M/s. Edelweiss Stock Broking Ltd., Ahmedabad V. The ACIT.,Circle-3, Ahmedabad

ITA 2757/AHD/2011

• Counselvise Citation: 275720514 RSA 2011
• Duration Of Justice: 4 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 10-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 08-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DILIP KUMAR
• Assessee Lawyers: VIJAY RANJAN
• Keywords: Reopening of assessment; Tangible material; Bad and doubtful debts; Reason to believe; Reassessment proceedings
• Section: 148; 143(3)

Judgement Text

I.T.A. NO.: 2393 AND 2757 AHD /2011 ASSESSMENT YEAR: 2007 - 08 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD C BENCH, AHMEDABAD [CORAM : PRAMOD KUMAR AM AND S S GODARA JM] I.T.A. NO. : 2757 / AHD/201 1 ASSESSMENT YEAR: 2007 - 08 EDELWEISS STOCK BROKING LTD .APPELLANT ( FORMERLY KNOWN AS ANAGRAM STOCK BROKING LTD) ANAGRAM HOUSE, NEAR HL COMMERCE SIX ROAD NAVRANGPURA, AHMEDABAD 380 009 [PAN: AABCA9956F) VS. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 3, AHMEDABAD . RESPONDENT I.T.A. NO.: 2393/ AHD/201 1 ASSESSMENT YEAR: 2007 - 08 ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 3, AHMEDABAD .APPELLANT VS. EDELWEISS STOCK BROKING LTD . RESPONDENT ( FORMERLY KNOWN AS ANAGRAM STOCK BROKING LTD) ANAGRAM HOUSE, NEAR HL COMMERCE SIX ROAD NAVRANGPURA, AHMEDABAD 380 009 [PAN: AABCA9956F) APPEARANCES BY: VIJAY RANJAN FOR THE ASSESSEE DILIP KUMAR FOR THE REVENUE DATE OF CONCLUDING THE HEARING : SEPTEMBER 10 , 201 5 DATE OF PRONOUNCING THE ORDER : DECEMBER 9 TH , 201 5 O R D E R PER PRAMOD KUMAR AM : 1 . BY WAY OF THESE CROSS APPALS, THE ASSESSEE, AS ALSO THE ASSESSING OFFICER, HAVE CHALLENGED CORRECTNESS OF THE ORDER DATED 8 TH AUGUST 2011 PASSED BY THE I.T.A. NO.: 2393 AND 2757 AHD /2011 ASSESSMENT YEAR: 2007 - 08 PAGE 2 OF 5 LEARNED CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2007 - 08. 2. IN THE APPEAL FILED BY THE ASSESSEE, THE APPELLANT HAS CHALLENGED CORRECTNESS OF LEARNED CIT(A) S UPHOLDING THE VALIDITY OF REASSESSMENT PROCEEDINGS. 3. THE MATERIAL FACTS ARE NOT IN DISPUTE. THE ASSESSEE HAD FILED A RETURN OF INCOME ON 30 TH NOVEMBER 2008 WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. SUBSEQUENTLY, AS EVIDENT FROM PAGE 1 OF THE REASSESSMENT ORDER, THE ASSESSMENT WAS REOPENED ON THE GROU ND THAT THE ASSESSEE HAS CLAIMED BAD DEBT AMOUNTING TO RS 8,24,552 AND RS 14,86,564 AS PROVISIONS FOR BAD DEBTS AND THE SAID BAD DEBTS WERE NOT ALLOWABLE IN VIEW OF THE PROVISIONS OF SECTION 36(1)(VII) R.W.S. 36(2) OF THE ACT . IN THE REASONS RECORDE D FOR REOPENING THE ASSESSMENT, IT WAS INTER ALIA NOTED AS FOLLOWS: ....IT IS NOTICED THAT THE ASSESSEE HAS CLAIMED BAD DEBTS AT RS 8,24,552 AND A PROVISION FOR BAD AND DOUBTFUL DEBTS AT RS 14,85,564. IN RESPECT OF THE CLAIM OF BROKER ASSESSEE REGARDING BAD DEBTS, THE ENTIRE AMOUNT OF SHARE PURCHASE/ SALE ON BEHALF OF TH E CLIENT SUCH CLAIM CANNOT BE ALLOWED AS THE CONDITIONS OF SECTION 36(1) AND (2) ARE NOT SATISFIED. AT THE MOST, THE BAD DEBTS CLAIM CAN BE ALLOWED TO THE EXTENT OF BROKERAGE INCOME IN RESPECT OF THESE TRANSACTIONS CREDITED IN THE PROFIT AND LOSS ACCOUNT. FURTHER, THE C LAIM OF PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY THE ASSESSEE IS CLEARLY DISALLOWABLE SINCE THE DEBTS ARE NOT WRITTEN OFF IN THE BOOKS AND THE ONUS IS ON THE ASSESSEE TO PROVE THAT THE AMOUNT HAS BECOME IRRECOVERABLE DURING THEYEAR AND THE ONUS CAST ON THE ASSESSEE CANNOT BE SAID TO HAVE BEEN DISCHARGED TILL SUCH DEBTS ARE WRITTEN OFF IN THE BOOKS. FURTHER, THE ASSESSEE IS AT THE MOST ENTITLED TO BAD DEBTS TO THE EXTENT INCOME OF BROKERAGE EARNED ON SUCH TRANSACTIONS WHICH ARE CREDITED T O THE PROFIT AND LOSS ACCOUNT. CONSIDERING THE ABOVE FACTUAL AND LEGAL POSITION, THERE IS CLEAR CASE OF ESCAPEMENT OF INCOME TO THE EXTENT OF RS 8,24,552 + RS 14,86,564 IN THIS CASE FOR THE AY 2007 - 08. ACCORDINGLY, I AM SATISFIED THAT THIS IS A FIT CASE F OR ISSUE OF NOTICE UNDER SECTION 148 OF THE ACT...... 4. THE ASSESSEE DID OBJECT TO THIS REOPENING OF ASSESSMENT BUT WITHOUT ANY SUCCESS. IT WAS POINTED OUT BY THE ASSESSEE THAT SINCE PROVISION FOR BAD DEBTS HAS I.T.A. NO.: 2393 AND 2757 AHD /2011 ASSESSMENT YEAR: 2007 - 08 PAGE 3 OF 5 NOT BEEN CLAIMED AS A DEDUCTION, THERE CAN NOT BE ANY OCCASION TO HOLD THE BELIEF THAT A DEDUCTION HAVING BEEN GRANTED IN RESPECT OF THE SAME HAS RESULTED IN ESCAPEMENT OF INCOME. AS FOR THE DEDUCTION OF RS 8,24,552 AS BAD DEBTS, IT WAS INTER ALIA POINTED OUT THAT THE AMOUNT IS DEDUCTIBLE IN THE LI GHT OF THE BINDING JUDICIAL PRECEDENTS IN THE CASES OF PRAVIN RATILAL SHARE AND STOCK BROKERS LTD (ITA NO 527/AHD/2009; ASSESSMENT YEAR 2001 - 02), KOTAK SECURITIES LIMITED VS ACIT (ITA NO 1955/MUM/2008; AY 2005 - 06 ) AND CIT VS BONANZA PORTFOLIO [(2010) 320 I TR 78 (DELHI)]. THE ASSESSING OFFICER, HOWEVER, PROCEEDED WITH THE REASSESSMENT PROCEEDINGS. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BUT WITHOUT ANY SUCCESS. LEARNED CIT(A) SIMPLY BRUSHED IT ASIDE BY NOTING, FACTUAL CORRECTNESS OF WHICH NOTING IS VEHEMENTLY DISPUTED BEFORE US, THAT THIS GROUND WAS NOT PRESSED BY THE APPELLANT SINCE THE ORIGINAL ASSESSMENT WAS NOT MADE UNDER SECTION 143(3) . THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 6. IT IS A WELL SETTLED LEGAL POSITION THAT EVEN IF THE ORIGINAL ASSESSMENT IS COMPLETED UNDER SECTION 143(1), THE ASSESSING OFFICER CAN REOPEN THE ASS ESSMENT ONLY WHEN HE HAS SOME TANGIBLE MATERIAL ON THE BASIS OF WHICH HE COULD FORM A REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT . IN THE CASE OF RATNA TRAYI REALITY SERVICE PVT LTD VS ITO [(2013) 356 ITR 493 (GUJ)], HON BLE JURISDICTIONAL HIGH COURT HAS REITERATED THIS LEGAL POSITION AND HELD THAT THE REASONS FOR REOPENING, EVEN IN SUCH CASES, ARE TO BE EXAMINED ON MERITS SO AS TO TAKE A CALL ON VALIDITY OF REASSESSMENT PROCEEDINGS. 7. IT IS ALSO WELL SETTLED IN LAW THAT REASONS, AS RECORDED FOR REOPENING THE REASSESSMENT, ARE TO BE EXAMINED ON A STANDALONE BASIS. NOTHING CAN BE ADDED TO THE REASONS SO RECORDED, NOR ANYTHING CAN BE DELETED FROM THE REASONS SO RECORDED. HON BLE BOMBAY HIGH COURT, IN THE CASE OF HINDUSTAN LEVER LTD. VS. R.B. WADKAR [(2004) 268 ITR 332] , HAS, INTER ALIA, OBSERVED THAT ' .IT IS NEEDLESS TO MENTION THAT THE REASONS ARE REQUIRED TO BE READ AS THEY WERE RECORDED BY THE I.T.A. NO.: 2393 AND 2757 AHD /2011 ASSESSMENT YEAR: 2007 - 08 PAGE 4 OF 5 AO. NO SUBSTITUTION OR DELETION IS PERMISSIBLE. NO A DDITIONS CAN BE MADE TO THOSE REASONS. NO INFERENCE CAN BE ALLOWED TO BE DRAWN ON THE BASIS OF REASONS NOT RECORDED. IT IS FOR THE AO TO DISCLOSE AND OPEN HIS MIND THROUGH THE REASONS RECORDED BY HIM. HE HAS TO SPEAK THROUGH THE REASONS.' THEIR LORDSHIPS A DDED THAT 'THE REASONS RECORDED SHOULD BE SELF - EXPLANATORY AND SHOULD NOT KEEP THE ASSESSEE GUESSING FOR REASONS. REASONS PROVIDE LINK BETWEEN CONCLUSION AND THE EVIDENCE .'. THEREFORE, THE REASONS ARE TO BE EXAMINED ONLY ON THE BASIS OF THE REASONS AS REC ORDED. 8. IN THIS BACKGROUND, AND COMING TO THE REASONS RECORDED FOR REOPENING THE ASSESSMENT, WE FIND THAT SO FAR AS THE FIRST POINT IN THE REASONS RECORDED FOR REOPENING THE ASSESSMENT IS CONCERNED, I.E. BAD DEBT DISALLOWANCE OF RS 8,24,554 ON THE GRO UND THAT ONLY BROKERAGE IS CREDITED TO THE PROFIT AND LOSS ACCOUNT, THE LAW IS FAIRLY WELL SETTLED ON THE ISSUE AND IT SUPPORTS THE CLAIM MADE BY THE ASSESSEE. HON BLE BOMBAY HIGH COURT S JUDGMENT IN THE CASE OF CIT VS SHREYAS S MORAKHIA[(2012) 342 ITR 285 (BOM)] AND HON BLE DELHI HIGH COURT S JUDGMENT IN THE CASE OF CIT VS BONANZA PORTFOLIO LIMITED [(2010) 320 ITR 278 (DELHI)] HOLD THAT A DEDUCTION OF BAD DEBTS , IN THE HANDS OF A BROKER, IS ADMISSIBLE AS A DEDUCTION EVEN WHEN ONLY BROKERAGE RECEIVED IS CREDITED TO THE PROFIT AND LOSS ACCOUNT. THAT PRECISELY IS THE FACT SITUATION BEFORE US. INCIDENTALLY, AN SLP AGAINST THE DECISION OF HON BLE DELHI HIGH COURT HA S ALREADY BEEN DISMISSED BY HON BLE SUPREME COURT, IN THE JUDGMENT REPORTED AS CIT VS BONANZA PORTFOLIO LTD [(2010) 328 ITR (ST) 9 (SC)]. IN THESE CIRCUMSTANCES, IT CANNOT BE SAID THAT ANY INCOME WAS ESCAPING THE ASSESSMENT BY THIS BAD DEBT CLAIM HAVING BE EN ALLOWED IN THE ASSESSMENT UNDER SECTION 143(1). THE ASSESSING OFFICER WAS CLEARLY IN ERROR IN REOPENING THE ASSESSMENT ON THE GROUND. AS FOR THE SECOND REASON, I.E. DISALLOWANCE OF RS 14,86,564 ON THE GROUND THAT IT WAS ONLY A PROVISION AND NOT AN ACTUA L WRITE OFF, THERE IS NO DISPUTE THAT THE SAID PROVISION WAS NEVER CLAIMED AS A DEDUCTION ANYWAY. IN THIS VIEW OF THE MATTER, EVEN THE SECOND GROUND OF REOPENING THE ASSESSMENT WAS CLEARLY ERRONEOUS. IN THE LIGHT OF THESE DISCUSSIONS, AS ALSO BEARING IN M IND ENTIRETY OF THE CASE, WE HOLD THAT THE REASONS RECORDED FOR REOPENING THE ASSESSMENT ARE I.T.A. NO.: 2393 AND 2757 AHD /2011 ASSESSMENT YEAR: 2007 - 08 PAGE 5 OF 5 UNSUSTAINABLE IN LAW. WE, ACCORDINGLY, UPHOLD THE GRIEVANCE OF THE ASSESSEE AND QUASH THE IMPUGNED REASSESSMENT PROCEEDINGS. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN THE TERMS INDICATED ABOVE. 10. IN VIEW OF THE FACT THAT THE APPEAL OF THE ASSESSEE IS ALLOWED AND THE REASSESSMENT ITSELF IS QUASHED, THE ISSUES RAISED IN THE DEPARTMENTAL APPEAL, WHICH CALL INTO QUESTION CORRECTNESS OF THE REL IEF GRANTED BY THE CIT(A) ON MERITS, ARE RENDERED ACADEMIC. IT IS , ACCORDINGLY, DISMISSED AS INFRUCTUOUS. 11. TO SUM UP, WHILE THE APPEAL OF THE ASSESSEE IS ALLOWED, THE APPEAL FILED BY THE ASSESSING OFFICER IS DISMISSED AS INFRUCTOUS. PRONOUNCED IN THE O PEN COURT TODAY ON 9 TH DAY OF DECEMBER, 2015. SD/ - SD/ - S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: THE 9 TH DAY OF DECEMBER , 201 5 . COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD