ROSY BLUE SECURIRITES P.LTD, MUMBAI V. ITO WD 4(2), MUMBAI

ITA 2745/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92280 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 18-03-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 08-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Keywords: Bad and doubtful debts; Revenue expenditure
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 2745/MUM/2011 ASSESSMENT YEAR: 2001-02 ROSY BLUE SECURITIES PVT. LTD. 154/C, MITTAL COURT, NARIMAN POINT, MUMBAI 400 021 PAN:AAACR 4082 Q VS. IT WD - 4(2) AAYAKAR BHAVAN M.K. ROAD CHURCHGATE MUMBAI 400 000 (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI NITESH JOSHI REVENUE BY : SHRI LOVE KUMAR DATE OF HEARING : 19.03.2015 DATE OF PRONOUNCEMENT : 10 .04.2015 O R D E R PER AMIT SHUKLA, JM: THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST ORDER DATED 02.03.2011, PASSED BY THE LD.CIT(A)-8, FOR TH E QUANTUM OF ASSESSMENT U/S 143(3) OF THE ACT, FOR THE A.Y. 200 1-02, ON FOLLOWING GROUNDS:- 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN UPHOLDING THE DISALLOWANCE OF BAD DEBTS AGGREGATING TO RS. 2,61,09,809/- WRITTEN OFF DURING THE YEAR. IT IS SUBMITTED THAT THE APPELLANT, A SHARE BROKER , COULD NOT BE RECOVERED A SUM AGGREGATING TO RS. 2,61,09,809/- FR OM ITS CLIENTS IN RESPECT OF THE TRANSACTIONS EFFECTED ON THEIR BE HALF INCLUDING BROKERAGE AND HAVING WRITTEN OFF THE IRRECOVERABLE AMOUNT IS ENTITLED TO DEDUCTION ITA NO. 2745/MUM/2011 ASSESSMENT YEAR: 2001-02 2 AS BAD DEBTS UNDER SECTION 36(1)(VII) READ WITH SEC TION 36(2) OF- THE INCOME-TAX ACT 1961. 2. WITHOUT PREJUDICE AND IN AN ALTERNATE, THE LEARN ED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT A LLOWING THE SAID AMOUNT OF RS. 2,61,09,809/- AS BUSINESS LOSS. IT IS SUBMITTED THAT THE APPELLANT, A SHARE BROKER, HAD SUFFERED THE SAID LOSS IN THE NORMAL COURSE OF ITS BUSINESS AND AS SUCH SAME IS OUGHT TO BE ALLOWED AS DEDUCTION IN COMPUTI NG THE INCOME FOR THE YEAR. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT ADJUDICATING THE ADDITIONAL GROUND OF APPEAL. I T IS SUBMITTED THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) OUGHT TO HAVE DISPOSED OFF THE ADDITIONAL GROUNDS OF APPEAL RAISED BEFORE HIM. IT IS FURTHER SUBMITTED THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE THAT THE ARBITRATION AWAR D RELATING TO RECOVERY OF DEBTS AGGREGATING TO RS. 2,61,09,809/- WAS RECEIVED DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEA R 2003-04, THE LOSS OF RS. 2,61,09,809/- BE ALLOWED AS DEDUCTI ON IN THE- ASSESSMENT YEAR 2003-04. 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF SHARE BROKING. AS AGAINST THE RE TURNED LOSS OF RS.11,22,400/-, THE ASSESSMENT WAS COMPLETED U/S 14 3(3) AT AN INCOME OF RS.57,81,590/-. THEREAFTER, THE SAID ORDER WAS S ET ASIDE BY THE CHIEF CIT (OSD) U/S 263 ON 10.03.2006, WITH THE DIRECTION TO VERIFY THE GENUINENESS OF THE CLAIM OF BAD DEBTS OF RS.2,61,09 ,809/-. SAID ORDER WAS UPHELD BY THE TRIBUNAL. IN THE SET ASIDE PROCEE DINGS, THE AO HAS NOTED THAT IN THE LEDGER ACCOUNT OF M/S. KIRAJ CONS ULTANTS PVT. LTD. THERE WAS A DEBIT BALANCE WHICH WAS CLAIMED AS BAD DEBT BEING WRITTEN OFF. ALTERNATIVELY, IT WAS SUBMITTED THAT SAME SHOULD BE ALLOWED AS BUSINESS LOSS. THE DEBIT BALANCE HAS ARISEN DUE TO TRANSACTI ONS UNDERTAKEN BY THE ASSESSEE ON BEHALF OF M/S. KIRAJ CONSULTANTS PVT. L TD. WHO WAS A SUB- BROKER OF THE ASSESSEE. THE AO NOTED THAT SAID PART Y STARED ITS ITA NO. 2745/MUM/2011 ASSESSMENT YEAR: 2001-02 3 OPERATION WITH THE ASSESSEE ON 18.04.2000 WITH A TR ANSACTION RAISING A DEBIT OF RS.1,66,93,881/-. THE ASSESSEE DID NOT REC OVER THE SAID AMOUNT TILL THE CLOSURE OF THE FINANCIAL YEAR AND IN FACT THE DEBIT BALANCE INCREASED TO RS.3,28,15,200/- AT THE YEAR END 31.03 .2001. HE OBSERVED THAT NO PRUDENT BUSINESSMAN WILL ALLOW ITS SUB-BROK ER TO RUN UP HUGE DEBIT BALANCE RIGHT FROM THE DAY ONE. THE ASSESSEE HAS EVEN ISSUED CHEQUES TO THE SAID PARTY DESPITE THERE WAS A HUGE DEBIT BALANCE. THUS, SUCH AN ACTION OF THE ASSESSEE DEFIES BUSINESS AND COMMERCIAL LOGIC. THE SAID PAYMENTS QUITE AT BEST CAN BE CONSIDERED A S ADVANCE AND ASSESSEE CANNOT BE ENTITLED TO WRITTEN OFF THE ADVA NCE TO BE ALLOWABLE AS REVENUE EXPENDITURE. AFTER NOTING DOWN INCREASE OF DEBITS IN THE ACCOUNT OF M/S. KIRAJ CONSULTANTS PVT. LTD., THE AO OBSERVED THAT ASSESSEE HAS NOT TAKEN STEPS TO RECOVER THE MONEY A ND INSTEAD HAS WRITTEN OFF THE DEBTS, BEFORE TAKING ANY LEGAL RECO URSE. HE FURTHER POINTED OUT THAT THE ASSESSEE BY NOT COLLECTING SUF FICIENT MARGIN MONEY AND ALSO BY NOT CLOSING OUT THE TRANSACTIONS WHERE DUES CANNOT RECEIVED FROM THE CLIENT, WAS IN FACT INFRINGEMENT OF THE RE GULATORY PROVISION OF SEBI. HE FURTHER NOTED THAT AS PER THE ARBITRATION AWARD DATED 20.11.2002, THE ASSESSEE WAS IN POSSESSION OF CERTA IN SHARES BELONGING TO M/S. KIRAJ CONSULTANTS PVT. LTD. WHICH WAS PROCU RED BY THE ASSESSEE UPON THE ORDERS OF ARBITRATION AUTHORITY WHICH RESU LTED INTO DEDUCTION OF LIABILITY BY RS.2,40,70,297/- FROM RS.2,61,09,809/- . THUS, HE WAS OF THE OPINION THAT DEBT WERE RECOVERABLE AND HAD NOT GONE BAD IN THIS YEAR. AFTER REFERRING TO VARIOUS DECISIONS, HE DISALLOWED THE CLAIM OF BAD DEBT AND ALSO THE CLAIM OF BUSINESS LOSS. ITA NO. 2745/MUM/2011 ASSESSMENT YEAR: 2001-02 4 3. THE LD. CIT(A), AGREED WITH THE REASONING AND CO NCLUSION DRAWN BY THE AO AND HELD THAT SAME IS NOT ALLOWABLE. HE F URTHER HELD THAT DEBIT AMOUNT OF RS.2,61,09,809/- INCLUDED THE AMOUN T OF RS.63 LAKHS PAID BY THE ASSESSEE, DESPITE THERE WAS SUBSTANTIAL DEBIT BALANCE IN THE ACCOUNT OF M/S. KIRAJ CONSULTANTS PVT. LTD. THIS CA NNOT BE ALLOWED AS BAD DEBT. REGARDING ALTERNATIVE PLEA, HE HELD THAT THE LOSSES CANNOT BE SAID TO HAVE ARISEN IN THE A.Y. 2001-02 AS THE PEND ENCY OF ALTERNATION PROCEEDINGS INSTITUTED BY THE ASSESSEE CLEARLY ESTA BLISH THAT LIABILITY ON ACCOUNT OF LOSS HAD NOT CRYSTALLIZED IN THIS YEAR. 4. BEFORE US, LEARNED COUNSEL SHRI NITESH JOSHI SUB MITTED THAT, IT IS AN UNDISPUTED FACT THAT ASSESSEE HAD BUSINESS TRANSACT ION WITH M/S. KIRAJ CONSULTANTS PVT. LTD.. THE HUGE DEBIT BALANCE HAD A RISEN DURING THE COURSE OF BUSINESS ONLY. SINCE AMOUNT WAS IRRECOVER ABLE DURING THE YEAR THE ASSESSEE HAS WRITTEN OFF THE SAID AMOUNT AS BAD DEBT AND THEREFORE, SAME IS ALLOWABLE IN VIEW OF THE DECISION OF HONBL E SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT REPORTED IN 323 ITR 397 . HE ALSO FILED A COPY OF GENERAL LEDGER ACCOUNT AND ALSO THE PARTY A CCOUNT OF KIRAJ CONSULTANTS TO SHOW THAT THE AMOUNT HAS BEEN WRITTE N OFF AS BAD DEBT. HE ALSO POINTED OUT THAT THE ASSESSEE HAS ALSO WRIT TEN A LETTER TO KIRAJ CONSULTANTS ABOUT THE REPAYMENT OF THE OUTSTANDING AND HAS ALSO INSTITUTED ARBITRATION PROCEEDINGS FOR THE RECOVERY OF THE AMOUNT. THUS, ASSESSEES CLAIM OF IS BAD DEBT SHOULD BE ALLOWED. 5. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON T HE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE RELEVANT MATERIAL PLACED ON RECORD. IT IS AN UNDISPUTED FACT THAT ASSESSEE HAD ITA NO. 2745/MUM/2011 ASSESSMENT YEAR: 2001-02 5 BUSINESS RELATION WITH M/S. KIRAJ CONSULTANTS PVT. LTD., AS IT WAS SUB- BROKER OF THE ASSESSEE. DURING THE COURSE OF SUCH B USINESS TRANSACTION THERE WERE HUGE DEBIT BALANCE IN THE ACCOUNT OF THE SAID PARTY. ONE OF THE REASONS GIVEN BY THE AO AND LD. CIT(A) THAT A P RUDENT BUSINESSMAN WILL NOT ALLOW SUCH HUGE DEBIT BALANCE TO CONTINUE TILL THE YEAR END. SUCH A REASONING CANNOT BE SUSTAINED AS THE REVENUE CANN OT DECIDE THE BUSINESS DECISIONS AND THE TRANSACTIONS BETWEEN THE TWO PARTIES AND HOW THE ASSESSEE SHOULD RUN A BUSINESS TO AVOID LOS S OR BAD DEBT. NOW IT IS QUITE SETTLED LAW THAT, IF THE BAD DEBTS HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT, THEN IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT DEBT HAS BECOME IRRECOVERABLE. IT IS THE DECIS ION OF THE ASSESSEE TO WRITE OFF THE BAD DEBT AS IRRECOVERABLE IN THE ACCO UNTS OF THE ASSESSEE. THIS PROPOSITION HAS BEEN QUITE SETTLED BY THE HON BLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT (SUPRA) AND CATENA OF OTHER DECISIONS. HOWEVER, FROM THE PERUSAL OF THE ORDER OF THE APPEL LATE ORDER, IT IS SEEN THAT, LD. CIT(A) HAS MADE ON OBSERVATIONS THAT ASSE SSEE HAS NOT WRITTEN OFF THE BAD DEBTS IN THE ACCOUNT OF M/S. KIRAJ CONS ULTANTS PVT. LTD. AND IN ITS BOOKS OF ACCOUNT. ON THE CONTRARY THE LEARNE D COUNSEL HAS FILED A COPY OF GENERAL LEDGER ACCOUNT AND ALSO THE PARTIES ACCOUNT OF M/S. KIRAJ CONSULTANTS PVT. LTD., WHEREIN IT HAS BEEN CLEARLY SHOWN THAT AMOUNT OF RS.2,61,09,809/- HAS BEEN TRANSFERRED TO BAD DEBTS. EVEN IN THE P&L ACCOUNT, IN SCHEDULE 12 THE BAD DEBTS WRITTEN OFF [ NET OF PROVISIONS] HAVE BEEN SHOWN. THUS, THIS MATTER NEEDS VERIFICATI ON FROM THE END OF THE AO TO SEE, WHETHER THE BAD DEBTS HAS IN FACT BE EN WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE OR NOT. THUS GROUND RAISED BY THE ASSESSEE ON THIS SCORE IS TREATED AS PARTLY ALLOWED FOR STATIST ICAL PURPOSE. IN VIEW OF ITA NO. 2745/MUM/2011 ASSESSMENT YEAR: 2001-02 6 THE FINDING GIVEN ABOVE, THE ALTERNATIVE GROUND RAI SED BY THE ASSESSEE HAS BECOME PURELY ACADEMIC AND HENCE IT IS TREATED AS INFRUCTUOUS. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF APRIL, 2015. SD/- SD/- (B.R. BASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 10.04.2015 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR D BENCH // TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.