M/S. CLSA INDIA LTD., V. THE ADDL CIT 4(1),

ITA 2292/MUM/2005

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70944 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 20-08-2013
• Assessment Year: 2001-2002
• Appeal Filed On: 24-03-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DIPAK RAI POTE
• Assessee Lawyers: K K VED
• Keywords: Share purchase agreement; Revised return

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ./I.T.A. NO. 2292/M/2005 ( / ASSESSMENT YEAR : 2001 - 20 02 ) CLSA INDIA LIMITED, 8/F, DALAMAL HOUSE, NARIMAN POINT, MUMBAI 400021. / VS. ADDL. CIT - 4(1), MUMBAI. ./ PAN : AAACC 2262 K ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI NITESH JOSHI & MR. K.K. VED / RESPONDENT BY : SHRI DIPAK RAI POTE, DR / DATE OF HEARING : 20 .8.2013 / DATE OF PRONOUNCEMENT : 4.9 .2013 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 24.3.2005 IS AGAINST THE ORDER OF CIT (A) - IV, MUMBAI DATED 22.12.2004 FOR THE ASSESSMENT YEAR 2001 - 2002. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. LD CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO IN NOT ALLOWING THE CLAIM IN RESPECT OF STOCK WRITTEN OFF BY THE APPELLANT TO THE EXTENT OF RS. 96,04,920/ - 2. LD CIT (A) ERRED IN HOLDING THAT IN THE ABSENCE OF ANY EVIDENCE TO PROVE THAT THE LOSS IN RESPECT OF STOCK WRITTEN OFF HAS ARISEN DURING THE R ELEVANT PREVIOUS YEAR, THE AO WAS JUSTIFIED IN NOT ALLOWING SUCH LOSS AS BUSINESS LOSS. 3. LD CIT (A) ERRED IN UPHOLDING THE ACTION OF THE AO IN NOT ALLOWING THE CLAIM OF WRITE OFF OF STOCK IN RESPECT OF VIPUL SECURITIES ON THE BASIS THAT AS FAKE CERTIFICA TES WERE DELIVERED IN AN EARLIER YEAR, THE LOSS CANNOT BE CONSIDERED A CRYSTALLIZED DURING THE YEAR. 4. WITHOUT PREJUDICE TO THE ABOVE, THE AO MAY BE DIRECTED TO ALLOW THE WRITE OFF OF STOCK IN THE YEAR IN WHICH IT HAS BEEN CRYSTALLIZED. 3. AT THE OUTSET , LD COUNSEL FILED COPIES OF THE ORDERS OF THE TRIBUNAL IN THE ASSESSEES OWN CASE VIDE ITA NO. 2390 & 31/MUM/2008 (AY: 1999 - 2000 & 2 000 - 2001) ORDER DATED 28.9.2011 AND ITA NO .2362/MUM/2011 (AY: 2002 - 2003) ORDER DATED 22.2.2013. REFERRING TO THE SAID ORDE RS OF THE TRIBUNAL, LD COUNSEL MENTIONED THAT THE ISSUE RAISED I N THE ABOVE MENTIONED ISSUES ARE IDENTICAL TO THE ONE ADJUDICATED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE SAID AYS. 2 4. REFERRING TO THE FACTS, LD COUNSEL MENTIONED THAT ASSESSEE IS A SHARE BROKER AND DEBITED AN AMOUNT OF RS. 1,75,69,828/ - ON ACCOUNT OF WRITE OFF / PROVISION OF SHORTAGE IN STOCK - IN - TRADE . SUBSEQUENTLY, ASSESSEE FILED A REVISED RETURN OF INCOME REDUCING THE SAID CLAIM TO RS. 1,06,87,655/ - ON THAT ACC OUNT . DURING THE ASSESSMENT PROCEEDINGS, AO PROPOSED TO DISALLOW THE SAME FOR WANT OF DETAILS AND EVIDENCES . DURING THE ASSESSMENT PROCEEDINGS, A SSESSEE FILED WRITTEN SUBMISSIONS JUSTIFYI NG THE CLAIM IN P & L ACCOUNT AND EXPLAINED THAT SUCH WRITE IS NECESSARY AND RELATABL E TO THE EVENTS OF DELIVERY OF FAKE CERTIFICATES AND BAD DELIVERIES. ON CONSIDERING THE SAME, AO REJECTED THE ASSESSEES SUBMISSIONS AND DISALLOWED THE SUM OF RS. 96,54,799/ - OUT OF RS. 1.06 CRS. IT IS THE AOS STAND THAT THE ASSESSEE DID NOT DISCHARGE TH E ONUS AND THE RELEVANT PORTION IN THIS REGARD ARE REPRODUCED AS FOLLOWS. ..THE DETAILS SUBMITTED BY THE ASSESSEE HAVE BEEN MINUTELY EXAMINED AND ON EXAMINATION IT WAS DETECTED THAT IN VARIOUS CASES THOUGH THE ASSESSEE HAS CLAIMED AS BUSINESS LOSS INCID ENTAL TO BUSINESS, IT HAS FAILED TO BRING ON RECORD THE EVIDENCE TO SUBSTANTIATE THAT LOSS HAD SPECIFICALLY ARISEN DURING THE YEAR. IN ORDER TO ALLOW THE ASSESSEES CLAIM OF LOSS ON ACCOUNT OF INCIDENTAL TO BUSINESS, THE ONUS LIES ON THE ASSESSEE TO PROVE THAT THE LOSS HAS ARISEN DURING THE YEAR. IT IS SEEN THAT THE FOLLOWING INSTANCES, THE LOSS INCURRED OR CRYSTALLIZED DURING THE PREVIOUS YEAR UNDER CONSIDERATION. THEREFORE, THE CLAIM OF WRITE OFF OF STOCK AS BUSINESS LOSS IS NOT ACCEPTABLE. IN VIEW OF T HIS, THE ASSESSEES CLAIM OF WRITING OFF RS. 96,54,799/ - IS NOT BEING ADMITTED AND THE SAME IS DISALLOWED . 4 .1. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) . 5 . DURING THE PROCEEDINGS BEFORE THE CIT(A) , ASSESSEE SUBMITTED IN WRITIN G , WHICH IS EXTRACTED IN PARA 6.2 OF THE IMPUGNED ORDER , JUSTIFYING THE CLAIM OF THE ASSESSEE . CIT(A) HELD THAT THE WRITE OFF OF LOSS TO THE ACC LTD SHARES IS JUSTIFIED AND GRANTED PART RELIEF TO THE ASSESSEE TO THE EXTENT OF RS. 49,879/ - AND CONFIRMED THE REST OF THE DISALLOWANCE MADE BY THE AO . IN THE PROCESS, CIT (A) QUESTIONED THE BUSINESS DECISION TAKEN BY THE ASSESSEE IN CLAIMING THE LOSS. IN THE BACK GROUND OF THE ABOVE, ASSESSEE FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 6 . DURING THE PROCEEDIN GS BEFORE US, REFERRING TO THE SAID DECISION OF THE TRIBUNAL IN THE ASSESSEE S OWN CASE, SHRI NITESH JOSHI & MR. K.K. VED, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE CONTENTS OF PARA 9 OF THE SAID ORDER OF ITAT AND STATED THAT THE ASSESSEE WA S GIVEN RELIEF BY THE TRIBUNAL ON THE FACTS WHICH ARE IDENTICAL IN SUBSTANCE. IN THE SAID ORDER, THE TRIBUNAL HAS APPRECIATED 3 THE BUSINESS DECISION OF THE ASSESSEE AND ALSO NOTICED THE FACT THAT THE ASSESSEE HAS CONSISTENTLY FOLLOWING THE SIMILAR ACCOUNTI NG POLICY IN THE MATTERS OF SHARES LOSS ATTRIBUTABLE TO THE WRONG DELIVERY , FAKE CERTIFICATES ETC. TRIBUNAL HAS NOT APPRECIATED THE ARGUMENT THAT THE LOSS IS ALLOWABLE ONLY IN THE YEAR, THE LOSS IS CRYSTALLIZED. IN FACT, TRIBUNAL APPRECIATED THE BUSINESS DECISION OF THE ASSESSEE, WHO KNOWS HOW TO RUN HIS BUSINESS AND MAINTAIN HIS ACCOUNT. 7 . ON THE OTHER HAND, LD DR DUTIFULLY RELIED ON THE ORDER OF THE AO. 8 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITE D ORDERS OF THE TRIBUNAL IN GENERAL AND PARA 9 OF THE TRIBUNALS ORDER FOR THE AYS 1999 - 2000 AND 2000 - 2001 AND THE SAME READS AS FOLLOWS. 9. WE ALSO OBSERVE THAT ASSESSEE HAS ALSO IN THE ANNEXURE TO ABOVE LETTER (ES) HAD GIVEN DETAILS OF SHARES AND THE AM OUNT WRITTEN OFF AGAINST EACH SCRIPT. ON PERUSAL OF THE SAME, WE ARE OF THE CONSIDERED VIEW THAT THE CONTENTION OF LD DR THAT ASSESSEE COULD NOT FILE THE DETAILS BEFORE THE AO AS TO HOW THE LOSS WAS ESTIMATED FOR BOTH ASSESSMENT YEARS UNDER CONSIDERATION HAS NO MERIT. WE OBSERVE THAT ASSESSEE HAS MADE THE ANALYSIS OF THE SITUATION AND ONLY AFTER ARRIVING TO THE CONCLUSION THAT STOCK HAD BECOME WORTHLESS / AMOUNT WAS NOT RECOVERABLE AND THEREAFTER THE BUSINESS DECISION HAD BEEN TAKEN BY THE ASSESSEE TO WRI TE OFF OF THE SAME IN THE ASSESSMENT YEARS UNDER CONSIDERATION. WE OBSERVE THAT DEPARTMENT HAS NOT DISPUTED THE OBSERVATION OF LD CIT (A) THAT ASSESSEE COMPANY IS CONSISTENTLY FOLLOWING THE ACCOUNTING POLICY OF WRITING OFF OF THE SHARE S LOST AND ALSO WRIT ING BACK THE RECOVERIES OF SHARE S LOST OVER THE PERIOD . CONSIDERING THE ABOVE FACTS AND IN THE ABSENCE OF ANY CONTRARY MATERIAL BROUGHT ON RECORD BY THE DEPARTMENT, WE ARE OF THE CONSIDERED VIEW THAT ORDERS OF THE LD CIT (A) IS JUSTIFIABLE FOR BOTH ASSES SMENT YEARS UNDER CONSIDERATION. THEREFORE, WE UPHOLD THE SAME BY REJECTING THE GROUNDS OF APPEAL FOR THE ASSESSMENT YEAR 1999 - 2000 AND GROUND NO. 1 & 2 OF APPEAL FOR THE AY 2000 - 01. 9 . IT IS ALSO NOTICED THAT THE TRIBUNAL HAS FOLLOWED THE ABOVE ORDER OF THE TRIBUNAL FOR THE AY 2002 - 2003 ALSO AS SEEN FROM PARA 4 OF THE ORDER OF THE TRIBUNAL DATED 22.2.2013 AND THE SAME READS AS UNDER: 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING THE ALLOWABILITY OF CLAIM OF DEDUCTION ON ACCOUNT OF WRITE OFF OF BAD STOCK . THE ASSESSEE IS IN SHARE BROKING BUSINESS AND MANY A TIMES, THE CLIENTS OR STOCK EXCHANGE RETURN STOCK S TO THE ASSESSEE DUE TO REASONS SUCH AS DIFFERENCE IN SIGNATURE OF TRANSFEROR, FORGED / FAKE SHARE CE RTIFICATE ETC AND THEREFORE, TO TAKE CARE OF SUCH UNFORESEEN CIRCUMSTANCES, THE ASSESSEE HAS BEEN MAKING PROVISION FOR SUCH LOSS @ 0.01% OF TURNOVER. THE PROVISION SO MADE IS ADDED IN THE COMPUTATION OF INCOME AND ACTUAL CLAIM OF LOSS IS MADE AFTER DUE VE RIFICATION. THIS YEAR ASSESSEE CLAIMED LOSS OF RS. 4,84,796/ - WHICH WAS DISALLOWED BY THE AO. WE FIND THAT SIMILAR DISALLOWANCE HAD BEEN MADE BY THE AO IN THE ASSESSMENT YEAR 1999 - 2000 WHICH HA D BEEN DELETED BY CIT (A). IN FURTHER APPEAL, THE TRIBUNAL AF TER NECESSARY EXAMINATION CONCLUDED THAT THE ASSESSEE HAD BEEN REGULARLY MAKING ANALYSIS O F THE BAD STOCK AND ONLY AFTER ARRIVING AT THE CONCLUSION THAT THE 4 STOCK HAD BECOME WORTHLESS / UNSALABLE, THE BUSINESS DECISION WAS TAKEN TO WRITE OFF THE STOCK. TH E TRIBUNAL ALSO OBSERVED THAT THERE WAS NO DISPUTE THAT THE ASSESSEE WAS CONSISTENTLY FOLLOWING THIS ACCOUNTING PRACTICE OF WRITE OFF OF STOCK. THE TRIBUNAL, THEREFORE, CONFIRMED THE ORDER OF THE CIT (A) ALLOWING THE CLAIM OF ASSESSEE. IN THIS YEAR, THE CIT (A) HAS GIVEN RELIEF FOLLOWING THE DECISION IN ASSESSMENT YEAR 1999 - 2000 WHICH HAS BEEN CONFIRMED BY THE TRIBUNAL. THE FACTS THIS YEAR ARE IDENTICAL. WE THEREFORE, RESPECTFULLY FOLLOWING THE DECIS I O N OF THE TRIBUNAL IN AY 1999 - 2000 (SUPRA) CONFIRM THE ORDER OF THE CIT (A). 10 . THUS, THE LOSS IN QUESTION IS RELATABLE TO THE BAD DELIVERIES IE DIFFERENCE IN SIGNATURE OF TRANSFEROR, FORGED / FAKE SHARE CERTIFICATE ETC . ASSESSEE ANALYSES HIS STOCK POSITION PERIODICALLY AND CONSISTENTLY OVER THE YEARS AND QUANTIFIES THE LOSS FOR DEBITING TO THE P & L ACCOUNT. IT IS A BUSINESS DECISION AND UPHELD BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE OTHER AYS. IN FACT, THE STOCKS DELIVERED IN RESPECT OF VIPUL SECURITIES ARE FOUND TO BE FAKE CERTIFICATES AND T HE ASSESSEE FILED AN FIR IN THIS REGARD TOO. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT, IN PRINCIPLE, THE ISSUE STANDS COVERED BY THE ABOVE MEN TIONED ORDERS OF THE TRIBUNAL. FROM THE ORDER OF THE AO, WE FIND THAT THE ASSESSEE FURNISHED THE LIST OF THE SCIPS INVOLVING THE ABOVE SAID BAD DELIVERIES/FAKE CERTIFICATES AND ALSO SUBMITTED THE REASONS FOR SUCH WRITE. THEREFORE, THE ASSESSEE DISCHARGED THE PRIMARY ONUS AND IT IS FOR THE REVENUE TO REBUT THE SAME. AS SUCH THEY HAVE NOT BROUGHT OR COLLECTED A NY INCRIMINATING INFORMATION AGAINST THE BUSINESS DECISION OF THE ASSESSEE. AS SUCH THE ABOVE EXTRACTED PORTIONS FROM THE ORDERS OF THE TRIBUNAL HELP THE ASSESSEES CLAIM. THEREFORE, IN OUR VIEW , THE ORDER OF CIT(A) IS REQUIRED TO BE SET ASIDE. ACCORDING LY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED . 11 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOU NCED IN TH E OPEN COURT ON 4.9. 2013 . SD/ - SD/ - (VIJAY PAL RAO) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 4.9 .2013 . . ./ OKK , SR. PS 5 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI