The DCIT, Central Circle-2(2), Ahmedabad V. Shri Pravin Ratilal Sharedalal, Ahmedabad

ITA 2123/AHD/2009

• Counselvise Citation: 212320514 RSA 2009
• Duration Of Justice: 2 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-01-2012
• Assessment Year: 2000-2001
• Appeal Filed On: 03-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KARTAR SINGH
• Keywords: Bad and doubtful debts

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD , . .!'#$, % & BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ./ I.T.A. NO.2123/AHD/2009 ( ( ) ( ) ( ) ( ) / / / / ASSESSMENT YEAR : 2000-01) THE DCIT CENTRAL CIRCLE-2(2) AHMEDABAD ( ( ( ( / VS. SHRI PRAVIN RATILAL SHAREDALAL RATNAKAR 27/B BRAHMIN MITRAMANDAL SOCIETY PALDI, AHMEDABAD * % ./+, ./ PAN/GIR NO. : ARSPS 8711 K ( *- / // / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 / APPELLANT BY : SHRI KARTAR SINGH, CIT-DR ./*- 1 0 / RESPONDENT BY : -NONE- (2 1 3% / / / / DATE OF HEARING : 03/01/2012 4') 1 3% / DATE OF PRONOUNCEMENT : 29/02/2012 5 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WH ICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-III, AHMEDABAD DA TED 18/03/2009. REVENUE HAS RAISED FOLLOWING TWO GROUNDS:- (I) THE CIT(A) HAS ERRED IN LAW AND FACTS IN DELETI NG ADDITION OF RS.1,51,778/- ON ACCOUNT OF UNDISCLOSED COMMISSION. (II) THE CIT(A) HAS ERRED IN LAW AND FACTS IN DE LETING ADDITION OF RS.67,69,405/- ON ACCOUNT OF DISALLOWANCE OF BAD DE BTS. ITA NO.2123/AHD /2009 DCIT VS. SH.PRAVIN RATILAL SHAREDALAL ASST.YEAR - 2000-01 - 2 - 2. NONE APPEARED ON BEHALF OF THE ASSESSEE, HOWEVER CONSIDERING THE SMALLNESS OF THE ISSUES INVOLVED, WE HEREBY PROCEED TO DECIDE EX-PARTE , QUA THE ASSESSEE, AFTER HEARING THE LD.DR. 3. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.153A R.W.S.143(3) DATED 27/12/2007 THAT A SEARCH U/S.132 WAS CARRIED OUT IN THE GROUP CASES OF M/S.PRAVIN RATHIL AL SHAREDALAL ON 22/09/2005. THE ASSESSEE IN INDIVIDUAL CAPACITY I S STATED TO BE A SHARE- BROKER AND TRADING IN SHARES. IT WAS NOTED BY THE AO THAT THERE WAS A TOTAL TURNOVER OF RS.1,51,77,793/-. THE AO HAS M ADE AN ALLEGATION THAT THE ASSESSEE OUGHT TO HAVE EARNED COMMISSION ON THE SAID TURNOVER. THE AO HAS MENTIONED A SALES REGISTER OF ONE M/S.HANU MAN PRASAD TRILOKCHAND. THE ASSESSEE HAS CATEGORICALLY DENIED ANY CONNECTION WITH THOSE TRANSACTIONS. AT THE END OF THE PROCEEDINGS THE AO HAS TAXED 1% OF THE TURNOVER AS COMMISSION AND ADDED THE IMPUGNED S UM OF RS.1,51,778/- IN THE HANDS OF THE ASSESSEE. THE MA TTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 4. AFTER CONSIDERING THE FACTS OF THE CASE, LD.CIT( A) HAS DELETED THE ADDITION FOLLOWING AN EARLIER ORDER OF HIS PREDECES SOR AS FOLLOWS:- 9. THE CONTENTIONS/DETAILS ON RECORD WERE CAREFULL Y CONSIDERED. IT IS SEEN THAT THE ADDITION MADE OF RS.1,51,778/- FOR COMMISSION INCOME, IS NOT SUSTAINABLE IN VIEW OF THE RATIO OF THE DECISION, IN CASE OF THE APPELLANT IN APPEAL NO.CIT(A)-III/133/C C-2(2)/07-08 DATED 30/5/2008. FOLLOWING THAT DECISION, THE ADDI TION OF RS.1,51,778/- IS DELETED AND THE RELATED GROUND OF APPEAL IS ALLOWED. ITA NO.2123/AHD /2009 DCIT VS. SH.PRAVIN RATILAL SHAREDALAL ASST.YEAR - 2000-01 - 3 - 5. HAVING HEARD THE LD.DR AND CONSIDERING THE CONTE NTS OF THE PAPER- BOOK SUBMITTED BY THE ASSESSEE (CONTAINING 114 PAGE S), WE ARE OF THE VIEW THAT IN THE ABSENCE OF ANY DIRECT EVIDENCE OF EARNING OF COMMISSION, THOUGH A SEARCH HAD TAKEN PLACE, THERE WAS NO LEGAL BASIS TO ASSUME THAT THE ASSESSEE MIGHT HAVE EARNED A 1% COMMISSION ON T HE TOTAL TURNOVER. TOTALITY OF THE CIRCUMSTANCES THUS ESTABLISHED THAT THERE WAS NO SCOPE OF SUCH PRESUMPTION. WE THEREFORE CONFIRM THE VIEW TA KEN BY LD.CIT(A). THIS GROUND OF REVENUE IS HEREBY DISMISSED. 6. APROPOS TO GROUND NO.2, THERE WAS A CLAIM OF A BAD DEBT OF RS.67.69 LACS. THERE WAS A DEBIT BALANCE IN THE A CCOUNT OF ONE CLIENT, NAMELY SHRI AMIT ARVINDLAL. THE EXPLANATION OF THE ASSESSEE WAS AS UNDER:- BAD DEBTS 2.1. THE CONTENTS OF PARA 1 HAVE BEEN VERY CAREFULL Y CONSIDERED AND YOUR OBSERVATIONS ARE CONTRARY TO THE FACTS AND STRONGLY OBJECTED TO. I HAVE PLACED ON YOUR RECORDS COPIES OF THE ACCOUNTS OF SHRI AMIT ARVINDLAL AND ON BASIS OF THE SAID COP IES OF THE ACCOUNTS IT BECOME EVIDENT THAT THE DEBIT BALANCE H AD ARISEN ON ACCOUNT OF BUSINESS OPERATIONS AND THE DEBITS WERE TAKEN INTO ACCOUNT ON COMPUTATION OF THE TOTAL INCOME ON THE E ARLIER YEARS AND IT REPRESENTED DEBITS TO THE ACCOUNT OF PARTY D URING BUSINESS OPERATIONS/MONEY LENT IN ORDINARY COURSE OF BUSINES S. IT IS BEYOND MY COMPREHENSION AS TO HOW THE SAID OBSERVATIONS HA VE BEEN MADE BY YOU WITHOUT STATING ANY MATERIAL IN SUPPORT OF YOUR OBSERVATIONS. IT IS SUBMITTED THAT MERELY BY MAKIN G THE OBSERVATIONS YOUR OBSERVATIONS DO NOT ACQUIRE THE S TATUS OF REAL STATE OF AFFAIRS AND THE REAL STATE OF AFFAIRS ARE TOTALLY DIFFERENT AND HAVE BEEN IGNORED BY YOU WITH A VIEW TO MAKING DISA LLOWANCE OF ITA NO.2123/AHD /2009 DCIT VS. SH.PRAVIN RATILAL SHAREDALAL ASST.YEAR - 2000-01 - 4 - BAD DEBT OF RS.67,69,405/- THE COPIES OF THE ACCOU NTS OF THE SAID PARTY PRODUCED BEFORE YOU WHICH CONCLUSIVELY PROVE THAT THE DEBITS TO THE ACCOUNTS OF PARTY WAS CONSIDERED AS TURNOVER FROM BUSINESS OPERATIONS AND CREDITED THEM TO THE PROFIT AND LOSS ACCOUNT AND ACCORDINGLY CONSIDERED IN COMPUTATION OF THE TOTAL INCOME AND ALL CONDITIONS HAVE BEEN FULFILLED. IT IS SUBMITTED TH AT UNDER THE CIRCUMSTANCES THE DENIAL IS STRONGLY OBJECTED TO. 6.1. THE AO WAS NOT CONVINCED AND HE HAS HELD THA T A DEBT WHICH WAS CLAIMED AS IRRECOVERABLE COULD NOT BE ALLOWED BECAU SE THE ASSESSEE HAS FAILED TO SHOW THAT THE DEBT HAD BEEN TAKEN INTO AC COUNT WHILE COMPUTING THE INCOME FOR THE YEAR AND THAT THE SAID DEBT HAD ACTUALLY BECOME BAD. BEING AGGRIEVED THE MATTER WAS CARRIED BEFORE THE C IT(A). 7. THE LD.CIT(A) HAS APPRECIATED THE FACTS AND THER EAFTER HELD AS UNDER:- 10. REGARDING THE CLAIM OF BAD DEBTS, IT APPEARS T HAT THE TRANSACTIONS WITH SHRI AMIT ARVINDLAL WERE PRIMARIL Y IN THE NATURE OF DEFERRAL PRODUCTS. THE BADLA TRANSACTIONS WERE BANNED BY SEBI IN DECEMBER, 1993, ONLY TO BE REVIVED IN A MODIFIED MANNER IN JANUARY, 1996 AND AGAIN IN OCTOBER, 1997. HOWEVER, THE DEFERRAL PRODUCTS, NAMELY BLESS (BORROWING AND LENDING OF SE CURITY SCHEME/CNS (CONTINUOUS NET SETTLEMENT)/MCFS (MODIFI ED CARRIED FORWARD SYSTEM), ETC. WERE BANNED IN MAY, 2 001. ALL OUTSTANDING POSITION OF MEMBERS WAS TO BE LIQUIDATE D BY 3 RD SEPTEMBER (2001). THUS APPARENTLY TRANSACTIONS WER E NOT CONTRARY TO THE PREVAILING RULES AND REGULATIONS. THE COPIES OF ACCOUNTS OF AMT ARVINDLAL APPEARING IN THE BOOKS OF THE APPELLANT FOR ALL THE AFOREMENTIONED RELATED ASSESSMENT YEARS HAD BEEN FILED BEFORE THE A.O. THE A.O. HAS NOT DOUBTED THE AMOUN TS WHICH HAVE BEEN DEBITED TO THE ACCOUNT OF AMIT ARVINDLAL. TH E OBSERVATION OF THE A.O., THAT THE ASSESSEE WAS NOT A BANKER/MONEY LENDER, AS SUCH, HAD NO RELEVANCE CONSIDERING THE DEFERRAL PRO DUCTS ITA NO.2123/AHD /2009 DCIT VS. SH.PRAVIN RATILAL SHAREDALAL ASST.YEAR - 2000-01 - 5 - TRANSACTED. THE CONTENTION OF THE A.O. THAT THE TU RNOVER AMOUNT WAS NOT REFLECTED AND ONLY THE BROKERAGE AMOUNT HAD BEEN TAKEN TO THE P & L ACCOUNT IS ANSWERED, CONSIDERING THE A FOREMENTIONED SUBMISSIONS. THE APPELLANT HAS POINTED OUT THAT TH E DECISION CITED BY THE A.O. WERE ON DIFFERENT ISSUES. IN CASE OF T HE APPELLANT, THE FACTS ARE NOT THE SAME AS CONSIDERED IN THESE DECIS IONS AND INCIDENTALLY THE RATIO OF THESE DECISIONS IS NOT CO NTRADICTORY IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT. COPY OF ACCOUNTS FILED BEFORE THE A.O. REVEALS THAT THE APPELLANT HAS DISC HARGED ITS FINANCIAL OBLIGATION TOWARDS M/S.GUJARAT STATE FINA NCIAL SERVICES DESPITE THE FACT OF NON RECOVERY FROM AMIT ARVINDLA L. THUS IT WAS A LOSS, BORNE DURING BUSINESS OPERATION, AND IT COLLA TED, ONCE AMIT ARVINDLAL WAS DECLARED INSOLVENT AND THE REGULATIO NS, THAT OUTSTANDING POSITION OF THE MEMBERS (OF STOCK EXCHA NGE) WAS TO BE LIQUIDATED BY 3 RD SEPTEMBER, 2001, CAME INTO FORCE. THE FINANCIAL OBLIGATION TO RETURN THE LOAN TO GSFS IS REFLECTED IN THE COPY OF ACCOUNT OF M/S.GSFS, IN THE BOOKS OF THE APPELLANT. THUS THE DEDUCTION CLAIMED IS ALLOWABLE AND THE DISALLOWANCE MADE BY THE A.O. IS NOT JUSTIFIED. THE RELATED GROUND OF APPEA L IS ALLOWED. 