ACIT 16(1), MUMBAI V. SANJAY NANDLAL VORA, MUMBAI

ITA 2423/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88678 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 12-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 28-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Assessee Lawyers: D C JAIN
• Keywords: Capital asset; Business income; Depreciation; Cost of acquisition; Speculation loss; Bad and doubtful debts; Revised return
• Section: 43(5); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE SHRI JOGINDER SINGH , JM AND SHRI SANJAY ARORA , AM ./ I. T.A. NO. 2423/MUM/2013 ( / ASSESSMENT YEAR: 2007 - 08 ) ASST. CIT - 16(1) 2 ND FLOOR, MATRU MANDIR, TARDEO ROAD, MUMBAI - 400 007 / VS. SANJAY NANDLAL VORA 98, LANDS END, 29D, DONGARSHI ROAD, MALABAR HILL, MUMBAI - 400 006 ./ ./ PAN/GIR NO. AACPV 8339 H ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI LOVE KUMAR / RESPONDENT BY : SHRI D. C. JAIN / DATE OF HEARING : 13.01.2015 / DATE OF PRONOUNCEMENT : 31 .0 3 .2015 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN A PPEAL BY THE REVENU E DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 5, MUMBAI (CIT(A) FOR SHORT) DATED 24.12.2012 , ALLOWING THE A SSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2007 - 08 VIDE ORDER DATED 09.11.2009. 2 ITA NO. 2423/MUM/2013 (A.Y. 2007 - 08) ASST. CIT VS. SANJAY NANDLAL VORA 2. THE APPEAL RAISES TWO ISSUES PER ITS TWO GROUNDS, WHICH WE SHALL TAKE UP IN SERIATIM. THE FACTS IN RELATION TO THE FIRST GROUND ARE THAT THE ASSESSEE PER ITS RETURN OF INCOME MADE A CLAIM FOR BAD DEBTS WRITTEN OFF IN THE SUM OF RS.6,92,718/ - , WHICH STANDS DEBITED TO ITS PROFIT AND LOSS ACCOUNT. EXAMINING THE SAID CLAIM IN TH E COURSE OF THE ASSESSMENT PROCEEDINGS, IT WAS OBSERVED THAT THE PRINCIPAL COMPONENT OF THE SAME WAS FOR RS.5,33,952/ - , RECEIVABLE FROM M/S. RELIANCE SILICONE PVT. LTD. (RSPL). THE ASSESSEE HAD PAID A SUM OF RS.12 LACS T O THE SAID FIRM AS DURING THE FINANCIAL YEAR (FY) 1999 - 2000 BY WAY OF SECURITY DEPOSIT, I.E., TOWARD AVAIL I N G SUPPLY OF GOODS ON CREDIT. THE ASSESSEE OWED A SUM OF RS.6,66,048/ - TO THE SAID FIRM PER ITS ACCOUNTS. AS THE SAID FIRM WENT INTO LIQUIDATION, THE ASSESSEE, ADJUSTING THE SAID DUES, WRO TE OFF THE BALANCE RS.5,33,952/ - (I.E., RS.12,00,000 RS. 6,66,048/ - ) IN ITS ACCOUNTS. THE SAME WAS DISALLOWED BY THE ASSESSING OFFICER (A.O.) ON THE GROUND THAT THE CLAIM DID NOT SATISFY THE CONDITION OF SECTION 36(2), TO WHICH A CLAIM OF BAD DEBT WRITTE N OFF AS IRRECOVERABLE U/S.36(1)(VII) IS SUBJECT, PLACING RELIANCE ON THE DECISIONS IN THE CASE OF A. V. THOMAS & CO. LTD. VS. CIT [1963] 48 ITR 67 (SC) AND CIT VS. GUJARAT MINERAL DEVELOPMENT CORPORATION [2009] 314 ITR 322 (GUJ) . THE LD. CIT(A), HOWEVER, IN A PPEAL, ALLOWED THE ASSESSEES CLAIM IN - AS - MUCH AS, WITHOUT DOUBT, THE ASSESSEE HAD INCURRED A LOSS DURING THE RELEVANT YEAR, SO THAT MAKING A CLAIM UNDER A WRONG SECTION WOULD BE OF NO CONSEQUENCE IN - AS - MUCH AS THERE COULD BE NO ESTOPPEL AGAINST LAW. AGGRI EVED, THE REVENUE IS IN APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. 3.1 THE LD. CIT(A) HAS WITHOUT DOUBT FOLLOWED THE CORRECT PROPOSITION IN LAW AND, CONSEQUENTLY, THE A.O. OUGHT TO HAVE ALSO EXAMINED THE ASSESSEES CLAIM F OR THE IMPUGNED SUM AS A BUSINESS LOSS, I.E., ON IT FAILING U/S.36(1)(VII), I.E., THE PROVISION UNDER WHICH IT WAS CLAIMED. WE FURTHER OBSERVE THAT THE A.O. HAS NOT EXPRESSED ANY DOUBT WITH REGARD TO THE GENUINENESS OF THE ASSESSEES CLAIM; RATHER, STATING OF THE ASSESSEE TO HAVE SUBM ITTED CERTIFIED TRUE COPIES OF T HE SECURITY DEPOSIT. WE STATE SO AS THERE IS NOTHING ON RECORD TO EXHIBIT THE CREDITOR COMPANY (R S PL) AS GOING INTO LIQUIDATION, CRYSTALLIZING THE LOSS ON ACCOUNT OF AN IRRECOVERABLE DEBT OR CLAIM. AN EXAMINATION OF THE EVENTS RESULTING 3 ITA NO. 2423/MUM/2013 (A.Y. 2007 - 08) ASST. CIT VS. SANJAY NANDLAL VORA IN INCURRING THE LOSS, AND WHICH THE WRITE OFF IN THE BOOKS REFLECTS OR RECORDS, IS NECESSARY AND VITAL TO THE ASSESSEES CLAIM IN - AS - MUCH AS THE SAME FORMS THE FACTUAL BASIS OF THE CLAIM. THE ASSESSEE, WE OBSE RVE, HAS ON HIS PART FURNISHED THE RELEVANT FACTS TO THE A.O. VIDE HIS LETTER DATED 2 5 .08.2009 (COPY ON RECORD). THE SAID NON - EXAMINATION OR VERIFICATION COULD THUS ONLY BE INTERPRETED TO IMPLY THAT BOTH THE AUTHORITIES BELOW WERE SATISFIED WITH THE V E RACITY OF THE ASSESSEES CLAIM MADE PER THE IMPUGNED WRITE OFF, I.E., IN VIEW OF THE ABSENCE OF ANY FINDING IN THE MATTER. 3.2 OUR SECOND OBSERVATION IS THAT NOTWITHSTANDING THE FACT THAT NO DOUBT HAS BEEN EXPRESSED BY THE REVENUE WITH REGARD TO THE GENU INENESS OF THE ASSESSEES CLAIM, I.E., QUA THE FACTS OF THE CASE, SO THAT THE FACTS AS FURNISHED BY THE ASSESSEE ARE, OR ARE TO BE TAKEN AS, CORRECT, WE ARE UNABLE TO AGREE WITH THE CONCLUSION THAT THE IMPUGNED WRITE OFF REPRESENTS A BUSINESS LOSS, I.E., I N THE FACTS AND CIRCUMSTANCES OF THE CASE AND, FURTHER, FOR THE YEAR UNDER REFERENCE, SO THAT THE ASSESSEE IS ENTITLED TO THE SAID CLAIM IN THE COMPUTATION OF ITS BUSINESS INCOME FOR THE CURRENT YEAR. THE AMOUNT IS ADMITTEDLY A SECURITY DEPOSIT, WHETHER ON AN INTEREST OR ON INTEREST - FREE BASIS WHICH HAS NOT BEEN CLARIFIED, GIVEN TO ENSURE THE SUPPLY OF GOODS, I.E., IN WHICH THE ASSESSEE TRADES IN. THOUGH ITS BUSINESS PURPOSE IS THUS ACCEPTED, BEING GIVEN TO SECURE THE SUPPLY OF GOODS ON CREDIT, PROVIDE AS IT DOES SECURITY TO THE SUPPLIER EVEN AS THE ASSESSEE IS CONTRACTUALLY BOUND TO PAY THE PURCHASE PRICE AS AND WHEN DUE. IT IS THUS NOT AN ADVANCE TOWARD THE PURCHASE OF GOODS, BUT MONIES DEPOSITED BY THE ASSESSEE WITH ITS SUPPLIER AS A SECURITY AGAINST A DEFA ULT, IF ANY, THAT THE ASSESSEE MAY, OR IS LIABLE TO, COMMIT IN THE PAYMENT OF THE