M/s. Krone Commodities Pvt.Ltd., Ahmedabad V. The ACIT.,Circle-3, Ahmedabad

ITA 2053/AHD/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8631 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 18-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ROOP CHAND
• Keywords: Bad and doubtful debts
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI , A.M.) I. T. A. NO. 1923 & 2053 / AHD/ 20 1 1 (A SSESSMENT YEAR: 2008 - 09) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE - 3, AHMEDABAD V/S M/S. KRONE COMMODITIES P. LTD. 4, SUPER BAZAR, NARANPURA CROSS R OAD, AHMEDABAD (APPELLANT) (RESPONDENT) M/S. KRONE COMMODITIES P. LTD. 4, SUPER BAZAR, NARANPURA CROSS ROAD, AHMEDABAD V/S ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE - 3, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAICS2001G APP ELLANT BY : SHRI ROOP CHAND, SR. D.R. RESPONDENT BY : SMT. URVASHI SODHAN, A.R. ( )/ ORDER DATE OF HEARING : 06 - 01 - 2015 DATE OF PRONOUNCEMENT : 02 - 02 - 2015 PER SHRI ANIL CHATURVEDI,A.M. 1. THESE 2 APPEALS OF WHICH ONE IS FILED BY THE REVENUE AND THE OTHER IS FILED BY THE ASSESSEE , A RE AGAINST THE ORDER OF CIT(A) - XVI, AHMEDABAD DATED 01.06.2011 FOR A.Y. 2008 - 09. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. ITA NO 1923 & 2053/AHD/2011 . A.Y. 2008 - 09 2 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE TRADING OF COMMODITIES B ROKING. ASSESSEE FILED ITS RETURN OF I NCOME FOR A.Y. 08 - 09 ON 30. 0 9.2008 DECLARING TOTAL INCOME OF RS. 55 , 80,830 / - . THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SE CTION 143(3) VIDE ORDER DATED 25.11.2010 AND THE TOTAL INCOME WAS DETERMINED AT RS. 94,95,720/ - . AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO VIDE ORDER DATED 01 . 06.2011 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE A FORESAID ORDER OF CIT(A), ASSESSEE AS WELL AS REVENUE BOTH ARE NOW IN APPEAL BEFORE US . THE GROUNDS RAISED BY THE REVENUE READS AS UNDER: - 1. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN RESTRICTING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF BAD DEBT TO RS. 22,50,000/ - AS AGAINST TOTAL DISALLOWANCE OF RS. 37,75,920/ - , THEREBY DELETING RS. 1 5,25,910/ - . 4. ON THE OTHER HAND THE EFFECTIVE GROUND RAISED BY THE ASSESSEE READS AS UNDER: - 1. THE ID. CIT (A) HAS GROSSLY ERRED IN LAW AND ON FACTS IN PARTLY CONFIRMING DISALLOWANCE OF RS 22,50,000/ - OUT OF TOTAL BAD DEBTS CLAIMED BY THE APPELLANT OF RS. 37, 75,920/ - UNDER THE PROVISIONS OF SECTION 36 (1) (VII) OF THE ACT IGNORING THE FACT THAT THE APPELLANT HAS FURNISHED ALL THE RELEVANT DETAILS AND ACCOUNTS IN RESPECT OF LESS MONEY RECEIVED IN TERMS OF ARBITRATION AWARD IN THE SUIT FILED IN ARBITRAL TRIBUNAL . LD. CIT (A) OUGHT TO HAVE ALLOWED TOTAL CLAIM OF THE APPELLANT. 5. SINCE THE GROUNDS RAISED BY REVENUE AND ASSESSEE ARE INTERCONNECTED, BOTH THE APPEALS ARE CONSIDERED TOGETHER. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED THAT ASSESSEE HAD DEBITED RS. 37,75,920/ - AS BAD DEBTS. THE ASSESSEE WAS ASKED TO PROVE THE GENUINENESS OF BAD DEBTS TO WHICH ASSESSEE INTERALIA SUBMITTED THAT OUT OF THE TOTAL BAD DEBT S RS. 32,18,105/ - REPRESENTS LESS MONEY RECEIVED IN TERMS OF ARBITRATION AWARD UNDER THE SUIT FILED BY THE ASSESSEE AG AINST REKHA G UPTA AND JITENDRA GUPTA IN MULTI COMMODITIES EXCHANGE. THE SUBMISSION OF THE ASSESSEE WAS NO T FOUND ACCEPTABLE TO THE A.O AS HE WAS OF THE VIEW THAT THE BUSINESS OF SHARE BROKING WAS DIFFERENT FROM GENERAL TRADING BUSINESS AS IN THE BROKING BUSINESS, THE BROKER ACTS AS AN AGENT FOR THE PURCHASE AND SALE AND ONLY COMMISSION/BROKERAGE IS THE INCOME OF THE AS SESSEE. HE WAS FURTHER OF THE VI E W ITA NO 1923 & 2053/AHD/2011 . A.Y. 2008 - 09 3 THAT TO ALLOW THE CLAIM AS BAD DEBTS, THE DEBT SHOULD HAVE BEEN CONSIDERED AS INCOME. IN THE PRESENT CASE, SINCE BROKERAGE IS ONLY CONSIDERED AS INCOME, THE CLAIM OF THE BAD DEBTS CLAIMED BY THE ASSESSEE IS NOT ALLOWABLE AND ACCORDINGLY DENIED THE CLAIM OF DEDUCTION . AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFOR E CIT(A) WHO AFTER CONSIDERING THE S UBMISSIONS OF THE ASSESSEE GRANTED PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER: - 4.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL AS WELL AS THE FACTS OF THE CASE. THE DECISIONS RELIED UPON BY T HE LD. COUNSEL HAS ALSO BEEN CONSIDERED. THE LD. COUNSEL HAS SUBMITTED THAT THE COMPANY HAS ACCOUNTED FOR THE BROKERAGE INCOME RECEIVABLE FROM THE PARTIES AND OFFERED FOR TAXATION U/S. 28 OF THE ACT. THE OUTSTANDING BALANCE IN THE ACCOUNTS OF THE PARTIES W HICH WAS NOT RECOVERABLE AND/OR SETTLED ON ARBITRATION AWARDS HAS BEEN CREDITED TO THE PARTIES ACCOUNT AND PROFIT AND LOSS ACCOUNT HAS BEEN DEBITED WITH THE OUTSTANDING BALANCE OF THE SAID PARTIES. ACCORDINGLY, AT THE YEAR END, THE' BALANCE OF DEBTORS HAS BEEN REDUCED BY THE AMOUNT OF BAD DEBTS AND THE SAID BAD DEBTS HAVE BEEN WRITTEN OFF BY CHARGING TO THE PROFIT AND LOSS ACCOUNT AS IRRECOVERABLE. THIS IS IN LINE WITH THE REQUIREMENT OF SEC. 36(1)(VII) R.W. SEC. 36(2) OF THE IT ACT AS HAS BEEN HELD BY THE HON'BLE SUPREME COURT IN TRF LTD VS CIT 323 ITR 397 (SC). THIS POSITION HAD NOT BEEN DISPUTED BY THE ASSESSING OFFICER. THE LD. COUNSEL HAD RELIED 1 UPON THE DECISIONS OF THE HON'BLE DELHI HIGH COURT IN THE CASES OF CIT VS. BONANZA PORTFOLIO LTD. 320 ITR 17 8 (DEL.) AND CIT VS DB (INDIA) SECURITIES LTD (2009) 318 ITR 26 AND ON THE DECISION OF THE HON'BLE SPECIAL BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF DCIT VS. SHREYAS S. MORAKHIA 40 SOT 432 ( MUM.)(SB) FOR THE ISSUE OF ALLOWANCE OF CLAIM OF BAD DEBTS IN THE CASES OF BROKERS. HE HAS ALSO RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. VS CIT 323 ITR 397 (SC). CONSIDERING THE AFORESAID FACTS OF THE CASE AND THE LAW LAID DOWN IN THE AFORESAID DECISIONS AS RELIED UPON BY THE L D. COUNSEL, THERE IS NO DISPUTE REGARDING ALLOWING THE CLAIM OF BAD DEBTS IN THE CASE OF SHARE OR STOCK BROKERS. SIMILAR ISSUE WAS CAME FOR CONSIDERATION BEFORE MY PREDECESSOR IN APPELLANT'S OWN CASE FOR THE A.Y. 2007 - 08. THE CLAIM OF BAD DEBT OF RS. 2,56, 283/ - WAS ALLOWED BY MY PREDECESSOR VIDE APPELLATE ORDER DATED 10.01.2011 IN APPEAL NO. CIT(A) - XVI/DCIT.CIR.3/388/09 - 10 BY HOLDING THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HON'BLE I.T.A.T., SPECIAL BENCH MUMBAI IN THE CASE OF SHREYAS S. MORAKH IA SUPRA. THE DISALLOWANCE MADE BY THE AO IS THEREFORE DELETED. HOWEVER, THE FACTS ARE SOMEWHAT DIFFERENT FOR THE YEAR UNDER CONSIDERATION. THE APPELLANT HAD MADE THE CLAIM OF BAD DEBTS OF RS. 37,75,920/ - OUT OF WHICH RS. 32,18,105/ - REPRESENTS THE LESS MONE Y RECEIVED IN TERMS OF ARBITRATION AWARD UNDER THE SUIT FILED BY THE COMPANY AGAINST SHRI JITENDRAKUMAR GUPTA AND SMT. REKHA JITENDRA GUPTA IN MULTY COMMODITY EXCHANGE AND THE REMAINING AMOUNT OF RS. 5,57,815/ - IS RELATING TO OTHER CLIENTS WHICH WAS IRRECO VERABLE AND WRITTEN OFF AS BAD DEBTS IN THE ACCOUNTS. IN VIEW OF THE LAW LAID DOWN IN AFORESAID DECISIONS OF TRF LTD., BONANZA PORTFOLIO LTD., DB (INDIA) SECURITIES LTD. AND SHREYAS S. MORAKHIA AND THE FINDING OF MY PREDECESSOR IN APPELLANT'S OWN CASE F OR THE A.Y. 2007 - 08, THE CLAIM OF BAD DEBTS OF RS. 5,57,815/ - IS ALLOWED AND THE ADDITION TO THIS EXTENT IS DELETED. AS REGARDS THE OTHER CLAIM OF RS. RS. 32,18,105/ - , I HAVE GONE THROUGH THE DECISIONS OF THE ARBITRATOR IN THE CASES OF SHRI JITENDRAKUMAR G UPTA AND SMT. REKHA JITENDRA GUPTA. IN THE CASE OF SHRI JITENDRAKUMAR GUPTA, THE CLAIM OF RS. 30,07,773/ - WAS MADE. THE AWARD WAS DECLARED FOR RS. 22,50,000/ - AS PER THE CONDITIONS LAID DOWN IN THE ARBITRATION AWARD. THE APPELLANT HAD EVEN RECEIVED RS. 12, 50;000 ON 26.06.2008 BEFORE DECLARATION OF THE AWARD.LT WAS SPECIFICALLY STIPULATED IN THE AWARD ORDER THAT IN CASE OF DEFAULT, THE APPELLANT SHALL BE ENTITLED TO RECOVER THE FULL CLAIM OF RS. 54,60,000/ - OF BOTH THE MATTERS. SAME IS THE CASE OF SMT. ' REK HA JITENDRA GUPTA. IN THAT CASE, THE CLAIM WAS MADE FOR RS. 26,60,332/ - WHICH WAS REVISED TO RS. 24,60,332/ - . THE AWARD WAS MADE FOR RS. 22,50,000/ - AS PER THE CONDITIONS LAID DOWN IN THE ARBITRATION AWARD. IT WAS SPECIFICALLY STIPULATED THAT IN CASE OF DE FAULT THE APPELLANT SHALL BE ENTITLED TO RECOVER THE FULL CLAIM OF RS. 54,60,000/ - OF BOTH THE MATTERS. IT IS CLEAR FROM THE AFORESAID ARBITRATION AWARDS THAT THE APPELLANT HAD MADE A CLAIM OF RS.54,68,105 / - (RS.:30,07,773/ - + RS. 24,60,332/ - ) IN BOTH THE CASES. THE AWARD WAS DECLARED FOR RS. 45,00,000/ - (RS. 22,50,000/ - + RS. 22,50,000/ - ). THUS WHAT THE APPELLANT HAD LOST IS AN AMOUNT OF RS. 9,68,105/ - (RS.54,68,105/ - AS CLAIM MADE - RS. 45,00,000/ - AS CLAIM ALLOWED). THIS LOSS OF THE APPELLANT IS ALLOWABL E IN VIEW OF THE DECISION OF THE HON'BLE SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE ITA NO 1923 & 2053/AHD/2011 . A.Y. 2008 - 09 4 OF SHREYAS S. MORAKHIA40 SOT 432 ( MUM.)(SB). THUS IN ENTIRETY, THE CLAI M OF BAD DEBTS OF RS. 15,25,910/ - .(RS. 5,57,815/ - RELATING TO OTHER CLIENTS AND RS. 9,68,105/ - REL ATING TO ARBITRATION AWARDS) . THE ADDITION OF RS. 15,25,910/ - IS THEREBY DELETED AND REST OF THE ADDITION OF RS. 22,50,000 / - IS CONFIRMED. THE FIRST GROUND OF APPEAL IS ACCORDINGLY PARTLY ALLOWED. 7. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE AND REVENUE AR E NOW IN APPEAL BEFORE US. 8. BEFORE US, LD. A.R. SUBMITTED THAT THE TOTAL DEBTS DUE COMPRISED OF RS. 30,07,773/ - FROM JITENDRA GUPTA AND RS. 24,60,332(AGGREGATING TO RS. 54.71 LACS) . A GAINST THE TOTAL CLAIM OF RS. 54.71 LACS , VIDE ARBITRATION AWARD NO. MCX /L EGAL/127A/08 ORDER DATED 21.07.2008, ASSESSEE WAS AWARDED RS. 22,50,000/ - IN FULL SATISFACTION OF THE ASSESSEE S CLAIM AND THEREFORE THE BALANCE DEBT OF RS. 32.21 LAC S (RS. 54.71 LACS RS. 22.50 LACS) ALONG WITH DEBTS DUES FROM OTHER PARTIES AGGREGATING TO RS. 37 LACS WAS WRITTEN OFF. SHE POINTED TO THE COPY OF THE ARBITRATION AWARD PLACED AT PAGE 1 TO 5 OF TH E PAPER BOOK AND POINTED OUT THAT LD. CIT(A) HAS ERRONEOUSLY CONSIDERED THE AWARD OF RS. 22,50,000/ - EACH TO BE FROM BOTH SHRI JITENDRA GUPTA AND R EKHA GUPTA WHEREIN FACT THE ARBITRATION AWARD FROM BOTH THE PARTIES WAS RS. 22.50 LACS . SHE THEREFORE SUBMITTED THAT THE ENTIRE CLAIM BE ALLOWED AS DEDUCTION. LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF A.O AND CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMI SSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE MATTER OF RECOVERY OF DEBTS FROM JITENDRA AND REKHA GUPTA WAS REFERRED TO ARBITRATOR. ON PERUSING THE ARBITRATION AWARD PLACED ON RECORD, IT IS SEEN THAT AS PER THE CONSENT TERMS , THE AWARD WAS THAT ASSESSEE WAS TO BE PAID RS. 22,50,000/ - IN FULL SATISFACTI ON OF ASSESSEE S CLAIM IN ARBITRATION NO. MCX/LEGAL/127A/08 AND IN REFERENCE NO. MCX/LEGAL/126A/08 MEANING THEREBY THAT ASSESSEE WAS AWARDED TOTAL AMOUNT OF RS. 22,50,000/ - AS A GAINST ITS CLAIM OF RS. 54,68,105/ - AND THEREFORE THE BALANCE AMOUNT OF RS. 32,18,105/ - (RS. 54,68,105 22,50,000) IN TERMS OF THE AFORESAID ARBITRATION AWARD WAS NOT RECOVERABLE AND WAS THEREFORE WRITTEN OFF. BEFORE US, NO MATERIAL HAS BEEN PLACED ON REC ORD BY REVENUE TO CONTROVERT THE FINDINGS OF LD. A.R NOR ITA NO 1923 & 2053/AHD/2011 . A.Y. 2008 - 09 5 HAS DEMONSTRATED THAT THE ASSESSEE HAS RECEIVED EXTRA THAN THE AWARD AMOUNT. IN VIEW OF THE AFORESAID FACTS, WE ARE OF TH E VIEW THAT THE DEDU CTION OF THE AMOUNT CLAIMED BY THE ASSESSEE CANNOT BE DISA LLOWED. THUS THIS GROUND OF THE ASSESSEE IS ALLOWED AND THE REVENUE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED AND THAT OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 02 - 0 2 - 201 5 . SD/ - SD/ - (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD