M/s. Kanak N.Shah, Ahmedabad V. The ACIT.,Circle-3, Ahmedabad

ITA 2089/AHD/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2305 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 18-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY RAI
• Keywords: Bad and doubtful debts
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH D DD D BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI T.K.SHARMA T.K.SHARMA T.K.SHARMA T.K.SHARMA, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER AND AND AND AND SHRI N.S. SAINI, ACCOUNTANT MEMBER SHRI N.S. SAINI, ACCOUNTANT MEMBER SHRI N.S. SAINI, ACCOUNTANT MEMBER SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING: DRAFTED ON: ITA NO. 2089 /AHD/ 2010 ASSESSMENT YEAR : 2006-07 M/S KANAK N. SHAH, 3, NILAY FLATS, NR. ASHOKA CHEMBERS, MITHAKHALI, AHMEDABAD 380006 VS. ASSTT. CIT, CIR - 3, AHMEDABAD. PAN/GIR NO. : AADFS 2962E (A PPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI BHADRESH R. SHAH, LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE RESPONDENT BY: SHRI SANJAY RAI, SR.DR O R D E R O R D E R O R D E R O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- GANDHINAGAR, DATED 16.3.2010. 2. THE SOLE GROUND OF APPEAL TAKEN BY THE ASSESSEE IS THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW A ND IN FACTS IN CONFIRMING DISALLOWANCE OF AMOUNTS WRITTEN OFF OF ` 1,04,384/- UNDER SECTION 28 (I) OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E CLAIMED BAD DEBTS OF ` 1,04,382/- WRITTEN IN THE BOOKS OF ACCOUNTS IN RE SPECT OF THE FOLLOWING PARTIES:- (I) ANAND MANGAL `89,764.56 (II) KARTIK P. PANJWANI `16,119.56 ------------------ `1,0 4,382.12 ====== === - 2 - 4. THE LEARNED ASSESSING OFFICER DISALLOWED THE CLA IM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE IS A STOCK BROKER. THE ASSESSEE EARNED BROKERAGE INCOME FROM THE PARTIES. THE DEBTS HAVE N OT BEEN TAKEN INTO ACCOUNT IN COMPUTING INCOME OF THE ASSESSEE. THE LE ARNED ASSESSING OFFICER ALSO OBSERVED THAT THE CLAIM UNDER SECTION 28(I) OF THE INCOME-TAX ACT, 1961 AS THE ASSESSEE HAS NOT EXHAUSTED ALL THE MEANS TO RECOVER THE DEBTS. 5. IN APPEAL THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT IN THE ASSESSEES TYPICAL NATURE OF T RANSACTIONS WHEREIN WHILE HE EARNS BROKERAGE, THE LOSS DUE TO DEFAULT OF PAYM ENT, IF ANY, IS WITH RESPECT TO THE SHARES WHOSE POSSESSION IS TO BE TAK EN BY THE CLIENT AND WHOSE VALUE DOES NOT COME INTO THE COMPUTATION OF T HE ASSESSEES TOTAL INCOME, HE DOES NOT GET COVERED BY SECTION 36(1)(VI I). AS REGARDS BUSINESS LOSS UNDER SECTION 28(I), THE SAME WOULD BE AVAILAB LE IN CASE THE LOSS WAS CAUSED TO THE ASSESSEE AND IT QUALIFIES IN THE YEAR . 6. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE SUBMITTED THAT THE ISSUE UNDER CONSIDERATION IS COVERED BY T HE ORDER DATED 17.7.2009 OF THIS TRIBUNAL IN THE CASE OF ACIT, CIR.3, AHMEDA BAD VS. M/S KANAK N. SHAH FOR ASSESSMENT YEAR 2001-02 IN ITA NO.372 & 219/AHD /2005. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE AGREED W ITH THE SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIV E OF THE ASSESSEE. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE ASSESSEE CLAIMED THE DEDUCTION OF `1,04,382/-, AS BAD DEBT WHICH WAS DISALLOWED BY THE LEARNED ASSESSING OFFICER ON THE GROUND THAT THE DEBTS HAS NOT BEEN TAKEN INTO ACCOUNT IN COMPUTING INCOME OF THE ASSESSEE. THE LEARNED ASSESSING OFFICER ALSO OBSERVED THAT THE CL AIM UNDER SECTION 28(I) OF THE INCOME-TAX ACT, 1961 AS THE ASSESSEE HAS NOT EXHAUSTED ALL THE MEANS TO RECOVER THE DEBTS. IN APPEAL THE LEARNED C OMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ACTION OF THE LEARNED A SSESSING OFFICER FOR THE - 3 - VERY SAME REASONS. WE FIND THAT THE HONBLE DELHI H IGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. BONANZA PORTFOLIO LTD .(2010) 320 ITR 178(DEL)HAS HELD AS UNDER:- THE ASSESSEE WAS IN THE BUSINESS OF SHARE BROKING . IT PURCHASED THE SHARES IN QUESTION ON BEHALF OF ONE OF ITS CLIENTS AND AGAINST THE PURCHASE OF THE SHARES, IT PAID THE MONEY. THE BROKERAGE RECEIV ED BY THE ASSESSEE WAS SHOWN AS INCOME IN HIS BOOKS OF ACCOUNT OF THE IMME DIATE PREVIOUS YEAR. SINCE THE BALANCE AMOUNT TO THE EXTENT OF RS. 50,30,491 C OULD NOT BE RECEIVED FROM THE CLIENT ON WHOSE BEHALF THE SHARES WERE PURCHASE D THE ASSESSEE DURING THE YEAR WROTE OFF THE SUM AS BAD DEBT. ADMITTEDLY, THE AMOUNT COULD NOT BE RECOVERED AND BECAME BAD. THE ASSESSING OFFICER DIS ALLOWED THE CLAIM OF BAD DEBT ON THE GROUND THAT THE CONDITIONS FOR ALLOWABI LITY OF THE AMOUNT AS BAD DEBT AS STIPULATED IN SECTION 36(1)(VII) READ WITH (2) WERE NOT SATISFIED. THIS WAS CONFIRMED BY THE COMMISSIONER (APPEALS). THE TRIBUN AL HELD THAT THE CLAIM OF BAD DEBT SHOULD HAVE BEEN ALLOWED BY THE ASSESSING OFFICER AS CONDITIONS STIPULATED IN SECTION 36(1)(VII) AND (2) HAD BEEN S ATISFIED. ON APPEAL : _ HELD, _ DISMISSING THE APPEAL, THAT THE MONEY RECEIVABLE FROM THE CLIENT HAD TO BE TREATED AS BAD AND SINCE IT BECAME BAD IT WAS RI GHTLY CONSIDERED AS BAD DEBT AND CLAIMED AS SUCH BY THE ASSESSEE IN THE BOO KS OF ACCOUNT. SINCE THE BROKERAGE PAYABLE BY THE CLIENT WAS A PART OF THE D EBT AND THAT DEBT HAD BEEN TAKEN INTO ACCOUNT IN THE COMPUTATION OF THE INCOME , THE CONDITIONS STIPULATED IN SECTION 36(1)(VII) AND (2) STOOD SATISFIED. IN THE INSTANT CASE ALSO THE ASSESSEE IS A BROKER AND HAS EARNED BROKERAGE INCOME FROM SHARE TRADING TRANSACTIONS DO NE ON BEHALF OF ITS CLIENTS. THE AMOUNTS RECEIVABLE FROM THE CLIENTS OF THE ASSESSEE BECAME IRRECOVERABLE WHICH HAS BEEN CLAIMED AS BAD DEBT. T HEREFORE THE DECISION OF THE HONBLE DELHI HIGH COURT SQUARELY APPLIES TO TH E FACTS OF THE ASSESSEES CASE. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE DELHI HIGH COURT WE SET-ASIDE THE ORDERS OF THE LOWER AUTHORITIES AN D DELETE THE DISALLOWANCE OF BAD DEBTS OF `.1,04,382/-. THUS THIS GROUND OF A PPEAL OF THE ASSESSEE IS ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE H EARING ON 21 ST DAY OF JANUARY, 2011. SD/- SD/- ( T.K. SHARMA ) ( T.K. SHARMA ) ( T.K. SHARMA ) ( T.K. SHARMA ) ( N.S ( N.S ( N.S ( N.S. SAINI ) . SAINI ) . SAINI ) . SAINI ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATED: AHMEDABAD, 21 ST DAY OF JANUARY, 2011. - 4 - COMPILED AND COMPARED BY : PATKI COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)GANDHINAGAR 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 21.1.11 ----------------- -- 2. DRAFT PLACED BEFORE AUTHORITY 21.1.11. ------- ------------ 3. DRAFT PROPOSED & PLACED 21.1.11. - ------------------ JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 21.1.11. ------------------- JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 21.1.11. ---------- ---------- 6. KEPT FOR PRONOUNCEMENT ON ---------------- --- ----------------- 7. FILE SENT TO THE BENCH CLERK ---------------- -------------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- -- -------------------