PURCHASE PRICE. THE ASSESSEE, ACCORDINGLY, PAYS THE PURCHASE PRICE IN THE REGULAR COURSE OF ITS BUSINESS, OBTAINING DEDUCTION IN ITS RESPECT AS A PART OF THE COST OF GOODS SO LD. THE SECURITY DEPOSIT, TO THE EXTENT NOT ADJUSTED, I.E., IN THE UNLIKELY EVENT OF A FAILURE ON THE ASSESSEES PART TO MAKE THE PAYMENT, IS TO BE PAID BACK IN FULL, IN CASH. IT IS THUS ONLY ON CAPITAL ACCOUNT, REPRESENTING A CAPITAL ASSET, I.E., BY DEFIN ITION, FORMING PART OF THE FI XED CAPITAL/CAPITAL STRUCTURE OF THE FIRM, AND , FURTHER, WHICH IS NOT EXIGIBLE FOR DEPRECIATION ALLOWANCE. ITS NATURE, TO THE EXTENT IT DOES NOT UNDERGO ANY CHANGE WITH THE 4 ITA NO. 2423/MUM/2013 (A.Y. 2007 - 08) ASST. CIT VS. SANJAY NANDLAL VORA CIRCUMSTANCES, WOULD, UPON A LOSS OF VALUE, REPRESENT A LOSS OF CAPITAL. HOWEVER, TO THE EXTENT IT GETS ADJUSTED BY THE ASSES SEE AGAINST THE PURCHASE PRICE DUE FOR PAYMENT (AS FOR EXAMPLE RS. 6.66 LACS), THE SAME IS IN EFFECT ONLY A PAYMENT OF THE PURCHASE COST, DEDUCTION FOR WHICH WOULD HAVE BEEN CLAIMED IN THE YEAR OF PURCHASE. IT IS THUS ONLY AN ABATEMENT OF OR RECOUPMENT OF LOSS TO THAT EXTENT. THE BALANCE UNRECOVERED AMOUNT CONTINUES TO RETAIN ITS CHARACTER AS A SECURITY DEPOSIT, I.E., OF A PAYMENT ON CAPITAL ACCOUNT, AND ITS LOSS, THUS, A CAPITAL LOSS. THE ASSESSEE - DEPOSITOR MAY IN A GIVEN CASE DECIDE TO DISCONTINUE THE BUS INESS AND, ACCORDINGLY, NOT TO MAKE PAYMENTS TO THAT EXTENT, I.E., THE EXTENT TO THE DEPOSIT. THIS WOULD, HOWEVER, NOT CONTRADICT OUR OBSERVATION OF THE CHANGE IN THE CHARACTER OF THE DEPOSIT ON BEING ADJUSTED AGAINST THE PURCHASE PRICE PA YABLE BY THE DEPO SITOR. THIS IS AS THE ASSESSEE AUTHORIZES THE SUPPLIER TO ADJUST THE PAYMENT AGAINST THE DUES ONLY FOR THE REASON THAT THE AMOUNT IS OTHERWISE PAYABLE TO IT IN CASH. TWO, IN SUCH A N EVENTUALITY, THERE IS NO QUESTION OF ANY LOSS TO IT . WE HAVE ALREADY INDICATED T HAT TO THE EXTENT THE AMOUNT IS ADJUSTED AGAINST THE ASSESSEES CONTRACTUAL LIABILITY, WHICH IS ON CURRENT ACCOUNT, THERE IS AN ADJUSTMENT AND, CORRESPONDINGLY, A CHANGE IN THE NATURE OF THE SUM REPRESENTING THE SECURITY DEPOSIT. A CAPITAL LOSS, WE MAY FUR THER CLARIFY, IS ALSO INCURRED DURING OR IN THE COURSE OF BUSINESS. HOWEVER, BEING ON CAPITAL ACCOUNT, IT IS NOT IN THE NATURE OF A TRADING LOSS OR BUSINESS LOSS, DEDUCTIBLE U/S. 28 IN THE COMPUTATION OF THE BUSINESS INCOME. THE LOSS, IN THE PRESENT CASE, IS AKIN TO A LOSS OF INVESTMENT HELD BY AN ASSESSEE. THE MATTER IS WELL SETTLED, AND TOWARD WHICH WE MAY, FOR REFERENCE, CITE THE DECISIONS IN HASIMARA INDUSTRIES LTD V. CIT [1998] 230 ITR 927(SC); [1998] 231 ITR 642 AND CIT V. HINDUSTAN TIMES LTD . [1998] 231 ITR 741(SC) , BESIDES IN THE CASE OF A. V. THOMAS & CO. LTD. (SUPRA) , RELIED UPON BY THE AO. 3.3 THERE IS, WITHOUT PREJUDICE TO THE FOREGOING, YET ANOTHER ASPECT OF THE MATTER FOR WHICH WE CONSIDER THE ASSESSEES CLAIM AS NOT MAINTAINABLE I N LAW. IT STATES THAT THE CREDITOR COMPANY WAS LIQUIDATED IN JANUARY, 2004 (REFER ASSESSEES LETTER DTD. 25/8/2009) I.E., OVER TWO YEARS PRIOR TO THE E ND OF THE RELEVANT YEAR. THE LOSS, THEREFORE, CAME TO BE SUFFERED AT THAT POINT OF TIME. EACH YEAR IS AN INDEPENDENT UNIT OF ASSESSMENT, AND ITS 5 ITA NO. 2423/MUM/2013 (A.Y. 2007 - 08) ASST. CIT VS. SANJAY NANDLAL VORA INCOME IS TO BE ACCORDINGLY COMPUTED SEPARATELY FOR EACH YEAR, APPLYING THE LAW AS IN FORCE TO THE FACTS OF THE CASE. THE LOSS FOR ONE YEAR, THEREFORE, CANNOT BE CLAIMED FOR ANY OTHER YEAR. IT IS ONLY IN CASE OF A CL AIM FOR BAD DEBT U/S.36(1)(VII) THAT THE LAW DEEMS THE YEAR OF WRITE OFF AS THE YEAR OF IT BECOMING BAD AND, THUS, OF THE LOSS ARISING IN IT RESPECT. WHERE NOT MANDATED BY LAW, THE INCURRING OF ANY EXPENDITURE, OR THE LOSS FOR THAT MATTER, WOULD ESSENTIALL Y BE A MATTER OF FACT, TO BE DETERMINED ON THE CONSPECTUS OF THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ENTRIES IN THE BOOKS OF ACCOUNT, THOUGH INDICATIVE, IN - AS - MUCH TH EY PURPORT TO RECORD THE TRUE STATE OF AFFAIRS, CANNOT BE CONSIDERED AS CONCLUSIVE. W HETHER AND TO THE EXTENT THE LOSS STANDS INCURRED BY THE ASSESSEE WOULD DEPEND UPON THE FACTS AND CIRCUMSTANCES OF THE CASE. IT BECOMING KNOWN TO THE ASSESSEE, IF AND TO THE EXTENT ITS CLAIM IS INCAPABLE OF BEING MET, LOSS, TO TH AT EXTANT, ARISES TO IT, AND THERE IS THUS BY ADMISSION NO LOSS ARISING TO THE ASSESSEE FOR THE CURRENT YEAR. THIS, THEN, CONSTITUTES THE SECOND REASON FOR OUR CONSIDERING THE ASSESSEES CLAIM AS NOT VALID. 3.4 WE ARE CONSCIOUS THAT THE REVENUE HAS NOT IMPUGNED THE A CCEPTANCE OF TH E ASSESSEES CLAIM BY THE LD. CIT(A) ON THIS SCORE. IT IS, HOWEVER, THE CORRECT LEGAL POSITION THAT IS RELEVANT, AND NOT THE VIEW THAT THE PARTIES MAY TAKE OF THEIR RIGHTS IN THE MATTER (REFER: CIT V. C. PARAKH & CO. LTD . [1956] 29 ITR 661 (SC); KEDARNATH JUTE MFG. CO. LTD. V. CIT [1971] 82 ITR 363 (SC)). THE TRIBUNAL, IN DECIDING AN APPEAL BEFORE IT, IS NOT BOUND OR CONFINED BY THE GROUNDS OF APPEAL TAKEN OR ASSUMED IN APPEAL (RULE 11 OF THE APPELLATE TRIBUNAL RULES, 1963). THERE IS NO ESTOPPEL AGAINST LA W, AND THE MATTER, ACCORDINGLY, IS TO BE DECIDED IN ACCORDANCE THEREWITH BY ISSUING DEFINITE FINDINGS OF FACT. THE PURVIEW OF AN APPELLATE AUTHORITY, EVEN OTHERWISE, IS TO ENABLE THE ASSESSMENT OF THE ASSESSEES CORRECT TAXABLE INCOME AND, CORRESPONDINGLY , OF CORRECT TAX LIABILITY (REFER : AHMEDABAD ELECTRICITY CO. LTD. V CIT [1993] 199 ITR 343( BOM ) (FB) ). THE AFORESTATED ASPECTS OF THE MATTER HAVING, HOWEVER, NOT BEEN ARGUED BEFORE US, IT IS ONLY APPROPRIATE THAT THE ASSESSEE IS ALLOWED AN OPPORTUNITY TO PRESENT ITS CASE. WE, ACCORDINGLY, WHILE STATING THE POSITION OF LAW, GIVEN THE OBTAINING FACTS, ONLY CONSIDER IT PROPER, IN THE INTEREST OF JUSTICE AND FAIRNESS OF PROCEDURE, TO RESTORE THE MATTER BACK TO 6 ITA NO. 2423/MUM/2013 (A.Y. 2007 - 08) ASST. CIT VS. SANJAY NANDLAL VORA THE FILE OF THE FIRST APPELLATE AUTHORITY TO ENAB LE THE ASSESSEE TO STATE ITS CASE QUA THE ASPECTS FOR WHICH WE HAVE OPINED ITS CLAIM AS NOT MAINTAINABLE, AND DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER ISSUING DEFINITE FINDINGS OF FACT. HE MAY AT HIS OPTION ALSO ALLOW OPPORTUNITY TO THE AO TO EXAMINE T HE FACTS AND STATES THE REVENUES CASE IN THE MATTER. WE MAY DRAW ON THE DECISION OF THE APEX COURT IN THE KAPURCHAND SHRIMAL VS. CIT [1981] 131 ITR 451 (SC). WE DECIDE ACCORDINGLY. 4. THE REVENUES SECOND GROUND CONCERNS THE NON - ALLOWANCE OF THE ASSESSEES CLAIM FOR CA RRY FORWARD OF LOSS INCURRED ON TRADING IN FUTURES AND OPTIONS, IN THE SUM OF RS.10,79,096/ - , AS SPECULATION LOSS. THE SAME WAS DENIED BY THE A.O. AS IN HIS VIEW THE SAME WAS NOT A SPECULATIVE LOSS U/S. 43(5) AND, ACCORDINGLY, OUGHT TO HAVE BEEN SET OFF AG AINST THE REGULAR BUSINESS INCOME. HOWEVER, NO SUCH CLAIM HAVING BEEN PREFERRED BY THE ASSESSEE, EITHER PER ITS RETURN OR REVISED RETURN, THE SAME WAS NOT EXIGIBLE, RELYING ON THE DECISION IN THE CASE OF GOETZE (INDIA) LTD. VS CIT [2006] 284 ITR 323 (SC) . THE LD. CIT(A) IN APPEAL ALLOWED THE ASSESSEES CLAIM FOLLOWING THE DECISION BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF BALUMKUND ACHARYA (IN ITA NO. 217 OF 2001). THE MATTER WAS, ACCORDINGLY, RESTORED BACK TO THE FILE OF THE A.O. TO CONSIDER THE ASSESSEES CASE, INCLUDING VERIFICATION OF FACTS. AGGRIEVED, THE REVENUE IS IN APPEAL. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. THE LD. AUTHORIZED REPRESENTATIVE (AR) INFORMED DURING HEARING THAT THE ASSESSEE HAS SINCE MOVED A RECTIFICATION APPLICATION WITH THE A.O. THE FATE OF THE SAME, HOWEVER, HAS NOT BEEN BROUGHT ON RECORD OR OTHERWISE COMMUNICATED. WE FIND NO INFIRMITY IN THE IMPUGNED ORDER. APART FROM THE FACT THAT THE LD. CIT(A) HAS APPLIED THE BINDING DECISION BY THE H ONBLE JURISDICTIONAL HIGH COURT, THE FACT OF THE MATTER IS THAT THE ASSESSEE HAD PREFERRED THE CLAIM, THOUGH TREATED THE SAME AS SPECULATIVE AND, ACCORDINGLY, NOT SET OFF AGAINST THE BUSINESS INCOME BUT CARRY FORWARD. THE IMPLICATION OF THE SAID INCOME BE ING NON - SPECULATIVE, AS FOUND BY THE A.O., AND WITH WHICH WE AGREE, IS THAT THE SAID LOSS OUGHT TO HAVE BEEN, AND IS TO BE THEREFORE, SET OFF AGAINST THE ASSESSEES OTHER BUSINESS 7 ITA NO. 2423/MUM/2013 (A.Y. 2007 - 08) ASST. CIT VS. SANJAY NANDLAL VORA INCOME FOR THE CURRENT YEAR AND, ACCORDINGLY, NO QUESTION OF ITS CARRY FORWA RD (TO THAT EXT E NT) WOULD ARISE. WE DECIDE ACCORDINGLY. 6. IN THE RESULT, THE R EVENUE S APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 31 , 201 5 SD/ - S D/ - ( JOGINDER SINGH ) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 31 . 0 3 .201 5 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI