SMK SHARES & STOCK BROKING P. LTD, MUMBAI V. ITO WD 4(2)(2), MUMBAI

ITA 1859/MUM/2012

• Counselvise Citation: 185919914 RSA 2012
• Duration Of Justice: 1 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 25-09-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 19-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MADHUK
• Assessee Lawyers: OCEA NA DUTTA
• Keywords: Bad and doubtful debts
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , BEFORE SHRI SANJAY ARORA , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMB ER / ITA NO. 1859 /MUM./ 2012 ( / ASSESSMENT YEAR : 20 04 05 ) SMK SHARES & STOCK BROKING PVT. LTD. 617, PALM SPRING CENTRE ABOVE CROMA, NEAR D MART LINK ROAD, MALAD (W) MUMBAI 400 064 .. / APP ELLAN T V/S INCOME TAX OFFICER WARD - 4 (2) - 2 , AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... / RESPONDENT PERMANENT ACCOUNT NUMBER AABCS4531Q / ASSESSEE BY : MS. OCEA NA DUTTA / REVENUE BY : MR. S.K. MADHUK / DATE OF HEARING 25.09.2013 / DATE OF ORDE R 11 - 10 - 2013 / ORDER / PER AMIT SHUKLA , J.M. T HE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE , CHALLENGING THE IMPUGNED ORDER DATED 25 TH JANUARY 2012 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) VIII , MUMBAI, FOR THE ASSESSMENT YEAR 2004 05, IN SMK SHARES & STOCK BROKING PVT. LTD. 2 THE MATTER OF PENALTY OF RS. 27,886, LEVIED UNDER S ECTION 271(1)(C) BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED COMMISSIONER (APPEALS). 2. FACTS IN BRIEF : THE ASSESSEE, IN THE PRESENT CASE, IS A MEMBER OF BOMBAY STOCK EXCHANGE, AND WAS ENGAGED IN DEALING IN SHARES ON OWN ACCOUNT AS WELL AS A BROK ER. AS AGAINST THE RETURN OF INCOME OF RS. 34,76,630, THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS. 45,64,623, AND THE MAJOR ADDITION BEING ON ACCOUNT OF DISALLOWANCE OF CLAIM OF BAD DEBT OF SUMS AGGREGATING TO RS. 7,10,170. FORM THE STAGE OF THE LEARNED COMMISSIONER (APPEALS) IN THE QUANTUM PROCEEDINGS, RELIEF OF RS. 4,62,186, WAS GIVEN AND THE BALANCE CLAIM OF BAD DENT TO THE EXTENT OF RS. 2,47,984, WAS CONFIRMED. 3. DURING TH E SECOND APPELLATE PROCEEDINGS BEFORE THE TRIBUNAL, FURTHER RELIEF WAS GRANTED OF R S. 1,70,252 AND ONLY AN AMOUNT OF RS. 77,732 WHICH WAS ON ACCOUNT OF CLAIM OF BAD DEBT IN ONE OF THE CLIENTS ACCOUNT , INDOSHARES AND FIN TRADE LTD. , T HE DISALLOWANCE WAS CONFIRMED ON THE GROUND THAT THERE WAS NO EVIDENCE TO SHOW THAT THE ASSESSEE HAS EARNED ANY BROKERAGE INCOME FROM THE ABOVE PARTY IN THE EARLIER YEARS AND HAS OFFERED THE SAME TO TAX. THEREFORE, THE CONDITIONS LAID DOWN IN SECTION 36(2) HAVE NOT BEEN FULFILLED. 4. IN THE PENALTY PROCEEDINGS, THE ASSESSEE, IN RESPONSE TO THE SHOW CAUSE NOTICE, GAVE DETAIL EXPLANATION VIDE LETTER DATED 10 TH JANUARY 2011, STATING THAT DURING THE FINANCIAL YEAR 2003 04, THE ASSESSEE COMPANY HAD WRITTEN OFF RS. 77,732, AS IRRECOVERABLE DEBTS IN THE ACCOUNT AS BAD DEBT. THIS WAS ELABORATED IN THE FOLLOWING MANNER: TH E ASSESSEE VIDE LETTER DTD.L0.0L.2011 STATED THAT 'DURING THE FY: 2003 - 04, THE ASSESSEE COMPANY HAD WRITTEN OFF RS. 77,732/ IRRECOVERABLE DEBTS IN THE ACCOUNT AS BAD DEBTS AS PER THE PROVISIONS OF SEC. 36(1) OF THE INCOME TAX ACT, 1961. THE ASSESSEE COMP ANY HAD CARRIED OUT THE TRANSACTIONS THROUGH BSE MAINLY DURING THE FY: 2001 2000. M/S.INDO SHARES PVT LTD WAS A BSE BROKER AND THE COMPANY RECEIVED, ON BEHALF OF THE CLIENTS, THE SHARES (PHYSICAL) THROUGH STOCK EXCHANGE DULY STAMPED ON THE BACK OF THE TRAN SFER DEEDS BY SHARES. THE PARTY HAD INCURRED LOSS IN ITS TRADING ACTIVITY IN THE YEAR 2000 AND WAS DECLARE DEFAULTER BY BSE. THE DEBITS IN THE PARTY'S ACCOUNT OF RS. 77, 732/ - STANDS FOR THE BAD DELIVERIES BY THE ASSESSEE COMPANY IN THE REGULAR COURSE SMK SHARES & STOCK BROKING PVT. LTD. 3 OF T HE TRANSACTIONS. THE PARTY NEITHER CORRECTED BAD DELIVERIES NOR MADE THE PAYMENTS FOR THE SAME. THE APPELLANT REPRESENTED THE MATTER WITH AND ALSO TRIED ITS LEVEL BEST TO REALIZE THE AMOUNT DUE FROM THE PARTY. SINCE THE PARTY DID NOT MAKE PAYMENTS EVEN AFT ER THE REGULAR FOLLOW UP, THE DEBTS DUE FROM THE PARTY WAS CONSIDERED UNREALIZABLE. APART FROM THE ABOVE SUBMISSION, THE LEDGER ACCOUNT OF THE PARTY FOR THREE YEARS AND THE ARBITRATION PROCEEDING PAPERS OF BSE WERE ALSO FLIED. THE SUBMISSION AND SUPPORTIN G THEREOF SHOWS THAT THE CLAIM OF THE COMPANY WAS BONA FIDE. HOWEVER, WITHOUT PREJUDICE TO THE CLAIM OF BAD DEBTS, IT REPRESENTED TO ALLOW THE SAME AS 'BUSINESS LOSS . HOWEVER, THE AO AND THE APPELLATE AUTHORITY HAVE DISALLOWED THE CLAIM OF BAD DEBTS FOR W ANT OF THE DETAILS OF BROKERAGE EARNED FROM THE PARTY SAME WAS ALSO NOT ALLOWED AS THE BUSINESS LOSS, AS THE LOSS WAS CRYSTALLIZED IN EARLIER YEAR AN DURING THE YEAR UNDER CONSIDERATION. THE CLAIM OF THE ASSESSEE COMPANY WAS BONAFIDE AS IT IS AN UNDISPUTE D FACT THAT THE AMOUNT WAS DUE AND RECEIVABLE FROM THE PARTY, SHOWN IN THE BALANCE SHEETS OF THE COMPANY FOR THREE YEARS AN COMPANY CARRIED OUT THE ISSUE TO THE ARBITRATION OF BSE. HOWEVER, WHEN THE PARTY WAS DECLARED DEFAULTER BY BSE, THE AMOUNT AS UNREAL IZABLE. SINCE, THE ASSESSEE COMPANY HAS FURNISHED A, DETAILS AND THE DETAILS ARE ADMITTEDLY CORRECT, THERE COULD BE NO CHARGE ON THE ASSESSEE OF FURNISHING INACCURATE PARTICULARS. THE GENUINENESS OF DEBT ITSELF HAS NOT BEEN DOUBTED OR DISPUTED BY AO. IN VI EW OF THE FACTS OF THE CASE, IT CANNOT BE STATED THAT THE ASSESSEE HAS EITHER FURNISHED INACCURATE PARTICULARS OR CONCEALED INCOME. THE ASSESSING OFFICER, HOWEVER, HELD THAT NECESSARY CONDITIONS, AS LAID DOWN IN SECTION 36(1)(VII) R/W SECTION 36(2), HA VE NOT BEEN FULFILLED AND THEREFORE, SUCH A CLAIM AMOUNTING TO FURNISHING OF INACCURATE PARTICULARS OF INCOME. REGARDING ASSESSEES ALTERNATE CLAIM THAT THE LOSS SHOULD BE ALLOWED AS BUSINESS LOSS , WAS ALSO NOT ACCEPTED AS HE WAS OF THE OPINION THAT THE LO SS WAS NOT INCIDENTAL TO THE BUSINESS AND HAS NOT BEEN CRYSTALLIZED IN THE CURRENT YEAR. ACCORDINGLY, HE LEVIED PENALTY ON THE GROUND THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS TO THE EXTENT OF RS. 77,732 AND LEVIED PENALTY OF RS. 27,886. 5. BEF ORE THE LEARNED COMMISSIONER (APPEALS), DETAIL SUBMISSIONS WERE MADE, HOWEVER, THE LEARNED COMMISSIONER (APPEALS) TOO CONFIRMED THE PENALTY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN UNION OF INDIA & ORS. V/S DHARMENDRA TEXTILE PROCESSOR S & ORS . , [2008] 306 ITR 277 ( SC ) AND ALSO THAT THE ASSESSEES EXPLANATION IS NOT BONAFIDE. 6. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD DULY SHOWN BEFORE THE A.O. THAT IN THE PARTICULAR PARTYS ACCOUNT, A SUM OF RS. 77,732 ST OOD FOR BAD DELIVERY IN THE COURSE OF REGULAR SMK SHARES & STOCK BROKING PVT. LTD. 4 BUSINESS TRANSACTIONS. THE SAID PARTY DID NOT MAKE ANY PAYMENT FOR WHICH THE ASSESSEE HAD TO MAKE REPRESENTATION BEFORE THE BSE AND TRIED ITS LEVEL BEST TO REALIZE THE AMOUNT DUE FROM THE PARTY. AFTER THREE YEA RS OF REGULAR FOLLOW UP, THE DEBT WAS CONSIDERED UNREALIZABLE. IN SUPPORT OF THIS, COPY OF LEDGER ACCOUNT OF THE SAID PARTY FOR THE THREE YEARS AND ARBITRATION PROCEEDINGS PAPERS OF BSE WERE ALSO FILED. THUS, THE ASSESSEES CLAIM WAS NOT ONLY BO NAFIDE BUT ALTERNATIVELY SHOULD HAVE BEEN ALLOWED AS BUSINESS LOSS . 7. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED HEAVILY ON THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS). 8. WE HAVE HEARD THE RIVAL CONTENTION S , PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IS A MEMBER OF BSE AND IS ENGAGED IN THE DEALING OF SHARES AS A BROKER. IN THE ASSESSMENT ORDER, THE DISALLOWANCE ON ACCOUNT OF CLAIM OF BAD DEBT WAS MADE FOR SUMS AGGREGATING TO RS. 7,10,170, ON THE GROUND THAT CONDITIONS OF SECTION 36(1)(VII) AND 36( 2 ) HAS NOT BEEN FULFILLED. THE ASSESSEES ALTERNATIVE CLAIM OF BUSINESS LOSS WAS ALSO DISALLOWED ON THE GROUND THAT THIS LOSS HAS NOT BEEN CRYS TALLIZED IN THE CURRENT YEAR. F R O M THE STAG E OF THE FIRST APPELLATE PROCEEDINGS, A RELIEF OF RS. 4,62,186, WAS GIVEN AND FINALLY FROM THE SECOND APPELLATE STAGE, THE TRIBUNAL REDUCED THE DISALLOWANCE OF CLAIM TO RS. 77,732, IN THE ACCOUNT OF , INDOSHARES AND FIN TRADE LTD. , ON THE GROUND THAT THE CON DITIONS OF SECTION 36( 2 ) HAS NOT BEEN FULFILLED. DURING THE COURSE OF PENALTY PROCEEDINGS, DETAIL EXPLANATION WAS GIVEN WHICH HAS BEEN REPRODUCED ABOVE BY US, STATING THAT SUCH A CLAIM OF BAD DEBT WAS ON ACCOUNT OF BAD DELIVERY IN THE COURSE OF REGULAR BUS INESS TRANSACTIONS AND DESPITE CONSIDERABLE TIME, THE DUE DEBT FROM THE SAID PARTY COULD NOT BE REALIZED. THE ASSESSEE HAS ALSO STATED THAT IT HA D MADE REPRESENTATION BEFORE THE BSE AND ALSO FILED ARBITRATION PROCEEDINGS PAPERS OF BSE IN SUPPORT . A COPY OF THE LEDGER ACCOUNT OF THREE YEARS WAS ALSO FILED THAT SUCH UNREALIZED DEBT CONTINUED IN THIS YEAR ALSO . IT WAS I N THIS BACKGROUND THAT SMK SHARES & STOCK BROKING PVT. LTD. 5 THE ASSESSEE HAS WRITTEN OFF THE DEBT IN THIS YEAR AND HAS CLAIMED IT AS BAD DEBT. ALTERNATIVELY ALSO, WE AGREE WITH THE SUBMISSION OF THE ASSESSEE THAT THIS LOSS HAS BEEN INCURRED DURING THE COURSE OF BUSINESS ONLY THE SAME SHOULD BE ALLOWED AS BUSINESS LOSS AS THE ASSESSEE HAS WRITTEN OFF THIS LOSS IN THE CURRENT YEAR. THIS EXPLANATION OF THE ASSESSEE HAS NOT BEEN FOUND T O BE FALSE OR NON BONAFIDE AND THE DISALLOWANCE IN THE QUANTUM PROCEEDINGS HAS BEEN CONFIRMED , MAINLY ON THE GROUND T HAT THE CONDITIONS OF SECTION 3 6 (2) HAS NOT BEEN FULFILLED. ONCE THE FACTS AND EVIDENCES IN SUPPORT OF THIS NON - RECOVERY OF DEBT OR LOSS HA S NOT BEEN REBUTTED, THE ASSESSEES EXPLANATION ON THIS SCORE HAS TO BE ACCEPTED AS IT APPEARS TO BE A CASE OF ACTUAL LOSS DURING THE COURSE OF BUSINESS WHICH IS EVIDENT FROM THE MATERIAL PLACED ON RECORD. UNDER THESE CIRCUMSTANCES, WE DO NOT FEEL THAT THE PENALTY FOR THE CONCEALMENT OF INCOME OR FOR FURNISHING OF INACCURATE PARTICULARS CAN BE SUSTAINED IN THIS CASE. THUS, IN VIEW OF THE EXPLANATION GIVEN BY THE ASSESSEE DURING THE COURSE OF PENALTY PROCEEDINGS WHICH HAS NOT BEEN REBUTTED OR FOUND TO BE FAL SE ON THE BASIS OF MATERIAL ON RECORD, WE CANCEL THE PENALTY SUSTAINED BY THE LEARNED COMMISSIONER (APPEALS). ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS TREATED AS ALLOWED. 9. 9. IN THE RESULT, ASSESS EES APPEAL IS TREATED AS ALLOWED. 11 - 10 - 2013 ORDER PRONOUNCED IN THE OPEN COURT ON 11 - 10 - 2013. SD/ - SD/ - SD/ - SANJAY ARORA ACCOUNTANT MEMBER SD/ - AMIT SHUKL A JUDICIAL MEMBER MUMBAI, DATED : 11 - 10 - 2013 SMK SHARES & STOCK BROKING PVT. LTD. 6 / COPY OF THE ORDER FORWARDED TO : (1) / THE ASSESSEE ; (2) / THE REVENUE; (3) / THE CIT(A ) ; (4) / THE CIT, MUMBAI CITY CONCERNED ; (5) / THE DR, ITAT, MUMBAI ; (6) / GUARD FILE . / TRUE COPY / BY ORDER / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) / ITAT, MUMBAI