JM FIANANCIAL SERVICES P.LTD ( FORMERLY KNWON AS JM MORGAN STANLEY FINANCIAL SERVICES P.LTD), MUMBAI V. DCIT 4(3), MUMBAI

ITA 2410/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71666 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 30-10-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 11-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHEKHAR L GAJBHIYE
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Wrong claim; Bad and doubtful debts
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 2410/MUM/2012 ASSESSMENT YEAR: 2004-05 M/S. JM FINANCIAL SERVICES PVT. LTD. 141, MAKER CHAMBERS III NARIMAN POINT, MUMBAI-. 400 021 PAN :AAACJ 5977 A VS. DCIT 4(3) AAYAKAR BHAVAN MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : DR. K. SHIVARAM RESPONDENT BY : SHRI SHEKHAR L. GAJBHIYE DATE OF HEARING : 31.10.2013 DATE OF PRONOUNCEMENT : 19.11.2013 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD.CIT(A)-8 MUMBAI DATED 19.01.2012 CONFIRMING THE PENALTY OF RS.4,25,868/- LEVIED BY THE AO U/S 271(1)(C) OF THE INCOME TAX AC T ON ACCOUNT OF THE ASSESSEES CLAIM OF DEDUCTION ON PROVISION FOR DOUBTFUL DEBTS OF RS.11,87,089/- FOR THE ASSESSMENT YEAR 2004-05. 2. BRIEFLY STATED, THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF SHARE AND STOCK BROKING, DURING THE YEAR UNDER CONSIDERATION MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS AMOUNTING TO RS.11,87,089/- AND THER EBY DEBITED THE SAME TO THE PROFIT AND LOSS ACCOUNT. THE DEDUCTION CLAIMED BY T HE ASSESSEE WAS DISALLOWED BY THE AO ON THE GROUND THAT CREATION OF MERE PROVISIO N WAS NOT ENOUGH AND THE AMOUNT SHOULD HAVE BEEN ACTUALLY WRITTEN OFF BY CRE DITING THE SAME TO THE INDIVIDUAL ACCOUNTS OF THE DEBTORS IN THE BOOKS OF ACCOUNT IN ORDER TO SATISFY THE REQUIREMENTS ITA NO. 2410/MUM/2012 M/S. JM FINANCIAL SERVICES PVT. LTD. ASSESSMENT YEAR: 2004-05 2 OF SECTION 36(I) (VII) READ WITH SECTION 37(2) OF T HE ACT. IN THE QUANTUM APPEAL, THE LD.CIT(A) CONFIRMED THE SAID DISALLOWANCE REITERATI NG THE SAME REASONING OF THE AO THAT THE PROVISION FOR DOUBTFUL DEBTS COULD NOT BE ALLOWED UNDER SECTION 36(I)(VII) OF THE ACT. THE ASSESSEE HAD NOT PREFERRED FURTHER APP EAL AGAINST THE SAID ORDER OF THE LD.CIT(A). CONSEQUENTLY, THE AO LEVIED THE PENALTY OF RS.4,25,868/- BY INVOKING SECTION 271(1)(C) OF THE ACT FOR FURNISHING INACCUR ATE PARTICULARS. ON APPEAL, THE LD.CIT(A) BY RELYING ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF UNION OF INDIA VS. DHARMENDRA TEXTILES PROCESSORS [306 IT R 277 (SC)], CONFIRMED THE PENALTY LEVIED BY THE AO. ACCORDING TO THE LD.CIT(A ), THE ASSESSEE HAS OFFERED AND EXPLANATION WHICH WAS BOTH FALSE AND NOT BONA FIDE. AGGRIEVED BY THE IMPUGNED ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 3. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE HAS S TATED THAT THE ASSESSEE HAS NEITHER CONCEALED NOR FILED ANY INACCURATE PARTICUL ARS WHICH ARE EVIDENT FROM THE ANNUAL ACCOUNTS AND THE COMPUTATION OF INCOME FILED BY THE ASSESSEE AND SINCE THE BASIS OF CLAIM HAS BEEN EXPLAINED BEFORE THE AO THE LEVY OF PENALTY IS NOT JUSTIFIED. FURTHER, MERELY BECAUSE THE CLAIM OF THE ASSESSEE H AS BEEN DISALLOWED BY THE AO AND UPHELD BY THE LD.CIT(A), WOULD NOT MEAN THAT TH E ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME. ALSO, THE LD.COUN SEL HAS PLACED RELIANCE ON VARIOUS DECISIONS INCLUDING THE DECISION OF THE HONBLE APE X COURT IN THE CASE OF VIJAYA BANK VS CIT [232 ITR 166 (SC)] WHICH HAS BEEN FOLLOWED BY THE TRIBUNAL IN ADDL. CIT VS. NICHOLAS PIRAMAL INDIA LTD. [27 ITR (TRIB) 182 (MUM )] TO SUBSTANTIATE THAT THE CLAIM OF THE ASSESSEE IS JUSTIFIED. ON THE OTHER HAND, TH E LD.DR HAS RELIED ON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. ESCORTS FINANCE LTD. (328 ITR 44) IN SUPPORT OF THE PROPOSITION THAT IF CLAIM MADE IN TH E RETURN OF INCOME APPEARS TO BE EX FACIE BOGUS, IT SHOULD BE TREATED AS A CASE OF C ONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS AND PENALTY PROCEEDING WOULD BE JUSTIFIED. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IT IS PERTINENT TO MENTION THAT THE HONBLE APEX COURT IN THE CASE OF VIJAYA BANK VS CIT (SUPRA) HAS HELD THAT WHERE ASSESSEE HAS WRITTEN OF F IMPUGNED BAD DEBT IN ITS BOOKS BY WAY OF A DEBIT TO PROFIT AND LOSS ACCOUNT, SIMUL TANEOUSLY REDUCING CORRESPONDING AMOUNT FROM LOANS AND ADVANCES TO DEBTORS DEPICTED ON ASSETS SIDE IN BALANCE SHEET ITA NO. 2410/MUM/2012 M/S. JM FINANCIAL SERVICES PVT. LTD. ASSESSMENT YEAR: 2004-05 3 AT CLOSE OF YEAR, THE ASSESSEE IS ENTITLED TO DEDUC TION UNDER SECTION 36(1)(VII) AND FOR THAT PURPOSE, IT IS NOT NECESSARY FOR IT TO CLOSE I NDIVIDUAL ACCOUNT OF EACH OF ITS DEBTORS IN ITS BOOKS OF ACCOUNT. THE SAID PROPOSITI ON HAS ALSO BEEN FOLLOWED BY THE TRIBUNAL IN THE CASE OF ADDL. CIT VS. NICHOLAS PIRAMAL INDIA LTD (SUPRA), THE ORDER TO WHICH THE PRESENT AM IS ALSO A PARTY. NOTING THE PR OPOSITION OF LAW WHICH HAS BEEN LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF VIJAYA BANK AND THE SAME FOLLOWED BY THE TRIBUNAL IN THE CASE OF NICHOLAS PI RAMAL INDIA LTD AS AFOREMENTIONED, WE ARE OF THE CONSIDERED VIEW THAT MERELY BECAUSE T HE ASSESSEES CLAIM WHICH HAS BEEN DISALLOWED BY THE AO AND UPHELD BY THE LD.CIT( A), WOULD NOT MEAN THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF IN COME. ALSO, WE ARE NOT INCLINED TO ACCEPT THE CONTENTION OF THE REVENUE THAT THE RETUR N OF INCOME APPEARS TO BE EX FACIE BOGUS AND IT SHOULD BE TREATED AS A CASE OF C ONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS FOR THE REASON THAT THE CLAI M OF THE ASSESSEE DOES NOT FALL UNDER THE PURVIEW OF BOGUS CLAIM MERELY BECAUSE T HE ASSESSEE HAS NOT PROVED THAT THE BAD/DOUBTFUL DEBT HAS NOT BEEN ACTUALLY WRITTEN OFF BY CREDITING THE SAME TO THE INDIVIDUAL ACCOUNTS OF THE DEBTORS IN THE BOOKS. HE NCE, THE PROPOSITION OF THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. ESCORTS FINANCE LTD (SUPRA) RELIED BY THE LD.DR HAS NO APPLICATION IN THE CASE OF THE ASSESSEE. IN VIEW OF THE AFOREMENTIONED DISCUSSION, WE HOLD THAT THE LD.CIT( A) IS NOT JUSTIFIED IN CONFIRMING THE IMPUGNED PENALTY LEVIED BY THE AO AND THEREFORE THE SAME IS DELETED. 5 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19TH D AY OF NOVEMBER, 2013. SD/- SD/- (P.M. JAGTAP) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 19.11.2013. *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR J BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.