VFC SECURITIES P. LTD, MUMBAI V. ITO 4(2)(2), MUMBAI

ITA 1915/MUM/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3501 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 29-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 10-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: TORAL SHAH
• Keywords: Bad and doubtful debts
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI. BEFORE SHRI R.V.EASWAR, PRESIDENT AND SHRI RAJEND RA SINGH, AM I.T.A. NO.1915/MUM/2010 (ASSESSMENT YEAR: 2006-07) M/S. VFC SECURITIES P.LTD., 1 ST FLOOR, NUSSER HOUSE, 20, MAMA PARMANAND MARG, OPERA HOUSE, MUMBAI-400 004. PAN: AAACV2709G VS. THE INCOME TAX OFFICER-4(2)(2), AAYAKAR BHAVAN, 6 TH FLOOR, M.K.ROAD, MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : MS.TORAL SHAH RESPONDENT BY : MR. SURENDRA KUMAR, DR O R D E R PER R.V.EASWAR, PRESIDENT: THIS APPEAL BY THE ASSESSEE RELATES TO THE ASSESSMENT YEAR 2006-07. THE ASSES SEE IS A PRIVATE LIMITED COMPANY ENGAGED IN SHARE BROKING BU SINESS. THE APPEAL ARISES OUT OF THE ASSESSMENT ORDER PASSED ON 5.12.2008 UNDER SECTION 143(3) OF THE INCOME TAX ACT. 2. THE FIRST GROUND IS DIRECTED AGAINST THE DISALLO WANCE OF THE CLAIM OF BAD DEBTS OF RS.3,13,000/-. THE ASSESS ING OFFICER TOOK THE VIEW THAT SINCE THE ASSESSEE IS A SHARE BR OKER THE BAD DEBTS CAN BE ALLOWED ONLY TO THE EXTENT OF THE BROK ERAGE INCOME WHICH HAS BEEN TAKEN INTO ACCOUNT IN THE ASSESSMENT S OF THE ASSESSEE FOR THE EARLIER YEARS AND SO FAR AS THE PR INCIPAL AMOUNT OF THE DEBT IS CONCERNED, THE SAME CANNOT BE ALLOWE D BECAUSE THE DEBTS WERE DUE TO THE ASSESSEE ONLY IN THE COUR SE OF ITS BUSINESS AS SHARE BROKER AND NOT ON ITS OWN BUSINES S ACCOUNT. THE CIT(A) AGREED WITH THE ASSESSING OFFICER. THE A SSESSEE IS THEREFORE IN FURTHER APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF THE HEARING THE ASSESSEE FILED BEFORE US COPIES OF THE ORDER OF THE TRIBUNAL 27.8.2010 IN THE ASSESSEES OWN CASE FOR T HE ITA NO.1915/MUM/10 2 ASSESSMENT YEAR 2005-06 IN ITA NOS. 5523 & 4200/MUM /2009 AND SUBMITTED THAT IN THE SAID ORDER THE IDENTICAL ISSUE HAS BEEN CONSIDERED AND HAS BEEN REMANDED TO THE FILE O F THE ASSESSING OFFICER TO ADJUDICATE THE ISSUE IN LIGHT OF THE PRINCIPLES LAID DOWN BY THE MUMBAI SPECIAL BENCH IN ITS ORDER IN THE CASE OF SHRI SHREYAS S.MORAKHIA IN ITA NO.3374/MUM/2004 DATED 16.7.2010 [SINCE REPORTED IN 40 SOT 432]. SINCE THE FACTS AND THE CONTROVERSY FOR THE Y EAR UNDER CONSIDERATION NOW ARE THE SAME, RESPECTFULLY FOLLOW ING THE AFORESAID ORDER OF THE TRIBUNAL IN THE ASSESSEES O WN CASE, WE RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFI CER WITH THE SAME DIRECTIONS. THE GROUND IS ALLOWED FOR STATISTI CAL PURPOSES. 3. THE SECOND GROUND RELATES TO DISALLOWANCE OF 8.4 4% OF THE EXPENSES TOWARDS OWN TRADING ACTIVITY BY INVOKING S ECTION 14A OF THE ACT. THE DISALLOWANCE IS BASED ON THE PREMIS E THAT THE ASSESSEE DERIVES NO INCOME FROM BUYING AND SELLING SHARES ON ITS OWN ACCOUNT AND THEREFORE PROPORTIONATE EXPENDI TURE SHOULD BE DISALLOWED UNDER THE ABOVE SECTION. IN THE ASSE SSMENT ORDER, THE ASSESSING OFFICER HAS ACTUALLY INVOKED R ULE 8D OF THE INCOME TAX RULES TO CALCULATE THE DISALLOWANCE AT R S.34,027/-. THE CIT(A) FOLLOWING HIS ORDER FOR THE ASSESSMENT Y EAR 2005-06 CONFIRMED THE DISALLOWANCE AND THE ACTION OF THE AS SESSING OFFICER IN INVOKING RULE 8D. THIS ISSUE HAS ALSO BE EN DEALT WITH IN THE ORDER OF THE TRIBUNAL CITED SUPRA. AFTER NOT ICING THAT RULE 8D IS APPLICABLE ONLY FROM THE ASSESSMENT YEAR 2008 -09, THE TRIBUNAL HAS NOTED THAT THE ESTIMATE OF 5% OF THE D IVIDEND AS REASONABLE EXPENDITURE FOR EARNING THE NON-TAXABLE DIVIDEND INCOME WAS REASONABLE. IN THE YEAR BEFORE US THE DI VIDEND INCOME IS RS.2,20,130/-. THE ASSESSING OFFICER IS D IRECTED TO DISALLOW 5% OF THE DIVIDEND INCOME UNDER SECTION 14 A AS DIRECTED BY THE TRIBUNAL IN THE ORDER CITED SUPRA. THE GROUND IS THUS PARTLY ALLOWED. ITA NO.1915/MUM/10 3 4. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS DAY OF 31 ST DECEMBER, 2010 IN THE OPEN COURT. SD/- ( RAJENDRA SINGH ) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 31 ST DECEMBER, 2010. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT (A)-8, MUMBAI. 4. THE CIT-4 MUMBAI 5. THE DR F BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR, I.T.A.T, MUMBAI