8. AFTER HEARING THE CONTENTIONS OF THE LD.DR AND ON EXAMINATION OF THE RELEVANT PROVISIONS OF ACT, THE ISSUE OF WRITE OFF OF DEBT IS NOW SETTLED BY THE HON'BLE SUPREME COURT IN THE CASE OF T.R.F. LTD. VS. CIT REPORTED AS (2010) 323 ITR 397 (SC) WHEREIN THE HON 'BLE APEX COURT HAS TAKEN INTO CONSIDERATION THE POSITION OF LAW, A FTER 01/04/1989 AND HELD AS UNDER:- THIS POSITION IN LAW IS WELL-SETTLED. AFTER APRI L 1, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HOW EVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINE D WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. WHEN A BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEB ITED AND THE CUSTOMERS ACCOUNT IS CREDITED, THUS, CLOSING THE A CCOUNT OF THE ITA NO.2123/AHD /2009 DCIT VS. SH.PRAVIN RATILAL SHAREDALAL ASST.YEAR - 2000-01 - 6 - CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. AS STATED ABOVE, THE ASSESSI NG OFFICER HAS NOT EXAMINED WHETHER, IN FACT, THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, T HE MATTER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSI DERATION OF THE ABOVEMENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE-OFF. 8.1. ONCE THE HON'BLE COURT HAS HELD THAT IT IS ENO UGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE, THEN IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAD BECOME IRRECOVERABLE. 9. THE RELEVANT COPIES OF THE ACCOUNTS OF SAID PAR TIES AS APPEARING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE BEFORE TH E AO AND THE AO HAD NOT DOUBTED THE DEBIT BALANCE THEREIN. THE SAID PA RTY WAS DECLARED INSOLVENT THEREFORE THE FINDING GIVEN BY THE CIT(A) THAT IT WAS A BUSINESS LOSS APPEARS TO BE LEGALLY CORRECT. WE HEREBY CONF IRM THOSE FINDINGS ON LAW AS WELL AS ON FACTS AND DISMISS THIS GROUND OF THE REVENUE. GROUND IS DISMISSED. 10. IN THE RESULT, REVENUES APPEAL STANDS DISMISSE D. SD/- SD/- ( . .!'#$ ) ( ) % ( A.K. GARODIA ) ( M UKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 29 /02/2012 63..(, .(../ T.C. NAIR, SR. PS ITA NO.2123/AHD /2009 DCIT VS. SH.PRAVIN RATILAL SHAREDALAL ASST.YEAR - 2000-01 - 7 - 5 1 .7 8 7) 5 1 .7 8 7) 5 1 .7 8 7) 5 1 .7 8 7)/ COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. 9 / CONCERNED CIT 4. 9() / THE CIT(A)-III, AHMEDABAD 5. 7 >> >/ // / + + + + ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION..27.2.12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 27.2.12 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 29.2.12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 29.2.12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER