Jalpradeep Securities Ltd, New Delhi V. DCIT, New Delhi

ITA 18/DEL/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2151 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 03-12-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 05-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BK GUPTA
• Keywords: Business income; Bad and doubtful debts
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI R.C.SHARMA, AM AND SHRI GEORGE MATHAN, JM ITA NO.18/DEL/2009 ASSESSMENT YEAR : 2001-02 M/S JALPRADEEP SECURITIES LTD., B-6/6, DDA COMMERCIAL COMPLEX, SAFDARJANG ENCLAVE, NEW DELHI 110 009. PAN NO.AAACJ1821B. VS. DY.COMMISSIONER OF INCOME TAX, CIRCLE-4(1), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI HIREN MEHTA, CA. RESPONDENT BY : SHRI B.K.GUPTA, SR.DR. ORDER PER R.C.SHARMA, AM : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF CIT(A) DATED 8.10.2008 FOR THE AY 2001-02, IN THE MATTER OF ORDE R PASSED U/S 263/143(3) OF THE IT ACT. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF SHARE BROKING. DURING THE YEAR UNDER CONSIDERATION, RETURN OF INCOME WAS FILED AT LOSS O F RS.61.20 LAKHS. A CLAIM OF DEDUCTION ON ACCOUNT OF BAD DEBTS AMOUNTING TO RS.4 0,99,831/- WAS MADE IN THE PROFIT & LOSS ACCOUNT. IN REPLY TO AOS QUERY FOR DISALLOWING THE CLAIM OF BAD DEBTS WRITTEN OFF, IT WAS SUBMITTED BY THE ASSESSEE THAT ALL NECESSARY STEPS TO RECOVERY THE DEBT HAD BEEN TAKEN BUT DUE TO THE FIN ANCIAL CRISIS CREATED BY THE CANCELLATION OF NSC OPERATION IN 1998, NO RECOVERY COULD BE MADE SO FAR IN THOSE CASES. SINCE THE ASSESSEE WAS CARRYING ON THE BUSI NESS OF SALE AND PURCHASE OF SECURITIES, WHEREIN TRANSACTIONS WERE ENTERED ON BE HALF OF THE ASSESSEE BY DEBITING THEIR ACCOUNT, BUT DUE TO THEIR NON-PAYMENT, AFTER TAKING ALL THE NECESSARY STEPS FOR ITA-18/DEL/2009 2 RECOVERY, THE ASSESSEE HAS WRITTEN OFF THE AMOUNT I N THE PROFIT & LOSS ACCOUNT AND CLAIMED THE SAME AS DEDUCTION. THE AO DISALLOWED A SSESSEES CLAIM BY OBSERVING THAT AMOUNT OF THE DEBT SO WRITTEN OFF HAS NOT BEEN SHOWN AS INCOME IN THE EARLIER YEAR, THEREFORE U/S 36(1)(VII), BAD DEBTS CANNOT BE ALLOWED. THE CIT(A) CONFIRMED THE ACTION OF THE AO, AGGRIEVED BY WHICH THE ASSESS EE IS IN FURTHER APPEAL BEFORE US. 3. IT WAS CONTENDED BY THE LEARNED AR THAT IN VIEW OF THE NATURE OF BUSINESS, THE ASSESSEE WAS CARRYING ON I.E. SHARE BROKING, TR ANSACTIONS WERE ENTERED ON BEHALF OF THE CLIENTS AND IN CASE OF THEIR FAILURE TO PAY THE MONEY, THE SAME AMOUNTED TO LOSS TO THE ASSESSEE COMPANY. THIS LOS S IS TO BE ALLOWED AS BAD DEBTS OR AS A BUSINESS LOSS WHILE COMPUTING THE PROFIT AN D GAINS OF BUSINESS AND PROFESSION. THE ASSESSEE HAS ALSO FILED AN ADDITIO NAL GROUND TO THE EFFECT THAT CLAIM OF LOSS TOWARDS THE AMOUNT WRITTEN OFF AS IRR ECOVERABLE, IN THE COURSE OF BUSINESS OF THE ASSESSEE AS A SHARE BROKER, IS TO B E ALLOWED AS A BUSINESS LOSS UNDER THE PROVISIONS OF SECTION 28, 29 AND/OR SECTION 37( 1) OF THE IT ACT. WE FOUND THAT THIS ADDITIONAL GROUND IS ALSO COVERED BY GROUND NO .3 TAKEN IN THE ORIGINAL GROUNDS OF APPEAL FILED BEFORE THE TRIBUNAL. 4. THERE IS NO DISPUTE TO THE LOSS HAVING BEEN OCCU RRED TO THE ASSESSEE IN ITS BUSINESS AS A SHARE BROKER. THE ASSESSEE HAS ENTER ED INTO TRANSACTION IN THE NORMAL COURSE OF BUSINESS FOR PURCHASE AND SALE OF SHARES ON BEHALF OF ITS CLIENTS, TO RECOVER THE SAME THE ASSESSEE HAS TAKEN REASONABLE EFFORTS AND AFTER A LAPSE OF TIME THE SAME WAS CLAIMED AS BAD DEBTS BY WRITING OF THE SAME IN THE BOOKS OF ACCOUNT. SINCE THE AMOUNT OF DEBTORS WRITTEN OF IN THE PROFI T & LOSS ACCOUNT HAS NOT BEEN ACCOUNTED FOR AS INCOME IN THE EARLIER YEAR, THERE IS NO REASON TO ALLOW THE SAID LOSS AS BAD DEBTS U/S 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT. HOWEVER, AT THE VERY SAME TIME, THE LOSS SO INCURRED WAS ARISEN IN THE COURSE OF BUSINESS IN RESPECT OF THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE ON BEHALF OF ITS CLIENTS AND DUE TO THEIR NON-PAYMENT OF DUES, THE SAME WAS WRITTEN OFF AS BAD DEBTS. GENUINENESS OF ITA-18/DEL/2009 3 THE TRANSACTION SO ENTERED BY THE ASSESSEE IN THE C OURSE OF ITS BUSINESS AS SHARE BROKER HAS NOT BEEN DOUBTED, NOWHERE THE AO HAS QUE STIONED THE EFFORTS TAKEN BY THE ASSESSEE FOR RECOVERY OF THESE DUES. THE DEBTS WHICH HAVE ARISEN IN THE NORMAL COURSE OF BUSINESS AND ARE INCIDENTAL TO THE BUSINE SS WHICH BECOMES BAD DUE TO NON-RECOVERY AND ARE ACTUALLY WRITTEN OFF IN THE BO OKS OF ACCOUNT IS TO BE ALLOWED AS A BUSINESS LOSS, NOTWITHSTANDING THE FACT THAT T HE AMOUNT SO WRITTEN OFF HAS NOT BEEN ACCOUNTED FOR AS INCOME IN THE PRECEDING YEAR. THE CONDITION FOR ALLOWING THE CLAIM OF WRITING OF AS BAD DEBTS U/S 36(1)(VII) IS SUBJECT TO THE CONDITION THAT SUCH AMOUNT HAS BEEN TAKEN BY THE ASSESSEE AS INCOM E EITHER DURING THE YEAR OF WRITE OFF OR IN ANY OF THE EARLIER PREVIOUS YEAR. UNDER SECTION 36(2), A BAD DEBT CAN BE ALLOWED ONLY IF SUCH AMOUNT IS TAKEN AS INCO ME IN THE EARLIER YEAR. HOWEVER, WITH RESPECT TO THE CLAIM OF BUSINESS LOSS , THIS CONDITION IS NOT REQUIRED TO BE SATISFIED AND ASSESSEE IS NOT REQUIRED TO SHO W THAT THE LOSS OCCURRED DUE TO NON-RECOVERY OF AMOUNT OF DEBTOR, WAS ACCOUNTED FOR AS INCOME IN THE EARLIER YEAR. IT IS A NORMAL BUSINESS TRANSACTION