Sri. MILAN B. DALAL, MUMBAI V. ACIT (OSD-II) CR-7, MUMBAI

ITA 1726/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48847 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 29-12-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 26-02-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR P DANIEL
• Assessee Lawyers: VIPUL B JOSHI
• Keywords: Proportionate interest; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH BEFORE SHRI D.K.AGARWAL, JUDICIAL MEMBER & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NOS.1726/MUM/07, 1727/MUM/07 & 2678/MUM/08 A.YRS.2002-03, 2003-04 & 2004-05 SHRI MILAN B. DALAL, 42, CHITRAKOOT BLDG., ALTAMOUNT ROAD, MUMBAI 400 021. PAN: AAUPD 0935 H VS. ASST. COMMISSIONER OF I.T. (OSD II), CIRCLE-7, MUMBAI . (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIPUL B. JOSHI. RESPONDENT BY : DR. P. DANIEL. O R D E R PER T.R.SOOD, AM: THE APPEALS OF THE ASSESSEE ARE CONSOLIDATED AND H EARD TOGETHER AS IDENTICAL ISSUES ARE INVOLVED AND ARE B EING DISPOSED OF BY THIS COMMON ORDER. 2. I.T.A.NO.1726/M/07 : IN THIS APPEAL DETAILED GROUNDS HAVE BEEN FILED, BUT AT THE TIME OF HEARING LD. COUNSEL OF TH E ASSESSEE SUBMITTED THAT ONLY THREE DISPUTES ARE INVOLVED WHICH ARE AS UNDER: 1. THE LD. CIT[A] ERRED IN CONFIRMING THE DISALLOWANCE OF ` `` ` .31,31,430/- OUT OF INTEREST ON THE GROUND THAT INT EREST FREE ADVANCES WERE GIVEN TO M/S. TROPICAL SECURITIES AND INVESTMENTS PVT. LTD. 2. THE LD. CIT[A] ERRED IN CONFIRMING THE DISALLOWANCE OF ` `` ` .65,93,453/- OUT OF SUNDRY BALANCES WRITTEN OFF. 3. WITHOUT PREJUDICE TO THE ABOVE, LD. CIT[A] ERRED IN APPRECIATING THAT ONLY NET AMOUNT OF ` `` ` .33,84,558/- COULD BE DISALLOWED IN RESPECT OF SUNDRY BALANCES WRITTEN OF F AFTER ADJUSTING SUNDRY BALANCES WRITTEN BACK AMOUNTING TO ` `` ` .32,08,895/-. 3. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS DEBITED INTEREST 2 AMOUNTING TO ` `` ` .87,55,771/- ON ACCOUNT OF BORROWED FUNDS. THE ASSESSEE WAS REQUESTED TO FILE DETAILS OF INTEREST PAID AND RECEIVED WITH THE NAME AND ADDRESSES OF THE PARTIES ETC. FRO M THE DETAILS, IT WAS NOTICED THAT ASSESSEE HAD PAID ADVANCE TO M/S. TROPICAL SECURITIES AND INVESTMENTS PVT. LTD. OUT OF INTEREST BEARING F UNDS RECEIVED FROM SHRI ANAND NAIR, SHRI C.N.SHAH HUF, SHRI RAMESH CHO KSI, SHRI S.P.TURAKHIN AND GLOBEX FINANCE. THEREFORE, ASSESSE E WAS ASKED TO EXPLAIN AS TO WHY INTEREST ON BORROWED FUNDS UTILIS ED FOR NON BUSINESS PURPOSES SHOULD NOT BE DISALLOWED. IN DETAILED RESP ONSE, IT WAS EXPLAINED THAT ASSESSEE WAS FOLLOWING A CASH METHOD FOR PAYMENT AND RECEIPT OF INTEREST AND AMOUNTS FROM SUNDRY CREDITO RS WERE ALSO AVAILABLE TO THE ASSESSEE. IT WAS FURTHER STATED TH AT LOAN OF ` `` ` .716 LACS WAS USED FOR SPECIFIC PAYMENTS TO CFL SECURITIES PV T. LTD, ADITI DALAL, H.B.SECURITIES AND DR. REDDY LABORATORIES. IT WAS A LSO STATED THAT WITH M/S. TROPICAL SECURITIES AND INVESTMENTS PVT. LTD. ASSESSEE HAD CERTAIN BUSINESS DEALINGS FOR PURCHASE AND SALE OF SHARES A ND SOMETIMES EVEN ADVANCE WAS REQUIRED TO BE PAID, AND THAT IS WHY NO INTEREST WAS CHARGED FROM THAT PARTY. THE AO AFTER CONSIDERING T HE SUBMISSIONS, DID NOT ACCEPT THE CONTENTIONS AND OBSERVED THAT INTERE ST BEARING BORROWED FUNDS HAVE BEEN UTILISED ON ACCOUNT OF PAY MENT TO M/S. TROPICAL SECURITIES AND INVESTMENTS PVT. LTD. AND, THEREFORE, PROPORTIONATE INTEREST ON SUCH FUNDS AMOUNTING TO ` `` ` .31,31,420/- WAS DISALLOWED. 4. ON APPEAL, THE ACTION OF THE AO WAS CONFIRMED BY THE LD. CIT[A] BY FOLLOWING THE EARLIER YEARS ORDER. 3 5. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ASSESSEE WAS A STOCK EXCHANGE CARD HOLDER WHICH WAS CONVERTE D INTO A COMPANY AND AFTER CONVERSION M/S. TROPICAL SECURITIES AND I NVESTMENTS PVT. LTD. WAS DOING BUSINESS IN SHARES. THE ASSESSEE WAS ALSO DOING SOME BUSINESS IN SHARES AND SOME TIMES PURCHASING AND SE LLING SHARES FROM M/S. TROPICAL SECURITIES AND INVESTMENTS PVT. LTD. AND AMOUNTS WERE PAID IN THAT CONNECTION, THEREFORE, THESE ARE ONLY BUSINESS TRANSACTIONS. HE ALSO FILED A CHART IN WHICH IT IS SHOWN THAT IN THE EARLIER YEAR THERE WAS OPENING CREDIT BALANCE AND E VEN OPENING DEBIT BALANCE ALSO, WHICH CLEARLY SHOWS THAT THE AMOUNTS WERE GIVEN ON BUSINESS TRANSACTIONS AND SOME TIMES THE BALANCE IS CREDIT BALANCE AND SOMETIMES DEBIT BALANCE. ON QUERY BY THE BENCH REGA RDING THE COPY OF ACCOUNT OF M/S. TROPICAL SECURITIES AND INVESTMENTS PVT. LTD., HE REFERRED TO PAGES 36 TO 44 OF THE PAPER BOOK, WHICH IS COPY OF THE ACCOUNTS OF THAT PARTY. 6. ON THE OTHER HAND, LD. DR SUBMITTED THAT ONCE AS SESSEE HAS CONVERTED HIS STOCK EXCHANGE CARD INTO A COMPANY, A SSESSEE WAS NO MORE ENTITLED TO DO ANY SHARE BUSINESS. FURTHER, EV EN SIMILAR DISALLOWANCE HAS BEEN CONFIRMED IN THE EARLIER YEAR AS OBSERVED BY THE CIT[A]. HE ALSO REFERRED TO THE COPY OF ACCOUNT AND POINTED OUT THAT MOST OF THE TRANSACTIONS ARE LUMP SUM PAYMENTS, WHI CH CANNOT BE SAID FOR SALE AND PURCHASE OF THE SHARES. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND FROM COPY OF ACCOUNT OF M/S. TROPICAL SECURITIES AN D INVESTMENTS PVT. LTD., PLACED AT PAGES 36 TO 44 OF THE PAPER BOOK, T O BE A COMBINED 4 ACCOUNT. MOST OF THE TRANSACTIONS ARE RELATING TO T HE FINANCIAL TRANSACTIONS I.E. PAYMENT OF SOME MONEY OR RECEIPT OF SOME MONEY. FOR APPRECIATING THE ISSUE WHETHER ANY FUNDS HAVE B EEN DIVERTED TO THIS COMPANY, THIS ACCOUNT NEEDS TO BE BIFURCATED A ND TRANSACTIONS OF SALE AND PURCHASE OF SHARES HAVE TO BE SEPARATED. T HEREFORE, IN THE INTERESTS OF JUSTICE, WE SET ASIDE THE ORDER OF THE CIT[A] AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO ASK THE ASSESSEE TO BIFURCATE THE ACCOUNT OF M/S. TROPICAL SECURITIES A ND INVESTMENTS PVT. LTD. INTO TWO ACCOUNTS, ONE RELATING TO PURCHASE AN D SALE OF SHARES AND THE OTHER IN RESPECT OF FINANCIAL TRANSACTIONS, AND THEN DECIDE THE ISSUE ACCORDINGLY. 8. GROUND NOS.2 & 3 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURING ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSES SEE HAD DEBITED PROFIT & LOSS ACCOUNT WITH A SUM OF ` `` ` .33,84,558/-. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS. IN RESPONSE IT WAS PO INTED OUT THAT THE AMOUNTS HAVE BEEN WRITTEN OFF AS UNDER: DEBIT BALANCES WRITTEN OFF ` `` ` .65,93,453 CREDIT BALANCES WRITTEN BACK OF ` `` ` .32,08,895 NET BALANCE WRITTEN OFF ` `` ` .33,84,558 IT WAS ALSO EXPLAINED THAT AMOUNTS WRITTEN OFF CAN BE CLUBBED UNDER FOLLOWING HEADS: I) CLIENTS WHO HAVE DEFAULTED IN THEIR COMMITMENT . II) CLIENTS WHO HAVE NOT PAID AS OUR CLIENT COULD NOT DELIVER THEM SHARES WHICH WERE LYING UNDER SEIZURE OF THE DEPART MENT. III) STOCK EXCHANGE BROKERS WHO HAVE BEEN DECLARED DEFAULTERS. IV) AMOUNTS HAVING REMAINED OUTSTANDING ON ACCOUNT OF BAD DELIVERY OF SHARES SOLD/PURCHASED BY CLIENTS OR SHA RES HAVING COME IN OBJECTION. 5 THE AO DID NOT ACCEPT THIS EXPLANATION BECAUSE COPI ES OF ACCOUNTS OF THESE PARTIES WERE NOT FILED. NO DETAILS REGARDING THE ACTION TAKEN IN RESPECT OF THE RECOVERY WERE FURNISHED. IT WAS NOT POINTED OUT WHETHER THE DEBTS AROSE BECAUSE OF OWN TRADING OR FOR EARNI NG BROKERAGE. HE, ACCORDINGLY, DISALLOWED THE TOTAL AMOUNT WRITTEN OF F AMOUNTING TO ` `` ` .55,93,452/-. 9. ON APPEAL, LD. CIT[A] DECIDED THE ISSUE VIDE FOL LOWING PARA: I HAVE CONSIDERED THE SUBMISSION OF THE AR AND THE FACTS BROUGHT ON RECORD BY THE AO. THERE IS NO DISPUTE THAT DEBT WRI TTEN OFF CANNOT BE ALLOWED AS HAD DEBT WRITTEN OFF SINCE THESE DEBTS W ERE NEVER TAKEN INTO ACCOUNT FOR DETERMINING THE INCOME OF THE APPELLANT IN ANY EARLIER YEARS WHICH IS A NECESSARY CONDITION FOR ALLOWANCE OF BAD DEBT U/S. 36(I)(VII) OF THE IT. ACT. FOR ALLOWANCE AS A TRADI NG LOSS, IT IS NECESSARY THAT THE LOSS IS INCURRED DURING THE YEAR AND NOT I N ANY EARLIER YEARS. FROM THE DERAILS OF BALANCE WRITTEN O IT IS FOUND T HAT THE TRANSACTIONS TOOK PLACE MANY YEARS EARLIER AND NOT DURING THE YE AR UNDER CONSIDERATION. IN DEVIDAYAL FILMS PVT LTD. V. CIT 7 5 ITR 3O1(MAD), THE HONBLE HIGH COURT HELD THAT TRADING LOSS IS LE GIBLE IN THE YEAR IN WHICH IT IS INCURRED. IF THE LOSS HAS BEEN INCURRED IN AN EARLIER YEAR, BUT FOR SOME REASONS IT WAS NOT ALLOWED, IT IS NOT ELIG IBLE FOR DEDUCTION IN ANY SUBSEQUENT YEAR IN THE COMPUTATION OF NET PROFI T OF THAT YEAR. THIS VIEW HAS ALSO BEEN UPHELD BY THE MUMBAI HIGH COURT IN BHATJA & CO VS. CIT 100 ITR 79 IN THE PRESENT CASE, THE APPELLA NT BEING A STOCK BROKER WAS LIABLE TO RECEIVE PAYMENT WITHIN A WEEK OF THE TRANSACTION FROM A CLIENT. IF THE CLIENT REFUSED TO PAY WITHIN THE STIPULATED DATE, THE LOSS ON SUCH TRANSACTION ON ACCOUNT OF SUCH REFUSAL CAN BE SAID TO HAVE ARISEN ON REFUSAL BY THE CLIENT. THE OCCURRENCE OF LOSS IS NOT DEPENDED ON WRITING OFF THE AMOUNT IN THE BOOKS OF THE ASSES SEE IN GLASS MINIATURE INDUSTRIES LTD. V ADDL. CIT 204 ITR 352, THE HONBLE SUPREME COURT HAS HELD THAT LOSS WOULD BE ALLOWABLE IN THE YEAR IT IS INCURRED AND NOT IN THE YEAR IN WHICH THE BOOK ENTR IES WERE MADE. IN THE PRESENT CASE, THE LOSS WAS INCURRED IN THE YEAR OF TRANSACTION WHEN THE CLIENT REFUSED TO PAY FOR THE TRANSACTION DUNG THIS STIPULATED PERIOD. AS SUCH, THESE LOSSES CAN NOT BE ALLOWED IN THE YEA R UNDER CONSIDERATION THE AD HAS RIGHTLY DISALLOWED THE CLA IM WHICH DOES NOT PERTAIN TO THIS ASSESSMENT YEAR. THE ACTION OF THE AO IS UPHELD AND APPEAL ON THIS POINT IS DISMISSED 10. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT AFTER THE AMENDMENT IN SEC.36(1)(VII) IN 1989, IT IS NO MORE REQUIRED TO BE PROVED WHETHER DEBTS HAVE BECOME BAD OR NOT. HE FUR THER SUBMITTED 6 THAT IN VIEW OF THE LATEST DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DY. CIT VS. SHRI SHREYAS S. MORAKHIA I.T.A.NO.3374/MUM/2004 DATED 16 TH JULY, 2010, EVEN THE REQUIREMENT OF ACCOUNTING FOR THE WHOLE OF THE AMOUNT IN THE CA SE OF BROKERAGE IS NOT REQUIRED. THEREFORE, THE ISSUE IS SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH. IN A NY CASE, THE DISALLOWANCE SHOULD HAVE BEEN RESTRICTED TO THE NET AMOUNT AFTER ADJUSTING THE AMOUNTS WRITTEN BACK AMOUNTING TO ` `` ` .32,08,895/- 11. ON THE OTHER HAND, LD. DR SUBMITTED THAT ASSESS EE HAS HIMSELF STATED BEFORE THE AO THAT ONE OF THE REASONS THAT A MOUNTS HAVE BEEN WRITTEN OFF WAS THAT THE SHARES COULD NOT BE DELIVE RED BECAUSE SAME WERE SEIZED BY THE DEPARTMENT WHICH MEANS THAT SHAR ES WERE STILL WITH THE ASSESSEE AND, THEREFORE, SUCH ACCOUNTS COULD NO T HAVE BEEN WRITTEN OFF. MOREOVER, IT IS NOT CLEAR WHETHER ANY BROKERAGE WAS RECEIVED OR NOT. 12. IN THE REJOINDER, LD. COUNSEL OF THE ASSESSEE S UBMITTED THAT IN FEW CASES SOME CLIENTS HAD PLACED ORDERS AND THEIR SHARES WERE PURCHASED FROM THE MARKET, BUT SHARES COULD NOT BE DELIVERED BECAUSE THEY WERE SEIZED BY THE DEPARTMENT. IN VIEW OF NON- DELIVERY, SUCH CUSTOMERS HAD REFUSED TO MAKE ANY PAYMENT AND THAT IS WHY THIS AMOUNT WAS ALSO CLAIMED AS BAD DEBT. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. WE FIND THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DY . CIT VS. SHRI SHREYAS S.MORAKHIA (I.T.A.NO.3374/MUM/2004) VIDE PA RA-32 HAS HELD AS UNDER: 7 32. KEEPING IN VIEW ALL THE FACTS OF THE CASE AND THE LEGAL POSITION EMANATING FROM THE VARIOUS JUDICIAL PRONOUNCEMENTS AS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE AMOUNT RECEIVABLE BY THE A SSESSEE, WHO IS A SHARE BROKER, FROM HIS CLIENTS AGAINST THE TRANSACTIONS O F PURCHASE OF SHARES ON THEIR BEHALF CONSTITUTES DEBT WHICH IS A TRADING DEBT. TH E BROKERAGE/COMMISSION INCOME ARISING FROM SUCH TRANSACTIONS VERY MUCH FOR MS PART OF THE SAID DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE/COMMISSION HA S BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVANT PREVIOUS YEAR OR ANY EARLIER YEAR, IT SATISFIES THE CONDITIO N STIPULATED IN SECTION 36(2)(I) AND THE ASSESSEE IS ENTITLED TO DEDUCTION U/S.36(1) (VII) BY WAY OF BAD DEBTS AFTER HAVING WRITTEN OF THE SAID DEBTS FROM HIS BOO KS OF ACCOUNT AS IRRECOVERABLE. WE, THEREFORE, ANSWER THE QUESTION R EFERRED TO THIS SPECIAL BENCH IN THE AFFIRMATIVE THAT IS IN FAVOUR OF THE A SSESSEE. THUS, IT IS CLEAR FROM ABOVE THAT IN THE CASE OF A STOCK BROKER ONCE THE BROKERAGE HAD BEEN CREDITED, HE WOULD COMPLY WITH T HE REQUIREMENT OF SEC.36(2) AND IN SUCH CASES IF SOME CLIENTS HAVE NO T PAID THE AMOUNT, ASSESSEE IS ELIGIBLE TO CLAIM SUCH AMOUNT AS BAD DE BT. HOWEVER, IN THE SAME CASE IT WAS FURTHER HELD THAT IT HAS TO BE DET ERMINED BY THE AO THAT THE BROKERAGE HAS BEEN SHOWN BY THE ASSESSEE I N THE BOOKS OF ACCOUNT AND FURTHER IF MARGIN MONEY OR ANY SHARES W HICH ARE AVAILABLE TO THE BROKER WHICH HAVE NOT BEEN DELIVERED, NEEDS TO BE REDUCED FROM SUCH BAD DEBTS. THEREFORE, THE ISSUE SHOULD HAVE BE EN DECIDED BY THE AO ON THESE LINES. HOWEVER, AT THE SAME ASSESSEE HA S NOT DELIVERED THE SHARES TO THE CUSTOMERS BECAUSE SAME WERE SEIZE D BY THE DEPARTMENT, THEN IN SUCH CASES IT CANNOT BE SAID TH AT BAD DEBT HAS OCCURRED. A CUSTOMER WOULD PAY FOR ANY GOODS INCLUD ING SHARES ONLY WHEN HE OR SHE IS DELIVERED SUCH GOODS AND IF NO GO ODS ARE DELIVERED, THEN NO DEBT WOULD COME INTO EXISTENCE. IT IS NOT C LEAR AS TO WHAT HAPPENED TO THE SHARES SEIZED BY THE DEPARTMENT BEC AUSE IN THAT CASE THE CLAIM COULD HAVE BEEN MADE PERHAPS UNDER SOME O THER HEAD AND VALUE OF SUCH SHARES WAS REQUIRED TO BE REDUCED FRO M SUCH CLAIM. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT[A] AND REMIT THE 8 MATTER TO THE FILE OF THE AO WITH A DIRECTION TO RE -EXAMINE THE ISSUE IN THE LIGHT OF THE OBSERVATIONS MADE BY US AND ULTIMA TELY DECIDE THE ISSUE AFTER ASCERTAINING THE POSITION IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DY. CI T VS. SHRI SHREYAS S.MORAKHIA [SUPRA]. WE MAY MAKE IT CLEAR THAT ULTIM ATELY THE BAD DEBTS HAVE BEEN CLAIMED IN THE FORMAT OF SHORT AND EXCESS RECOVERY AND, THEREFORE, CONTENTION OF THE ASSESSEE THAT AMO UNTS WRITTEN BACK NEED TO BE REDUCED, IS ALSO REQUIRED TO BE EXAMINED AFTER ASCERTAINING THE DETAILS AND IF FOUND APPROPRIATE, SAME IS REQUI RED TO BE ADJUSTED IN THE NET DISALLOWANCE. 14. IN THE RESULT, ASSESSEES APPEAL IN I.T.A.NO.17 26/M/07 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 15. I.T.A.NO.1727/M/07 : IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED, BUT AT THE TIME OF HEARING LD. COUNSEL OF T HE ASSESSEE SUBMITTED THAT ONLY THREE DISPUTES ARE INVOLVED WHI CH ARE AS UNDER: 1. CONFIRMATION OF DISALLOWANCE OF INTEREST AMOUNTING TO ` `` ` .5,01,469/- ON ACCOUNT OF INTEREST FREE ADVANCES TO M/S. TROPICAL SECURITIES AND INVESTMENTS PVT. LTD. 2. CONFIRMATION OF DISALLOWANCE AMOUNTING TO ` `` ` .2,60,934/- IN RESPECT OF SUNDRY BALANCES, AND 3. NON CONSIDERATION OF GROUND NO.2 RELATING TO STOCKS WRITTEN OFF. 16. GROUND NO.1: AFTER HEARING BOTH THE PARTIES, WE FIND THAT THIS ISSUE IS IDENTICAL TO THE FIRST ISSUE RAISED IN ASS ESSEES OWN CASE FOR A.Y 2002-03 IN I.T.A.NO.1726/M/07 AND THE SAME HAS BEEN ADJUDICATED BY US VIDE PARA-7. FOLLOWING THAT ORDER, WE SET ASIDE THE ORDER OF THE LD. CIT[A] AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH IDENTICAL DIRECTIONS. 9 17. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD WRITTEN OFF A SUM OF ` `` ` .2,60,934/- ON ACCOUNT OF FOUR PARTIES. THE SAME WE RE DISALLOWED BY GIVING THE FOLLOWING REASONS: 1. ARUN REHALKAR: ` `` ` .1,00,000/- : THIS AMOUNT IS DUE FROM EM- EMPLOYEE WHO LEFT THE SERVICE. IT IS NOT MENTIONED WHY THIS MONEY WAS ADVANCED AND THE EFFORT TAKEN FOR RECOVER Y THE SAME. THE SAME IS NOT ALLOWED. 2. VASANT KAVI: ` `` ` .50,000 /-: ASSESSEE HAS NOT FURNISHED ANY REASON FOR WRITING OFF THIS AMOUNT. IT IS NOT KNOWN WHY TH IS MONEY WAS ADVANCED AND THE CIRCUMSTANCES WHICH LEAD FOR W RITING OF THIS AMOUNT. HENCE SAME IS NOT ALLOWED AND ADDED TO TOTAL INCOME. 3. CORN FLOWER INVEST ` `` ` .85,022 /-: ASSESSEE HAS WRITTEN OF THIS AMOUNT AS IT IS PENDING FOR LONG PERIOD. THIS IS NO T A VALID REASON FOR WRITING OF THE AMOUNT DUE. IT SHOULD BE ESTABLISHED THAT AMOUNT IS NOT RECEIVABLE AND THE SAME IS NOT P ROVED. HENCE SAME IS NOT ALLOWED. 4. CIFCO FINANCE ` `` ` .25,912 /-: ASSESSEE HAS WRITTEN OFF THIS AMOUNT AS THERE IS A RECONCILIATION DIFFERENCE. IT IS NOT EXPLAINED AS TO WHY THE DIFFERENCE OCCURS. MOREOVER , CIFCO IS AN ASSOCIATE CONCERN OF ASSESSEE. HENCE SAME IS NOT ALLOWED. 18. ON APPEAL, THE ADDITION WAS CONFIRMED BY THE LD . CIT[A]. 19. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT SUMS OF ` `` ` .1,00,000/- AND ` `` ` .50,000/- WERE GIVEN AS ADVANCES TO THE STAFF. ON A QUERY BY THE BENCH WHETHER ANY DETAILS WERE GIVEN A S TO WHY SUCH ADVANCES WERE GIVEN, HE REFERRED TO PAGES 10 TO 14 OF THE PAPER BOOK, WHICH IS COPY OF A LETTER ADDRESSED TO THE AO. 20. ON THE OTHER HAND, LD. DR SUBMITTED THAT PROPER DETAILS WERE NOT FILED AND THAT IS WHY ADDITIONS HAVE BEEN MADE. 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. WE FIND THAT IN THE CASE OF ARUN REHALKAR IT IS MENTIONED IN PAG E-12 OF THE PAPER BOOK THAT THE AMOUNT WAS PAID FOR PURCHASE OF SHARE S, WHICH WERE NOT RECEIVED. WE FAIL TO UNDERSTAND THAT WHY THE AMOUNT WAS PAID TO THE 10 STAFF FOR PURCHASE OF THE SHARES. EVEN, LD. COUNSEL OF THE ASSESSEE COULD NOT FURNISH ANY DETAILS ON THE QUERY BY THE B ENCH. THEREFORE, IN THE ABSENCE OF DETAILS, WE CONFIRM THIS ADDITION. S IMILARLY, IN THE CASE OF VASANT KAVI, A SUM OF ` `` ` .50,000/- WAS GIVEN TO THE STAFF FOR PURCHASE OF SHARES FOR WHICH AGAIN NO DETAILS WERE FURNISHED AND, THEREFORE, WE CONFIRM THE ADDITION. IN THE CASE OF CORN FLOWER IN VEST AND CIFCO FINANCE, IN THE DETAILS FILED AT PAGE 13 IT IS ONLY STATED THAT THEY ARE LONG TIME CUSTOMERS AND DIFFERENCES HAVE AROSE BECA USE OF RATE OF DIFFERENCE AND DIVIDEND NOT RECEIVED. HOWEVER, NO F URTHER DETAILS ARE THERE ON RECORD. THEREFORE, WE ARE CONSTRAINED TO C ONFIRM THIS ADDITION. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD. CIT[A] IN RESPECT OF DISALLOWANCE OF ` `` ` .2,60,934/- ON ACCOUNT OF SUNDRY BALANCES WRITTEN O FF. 22. GROUND NO.3: AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURING ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD WRITTEN OFF CERTAIN STOCKS AMOUNTING TO ` `` ` .4,81,055/-. IT WAS STATED BEFORE THE AO THAT THESE STOCKS WERE APPEARING IN THE BOOKS, BUT WERE NOT PHYSICALLY AVAILABLE MAINLY BECAUSE THESE SHARES WERE IN PHYSI CAL FORM AND AROSE OUT OF BAD DELIVERY WHICH WERE NOT REPLACED BY THE CUSTOMERS. THE AO DISALLOWED THE CLAIM BY OBSERVING THAT SHARES WERE STILL IN POSSESSION OF THE ASSESSEE. 23. THOUGH THIS ISSUE WAS RAISED BEFORE THE CIT[A] AS GROUND NO.2 HE HAS NOT ADJUDICATED THE SAME. 24. BEFORE US, LD. COUNSEL OF THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AO. WHEN A QUERY WAS RA ISED THAT STOCKS WERE CONVERTED INTO D-MAT FORM RIGHT FROM THE YEAR 1997, LD. COUNSEL 11 OF THE ASSESSEE SUBMITTED THAT, IN FACT, THESE SHAR ES ARE COMING FROM MUCH EARLIER PERIOD AND, IN FACT, WERE SEIZED BY TH E DEPARTMENT AND SINCE THEY COULD NOT BE TRANSFERRED IN THE NAME OF THE COMPANY, LOSS HAS TO BE ALLOWED. 25. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDER O F THE AO. 26. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. WE FIND THAT IF SHARES HAVE BEEN SEIZED BY THE DEPARTMENT IN 199 3 THEN WHY THIS LOSS WAS NOT CLAIMED IN EARLIER YEAR IS NOT CLEAR. MOREOVER, NO EVIDENCE IN THE FORM OF PANCHNAMA, TO SHOW THAT SUCH SHARES WERE REALLY SEIZED, HAS BEEN PRODUCED. THEREFORE, IN THE ABSENC E OF EVIDENCE THAT SUCH SHARES WERE SEIZED BY THE DEPARTMENT, WE ARE N OT INCLINED TO ACCEPT THE PLEA. ACCORDINGLY, WE REJECT THIS GROUND . 27. IN THE RESULT, APPEAL IN I.T.A.NO.1727/M/07 FOR A.Y 2003-04 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 28. I.T.A.NO.2679/M/08 : IN THIS APPEAL THE ONLY DISPUTE RAISED IS REGARDING CLAIM OF BAD DEBTS. 29. AFTER HEARING BOTH THE PARTIES WE FIND THAT THE CLAIM OF BAD DEBT HAS BEEN REJECTED BY OBSERVING THAT MERELY BECAUSE BROKERAGE HAS BEEN OFFERED FOR TAXATION, SUCH CLAIM CANNOT BE ALL OWED. 30. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DY. CI T VS. SHRI SHREYAS S.MORAKHIA [SUPRA], RELEVANT PORTION OF WHICH HAS A LREADY BEEN EXTRACTED BY US IN THE ABOVE NOTED PARAS. FOLLOWING THAT DECISION WE SET ASIDE THE ORDER OF THE CIT[A] AND REMIT THE MAT TER BACK TO THE FILE 12 OF THE AO WITH A DIRECTION TO RE-EXAMINE THE ISSUE IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF DY. CIT VS. SHRI SHREYAS MORAKHIA [SUPRA]. AO IS FURTHER DIRECT ED TO VERIFY WHETHER BROKERAGE HAS BEEN ALLOWED AND WHETHER MARGIN MONEY , SHARES, ETC, ARE AVAILABLE AGAINST THE CLIENTS AGAINST WHOM HAD DEBT HAS BEEN CLAIMED, HAS ALREADY BEEN ADJUSTED OR NOT. 31. IN THE RESULT, APPEAL IN I.T.A.NO.2679/M/08 FOR A.Y 2004-05 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 3/5/2011. SD/- SD/- (D.K.AGARWAL) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 13/5/2011. P/-*