M/s. CFL SECURITIES LTD., MUMBAI V. ACIT (OSD-II) C.R. - 7, MUMBAI

ITA 2590/MUM/2006

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48721 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 28-12-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 26-04-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUM EET KUMAR
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI P.M. JAGTAP AND SHRI R.S. PADVEKAR, JM I.T.A.NO.2590/MUM/2006 ASSESSMENT YEAR: 2002-03 M/S. CFL SECURITIES LTD., BHUPEN CHAMBERS, GROUND FLOOR, DALAL STREET, MUMBAI 400 021. VS. THE ASST. COMMISSIONER OF INCOME- TAX, (OSD 11), C.R. 7, AAYAKAR BHAVAN, 4 TH FLOOR, 101 MK RD. MUMBAI 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIPUL JOSHI RESPONDENT BY : SHRI SUMEET KUMAR O R D E R PER P.M. JAGTAP, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS), CENTR AL-5, MUMBAI, DATED 2 ND FEBRUARY 2006 AND THE SOLITARY ISSUE ARISING OUT OF THE SAME RELATES TO THE DISALLOWANCE OF RS.9,22,981/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A) ON ACCOUNT OF BAD DEBTS WRITTEN OFF. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF SHARE BROKING AND DEALING IN SHARES AND SECURITIES AS A MEMBER OF NATIONAL STOCK EXCHANGE. THE RETURN OF INCOME FOR T HE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 31.10.2001 DECLARING LOSS OF RS.91 ,04,756/-. IN THE PROFIT & LOSS ACCOUNT FILED ALONG WITH THE SAID RETURN, A SUM OF RS.9,22,981/- WAS DEBITED BY THE ASSESSEE COMPANY ON ACCOUNT OF BAD DEBTS WRITTEN OF F. THE DEBT DEBTS REPRESENTED AMOUNTS RECEIVABLE BY THE ASSESSEE COMPANY FROM ITS CLIENTS AGAINST THE PURCHASE OF SHARES MADE ON THEIR BEHALF IN THE CAPACITY OF SHAR E BROKER. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE CLAIM OF THE ASSESSEE F OR DEDUCTION ON ACCOUNT OF BAD DEBTS WRITTEN OFF WAS EXAMINED BY THE ASSESSING OFF ICER AND ON SUCH EXAMINATION, HE DISALLOWED THE SAME ON THE GROUND THAT THERE WAS A FAILURE ON THE PART OF THE ITA NO.2590/M/2006 CFL SECURITIES LTD. 2 ASSESSEE TO ESTABLISH THAT THE CONCERNED DEBTS HAD ACTUALLY BECOME BAD DURING THE YEAR UNDER CONSIDERATION AND THAT THE ASSESSEE COMP ANY HAVING TAKEN INTO ACCOUNT ONLY THE BROKERAGE AMOUNT FOR COMPUTING ITS TOTAL I NCOME, THE CONDITION STIPULATED IN SECTION 36(2) WAS NOT FULLY SATISFIED. ON APPEAL, T HE LEARNED CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOU NT OF BAD DEBTS FOR THE SAME REASONS AS GIVEN BY THE ASSESSING OFFICER. AGGRIEV ED BY THE ORDER OF THE LEARNED CIT(A), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFO RE THE TRIBUNAL. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. AS REGARDS THE BASIS GIVEN BY THE ASSESSING OFFICER FOR DISALLOWING THE CLAIM OF THE ASSESSEE OF BAD DEBTS WRITTEN OFF AS THE FAILURE OF THE ASSESSEE TO ESTABLISH THAT THE RELEVANT DEBTS HAD A CTUALLY BECOME BAD IN THE YEAR UNDER CONSIDERATION, IT IS OBSERVED THAT THIS ISSUE NOW STANDS SQUARELY COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT V. TRF LTD. (2010) 323 ITR 397(SC), WHEREIN IT IS HELD THAT AS PER THE AM ENDED PROVISIONS OF SECTION 36(1)(VII), IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE RELEVANT DEBTS IN FACT HAVE BECOME IRRECOVERABLE AND IT IS ENOUGH TO CLAIM THE DEDUCTION UNDER THE SAID PROVISION IF THE RELEVANT DEBTS ARE WRITTEN OF F BY THE ASSESSEE AS IRRECOVERABLE IN ITS BOOKS OF ACCOUNT. AS REGARDS THE OTHER BASIS GI VEN BY THE ASSESSING OFFICER FOR DISALLOWING THE CLAIM OF THE ASSESSEE FOR BAD DEBTS WRITTEN OF BEING NON-SATISFACTION OF THE CONDITION STIPULATED IN SECTION 36(2), IT IS OBSERVED THAT THIS ISSUE IS ALSO SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V. SHREYAS S. MORA KHIA (131 TTJ 641((BOM), WHEREIN IT WAS HELD THAT THE AMOUNT RECEIVABLE BY T HE ASSESSEE, WHO IS A SHARE BROKER, FROM ITS CLIENTS AGAINST THE TRANSACTIONS O F PURCHASE OF SHARES ON THEIR BEHALF CONSTITUTES DEBTS WHICH IS A TRADING DEBT. IT WAS A LSO HELD THAT THE BROKERAGE/COMMISSION INCOME ARISING FROM SUCH TRANS ACTIONS VERY MUCH FORMS PART OF THE SAID DEBT AND WHEN THE AMOUNT OF SUCH BROKER AGE/COMMISSION HAS BEEN ITA NO.2590/M/2006 CFL SECURITIES LTD. 3 TAKEN INTO ACCOUNT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVANT PREVIOUS YEAR OR ANY EARLIER YEAR, IT SATISFIES THE CONDITION STIPULATED IN SECTION 36(2) AND THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S.36(1 )(VII) BY WAY OF BAD DEBTS AFTER HAVING WRITTEN OFF THE SAID DEBTS IN HIS BOOKS OF A CCOUNT AS IRRECOVERABLE. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER OF THE LEA RNED CIT(A) ON THE ISSUE UNDER CONSIDERATION AND DIRECT THE ASSESSING OFFICER TO A LLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF BAD DEBTS AFTER ASCERTAININ G THE EXACT QUANTUM THEREOF TAKING INTO CONSIDERATION THE MARGIN MONEY OR THE V ALUE OF SHARES, IF ANY, AVAILABLE WITH THE ASSESSEE AS SECURITY. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS _27 TH _DAY OF APRIL, 2011. SD. SD. (R.S. PADVEKAR) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED THE 27 TH APRIL, 2011. KN COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT, CENTRAL-II, MUMBAI. 4. THE CIT(A), CENTRAL-V, MUMBAI 5. THE DR D BENCH, MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR, ITAT, MUMBAI