M/S. ALPIK SECURITIES LTD., MUMBAI V. ADDL. CIT SPL. CIR. - 22, MUMBAI

ITA 3063/MUM/2003

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49069 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 21-04-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 17-04-2003
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANJIV DUTT
• Assessee Lawyers: SANJAY R PARIKH; DR K SHIVRAM
• Keywords: Income from undisclosed sources; Speculation loss; Bad and doubtful debts
• Section: 234B

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI RAJENDRA SINGH(AM) AND SHRI VIJAY PA L RAO (JM) ITA NO.3063/M/2003 ASSESSMENT YEAR 1998-99 M/S. ALPIC SECURITIES LTD. THE ADDL.CIT SPECIAL RANGE 22 6 TH FLOOR, NEW EXCELSIOR BLDG. AAYAKAR BHAVAN, M.K.R OAD WALLACE STREET, FORT, MUMBAI 400 020. MUMBAI APPELLANT RESPONDENT ASSESSEE BY : DR. K. SHIVRAM AND SHRI SA NJAY R.PARIKH REVENUE BY : SHRI SANJIV DUTT O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 25.2.2003 OF CIT(A) FOR THE ASSESSMENT YEAR 1998-99 . THE DISPUTES RAISED BY THE ASSESSEE IN THIS APPEAL RELATE TO DISALLOWANCE OF CLAIM OF BAD DEBT/ BUSINESS LOSS AND CHARGE OF INTEREST UNDER SECTION 234B OF T HE INCOME-TAX ACT. 2. THE FIRST DISPUTE IS REGARDING DISALLOWANCE OF B AD DEBT CLAIM OF RS.99,98,000/- ON ACCOUNT OF PARVEZ DAMANIA AND RS. 1,53,26,770/- ON ACCOUNT OF 16 OTHER PARTIES. THE ASSESSEE COMPANY W HICH WAS ENGAGED IN THE BUSINESS OF SHARE BROKING HAD MADE THE ABOVE CLAIMS AS DEDUCTION WHILE COMPUTING TOTAL INCOME. AS REGARDS THE DEBT ON ACCO UNT OF PARVEZ DAMANIA, AO NOTED FROM THE DETAILS FILED THAT THE ASSESSEE HAD PURCHASED 5 LAC SHARES OF 2 DAMANIA AIRWAYS FROM JARDINE FLEMING INDIA BROKING LTD @ 17.2 PER SHARE FOR A TOTAL SUM OF RS.85 LACS ON 29.5.95. THE SHARES HA D LOCK-IN-PERIOD OF 5 YEARS W.E.F 2.11.93 AND THEREFORE COULD NOT BE TRANSFERRE D TILL 22.2.98. AO THEREFORE ASKED THE ASSESSEE TO EXPLAIN THE POSITION AND TO F ILE NECESSARY DETAILS IN RELATION TO TRANSACTION WITH PARVEZ DAMANIA. THE AS SESSEE EXPLAINED THAT THERE WERE TWO DEALS REGARDING PURCHASE OF SHARES OF DAMA NIA AIRWAYS. THE FIRST DEAL WHICH WAS DONE ON 29.5.95 @ 17.2 PER SHARE HAD BEEN DULY SETTLED AND THE PAYMENT HAD BEEN MADE BY THE PARTY. THERE WAS ANOTH ER DEAL OF PURCHASE OF 499900 SHARES @ RS.20/- PER SHARE ON 2.6.95. THE AS SESSEE SUBMITTED THAT INADVERTENTLY THE ASSESSEE HAD ENCLOSED THE CONTRAC T NOTE/ BILL IN RELATION TO THE FIRST DEAL WHICH HAD CREATED CONFUSION. IT WAS THE SECOND DEAL WHICH WAS THE SUBJECT MATTER OF DISPUTE. THE AO HOWEVER ON EXAMIN ATION OF DETAILS RELATING TO SECOND DEAL NOTED THAT THE SUM OF RS.99,98,000/- WH ICH HAD BEEN CLAIMED AS BAD DEBT BY THE ASSESSEE IN RELATION TO THE SECOND DEAL, HAD BEEN FINANCED BY M/S. ALPIC FINANCE LTD. LTD. (AFL), A SISTER CONCER N OF THE ASSESSEE COMPANY. THE AO ALSO NOTED THAT IT WAS AFL WHICH HAD MOVED T HE COURT FOR RECOVERING THE AMOUNT AFTER THE DISHONORING OF THE CHEQUES ISS UE BY PARVEZ DAMANIA AND NOT THE ASSESSEE. AFL IN THE AFFIDAVIT FILED BEFORE THE HIGH COURT HAD CLEARLY MENTIONED THAT ON 1.6.95 PARVEZ DAMANIA HAD APPROAC HED AFL FOR PURCHASE OF EQUITY SHARES OF DAMANIA AIRWAYS. AFL THEREAFTER ON 2.6.95 PURCHASED 499900 SHARES OF DAMANIA AIRWAYS @ RS.20.25 PER SHARE THRO UGH ITS BROKING ARM I.E ALPIC SECURITIES LTD. (ASSESSEE). THE AFL IN THE AF FIDAVIT ALSO MENTIONED THAT ON 13.6.95 IT HAD MADE PAYMENTS OF RS.99,98,000/- TO M /S. JARDINE FLEMING INDIA BROKING LTD. IT FURTHER MENTIONED THAT PARVEZ DAMAI NIA ON 14.7.95 IN THE LETTER ADDRESSED TO THE ALPIC SECURITIES LTD HAD EXPRESSED INABILITY TO FUND THE PURCHASE OF SHARES AND ENCLOSED POST DATED CHEQUES DATED 5.8.95 TOWARDS THE PAYMENT OF PRINCIPAL SUM, INTEREST AS WELL AS BROKE RAGE. IN THE SAID LETTER SHRI 3 PARVEZ DAMANIA ALSO MADE IT CLEAR THAT IN CASE THE POST DATED CHEQUES WERE NOT HONOURED ON THE DUE DATE, ASL COULD ENCASH THE COLLATERAL SHARES OR TAKE SUCH ACTION AS MAY BE DEEMED FIT TO RECOVER THE DUE S/ DAMAGES. ON 5.8.95, PARVEZ DAMANIA REQUESTED AFL NOT TO PRESENT THE CHE QUES. AO OBSERVED THAT FROM THE AFFIDAVIT FILED BY AFL IN THE HIGH COURT I T WAS CLEAR THAT IT WAS AFL WHO HAD PURCHASED THE SHARES ON BEHALF OF THE ASSESSEE AND THE PAYMENTS HAD ALSO BEEN MADE BY AFL AND IT WAS AFL WHICH HAD FILED THE SUIT FOR RECOVERY OF THE AMOUNT. THE IMPUGNED AMOUNT WAS THEREFORE DUE TO AF L AND NOT TO THE ASSESSEE. AO ALSO OBSERVED THAT THE TRANSACTION HAD BEEN DONE THROUGH M/S.JARDINE FLEMING INDIA BROKING LTD. AND NOT THRO UGH BOMBAY STOCK EXCHANGE. IT WAS THUS A TRANSACTION OF THE NATURE O F SPOT DELIVERY CONTRACTS IN WHICH CASES THE PAYMENTS ARE REQUIRED TO BE MADE ON THE DATE OF CONTRACT OR THE NEXT DAY BUT IN THIS CASE THE PAYMENT HAD BEEN MADE AFTER TWO MONTHS FROM THE DATE OF CONTRACT AND THUS THE TRANSACTION ITSELF WAS ILLEGAL. THE AO THEREFORE DID NOT ALLOW THE CLAIM OF BAD DEBT OF RS .99,98,000/-. 3. THE ASSESSEE DISPUTED THE DECISION OF THE AO AND SUBMITTED BEFORE CIT(A) THAT SHARES HAD BEEN PURCHASED ON BEHALF OF SHRI PARVEZ DAMANIA BY THE ASSESSEE AND SINCE HE DEFAULTED IN MAKING THE P AYMENT, THE ASSESSEE HAD REQUESTED AFL, THE SISTER CONCERN, TO MAKE THE PAYM ENT TO THE SELLER OF SHARES. THE ASSESSEE HAD ALSO REQUESTED PARVEZ DAMANIA TO I SSUE POST DATED CHEQUES DIRECTLY TO AFL FROM WHOM THE ASSESSEE HAD BORROWED MONEY. BUT THE POST DATED CHEQUES HAD BOUNCED AND AFL HAD THEREFORE TO FILE THE COURT CASE. THE ASSESSEE ALSO POINTED OUT THAT SHARES OF DAMANIA AI RWAYS WERE SUBSEQUENTLY DE-LISTED AND THE SHARES COULD NOT BE SOLD IN THE M ARKET AND THEREFORE THE AMOUNT HAD BECOME BAD DEBT. THE ASSESSEE HAD FILED COPY OF THE BILL DATED 1.6.95 AND OTHER DETAILS RELATING TO THE TRANSACTIO N. CIT(A) WAS HOWEVER NOT 4 SATISFIED BY THE SUBMISSIONS MADE BY THE ASSESSEE. IT WAS OBSERVED BY HIM THAT THE PERUSAL OF SUIT FILED BY AFL IN THE COURT OF METROPOLITAN MAGISTRATE AND ALSO THE SUMMARY SUITE FILED BEFORE THE BOMBAY HIGH COURT GAVE A TOTALLY DIFFERENT PICTURE. IN THE AFFIDAVIT FILED BEFORE HI GH COURT, AFL HAD CLEARLY STATED THAT PARVEZ DAMANIA HAD DESIRED TO PURCHASE SHARES THROUGH IT AND SHARES HAD THEREFORE BEEN PURCHASED THROUGH ASL, THE ASSESSEE, AND THE PAYMENT HAD ALSO BEEN MADE BY AFL TO THE SELLER OF SHARES. IT W AS THUS CLEAR THAT PARVEZ DAMANIA HAD APPROACHED AFL FOR PURCHASE OF SHARES A ND THE SHARES HAD BEEN PURCHASED BY AFL THROUGH THE ASSESSEE AND THE PAYME NTS HAD ALSO BEEN MADE BY AFL ON BEHALF OF PARVEZ DAMANIA. THE ASSESSEE WA S THEREFORE ASKED TO EXPLAIN THE ABOVE DISCREPANCIES. IT WAS STATED BY T HE ASSESSEE THAT THE SECRETARY OF THE COMPANY SHRI RAJIV TAURO HAD LEFT THE COMPANY LONG BACK AND IT WAS THEREFORE DIFFICULT TO EXPLAIN THE CIRCUMSTA NCES UNDER WHICH THE AVERMENTS IN THE AFFIDAVIT HAD BEEN MADE. IT WAS RE ITERATED THAT THE SHARES HAD BEEN PURCHASED BY THE ASSESSEE THROUGH AFL WHIC H HAD ONLY FINANCED THE TRANSACTION. CIT(A) HOWEVER REJECTED THE EXPLANATIO N GIVEN, AS THE SAME WAS NOT SUPPORTED BY ANY EVIDENCE. IT WAS OBSERVED BY H IM THAT THE FACT THAT SHARES HAD BEEN PURCHASED BY AFL WAS SUPPORTED BY T HE STATEMENT ON OATH GIVEN BEFORE THE HIGH COURT WHICH COULD NOT BE BRUS HED ASIDE. ENTRIES IN THE BOOKS HAD BEEN MANIPULATED BY THE ASSESSEE AS PER I TS CONVENIENCE. CIT(A) THEREFORE REJECTED THE EXPLANATION OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE MADE BY AO. AGGRIEVED BY THE SAID DECI SION THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US THE LEARNED AR FOR THE ASSESSEE REITER ATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES THAT SHARES OF THE DA MANIA AIRWAYS HAD BEEN PURCHASED BY THE ASSESSEE ON BEHALF OF PARVEZ DAMAN IA AND THE PAYMENT HAD 5 BEEN MADE BY AFL, THE SISTER CONCERN, ON BEHALF OF THE ASSESSEE, SINCE PARVEZ DAMANIA HAD DEFAULTED IN MAKING THE PAYMENT. REFERE NCE WAS MADE TO THE BILL DATED 2.6.95 REGARDING SALE OF 499900 SHARES OF DAM ANIA AIRWAY BY JARDINE FLEMING INDIA BROKING LTD. IN THE NAME OF THE ASSES SEE WHICH WAS PLACED AT PAGE 50 OF THE PAPER BOOK WHICH SHOWED THAT THE ASS ESSEE HAD PURCHASED THE SHARES FROM JARDIN FLEMING INDIA BROKING LTD.. THE LEARNED AR ALSO REFERRED TO THE LETTER DATED 14.7.95 OF PARVEZ DAMANIA ADDRESSE D TO THE ASSESSEE (PLACED AT PAGE 51 OF THE PAPER BOOK) IN WHICH HE HAD EXPRE SSED HIS INABILITY TO FUND THE PURCHASE AND HAD ENCLOSED POST DATED CHEQUES OF 5.8.95. HE ALSO REFERRED TO THE LETTER DATED 22.1.96 OF THE ASSESSEE ADDRESS ED TO PARVEZ DAMANIA (PLACED AT PAGE 52 OF THE PAPER BOOK) WRITTEN WITH REFERENCE TO LETTER DATED 14.7.95 OF PARVEZ DAMANIA IN WHICH IT WAS MENTIONED THAT THE ASSESSEE COULD NOT WAIT ANY LONGER FOR DEPOSIT OF THE POST DATED C HEQUES AND THE SAME WOULD BE DEPOSITED ON 25.1.96 AND THEREFORE NECESSARY ARR ANGEMENTS FOR THE FUNDS IN THE ACCOUNT MAY BE MADE. IT WAS ALSO SUBMITTED THAT THE LEDGER COPY OF PARVEZ DAMANIA IN THE BOOKS OF THE ASSESSEE FOR THE FINANC IAL YEAR 97-98 WAS PLACED AT PAGE 125 OF THE PAPER BOOK WHICH SHOWED THAT BAD DEBT HAD BEEN WRITTEN OFF ON 31.3.98. IT WAS ARGUED THAT IN VIEW OF THE A MENDED PROVISIONS, IT WAS NO LONGER NECESSARY THAT THE DEBTS SHOULD HAVE BECOME ACTUALLY IRRECOVERABLE FOR MAKING THE CLAIM OF BAD DEBT. IT WAS ACCORDINGLY RE QUESTED THAT THE CLAIM SHOULD BE ALLOWED. 4.1 THE LEARNED DR ON THE OTHER HAND STRONGLY SUPPO RTED THE ORDERS OF AUTHORITIES BELOW. IT WAS POINTED OUT THAT IT WAS C LEAR FROM THE STATEMENT GIVEN ON OATH BY AFL THAT SHARES HAD BEEN PURCHASED BY AF L WHO HAD ALSO MADE THE PAYMENT AND THEREFORE THE AMOUNT WAS DUE TO AFL WHI CH COULD ALONE MAKE THE CLAIM OF BAD DEBT AND NOT THE ASSESSEE. HE PLACED R ELIANCE ON THE FINDINGS 6 GIVEN IN THE ORDERS OF AUTHORITIES BELOW. IT WAS AL SO SUBMITTED THAT AS PER THE AFFIDAVITS GIVEN BY AFL BEFORE THE HIGH COURT, MR. PARVEZ DAMANIA HAD TRANSFERRED 3 LAC SHARES OF AGRITECH AND 3 LAC SHAR ES OF DAMANIA CAPITAL MARKET LTD. IN THE NAME OF THE ASSESSEE. FURTHER 499900 SH ARES OF DAMANIA AIRWAY PURCHASED BY THE ASSESSEE ALSO REMAINED WITH IT. IT HAS NOT BEEN SHOWN AS TO WHAT HAPPENED TO THESE SHARES AND THEREFORE EVEN IF THE DEBT WAS TO BE CONSIDERED IN THE ACCOUNTS OF THE ASSESSEE, SALE PR OCEEDS OF THE ABOVE SHARES AS PER THE MARKET RATE HAVE TO BE DEDUCTED. IT WAS ALSO POINTED OUT THAT AS PER RECORDS MAINTAINED WITH BSE ARCHIVES DAMANIA AIRWAY S WENT INTO LIQUIDATION ONLY ON 9.8.2005 AND SHARES WERE DE-LISTED ON 4.10. 2007. IT WAS THEREFORE CLEAR THAT IN THE YEAR 1995 SHARES WERE ACTIVE AND NOT DE-LISTED. 4.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF BAD DEBT OF RS.99,98,000/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF PURCHASE OF 4 99900 SHARES OF DAMANIA AIRWAYS IT HAS BEEN SUBMITTED THAT THE ASSESSEE HA D PURCHASED THE SAID SHARES ON 2.6.95 FROM JARDINE FLEMING INDIA BROKING LTD. ON BEHALF OF PARVEZ DAMANIA. SINCE MR. PARVEZ DAMANIA DID NOT MAKE ANY PAYMENTS, THE ASSESSEE HAD ASKED ITS SISTER CONCERN I.E. AFL TO MAKE PAYME NT TO THE SELLER OF THE SHARES. AFL HAD THEREFORE MADE THE PAYMENT ON 13.6. 95. SHRI PARVEZ DAMANIA HAD GIVEN POST DATED CHEQUES OF 5.8.95 TO AFL WHICH WERE DISHONOURED AND THEREFORE AFL HAD TO FILE COURT CASES TO RECOVER TH E AMOUNT, WHICH WAS PENDING. THE ASSESSEE THEREFORE IN THE IMPUGNED ASS ESSMENT YEAR CLAIMED THE AMOUNT AS TAKEN AS BAD DEBT. IT HAS ALSO BEEN SUBMI TTED THAT THE ASSESSEE HAD SHOWN THE BROKERAGE INCOME IN ITS BOOKS OF ACCOUNT ON ACCOUNT OF PURCHASE OF SAID SHARES. THEREFOE THE PRINCIPAL AMOUNT WHICH CO ULD NOT BE RECOVERED HAS TO 7 BE ALLOWED AS BAD DEBT IN VIEW OF THE DECISION OF T HE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF SHREYAS MORARKA (5 ITR (TRIB)1) . 4.3 HOWEVER ON CAREFUL PERUSAL OF RECORDS, WE FIND THAT THE CLAIM OF THE ASSESSEE THAT IT HAD PURCHASED THE SHARES ON BEHALF OF PARVEZ DAMANIA IS NOT SUPPORTED BY PROPER EVIDENCE. NO SALE BILL IN RESPE CT OF SALE OF SAID SHARES IN THE NAME OF PARVEZ DAMANIA HAS BEEN PLACED ON RECOR D NOR ANY DELIVERY CHALLAN HAS BEEN PRODUCED THROUGH WHICH THE SHARES WERE HANDED OVER TO PARVEZ DAMANIA. THE ASSESSEE HAS NOT FILED COPY OF THE ABOVE DOCUMENTS IN THE PAPER BOOK WHICH SHOWS THAT THESE DOCUMENTS WER E NOT FILED BEFORE THE LOWER AUTHORITIES AND ON BEING SPECIFICALLY POINTED OUT, THE LEARNED AR FOR THE ASSESSEE GAVE NO DETAILS. IN CASE THE ASSESSEE HAD PURCHASED THE SHARES ON BEHALF OF PARVEZ DAMANIA, THESE DOCUMENTS WHICH WER E BASIC DOCUMENTS TO ESTABLISH THE CLAIM SHOULD HAVE BEEN FILED BEFORE L OWER AUTHORITIES WHICH HAS NOT BEEN DONE. THE ASSESSEE HAS FILED ONLY COPY OF BILL DATED 2.6.95 SHOWING PURCHASE OF THE SAID SHARES FROM JARDINE FLEMING IN DIA BROKING LTD BUT THE AFL HAS CLAIMED THAT THE SAID SHARES HAD BEEN PURCHASED BY THE ASSESSEE AS PER ORDER PLACED BY IT ON BEHALF OF PARVEZ DAMANIA. SOM E DIRECT CORRESPONDENCE BETWEEN THE ASSESSEE AND PARVEZ DAMANIA HAVE BEEN P RODUCED BUT THESE DO NOT PROVE THAT PARVEZ DAMANIA HAD PLACED PURCHASE O RDER THROUGH THE ASSESSEE. SINCE, AFL HAD PURCHASED SHARES FOR PARVE Z DAMANIA WITH THE ASSESSEE, IT IS POSSIBLE THAT THE ASSESSEE HAD CORR ESPONDED DIRECTLY WITH PARVEZ DAMANIA AND THE LATTER MAY HAVE GIVEN SOME COLLATER AL. BUT THERE IS NO EVIDENCE IN THE FORM OF BILLS ETC. THAT PARVEZ DAMA NIA HAD PURCHASED SHARES FROM THE ASSESSEE. ON THE CONTRARY, WE FIND THAT A FL, THE SISTER CONCERN OF THE ASSESSEE, IN THE AFFIDAVIT FILED BEFORE THE HIGH CO URT HAS STATED THAT SHRI PARVEZ DAMANIA HAD APPROACHED THE ASSESSEE ON 1.6.95 FOR P URCHASE OF 499900 8 SHARES OF DAMANIA AIRWAY. AFL HAD ACCORDINGLY PURCH ASED THE SAID SHARES ON 2.6.95 THROUGH ITS SISTER CONCERN I.E. THE ASSESSEE . IT IS THE FIRM, AFL, WHICH HAD MADE THE PAYMENT TO THE SELLER OF SHARES I.E. J ARDINE FLEMING INDIA BROKING LTD. AND THE POST DATED CHEQUES ISSUED BY PARVEZ DA MANIA HAD ALSO BEEN DEPOSITED IN THE ACCOUNTS OF AFL. MOREOVER IT IS TH E AFL WHO HAD FILED SUIT FOR RECOVERY OF THE AMOUNT. IN VIEW OF THESE STATEMENTS GIVEN ON OATH BEFORE THE HIGH COURT, CLAIM OF THE ASSESSEE THAT IT HAD PURCH ASED SHARES ON BEHALF OF PARVEZ DAMANIA WHICH IS NOT SUBSTANTIATED BY ANY PR OPER EVIDENCE CANNOT BE ACCEPTED. WE THEREFORE SEE NO INFIRMITY IN THE ORDE R OF AUTHORITIES BELOW HOLDING THAT THE BAD DEBT IF ANY COULD BE CLAIMED B Y AFL AND NOT THE ASSESSEE. 4.4 IT IS ALSO PERTINENT TO NOTE THAT SHRI PARVEZ DAMANIA HAD TRANSFERRED 3 LAC SHARES OF AGRITECH HATCHERY LTD. AND 3 LACS SHA RES OF DAMANIA CAPITAL MARKET LTD. IN THE NAME OF THE ASSESSEE AS A COLLAT ERAL. FURTHER 499900 SHARES OF DAMANIA AIRWAYS LTD PURCHASED BY AFL ON BEHALF O F PARVEZ DAMANIA ADMITTEDLY REMAINED WITH THE ASSESSEE. IT HAS NOT B EEN SHOWN AS TO HOW THESE SHARES WERE DEALT WITH. IN CASE MR. PARVEZ DAMANIA WAS DEFAULTING IN PAYMENT THE ASSESSEE WAS REQUIRED TO DISPOSE OFF THESE SHAR ES AND REALIZE THE AMOUNTS. THE ASSESSEE HAS NOT GIVEN ANY DETAILS. THEREFORE EVEN IF THE BAD DEBT WAS TO BE CONSIDERED IN CASE OF THE ASSESSEE THE VALUE OF THESE SHARES AT THE RELEVANT POINT OF TIME WHEN PARVEZ DAMANIA DEFAULTED IN MAKI NG THE PAYMENT HAS TO BE DEDUCTED FROM THE BAD DEBT. THE CLAIM OF THE ASSESS EE THAT THE SHARES OF DAMANIA AIRWAYS WERE DE-LISTED SOON AFTER PURCHASE IS NOT SUPPORTED BY ANY EVIDENCE. ON THE CONTRARY, DETAILS OBTAINED BY THE LEARNED DR FROM THE BSE AUTHORITIES SHOW THAT THE SHARES WERE DE-LISTED ONL Y ON 4.10.2007. IN ANY CASE, SINCE WE HAVE HELD EARLIER THAT THERE WAS NO DEBT DUE TO THE ASSESSEE FROM PARVEZ DAMANIA AS THE SAME WAS DUE ONLY TO AFL WHICH CAN ONLY CLAIM 9 THE DEDUCTION, THE CLAIM MADE BY THE ASSESSEE ON AC COUNT OF BAD DEBT HAS TO BE REJECTED. WE ACCORDINGLY UPHOLD THE ORDER OF CIT (A). 5. AS REGARDS THE CLAIM OF BAD DEBT IN RELATION TO 16 OTHER PARTIES TOTALING RS.1,53,26,770/- THE ASSESSEE MADE PARTY-WISE SUBMI SSION BEFORE THE AO WHICH WAS AS UNDER : SR NO NAME OF THE CLIENT AMOUNT SUBMISSION GIVEN BY THE ASSESSEE 1 ANURAG INDUSTRIES PVT. LTD. 31,145.75 THIS DEBIT IS DUE TO THE PURCHASE OF 5100 SHARES OF HIND ORG. IN SETTLEMENT NO.02 BY THE CLIENT THROUGH AND HE HAS FAILED TO MAKE THE RELEVANT PART PAYMENT FOR THE SAME. THIS CLIENT IS NOT TRACEABLE AND HENCE WE ARE UNABLE TO RECOVER THE DEBIT FROM HIM. 2 AJAY SINGHAL 185,186.75 THIS DEBIT IS DUE TO THE PURCHASE OF 58000 SHARES OF NEVTIA SPINNERS IN SETTLEMENT NO.03 BY THE CLIENT THROUGH AND HE HAS FAILED TO MAKE THE RELEVANT PART PAYMENT FOR THE SAME. THIS CLIENT IS NOT TRACEABLE AND HENCE WE ARE UNABLE TO RECOVER THE DEBIT FROM HIM. 3 KANCHAN TALREJA 97,711 THIS DEBIT IS DUE TO THE PURCHASE OF 12900 SHARES OF NEVTIA SPINNERS IN SETTLEMENT NO.06 BY THE CLIENT THROUGH AND HE HAS FAILED TO MAKE THE RELEVANT PART PAYMENT FOR THE SAME. THIS CLIENT IS NOT TRACEABLE AND HENCE WE ARE UNABLE TO RECOVER THE DEBIT FROM HIM. 4 NISHI PONGE 390,126.25 THIS DEBIT IS DUE TO THE P URCHASE OF 29200 SHARES OF NEVTIA SPINNERS IN SETTLEMENT NO.06 BY THE CLIENT THROUGH AND HE HAS FAILED TO MAKE THE RELEVANT PART PAYMENT FOR THE SAME. THIS CLIENT IS NOT TRACEABLE AND HENCE WE ARE UNABLE TO RECOVER THE DEBIT FROM HIM. 5 PRADEEP RANDHAWA 23,692.5 THIS DEBIT IS DUE TO THE PURCHASE OF SHARES BY THE CLIENT THROUGH AND HE HAS FAILED TO MAKE THE RELEVANT PART PAYMENT FOR THE SAME. THIS CLIENT IS NOT TRACEABLE AND HENCE WE ARE UNABLE TO RECOVER THE DEBIT FROM HIM. 6 RADIANT INVESTMENT 124,419.21 THIS DEBIT IS DUE TO THE PURCHASE OF 900 0 SHRES OF CRYPTOGE IN SETTLEMENT NO.07 AND 5000 SHARES OF LEADER PAC IN SETTLEMENT NO.06 BY THE CLIENT THROUGH AND HE HAS FAILED TO MAKE THE RELEVANT 10 PART PAYMENT FOR THE SAME. THIS CLIENT IS NOT TRACEABLE AND HENCE WE ARE UNABLE TO RECOVER THE DEBIT FROM HIM. 7 SUDHIR JINGAL 4,305 THIS DEBIT IS DUE TO THE PUR CHASE OF 122100 SHARES OF NEVTIA SPINNERS IN SETTLEMENT NO.02 BY THE CLIENT THROUGH AND HE HAS FAILED TO MAKE THE RELEVANT PART PAYMENT FOR THE SAME. THIS CLIENT IS NOT TRACEABLE AND HENCE WE ARE UNABLE TO RECOVER THE DEBIT FROM HIM. 8 SAROJ KEMKA 122,401.75 THIS DEBIT IS DUE TO THE P URCHASE OF 155000 SHARES OF NEVTIA SPINNERS IN SETTLEMENT NO.02 BY THE CLIENT THROUGH AND HE HAS FAILED TO MAKE THE RELEVANT PART PAYMENT FOR THE SAME. THIS CLIENT IS NOT TRACEABLE AND HENCE WE ARE UNABLE TO RECOVER THE DEBIT FROM HIM. 9 SANDEEP KUMAR 28,518.5 THIS DEBIT IS DUE TO THE P URCHASE OF 155000 SHARES OF NEVTIA SPINNERS IN SETTLEMENT NO.02 BY THE CLIENT THROUGH AND HE HAS FAILED TO MAKE THE RELEVANT PART PAYMENT FOR THE SAME. THIS CLIENT IS NOT TRACEABLE AND HENCE WE ARE UNABLE TO RECOVER THE DEBIT FROM HIM. 10 VINOD KUMAR 2,360,289.25 THIS DEBIT IS DUE TO T HE PURCHASE OF 12400 SHARES OF NEVTIA SPINNERS IN SETTLEMENT NO.06 BY THE CLIENT THROUGH AND HE HAS FAILED TO MAKE THE RELEVANT PAYMENT FOR THE SAME. THIS CLIENT IS NOT TRACEABLE AND HENCE WE ARE UNABLE TO RECOVER THE DEBIT FROM HIM. 11 V N ENTERPRISE 1,226,215.05 THIS CLIENT IS A PAR T OF THE BHARGAV GROUP. THE DEBIT AROSE DUE TO THE PURCHASE OF 19100 SHARES OF NEVTIA SPINNERS IN BILL NO.869 AND 896. 12 ANCIENT INVESTMENT 29,722.65 THIS CLIENT IS A PART OF THE BHARGAV GROUP. THE DEBIT AROUSE ON ACCOUNT OF BAD DELIVERY SHARES OF JRC FINANCE NOT RECTIFIED. 13 BHARKHA FINLEASE P. LTD 3,896,679.75 THIS DEBIT IS DUE TO THE PURCHASE OF 160600 SHARES OF NEVTIA SPINNERS IN SETTLEMENT NO.06 BY THE CLIENT THROUGH AND HE HAS FAILED TO MAKE THE RELEVANT PAYMENT FOR THE SAME. THIS CLIENT IS NOT TRACEABLE AND HENCE WE ARE UNABLE TO RECOVER THE DEBIT FROM HIM. 14 K R FINANCIAL LTD. 2,674,108.12 THIS DEBIT IS DU E TO THE PURCHASE OF 164100 SHARES OF NEVTIA SPINNERS IN SETTLEMENT NO.06 BY THE CLIENT THROUGH AND HE HAS FAILED TO MAKE THE RELEVANT PAYMENT FOR THE SAME. THIS CLIENT IS NOT TRACEABLE AND HENCE WE ARE UNABLE TO RECOVER THE DEBIT FROM HIM. 11 15 WONDER INVESTMENT 3,871,503 THIS DEBIT IS DUE TO THE PURCHASE OF 127900 SHARES OF NEVTIA SPINNERS IN SETTLEMENT NO.06 BY THE CLIENT THROUGH AND HE HAS FAILED TO MAKE THE RELEVANT PART PAYMENT FOR THE SAME. THIS CLIENT IS NOT TRACEABLE AND HENCE WE ARE UNABLE TO RECOVER THE DEBIT FROM HIM. 16 KOSH INVESTMENT 260,750.8 THIS DEBIT IS DUE TO T HE VARIOUS BAD DELIVERIES NOT RECTIFIED. THIS CLIENT IS NOT TRACEABLE AND HENCE WE ARE UNABLE TO RECOVER THE DEBIT FROM HIM. 6. THE ASSESSEE FURTHER EXPLAINED THAT THE ABOVE CL IENTS HAD MAINLY PURCHASED SHARES IN NEVTIA SPINNERS WHICH WAS A HOT SCRIP AT THE RELEVANT TIME AND AS THE SHARE PRICES OF THE SCRIP FELL SHARPLY, THE PARTIES COULD NOT EXIT AND THEY HAD TO INCUR HUGE LOSSES AND FAILED TO MEET TH EIR OBLIGATIONS AND BECAME NON TRACEABLE. THE AMOUNTS DUE WERE THEREFORE WRITT EN OFF AS BAD DEBT. THE AO HOWEVER ASKED THE ASSESSEE TO PRODUCE THE BSE STATE MENT REGARDING DELIVERY OF SHARES TAKEN BY THE ASSESSEE AS WELL AS CLIENT P ROFILE. THE ASSESSEE COULD NOT SUBMIT THE DETAILS. THE ASSESSEE COULD ALSO NOT FUR NISH THE ADDRESS OF THE PARTIES AGAINST WHICH BAD DEBT HAD BEEN CLAIMED NOR HAD MENTIONED ANY EFFORTS MADE TO RECOVER THE AMOUNT THOUGH IT WAS SPECIFICAL LY ASKED TO DO SO. AO THEREFORE OBSERVED THAT THE CLAIM OF BAD DEBT COULD NOT BE ALLOWED. IT WAS ALSO OBSERVED BY HIM THAT SINCE THE ASSESSEE COULD NOT G IVE ADDRESS OF THE PARTIES OR ANY DETAILS REGARDING ACTION TAKEN TO RECOVER TH E AMOUNT, THE TRANSACTIONS REGARDING PURCHASE AND SALE OF SHARES HAS TO BE TRE ATED AS ASSESSEES OWN TRANSACTIONS AND THE LOSS ARISEN HAS TO BE TREATED AS DEEMED SPECULATION LOSS UNDER THE PROVISIONS OF EXPLANATION TO SECTION 73. THE AO THEREFORE DISALLOWED THE CLAIM. 7. IN APPEAL THE ASSESSEE SUBMITTED THAT ALL THE 16 PARTIES HAD BEEN INTRODUCED BY SHRI ARUN BHARGAV, MANAGER OF ORIENTA L BANK OF COMMERCE WHO WAS A SPECULATOR IN SHARES, WHO LATER COMMITTED SUI CIDE. THE PARTIES THEREFORE 12 DID NOT COME FORWARD FOR CLAIMING THE SHARES. IT WA S ALSO SUBMITTED THAT SHARES OF M/S. NEVTIA SPINNERS PURCHASED BY THE PARTIES RE MAINED WITH THE ASSESSEE AS THE SHARES WERE DE-LISTED FROM THE BSE AND COULD NOT BE SOLD. AS THE CLIENTS COULD NOT BE TRACED, THE ASSESSEE COULD NOT RECOVER THE AMOUNT AND THEREFORE IT WAS WRITTEN OFF AS BAD DEBT. CIT(A) WAS HOWEVER NOT CONVINCED BY THE EXPLANATION GIVEN. IT WAS OBSERVED BY HIM THAT IT W AS SURPRISING THAT THE ASSESSEE WAS REGULARLY TAKING ORDERS FROM THE PARTI ES WITHOUT KNOWING THEIR OFFICE ADDRESSES, BUSINESS ACTIVITIES AND FINANCIAL STATUS. NO PRUDENT BROKER WOULD INDULGE IN TRANSACTIONS IN LARGE QUANTITIES O N BEHALF OF UNKNOWN PERSONS. THERE WAS ALSO NO EVIDENCE PRODUCED TO SHOW THAT TH E PARTIES HAD BEEN INTRODUCED BY SHRI ARUN BHARGAV. THE ASSESSEE HAD A LSO NOT TAKEN ANY MARGIN MONEY. THERE WAS NO EVIDENCE THAT THE PARTIES EVER EXISTED. IN CASE THE PARTIES WERE REALLY INTRODUCED BY SHRI ARUN BHARGAV , THE ASSESSEE COULD HAVE PROCEEDED AGAINST SHRI BHARGAV WHICH WAS ALSO NOT D ONE. NO CORRESPONDENCE WITH ARUN BHARGAV WAS PRODUCED. SINCE THE ASSESSEE HAD MADE THE CLAIM OF LOSS, ONUS WAS ON THE ASSESSEE TO PRODUCE NECESSARY EVIDENCE WHICH HAD NOT BEEN DONE. IT WAS POSSIBLE THAT THE ASSESSEE ITSELF HAD OPENED THE FICTITIOUS ACCOUNTS FOR MAKING BENAMI TRANSACTIONS. CIT(A) THE REFORE AGREED WITH THE FINDING OF THE AO THAT THE ASSESSEE ITSELF HAD CARR IED OUT THESE TRANSACTIONS IN THE NAME OF FICTITIOUS PERSONS. CIT(A) ALSO OBSERVE D THAT THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE HAVE TO BE CONSIDERED AS ADVENTURE IN THE NATURE OF TRADE AND THE LOSS HAS TO BE TREATED AS SPECULAT ION LOSS. HE THEREFORE TREATED THE LOSS AS SPECULATION LOSS UNDER THE PROVISIONS O F THE EXPLANATION TO SECTION 73. AGGRIEVED BY THE SAID DECISION THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 13 8. BEFORE US THE LEARNED AR FOR THE ASSESSEE REITER ATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES THAT THE TRANSACTIONS WERE WITH THE PARTIES WHICH HAD BEEN INTRODUCED BY SHRI ARUN BHARGAV WHO WAS A SPECULATOR AND LOST HEAVILY IN SHARE DEALINGS AND ULTIMATELY COMMITTED SUICIDE. THE PARTIES WERE NOT TRACEABLE AND THEREFORE NO RECOVERY COULD BE MA DE. IT WAS ALSO SUBMITTED THAT THE TRANSACTIONS WERE THROUGH THE STOCK EXCHAN GE. HE REFERRED TO THE COPY OF BILLS IN THE NAME OF DIFFERENT PARTIES PLACED IN THE PAPER BOOK AT PAGES 91 ONWARDS SHOWING THAT THE TRANSACTIONS WERE THROUGH BILLS DATED 2.4.1996 TO JULY 1996. HE ALSO REFERRED TO THE LETTER OF THE PO LICE INSPECTOR ADDRESSED TO THE DIRECTOR OF THE ASSESSEE COMPANY (PACED AT PAGE 80 OF THE PAPER BOOK) IN WHICH THE POLICE HAD ASKED FOR DOCUMENTS REGARDING PURCHASE OF SHARES IN CONNECTION WITH COMPLAINT FILED BY ONE MR. KAILASH PRASAD MALPANI AGAINST SHRI ARUN BHARGAV AND SHRI BRIJ KUMAR SRIVASTAV. THE LET TER, IT WAS POINTED OUT SHOWED THAT SHRI BHARGAV HAD DONE FRAUDS WITH OTHER PEOPLE ALSO. THE LEARNED AR FURTHER SUBMITTED THAT IT WAS A SETTLED LEGAL PO SITION BY THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF TRF LTD. (323 ITR 397) IN WHICH IT HAS BEEN HELD THAT IN VIEW OF THE AMENDED PROVISIONS, BURDEN WAS NO LONGER ON THE ASSESSEE TO PROVE THAT THE DEBT HAD ACTUALLY BECOME IRRECOVERABLE FOR MAKING THE CLAIM OF BAD DEBT. IT WAS ACCORDINGLY URGED THA T THE CLAIM OF BAD DEBT SHOULD BE ALLOWED. 8.1 THE LEARNED DR ON THE OTHER HAND STRONGLY SUPP ORTED THE ORDERS OF AUTHORITIES BELOW. IT WAS ARGUED THAT THE ASSESSEE HAD ITSELF ADMITTED THAT THE PARTIES WERE NOT TRACEABLE AND THEREFORE GENUINENES S OF TRANSACTIONS WAS NOT ESTABLISHED. IT WAS ALSO SUBMITTED THAT THE ASSESSE E HAD CLAIMED THAT THE TRANSACTIONS WERE ON BEHALF OF ARUN BHARGAV BUT IN THE LETTER DATED 26.7.2000 BY THE ASSESSEE ADDRESSED TO THE POLICE (PLACED AT PAGE 90 OF THE PAPER BOOK), 14 THE ASSESSEE HAD CLAIMED THAT THE TRANSACTIONS HAD BEEN ENTERED ON BEHALF OF PARESH PAREKH. IT WAS ALSO ADMITTED IN THE SAID LET TER THAT NO RECORDS SUCH AS PHOTO, ADDRESS PROOF OF THE CLIENTS, WERE AVAILABLE . THERE WERE ALSO NO REPORTS FROM THE INTRODUCER MRS. SAROJ KHEMKA. IT WAS POINT ED OUT THAT CLIENT FORMS WHICH ARE REQUIRED TO BE MAINTAINED AS PER SEBI GUI DELINES WERE NOT AVAILABLE. THE LEARNED DR REFERRING TO THE COPY OF ACCOUNTS OF THE PARTIES PLACED IN THE PAPER BOOK AT PAGE 115 ONWARDS POINTED OUT THAT THE RE WERE HEAVY TRANSACTIONS AND THE ASSESSEE CONTINUED TO ENTER IN TO TRANSACTIONS IN THOSE NAMES EVEN WHEN THERE WERE SUBSTANTIAL DEBITS IN TH E ACCOUNTS WITHOUT TAKING PAYMENT. HE PARTICULARLY REFERRED TO THE COPY OF AC COUNT IN CASE OF V N ENTERPRISES PLACED AT PAGE 121 TO 125 OF THE PAPER BOOK IN WHICH IT WAS POINTED OUT THAT THERE WAS DEBIT OPENING BALANCE OF RS.5,62,696/- AND THROUGH OUT THE PERIOD THE ACCOUNT SHOWED DEBIT IN EXCESS O F RS.5 LACS AND YET THE ASSESSEE WAS ENTERING INTO TRANSACTION ON BEHALF OF PARTY WHICH NO PRUDENT BUSINESS MAN WOULD DO. IT WAS THUS SUBMITTED THAT T HE TRANSACTIONS WERE NOT GENUINE AND THE CLAIM OF BAD DEBT WAS NOT BONAFIDE. HE REFERRED TO THE JUDGMENT OF HONBLE HIGH COURT OF MUMBAI IN CASE OF OMAN INTERNATIONAL LTD. (313 ITR 128) IN WHICH IT WAS HELD THAT ONLY BONAFI DE WRITE OFF OF BAD DEBT COULD BE ALLOWED. HE ALSO REFERRED TO THE DECISION OF THE TRIBUNAL DATED 30.4.2010 IN CASE OF DCIT VS KORN FERRY INTERNATION AL PVT. LTD. 2010-TIOL- 306-ITAT-MUMBAI IN WHICH FOLLOWING JUDGMENT OF HON BLE HIGH COURT OF MUMBAI IN CASE OF OMAN INTERNATIONAL (SUPRA), THE TRIBUNAL HELD THAT THERE WERE NO DOCUMENTS TO PROVE THE BONAFIDE OF WRITE OFF AND AC CORDINGLY THE MATTER WAS REMANDED BACK TO THE AO. IT WAS ALSO POINTED OUT TH AT THE ASSESSEE GAVE NO DETAILS AS TO WHAT HAPPENED TO THE SHARES OF NEVTIA SPINNERS WHICH HAD NOT BEEN DE-LISTED AT THE RELEVANT POINT OF TIME. THE LEARNED DR FURTHER POINTED OUT THAT ACCOUNTS OF THE PARTIES FILED IN THE PAPER BOOK SHOWED THAT THE DEBT 15 HAD BEEN WRITTEN OFF DURING FINANCIAL YEAR 1996-97 ITSELF BY TRANSFERRING THE BALANCE TO THE BAD DEBT ACCOUNT AND THEREFORE ON TH IS GROUND ALSO THE CLAIM COULD NOT BE ALLOWED THIS YEAR. HOWEVER HE REITERAT ED THE EARLIER POSITION THAT THE TRANSACTIONS WERE NOT BONAFIDE AND GENUINE AND THEREFORE THE CLAIM OF LOSS/ BAD DEBT HAD BEEN RIGHTLY DISALLOWED BY THE AUTHORI TIES BELOW. 8.2 IN REPLY THE LEARNED AR FOR THE ASSESSEE SUBMIT TED THAT THE ASSESSEE HAD SHOWN THE BROKERAGE INCOME IN RELATION TO THE T RANSACTIONS IN THE EARLIER YEAR WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT AND THEREFORE THE TRANSACTIONS COULD NOT BE CONSIDERED AS NOT GENUINE . THE ASSESSEE HAD ALSO PRODUCED BILLS ETC IN THE NAME OF THE PARTIES. THE REFORE FOLLOWING THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF TRF LTD. (SUPRA ) THE CLAIM OF THE ASSESSEE AS BAD DEBTS HAS TO BE ALLOWED. AS REGARDS THE FIND ING OF THE AUTHORITIES BELOW THAT TRANSACTIONS BELONGED TO THE ASSESSEE AND LOSS WAS ARISING WAS SPECULATION LOSS, IT WAS SUBMITTED THAT TREATMENT OF TRANSACTIO N AS SPECULATIVE TRANSACTIONS COULD HAVE BEEN DONE IN THE EARLIER YEAR WHEN THE T RANSACTION HAD TAKEN PLACE AND NOT IN THE CURRENT YEAR. THE LEARNED AR HOWEVER COULD NOT EXPLAIN AS TO HOW THE AMOUNTS WRITTEN OFF AS BAD DEBT IN THE YEAR 1996-97 COULD BE CLAIMED IN THE CURRENT YEAR. 9. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF CLAIM OF BAD DEBT AGGREGATING RS.1,53,26,770/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF PURCHASE OF SHARES ON BEHALF OF 16 PARTIES. DETAILS OF THESE PARTIES, THE CORRESPONDING AMOUNT DUE AND REASONS FOR WRITE OFF HAVE BEEN GIVEN IN PARA 5 EARLIER. THE CLAIM OF THE ASSESSEE IS THAT ALL THESE PARTIES HAD BEEN INTRODU CED BY SHRI ARUN BHARGAV THE THEN MANAGER OF ORIENTAL BANK OF COMMERCE WHO WAS A SPECULATOR IN SHARES 16 AND WHO LATER COMMITTED SUICIDE. THESE CLIENTS, IT HAS BEEN CLAIMED, HAD MAINLY PURCHASED SHARES IN NEVTIA SPINNERS WHICH WA S A HOT SCRIP AT THE RELEVANT TIME AND SINCE PRICE OF THE SCRIP FELL SHA RPLY, THE PARTIES COULD NOT EXIT AND HAD TO INCUR LOSSES AND THEREFORE COULD NOT MEE T THE OBLIGATIONS. THE ASSESSEE HAD THEREFORE MADE THE CLAIM OF BAD DEBT. IT HAS BEEN SUBMITTED THAT THE ASSESSEE HAD CREDITED THE BROKERAGE INCOME ON A CCOUNT OF PURCHASE OF SHARES ON BEHALF OF THESE PARTIES AND THEREFORE THE PRINCIPAL AMOUNT DUE WHICH COULD NOT BE RECOVERED HAS TO BE ALLOWED AS BAD DEB T IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF SHREYA S MORARKA (SUPRA). IT HAS ALSO BEEN SUBMITTED THAT IN VIEW OF THE JUDGMENT OF HON BLE SUPREME COURT IN CASE OF TRF LTD. (SUPRA), IT WAS NO LONGER NECESSARY FOR THE ASSESSEE TO PROVE THAT THE DEBT HAD ACTUALLY BECOME IRRECOVERABLE. THE ONL Y REQUIREMENT WAS THAT THE DEBTS SHOULD HAVE BEEN TAKEN INTO ACCOUNT IN THE CO MPUTATION OF INCOME OF THE EARLIER YEAR AND SHOULD HAVE BEEN ACTUALLY WRITTEN OFF WHICH WERE FULFILLED IN THIS CASE. 9.1 HOWEVER ON CAREFUL PERUSAL OF RECORDS AND AFTE R CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE DEPARTMENT, WE FI ND THAT THE CLAIM THAT THE ASSESSEE HAD PURCHASED THE SHARES ON BEHALF OF THE 16 PARTIES IS NOT ESTABLISHED. THE ASSESSEE HAS PRODUCED ONLY BILLS I N NAME OF DIFFERENT PARTIES BUT SINCE THE PARTIES THEMSELVES ARE NOT TRACEABLE THE GENUINENESS OF BILLS IS NOT VERIFIABLE. THE ASSESSEE HAS NOT PRODUCED THE CLIENTS FORMS WHICH WERE REQUIRED TO FILL UP BY THE CLIENTS AS PER THE GUIDE LINES GIVING DETAILS OF ADDRESS PROOF THEIR ACTIVITIES AND FINANCIAL STATUS. IT IS UNBELIEVABLE THAT ANY SHARE BROKER WILL MAKE SUBSTANTIAL PURCHASES RUNNING INTO LACS ON BEHALF OF LARGE NUMBER OF PARTIES WITHOUT EVEN GETTING THE CLIENT P ROFILE AND WITHOUT TAKING ANY MARGIN. FURTHER THE CLAIM THAT THESE PARTIES WERE I NTRODUCED BY ARUN BHARGAV 17 IS ALSO NOT SUPPORTED BY ANY EVIDENCE. IN CASE THE PARTIES HAD BEEN REALLY INTRODUCED BY SHRI BHARGAV, THE ASSESSEE WOULD HAVE DEFINITELY TAKEN UP THE MATTER WITH THE LATTER FOR THE RECOVERY OF AMOUNT B UT NO SUCH MATERIAL HAS BEEN PRODUCED. THE ASSESSEE HAD ALSO NOT FILED ANY POLICE COMPLAINT. IN FACT THE LETTER OF THE POLICE INSPECTOR ADDRESSED TO THE ASSESSEE PLACED ON RECORD AT PAGE 80 OF THE PAPER BOOK SHOWS THAT COMPLAINT AGAI NST SHRI ARUN BHARGAV HAD BEEN FILED BY KAILASH PRASAD MALPANI AND NOT THE AS SESSEE. FURTHER IN THE LETTER DATED 26.7.2000 ADDRESSED BY ASSESSEE TO THE POLICE (COPY PLACED ON PAGE 90 OF THE PAPER BOOK) THE ASSESSEE CLAIMED THAT THE SH ARE TRANSACTIONS HAD BEEN ENTERED ON BEHALF OF PARESH PAREKH AND THAT THE INT RODUCER WAS MRS. SAROJ KHEMKA, QUITE CONTRARY TO THE CLAIM MADE BEFORE THE AUTHORITIES BELOW THAT THE PARTIES HAD BEEN INTRODUCED BY SHRI ARUN BHARGAV. T HE LEARNED AR HAS NOT EXPLAINED THESE DISCREPANCIES. WE ALSO NOTICE FROM THE COPIES OF THE BILLS PLACED AT PAGES 91 ONWARDS OF THE PAPER BOOK THAT SHARE TR ANSACTIONS HAD BEEN UNDERTAKEN BETWEEN 2.4.96 TO JULY 96 AND THEREAFTER THE CLOSING BALANCES HAVE BEEN TRANSFERRED TO BAD DEBT ACCOUNT DURING THE SAM E FINANCIAL YEAR WITHOUT ANY EVIDENCE OF MAKING ANY EFFORTS FOR RECOVERY OR WITHOUT TAKING UP THE MATTER WITH THE INTRODUCER. IT IS ALSO NOTED THAT T HERE WERE REGULAR DEBT BALANCES IN THE ACCOUNTS OF THE PARTIES AND YET THE ASSESSEE CONTINUED TO MAKE PURCHASES IN THEIR NAMES THOUGH NO MARGIN MONEY HAD BEEN TAKEN. FOR INSTANCE IN CASE OF G.N.ENTERPRISES THERE WAS ALWAY S DEBIT IN EXCESS OF RS.5 LACS YET THE TRANSACTIONS WERE CONTINUED. THIS DOES NOT CONFORM TO NORMAL HUMAN CONDUCT. 9.2 FOR ARRIVING AT ANY CONCLUSION IN THE MATTER WE HAVE TO CONSIDER THE ENTIRE SURROUNDING CIRCUMSTANCES AS TO WHETHER THES E WERE GENUINE TRANSACTIONS ON BEHALF OF 3 RD PARTIES OR THE ASSESSEE HAD CARRIED OUT 18 TRANSACTIONS ITSELF IN THE NAME OF FICTITIOUS PERSO NS. ENTRY MADE BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT IS NOT CONCLUSIVE EVIDENCE OF GENUINENESS OF TRANSACTIONS. MERELY BECAUSE THE ASSESSEE HAD SHOWN BROKERAGE INCOME, IT CAN NOT BE CONSIDERED AS GENUINE TRANSACTIONS ON BEHALF OF OTHER PARTIES. THERE IS NO FINDING OF THE AO ON THIS ASPECT IN THE A.Y.1997 -98, AS NO CLAIM OF BAD DEBT HAD BEEN MADE IN THAT YEAR THE MATTER WAS EXAMINED IN THE ASSESSMENT YEAR 1998-99 IN WHICH THE CLAIM OF BAD DEBT WAS MADE AND TRANSACTIONS WERE NOT FOUND GENUINE THIRD PARTY TRANSACTIONS. IT IS A SET TLED LEGAL POSITION AS HELD BY HONBLE SUPREME COURT IN CASE OF DURGA PRASAD MORE (82 ITR 540) THAT FOR GIVING A FINDING REGARDING ANY FACTUAL SITUATION, A UTHORITIES ARE ENTITLED LOOK INTO THE SURROUNDING CIRCUMSTANCES AND APPLY THE TEST OF HUMAN PROBABILITIES. IN THIS CASE AFTER CONSIDERING THE SURROUNDING CIRCUMS TANCES DISCUSSED EARLIER IN PARA 9.1 WE SEE NO INFIRMITY IN THE FINDINGS OF THE AUTHORITIES BELOW THAT THE TRANSACTIONS ENTERED INTO IN DIFFERENT NAMES WERE I N FACT ASSESSEES OWN TRANSACTIONS AND THEREFORE NO CLAIM OF BAD DEBT IN SUCH CASES CAN BE ALLOWED. THE ASSESSEE HAS BROUGHT THE TRANSACTIONS IN THE BO OKS OF ACCOUNT BY SHOWING BROKERAGE IN ORDER TO CLAIM BAD DEBT BECAUSE OF LOS SES BUT HAD THERE BEEN PROFIT, IT WOULD HAVE EARNED UNACCOUNTED INCOME OUT SIDE THE BOOKS. IT IS ALSO PERTINENT TO NOTE THAT THE ASSESSEE HAD CLOSED THE ACCOUNTS IN A.Y.1997-98 ITSELF AND THE BALANCES HAD BEEN TRANSFERRED TO BAD DEBT ACCOUNT AND THEREFORE EVEN IF IT WAS A GENUINE BAD DEBT, THE SAME COULD H AVE BEEN CLAIMED ONLY IN A.Y.1997-98 WHEN THE AMOUNTS WERE WRITTEN OFF. IN A NY CASE, SINCE WE HAVE HELD EARLIER THAT THE TRANSACTIONS BELONGED TO THE ASSESSEE ITSELF, THE CLAIM OF BAD DEBT CANNOT BE ALLOWED. THE PROFIT/ LOSS ARISIN G ON ACCOUNT OF SUCH TRANSACTIONS HAS TO BE CONSIDERED IN THE NAME OF TH E ASSESSEE IN THE ASSESSMENT YEAR 1997-98. NEVTIA SPINNERS HAS BEEN C LAIMED TO BE A HOT SCRIP AND THEREFORE THERE MUST HAVE BEEN PROFIT ALSO WHEN THE SHARE PRICES WERE 19 RISING. IN FACT, THE LEARNED DR POINTED OUT THAT TH E SHARES WERE SHARPLY RISING FROM APRIL TO JUNE AND FELL ONLY TOWARDS THE LATTER HALF OF JUNE AND SHARES OF NEVTIA SPINNERS HAD BEEN DE-LISTED ONLY ON 2.7.2004 THEREFORE IN OUR VIEW THE PROFIT/ LOSS FROM THE ENTIRE TRANSACTIONS ENTERED I NTO BY THE ASSESSEE IN THESE NAMES HAVE TO BE CONSIDERED IN CASE OF THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR AND IN CASE THERE IS LOSS, THE ASSE SSEE BEING A COMPANY THE SAME HAS TO BE CONSIDERED AS A SPECULATION LOSS IN THAT YEAR AND IN CASE THERE IS NET PROFIT, THE SAME HAS TO BE ASSESSED AS SPECU LATION INCOME. BUT NO CLAIM OF LOSS AS BAD DEBT CAN BE ALLOWED IN THE ASSESSMEN T YEAR UNDER CONSIDERATION. WE ACCORDINGLY CONFIRM THE ORDER OF CIT(A). 10. THE THIRD DISPUTE IS REGARDING LEVY OF INTEREST UNDER SECTION 234B. THIS IS ONLY CONSEQUENTIAL. THE AO WILL RECOMPUTE INTEREST AT THE TIME OF GIVING EFFECT TO THIS ORDER. 11. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DIS MISSED. THE DECISION PRONOUNCED IN THE OPEN COURT ON 20.05 .2011. SD/- SD/- ( VIJAY PAL RAO ) (RAJENDRA SIN GH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 20.05.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CITY CONCERNED 5. THE DR E BENCH, ITAT, MUMBAI 20 // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ALK