELIED ON THE ORDER OF THE ASSESSING OFFICER. 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHO RITIES. ON PERUSAL OF THE CIT (A)S ORDER IN GENERAL AND PARAS 4.4 AND 4.5 IN PARTICULAR, WE FIND THE SAME ARE RELEVANT IN THIS REGARD. CONSIDERING THE IMPORTANCE OF THE SAID PARAS 4.4 AND 4.5, WE EXTRACT THE SAME WHICH READ AS UNDER: 4.4. FURTHER, IN T HE RECENT CASE OF TRF LTD VS. CIT, 230 CTR 14 ( SC ), THE HONBLE SUPREME COURT HAS HELD THAT AFTER 1 ST APRIL, 1999 IT IS NOT NECESSARY TO THE APPELLANT TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT OF THE ASSESSEE. 4.5. THUS, FROM THE ABOVE DECISIONS, IT IS CLEAR THAT THE AMOUNT RECEIVABLE BY THE ASSESSEE, WHO IS A SHARE BROKER, FROM HIS CLIENTS, ON THEIR BEHALF, CONSTITUTE DEBT WHICH IS A TRADING DEBT. THE BROKERAGE / COMMISSION INCOME ARISING FROM SUCH TRANSACTIONS, VE RY MUCH FORMS THE PART OF THE SAID DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE / COMMISSION HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE RELEVANT PREVIOUS YEAR OR ANY EARLIER YEARS, IT SATISFIES THE CONDITION STIPULATED IN SECT ION 36(2)(I) AND THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 36(1)(VII) BY WAY OF BAD DEBTS. HENCE, 6 THE BAD DEBT DISALLOWED BY THE ASSESSING OFFICER IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 19. FROM THE ABOVE, IT IS A SETTLED PROPOSITION THAT THERE IS NO NEED FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT HAS BECOME IRRECOVERABLE AND IT IS SUFFICIENT IF THE SAME IS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNT. CONSIDERING THE SAME, CIT (A) HAS RIGHTLY ADJUDICATED THE ISSUE ON HAND RELYING ON THE BINDING JUDGMENT OF THE APEX COURT IN THE CASE OF TRF LTD (SUPRA). THEREFORE, IN OUR OPINION THE CONCLUSION DRAWN BY THE CIT (A) WHILE ALLOWING THE ASSESSEES APPEAL IS FAIR AND REASONABLE AND IT DO ES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 20. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOU N CED IN THE OPEN COURT ON 2 1 S T NOVEMBER, 2014. S D / - S D / - (H.L. KARWA) (D. K ARUNAKARA RAO) PRESIDENT ACCOUNTANT MEMBER DATE: 2 1 .11.2014. AT :MUMBAI OKK COPY TO : 1. APPELLANT 2. RESPONDENT 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR A, BENCH, ITAT, MUMBAI. 6. GUARD FIL E. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI