ISE SECURITIES & SERVICES LTD, NAVI MUMBAI V. DCIT RG 4(1), MUMBAI

ITA 1595/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3847 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: I
• Next Hearing Date: 04-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 07-03-2014
• Court: TRIBUNAL
• Assessee Lawyers: AJAY R SINGH
• Keywords: Bad and doubtful debts
• Section: 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL I , BENCH MUMBAI BEFORE SHRI R.C.SHARMA , A M & SHRI AMARJIT SINGH , J M ./ ITA NO . 1595 /MUM /20 1 4 ( / ASSESSMENT YEAR : 20 10 - 20 11 ) M/S ISE SECURITIES & SERVICES LTD., INTERNATIONAL INFOTECH PARK, TOWER 7, 5 TH FLOOR, SECTOR - 30, VASHI RLY STATION COMPLEX, VASHI, NAVI MUMBAI - 400703 VS. DCIT, RANGE - 4(1), MUMBAI ./ ./ PAN/GIR NO. : A A ACI 6011 L ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI AJAY R. SINGH /REVENUE BY : MR. SANTOSH MANKOSKAR / DATE OF HEARING : 04/02/2016 / DATE OF PRONOUNCEMENT 27/04 /201 6 / O R D E R PER R.C.SHARMA (A.M) : TH IS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A), MUMBAI , DATED 2 - 1 - 2014 , FOR THE ASSESSMENT YEAR 20 10 - 2011 , IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE I.T.ACT, ON THE FOLLOWING GROUNDS : - 1) O N TH E FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN ADDING THE DIVIDEND AMOUNT OF RS.33,500/ - DISALLOWED U/S.14A OF THE INCOME TAX ACT. 2) O N THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN ADDING THE AMOUNT OF RS.92,27,364/ - ON ACCOUNT OF BAD DEBTS WRITTEN OFF. 3) O N THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN ADDING THE AMOUNT OF RS.9,87,820/ - ON ACCOUNT OF SUNDRY BALANCES WRITTEN OFF. 2 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECO RD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS REGISTERED BY SEBI AS TRADING - CUM - CLEARING ITA NO. 1595 /1 4 2 MEMBER IN THE CAPITAL MARKET SEGMENT AND FUTURE & OPTIONS SEGMENT OF NSE AND CAPITAL MARKET SEGMENT OF BSE AND ENGAGED IN THE BUSINESS OF EQUITY SHARE BROKING, T RADING AND DEALING IN SHARES AND SECURITIES AND ALSO DEPOSITORY PARTICIPANT UNDER CDSL. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE AO MADE AN ADDITION OF RS.33,500/ - U/S.14A, WHICH WAS CONFIRMED BY THE CIT(A). 3. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT DURING THE YEAR ASSESSEE COMPANY RECEIVED DIVIDEND INCOME OF RS.5,20,000/ - WHICH WAS CLAIMED AS EXEMPT U/S.10(34). THE DIVIDEND INCOME RECEIPT WAS OUT OF SHARES ALLOTTED TO THE ASSESSEE BY BSE UNDER CORPORATIZATION AND DEMUTUALIZATION OF BSE AP PROVED BY THE SEBI. THUS, THE DIVIDEND INCOME WAS EARNED OUT OF THE SHARES WHICH HAVE BEEN ALLOTTED BY BSE IN LIEU OF OWNERSHIP, MEMBERSHIP RIGHT UNDER THE CORPORATIZATION AND DEMUTUALIZATION SCHEME OF BSE APPROVED BY SEBI. THE ASSESSEE HAS NOT INCURRED AN Y EXPENDITURE FOR THIS DIVIDEND INCOME EARNED, INSOFAR AS IT WAS IN THE NATURE OF STRATEGIC INVESTMENT. AS PER DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. AND THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASES OF PIEM HOTELS LTD AND GARWARE WALL ROPES LTD., SUCH STRATEGIC INVESTMENT IS TO BE TAKEN OUT OF AVERAGE INVESTMENT WHILE COMPUTING DISALLOWANCE U/S.14A READ WITH RULE 8D. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE DISALLOWANCE OF RS. 33,500/ - MADE BY THE AO. 4. THE AO HAS ALSO DISALLOWED ASSESSEES CLAIM OF BAD DEBTS OF RS. 92,27,364/ - . IN THIS REGARD THE AO OBSERVED AS UNDER : - 6.1 IT IS SEEN FROM THE COMPUTATION OF TOTAL INCOME FOR THE YEAR UNDER CONSIDERATION THAT THE ASSESSEE HAS REDUCED AN AMOUNT OF ITA NO. 1595 /1 4 3 RS.92,27,364/ - ON A/C OF BAD DEBTS FROM NET PROFIT OF THE YEAR IN ITS COMPUTATION OF INCOME AND THE ASSESSEE HAS NOT CLAIMED BAD DEBTS IN THE P&L A/C. FURTHER, IT IS SEEN THAT THE ASSESSEE HAS NOT FILED ANY SUPPORTING DETAILS IN RESPECT OF THE CLAIM. VIDE ORDER SHEET DATED 4 - 12 - 2012, ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM WHICH WAS REPLIED BY THE ASSESSEE ON 19 - 12 - 2012. NOT BEING SATISFIED WITH THE ASSESSEES REPLY THE AO DISALLOWED ASSESSEES CLAIM OF BAD DEBTS. BY THE IMPUGNED ORDER THE CIT(A) CONFIRMED THE ABOVE ADDITION. 5. IT WAS CONTENDED BY LD. AR THAT ISSUE IS COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SHREYAS S. MORAKHIA 342 ITR 285 AND THE HONBLE BOMBAY HIGH COURTS ORDER IN ASSESSEES OWN CASE FOR A.Y.2005 - 06 ON VERY SAME ISSUE. LD. AR FUR THER SUBMITTED THAT ASSESSEE HAS FILED COMPLETE DETAILS OF EACH PARTY ALONG WITH SUPPORTING DOCUMENTS. BROKERAGE EARNING DETAILS WITH RESPECT TO EACH PARTY WAS ALSO SUBMITTED . OUR ATTENTION WAS ALSO INVITED TO THE SUBMISSION FILED BEFORE THE CIT(A) ON 15 - 1 0 - 2013 AND 3 - 12 - 2013. IT WAS FURTHER CONTENDED BY LD. AR THAT THERE WAS RECOVERY OF AMOUNT IN SUBSEQUENT YEARS OF RS.25,50,000/ - AND RS.6,32,224.80/ - WHICH WAS OFFERED TO TAX. HE FURTHER CONTENDED THAT SAME ISSUE HAD ARISEN IN A.Y.2005 - 06 WHEREIN THE TRIBU NAL ALLOWED THE CLAIM RELYING ON DECISION IN CASE OF SHREYAS MORAKHIA SPL. BENCH (THE DECISION WAS APPROVED BY HONBLE BOMBAY HIGH COURT AND IN ASSESSEES OWN CASE THE SAME WAS FOLLOWED). 6. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF AO AND CONTENDE D THAT ASSESSEE HAS NOT WRITTEN OFF BAD DEBTS IN ITS BOOKS OF ACCOUNTS, ITA NO. 1595 /1 4 4 THEREFORE, THE SAME IS NOT ALLOWABLE MERELY BECAUSE IT WAS CLAIMED IN THE COMPUTATION OF INCOME FILED ALONG WITH THE RETURN. 7. WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE THROUGH T HE ORDERS OF AUTHORITIES BELOW AS WELL AS ORDER PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005 - 06. THERE IS NO DISPUTE TO THE PROPOSITION THAT IN CASE OF SHARE BROKER THE ONLY BROKERAGE IS REQUIRED TO BE OFFERED IN EARLIER YEAR, THEREFORE, CLAIM OF BAD DEBTS CANNOT BE DECLINED IN THE CASE OF BROKER MERELY ON THE PLEA THAT PRINCIPAL AMOUNT OF DEBT WAS NOT OFFERED AS INCOME IN EARLIER YEAR. WE ALSO FOUND THAT ASSESSEE HAS FILED DETAILS REGARDING EACH PARTY ALONG WITH SUPPORTING EVI DENCE INDICATING THEIR BAD FINANCIAL POSITION. HOWEVER, CLAIM OF BAD DEBTS U/S.36(1)(VII) READ WITH SECTION 36(2) CAN BE ALLOWED AS A DEDUCTION WHERE THE ASSESSEE HAS WRITTEN OFF DEBTS IN ITS BOOKS OF ACCOUNT AND DEDUCTED THE SAME IN ITS PROFIT AND LOSS AC COUNT. EVEN MERE CLAIM OF PROVISION FOR BAD DEBTS IN THE PROFIT AND LOSS ACCOUNT WILL NOT BE SUFFICIENT FOR ALLOWING CLAIM OF BAD DEBTS U/S.36(1)(VII). IN THE INSTANT CASE, THE AO HAS OBSERVED THAT ASSESSEE HAS NOT CLAIMED BAD DEBTS IN ITS PROFIT AND LOSS ACCOUNT AND MERELY IN THE COMPUTATION OF INCOME THE ASSESSEE HAS REDUCED THIS AMOUNT. HOWEVER, NOTHING WAS BROUGHT ON RECORD BY THE LD. AR TO PERSUADE US TO HOLD THAT THIS FINDING OF AO WAS INCORRECT. IN THE INTEREST OF JUSTICE, WE RESTORE THIS MATTER BACK TO THE FILE OF AO FOR DECIDING AFRESH AFTER FINDING OUT AS TO WHETHER ASSESSEE HAS ACTUALLY DEBITED THE AMOUNT OF BAD DEBTS IN ITS PROFIT AND LOSS ACCOUNT. WE FURTHER DIRECT THE AO THAT MERE OFFERING OF INCOME ON ACCOUNT OF BROKERAGE WILL BE SUFFICIENT CLAIM OF ITA NO. 1595 /1 4 5 P RINCIPAL AMOUNT OF DEBT AND IT IS NOT NECESSARY THAT THE AMOUNT WRITTEN OFF AS BAD DEBTS SHOULD HAVE BEEN SHOWN AS INCOME IN EARLIER YEARS. WE DIRECT ACCORDINGLY. 8. THE ASSESSEE IS ALSO AGGRIEVED FOR DISALLOWANCE OF RS. 9,87,820/ - ON ACCOUNT OF SUNDRY BALA NCES WRITE OFF. 9. FROM THE RECORD WE FOUND THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY HAS WRITTEN OFF SUNDRY DEBIT BALANCES OF VARIOUS ACCOUNTS AND DEBITED TO P&L ACCOUNT. WE ALSO FOUND THAT SIMILAR ISSUE WAS RESTORED BY THE TRIBUNAL I N ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 - 2010 TO THE FILE OF CIT(A) TO RE ADJUDICATE. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE RESTORE THIS ISSUE ALSO BACK TO THE FILE OF AO FOR ADJUDICATING AFRESH IN TERMS OF DI RECTIONS GIVEN BY THE TRIBUNAL IN ITS ORDER FOR ASSESSMENT YEAR 2009 - 2010. 10 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 27/04 / 201 6 . SD/ - SD/ - ( AMARJIT SINGH ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 27/04 /201 6 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE R ESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//