M/s. TRIUMPH SECURITIES LTD, MUMBAI V. ACIT. CENT. CIR. - 40, MUMBAI

ITA 1997/MUM/2008

• Counselvise Citation: 199719914 RSA 2008
• Duration Of Justice: 3 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 16-10-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 18-03-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P DANIEL
• Keywords: Business income; Depreciation; Opportunity of being heard; Speculation loss

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SMT.ASHA VIJAYARAGHAVAN, JM ITA NO.1997/MUM/2008 : ASST.YEAR 2003-2004 M/S.TRIUMPH SECURITIES LIMITED RADHA BHUVAN, 1 ST FLOOR 121 NAGINDAS MASTER ROAD FORT, MUMBAI 400 023. PAN : AAACT2152P. VS. THE ASSTT.COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE 40 MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJIV KHANDELWAL RESPONDENT BY : DR.P.DANIEL DATE OF HEARING : 03.08.2011 DATE OF PRONOUNCEMENT : 10.08.2011 O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE ASS ESSEE ARISES OUT OF TH E ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 14.01.2008 IN RELATION TO THE ASSESSMENT YEAR 2003-2004. 2. GROUND NO.1 OF THE ASSESSEES APPEAL IS AGAINST NOT ALLOWING SET OFF OF SPECULATION LOSS AGAINST THE DIVIDEND INCOME OF RS.6,800 AND INTEREST INCOME OF RS.4,79,700 ASSESSED BY THE AS SESSING OFFICER UNDER THE HEAD `INCOME FROM OTHER SOURCES. BRIEFLY STATED THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE, AT THE MATERIAL TIME, WAS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES. THE ASSESSING OFFICER DETERMINED THE AMOUNT OF BUSINESS LOSS AT RS.4.79 CRORE WHICH WAS ALLOWED TO BE CARRIED FORWARD AS SPECULATION LOSS IN VIEW OF EXPLANATION BELOW SECTION 73. RESULTANTLY NO SET OFF WAS ALLOWED AGAINST THE `INCOME FROM OTHER SOURCES TOTALING RS.4 ,86,500. NO RELIEF WAS ALLO WED IN THE FIRST APPEAL. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED A.R. FAIRLY CONCEDED THAT THE BUSINESS LOSS OF RS.4.79 CRORE ITA NO.1997/MUM/2008 M/S.TRIUMPH SECURITIES LIMITED. 2 WAS SPECULATION LOSS IN VIEW OF THE ATTRACTION OF EXPLANATION BELOW SECTION 73. DESPITE THAT IT WAS ARGUED THAT THE DIVI DEND INCOME AND INTEREST INCOME BE CONSIDERED AS BUSINESS INCOME AND THE SET OFF BE ALLOWED. WE ARE UN-CONVINCED WITH THE SUBMISSION ADVANCED ON BEHALF OF THE ASSESSEE FOR THE REASON THAT THERE IS NOTHING TO INDICATE, EVEN REMOTELY, TH AT THE DIVIDEND OF RS.6,800 THOUGH CATEGORIZED UNDER THE HEAD `I NCOME FROM OTHER SOURCES WAS, IN FACT, A BUSINESS INCOME. SIMILAR IS THE POS ITION REGARDING INTEREST IN COME OF RS.4,79,700. THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2002-2003, VIDE ORDER DATED 31.12.2010 HAS HE LD IN PARA 29.1 TH AT THE INTEREST AND DIVIDEND INCOMES ARE TO BE TREATED AS `INCOME FROM OT HER SOURCES. IN SUCH A SITUATION WHEN IN THE EARLIER YEAR BOTH DI VIDEND AND INTEREST INCO ME HAVE BEEN HELD TO BE FALLING UNDER THE HEAD `INCOME FROM OTHER SOURC ES, IN THE AB SENCE OF ANY JUSTIFICATION FOR TAKING A CONTRARY VIEW IN THE INSTANT YEAR, WE ARE NOT PERSUADED TO DEVIATE FROM THE VIEW TAKEN IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING YEAR. AS SUCH BOTH THE INTERE ST AND DIVIDEND INCOME ARE HE LD TO BE FALLING UNDER THE HEAD `INCOME FROM OTHER SOURCES AND HE NCE THERE CANNOT BE ANY QUESTION OF ALLOWING SET OFF OF THE SPECULATION LOSS AG AINST THE INCOME FROM OTHER SOURCES. THIS GROUND FAILS. 4. GROUND NO.2 IS AGAINST THE CONFIRMA TION OF ADDITION OF RS.4,21,55,018 BEING THE AMOUNT OF BAD DEBT WRITTEN OFF. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD WE FIND THAT IN PRINCIPLE THE QUES TION OF BAD DEBT IN THE HANDS OF STOCK BROKER STANDS SETTLED IN ASSESSEES FAVOUR BY THE JUDGEME NT OF THE HONBLE DELHI HIGH COURT IN CIT VS. D.B. (INDIA) S ECURITIES [(2009) 318 ITR 26 (DELHI)] HOLDING THAT THE UNRECOVERED AMOUNT BY THE SHARE BROKER ON BEHALF OF ITS SUB-BROKER HAS TO BE TREATED AS DEBT AND DEDUC TION IS ALLOWABLE. IT HAS FURT HER BEEN LAID DOWN IN THIS CASE THAT THE SHARES REMAINING IN THE POSSESSION OF TH E ASSESSEE CAN BE SOLD IN THE ITA NO.1997/MUM/2008 M/S.TRIUMPH SECURITIES LIMITED. 3 MARKET FOR WHATEVER CONSIDERATION AND AD JUSTED AGAINST THE BALANCE OUTSTANDING PAYABLE BY THE DEBTORS AND THE NET FIGURE WHICH RESULTS THEREAFTER, HAS TO BE ALLOWED AS BAD DEBT. THE SPECIAL BENCH OF THE TRIBUNAL IN DCIT VS. SHREYAS S.MORAKHIA [(2010) 5 ITR (TRI.) 1 (MUM.) (SB)] HAS ALSO DECIDED THIS ISSUE IN ASSESSEES FAVOUR BY HOLDING THAT THE SUM RECEIVABLE BY SHARE BROKER FROM CLIENTS FOR TRANSACTIONS UNDERTAKEN ON THEIR BEHALF IS A TRADING DEBT. UN RECOVERED PART HAS TO BE ALLOWED AS DEDUCTION. IN VIEW OF THE ABOVE JUDGEMENT AND SPECIAL BENCH ORDER, WE HOLD THAT THE ASSESSEE IS ENTITLE D TO DEDUCTION IN RESPECT OF THE AMOUNT BECOMING UNRECOVERABLE FROM ITS CLIENTS. HOWEVER THE DEDUCTION HAS TO BE RESTRICTED TO THE AMOUNT DETERMINED AFTE R REDUCING THE SUM RECOVERABLE FROM SALE PROCEEDS OF SHARES WITH ASSESSEE, IF ANY, IN TERMS OF THE JUDGEMENT IN D.B. (INDIA) SECURITIES (SUPRA). WE, THEREFORE, SET ASI DE THE IMPUGNED ORDER ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF A.O. FOR TAKING A FRESH DE CISION ACCORDINGLY, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. GROUND NO.3 IS AGAINST NOT ALLOWING DEPRECIATION AMOUNTING TO RS.10,28,320 ON MEMBERSHIP RIGHTS OF BOMBAY STOCK EXCHANGE. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELE VANT MATERIAL ON RECORD IT IS OBSERVED THAT SIMILAR ISSUE RE CEIVED CONSIDERATION BY THE TRIBUNAL IN ASSESSEES OWN CASE IN A SSESSMENT YEAR 2002-2003. TH E RELEVANT DISCUSSION HAS BEEN MADE IN PARAS 18 AND 19 ON PAGE 26 AS PER WHICH TH E MATTER HAS BEEN RESTORED TO THE FILE OF ASSESSING OFFICER FOR TAKING A FRESH DECISION IN ACCORDANCE WITH THE IDENTICAL GROUNDS TAKEN UP BY THE ASSES SEE IN AN EARLIER Y EAR. RESPECTFULLY FOLLOWING THE PRECEDENTS WE OVERTURN THE IMPUGNED ORDER ON THIS ISSUE AND DIRECT THE A.O. TO DECIDE THIS ISSUE AFRESH IN ACCORDANCE WITH THE DIRECTIONS GIVEN BY THE TRIBUNAL IN EARLIER ORDER ON THE POINT. ITA NO.1997/MUM/2008 M/S.TRIUMPH SECURITIES LIMITED. 4 8. LAST GROUND IS AGAINST THE FINDING OF THE LEARNED CIT(A) THAT THE ASSESSEE DID NOT CARRY ON ANY BUSINESS DURING THE YEAR AND RESULTANTLY WITHDRAWING DEDUCTION OF EXPENSES ALLOWED BY THE A.O. AGAINST TH E BUSINESS INCOME AND ALSO PROHIBITING THE CARRY FORWARD OF BUSINESS LOSS FOR SET OFF AGAINST INCOME OF SUBSEQUENT YEARS. THE ASSESSING OFFICER DID NOT DISPUTE THE CAR RYING ON OF THE BUSINESS BY THE ASSESSEE AND ALLOWED THE DEDUCTION ACCORDINGLY. HO WEVER WHEN THE MATTER CAME UP BEFORE THE LEARNED CIT(A), HE CAME TO THE CONCLUSION THAT TH E ASSESSEE DID NOT CARRY ON ANY BUSINESS IN THE INSTANT YEAR AND HEN CE WAS NOT ENTITLED TO CLAIM ANY BUSINESS LOSS AND TO CARRY FORWAR D THE SAME. THE ASSESSING OFFICER WAS DIRECTED TO WITHDRAW THE ENTIRE DEDUCTIONS ALLOWED AGAINS T THE BUSINESS INCOME AND ALSO NOT TO ALLOW THE BUSINESS LOSS TO BE CARRIED FORWARD TO THE S UBSEQUENT ASSESSMENT YEARS. THE LEARNED COUNSEL FOR TH E ASSESSEE CONTENDED THAT SIMILAR ACTION WAS TAKEN BY THE LEARNED CIT(A) IN THE IMMEDIATELY PR ECEDING YEAR. THIS GROUND WAS CHALLENGED BY THE ASSESSEE BEFORE THE TRIBUNAL IN ASS ESSMENT YEAR 2002-2003, WHO VIDE PARAS 14 TO 17 ON PAGES 16 TO 26 OF THE ORDER HAS HELD THAT THE ASSESSEE WAS ENTITLED TO CLAIM VARIOUS EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT. IT WAS, THEREFORE, PRAYED THAT SIMILAR VIEW BE TAKEN IN TH E INSTANT YEAR AS WELL AS THE FACTS AND CIRCUMSTANCES OF BOTH THE YEARS WERE SIMILAR. THE LEARNED DEPARTMENTAL REPRESENTATIVE, APART FROM RELYING ON THE IMPUGNED ORDER, COULD NOT POINT OUT AS TO HOW THERE WAS ANY NEED TO OBSERV E DEPARTURE FROM THE VIEW TAKEN BY THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING YEAR. 9. IN VIEW OF THE ABOVE DISCUSSION AND RESPECTFULLY FO LLOWING THE PRECEDENT, WE DIRECT THE ASSESSING OFFICER TO FOLLOW TH E MANDATE OF THE TRIBUNAL ORDER IN THE IMMEDIATELY PRECEDING YEAR ON THE QUESTI ON OF ALLOWING DEDUCTIONS AND THE MATTER OF CARRYING FORWARD OF THE BUSINESS LOSS. ITA NO.1997/MUM/2008 M/S.TRIUMPH SECURITIES LIMITED. 5 10. IN THE RESULT, THE ASSE SSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN TH E OPEN COURT ON THIS 10 TH DAY OF AUGUST, 2011. SD/- SD/- (ASHA VIJAYARAGHAVAN) (R.S.SYAL) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI : 10 TH AUGUST, 2011. DEVDAS*` COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) CENTRAL - VII, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.