THE CHURIWALA SECURITIES PVT. LTD, MUMBAI V. M/S. DY CIT 4(1), MUMBAI

ITA 1720/MUM/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8784 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 11-01-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 10-03-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P N DEVDASAN
• Assessee Lawyers: C P RAMASWAMI
• Keywords: Depreciation; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1720/MUM/2008 (ASSESSMENT YEAR: 2005-06) M/S. CHURIWALA SECURITIES P. LTD. DCIT, CIRCLE - 4( 1) 305, COMMERCE HOUSE MUMBAI NAGINDAS MASTER ROAD VS. FORT, MUMBAI 400023 PAN - AAACC 6224 F APPELLANT RESPONDENT APPELLANT BY: SHRI C.P. RAMASWAMI RESPONDENT BY: SHRI P.N. DEVDASAN O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)-IV, MUMBAI DATED 27.12.2007. THIS APPEAL WAS ORIGINALLY DISMISSED AS NOT ADMITTED AND BY THE ORDER IN MA NO. 493/MUM/2009 DA TED 09-09-2010 THE APPEAL WAS RECALLED AND POSTED FOR HEARING. 2. ASSESSEE HAS RAISED FIVE GROUNDS OUT OF WHICH GROUN D NOS. 1, 4 & 5 ARE GENERAL IN NATURE. 3. GROUND NO. 2 PERTAINS TO THE ISSUE OF DEPRECIATION ON STOCK EXCHANGE MEMBERSHIP CARD. ASSESSEE CLAIMED DEDUCTION OF ` 24,37,500/- AS DEPRECIATION ON THE STOCK EXCHANGE MEMBERSHIP CARD. THE A.O., FO LLOWING HIS ORDERS FOR A.Y. 2004-0, DISCUSSED THE ISSUE ELABORATELY AND HE LD THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEPRECIATION. THE CIT(A), FOLLOWING HI S ORDER FOR A.Y. 2004-05, CONFIRMED ASSESSING OFFICERS STAND AND DISMISSED A SSESSEES GROUND. 4. IT WAS FAIRLY SUBMITTED THAT THE ITAT IN A.Y. 2004- 05 IN ITA NO. 1692 & 1592/MUM/2008 HAS CONSIDERED THE ISSUE OF DEPRECI ATION OF STOCK EXCHANGE CARD AND FOLLOWING THE DECISION IN THE CAS E OF M/S. TECHNO SHARES & STOCKS LTD. VS. ITO 101 TTJ (MUM) 349 ALLOWED TH E CLAIM OF THE ASSESSEE FOR THAT YEAR. IT IS ALSO FURTHER SUBMITTED THAT TH IS ISSUE IS NOW CRYSTALLISED ITA NO. 1720/MUM/2008 M/S. CHURIWALA SECURITIES P. LTD. 2 BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE ABOVE REFERRED CASE REPORTED AS 327 ITR 323. 5. THE LEARNED D.R. ACCEPTED THE LEGAL POSITION. 6. WE HAVE CONSIDERED THE ISSUE. A HELD IN THE EARLIER YEAR ASSESSEE IS ENTITLED FOR DEPRECIATION, AS THE HON'BLE SUPREME C OURT IN THE CASE OF M/S. TECHNO SHARES & STOCKS LTD. VS. ITO 327 ITR 323 HAS CONSIDERED THAT BSE MEMBERSHIP CARD IS AN INTANGIBLE ASSET WITHIN THE M EANING OF SECTION 32(1) AND IS ENTITLED FOR DEPRECIATION. IN VIEW OF THIS T HE ORDER OF THE CIT(A) IS REVERSED AND THE A.O. IS DIRECTED TO ALLOW THE DEPR ECIATION AS CLAIMED. GROUND NO. 2 IS ACCORDINGLY ALLOWED. 7. GROUND NO. 3 PERTAINS TO THE ISSUE OF BAD DEBTS. AS SESSEE IS A STOCK BROKER AND AS PART OF BROKING BUSINESS IT HAS SUFFE RED CERTAIN BAD DEBTS AND WROTE OFF THE AMOUNTS. THE A.O. NOTICED THAT ASSESS EE HAS WRITTEN OFF THE FOLLOWING AMOUNTS: - SR.NO. NAME OF THE PARTY AMOUNT WRITTEN OFF AS DEBTS 1. ANIL KEJRIWAL 10,956.70 2. ESSAR PROJECTS LIMITED 16,601.83 3. RESHMA MELWANI 7,56,000.00 4. EKTA A. THAKUR 28,937.50 5. PARAS JAIN 22,176.50 TOTAL 8,34,674.00 8. IT WAS SUBMITTED BEFORE THE A.O. THAT THE DEBTS HAV E BECOME BAD IN THE FINANCIAL YEAR AND THE DEBS AROSE OUT OF BUSINE SS TRANSACTIONS AND THE CONDITIONS LAID DOWN IN SECTION 36(1)(VII) R.W.S. 3 6(2) HAVE BEEN SATISFIED. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS NOT S ATISFIED THE CONDITIONS UNDER SECTION 36(2) AS IT WAS OFFERED ONLY THE BROK ERAGE INCOME AND FURTHER THE DEBT WAS NOT ESTABLISHED AS BAD. THE CIT(A) ALS O ON THE ABOVE PRINCIPLES UPHELD THE ACTION OF THE A.O., EVENTHOUGH THE ASSES SEE RELIED ON THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THE CC ASE OF OMAN INTERNATIONAL SAOG AND ALSO THE DECISION OF THE HON'BLE DELHI HI GH COURT IN THE CASE OF CIT VS. MORGAN SECURITIES AND CREDIT P. LTD. 292 IT R 399. ASSESSEE ALSO MADE AN ALTERNATE CLAIM OF ALLOWING THE SAME AS BUS INESS LOSS. ITA NO. 1720/MUM/2008 M/S. CHURIWALA SECURITIES P. LTD. 3 9. WE HAVE HEARD THE LEARNED A.R. AND THE LEARNED D.R. 10. AFTER CONSIDERING FACTS AND THE PRINCIPLES ESTABLIS HED IN THIS REGARD THE CIT(A) SHOULD HAVE ALLOWED THE CLAIM OF THE ASS ESSEE AS BAD DEBT FOLLOWING THE PRINCIPLES ESTABLISHED BY THE SPECIAL BENCH IN THE CASE OF DCIT VS. OMAN INTERNATIONAL BANK SAOG 100 ITD 286 (DEL) (SB) WHICH WAS ALSO UPHELD BY THE HON'BLE BOMBAY HIGH COURT. NOT ONLY T HAT ON THE PRINCIPLES OF ALLOWANCE OF THE AMOUNT AS BAD DEBT THE HON'BLE SUP REME COURT ALSO IN THE CASE OF TRF LTD. VAS CIT 323 ITR 397 HAS HELD THAT WRITE OFF OF AMOUNT IS ENOUGH TO ALLOW THE BAD DEBT CLAIMED ONCE THE CLAIM IS MADE AS WRITTEN OF IN THE BOOKS OF ACCOUNT. THIS ISSUE WAS ALSO CONSIDERE D BY THE SPECIAL BENCH OF THE ITAT IN THE CASE OF DCIT VS. SHREYAS S. MORA KHIA (MUM) (SB) 5 ITR TRIB.1 WITH REFERENCE TO THE CLAIM OF BAD DEBT/LOSS IN THE CASE OF STOCK BROKER AND IT WAS HELD AS UNDER: - HELD, THAT THE AMOUNT RECEIVED BY THE ASSESSEE, A SHARE BROKER, FROM HIS CLIENTS AGAINST TRANSACTIONS OF PURCHASE OF SHA RES ON THEIR BEHALF CONSTITUTED A TRADING DEBT. THE BROKERAGE INCOME AR ISING FROM SUCH TRANSACTIONS VERY MUCH FORMED PART OF THE DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE HAD BEEN TAKEN INTO ACCOUNT IN COMPU TATION OF INCOME OF THE ASSESSEE OF THE RELEVANT PREVIOUS YEAR OR ANY E ARLIER YEAR, IT SATISFIED THE CONDITION STIPULATED IN SECTION 36(2)(I) AND TH E ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 36(1)(VII) BY WAY OF BAD DEBTS AFTER HAVING WRITTEN OFF THE SAID DEBTS FROM HIS BOOKS AS IRRECO VERABLE 11. IN VIEW OF THE DECISION OF THE SPECIAL BENCH, WE AR E OF THE OPINION THAT THE CLAIM OF BAD DEBT IS ALLOWABLE IN THE CASE OF S TOCK BROKER AS THE CONDITIONS UNDER SECTION 36(2) STAND SATISFIED. SIN CE THE ASSESSEE HAS ALREADY WRITTEN OFF THE AMOUNT IN THE BOOKS OF ACCO UNT THE SAME IS ALLOWABLE UNDER SECTION 36(1)(VII). ACCORDINGLY THE A.O. IS D IRECTED TO ALLOW THE AMOUNT AS BAD DEBT. GROUND IS CONSIDERED ALLOWED. 12. IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH JANUARY 2011. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 19 TH JANUARY 2011 ITA NO. 1720/MUM/2008 M/S. CHURIWALA SECURITIES P. LTD. 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) IV, MUMBAI 4. THE CIT IV, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.