LOSS WHICH OCCA SIONED IN THE SHARE BROKING BUSINESS OF THE ASSESSEE. JUST LIKE IN CASE OF IND USTRIAL UNDERTAKING THE ADVANCE FOR MATERIAL AND ADVANCE TO STAFF, WHICH CANNOT BE RECO VERED AND THE SAME IS CLAIMED AS A BUSINESS LOSS, WITHOUT SHOWING THAT SUCH AMOUN T HAS BEEN TAKEN INTO ACCOUNT AS INCOME IN THE EARLIER YEAR, SIMILARLY IN SHARE B ROKING BUSINESS, THE DEBT WHICH COULD NOT BE RECOVERED AMOUNTS TO BUSINESS LOSS AND IS TO BE ALLOWED WHILE COMPUTING PROFIT AND GAINS OF BUSINESS OR PROFESSIO N U/S 28 OF THE IT ACT. WE FOUND THAT TRANSACTION WITH REGARD TO DEBT WAS GENU INELY ENTERED INTO AND AFTER TAKING BONA-FIDE EFFORTS FOR THEIR RECOVERY, THE AS SESSEE HAS CLAIMED THE AMOUNT WHICH COULD NOT BE RECOVERED AS A LOSS IN THE PROFI T & LOSS ACCOUNT. IT IS NOT A BAD DEBT IN THE STRICT SENSE OF THE TERM WHICH CAN BE A LLOWED U/S 36(1)(VII), BUT AT THE VERY SAME TIME, IT IS A BUSINESS LOSS WHICH IS TO B E ALLOWED U/S 28 OF THE ACT. MERELY BECAUSE CLAIM WAS FILED BY THE ASSESSEE AS A BAD DEBT U/S 36(1)(VII), THE SAME CANNOT BE DISALLOWED EVEN AFTER FINDING THAT I T WAS A BUSINESS LOSS TO THE ASSESSEE AND IS TO BE CONSIDERED WHILE COMPUTING IT S BUSINESS INCOME U/S 28 OF THE ACT. SIMILAR ISSUE HAS ALSO BEEN CONSIDERED BY THE ITAT MUMBAI BENCH IN THE ITA-18/DEL/2009 4 CASE OF KOTAK SECURITIES LTD. 25 SOT 440, WHEREIN ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF SHARE BROKING, THE AMOUNT WRITTE N OFF AS BAD DEBTS HAD ARISEN OUT OF ITS CLIENTS FAILURE TO MAKE PAYMENT FOR PURCHAS E OF SHARES, WAS HELD TO BE ALLOWABLE AS BUSINESS LOSS. THE COMMISSION INCOME OF THE DEBT WHICH HAS BEEN ACCOUNTED FOR AS A SHARE BROKER IS TO BE ALLOWED AS BAD DEBTS, WHEREAS PRINCIPLE AMOUNT OF DEBT IS TO BE ALLOWED AS BUSINESS LOSS IN CASE OF FAILURE OF SUCH CLIENTS TO MAKE PAYMENT. HON'BLE DELHI HIGH COURT ALSO IN THE CASE OF D.B.(INDIA) SECURITIES LTD. 318 ITR 26 UPHELD THE PROPOSITION FOR ALLOWING SUCH LOSS AS BUSINESS LOSS. SINCE THE AMOUNT RECOVERABLE IN RES PECT OF SHARES NOT DELIVERED WERE NOT TAKEN INTO ACCOUNT, THE HIGH COURT RESTORE D THE MATTER BACK TO THE TRIBUNAL FOR CONSIDERING THE SAME. 5. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE LOWER AUTHORITIES FOR DECLINING CLAIM OF BUSINE SS LOSS. ACCORDINGLY, WE REVERSE THE ORDERS OF THE LOWER AUTHORITIES AND ALLOW THE A PPEAL OF THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. DECISION PRONOUNCED IN THE OPEN COURT ON 18 TH DECEMBER, 2009. SD/- SD/- (GEORGE MATHAN) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :18.12.2009. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR ITA-18/DEL/2009 5