M/s. BHAVIK RAJESH KHANDHAR SHARE & STOCK BROKERS P. LTD., MUMBAI V. DCIT RG 4(1), MUMBAI

ITA 3086/MUM/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3924 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 26-10-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 06-05-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJEEV DUTT
• Assessee Lawyers: D V LAKHANI
• Keywords: Bad and doubtful debts; Right to appeal; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH BEFORE SHRI D.MANMOHAN (VICE PRESIDENT) & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NOS.3086 & 3087/MUM/2008 A.YRS. 2004-05 & 2005-06 M/S BHAVIK RAJESH KHANDRA SHARE & STOCK BROKERS PVT. LTD., 278, JEEVAN UDYOG BUILDING, 2 ND FLOOR, D.N.ROAD, FORT, MUMBAI 400 001 PAN: AAACB 9797 Q VS. DY. COMMISSIONER OF I.T., RANGE 4(1), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D.V.LAKHANI. RESPONDENT BY : SHRI SANJEEV DUTT. [CIT DR] O R D E R PER T.R.SOOD, AM: THESE APPEALS ARE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. 2. I.T.A.NO.3086/M/08 A.Y 2004-05 : IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED BUT AT THE TIME OF HEARING , LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ONLY THREE DISPUTES ARE INV OLVED, VIZ., 1. CONFIRMATION OF DISALLOWANCE OF BAD DEBTS AMOUNTIN G TO ` `` ` .2,55,85,260/-; 2. LEVY OF INTEREST U/S.234B; & 3. LEVY OF INTEREST U/S.220(2). 3. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS, AO NOTICED THAT THERE W AS A CLAIM FOR BAD DEBTS AMOUNTING TO ` `` ` .3,17,45,508/-. ON ENQUIRY DETAILS WERE FILED AND 2 REASONS FOR CLAIMING BAD DEBTS WERE ALSO FILED. THE AO WAS OF THE VIEW THAT THE DEBT HAS NOT REALLY BECOME BAD. MOREOVER, IN THE CASE OF A STOCK BROKER, PAYMENT OUTSTANDING FROM A CUSTOMER, WOULD NOT MEET THE REQUIREMENT OF SEC.36(2) AND, THEREFORE, THIS D EBT WAS NOT ALLOWED. 4. THE LD. CIT[A] ACCEPTED THE POSITION THAT THE DE BT HAS BECOME BAD. HOWEVER, HE WAS OF THE VIEW THAT THE CONDITION S LAID DOWN IN SEC.36(2) WERE MET ONLY TO THE EXTENT OF BROKERAGE RECEIVED FROM THE CLIENTS AND ULTIMATELY THE CLAIM FOR BAD DEBT WAS A LLOWED ONLY TO THE EXTENT OF ` `` ` .61,50,248/-. 5. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. SHREYAS S. MORAKHIA (2010) 5 ITR (TRIB) 1 (MUM). 6. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS O F THE LOWER AUTHORITIES. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DC IT VS. SHREYAS S.MORAKHIA [SUPRA] HAS HELD AS UNDER: HELD, THAT THE AMOUNT RECEIVABLE BY THE ASSESSEE, A SHARE BROKER, FROM HIS CLIENTS AGAINST THE TRANSACTIONS OF PURCHA SE OF SHARES ON THEIR BEHALF CONSTITUTED A TRADING DEBT. THE BROKERAGE IN COME ARISING FROM SUCH TRANSACTIONS VERY MUCH FORMED PART OF THE SAID DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE HAD BEEN TAKEN INTO AC COUNT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVA NT PREVIOUS YEAR OR ANY EARLIER YEAR, IT SATISFIED THE CONDITION STI PULATED IN SECTION 36(2)(I) AND THE ASSESSEE WAS ENTITLED TO DEDUCTION U/S 36(1)(VII) BY WAY OF BAD DEBTS AFTER HAVING WRITTEN OFF THE SAID DEBTS FROM HIS BOOKS OF ACCOUNT AS IRRECOVERABLE. 3 7. IN THIS CASE, THE LD. CIT[A] HAS ALREADY GIVEN A FINDING THAT THE DEBTS FROM TWO PARTIES, VIZ., MR. KANDRAP V. PARIKH AND MR. CHETAN J. SHAH, HAVE BECOME BAD VIDE PARA2.10, AND THIS FINDI NG HAS NOT BEEN CHALLENGED BY THE REVENUE. THEREFORE, FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V S. SHREYAS S.MORAKHIA [SUPRA], WE HOLD THAT THE ASSESSEES CLA IM FOR BAD DEBT IS ALLOWABLE AND, ACCORDINGLY, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 8. GROUND NO.2 : THE ISSUE REGARDING LEVY OF INTEREST U/S.234B IS OF CONSEQUENTIAL NATURE AND AO IS DIRECTED TO LEVY THE INTEREST IN ACCORDANCE WITH LAW. 9. GROUND NO.3 : THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THIS ISSUE IS ALSO OF CONSEQUENTIAL NATURE AND AO M AY BE DIRECTED TO LEVY INTEREST, IF ANY, IN ACCORDANCE WITH LAW. 10. ON THE OTHER HAND, LD. DR SUBMITTED THAT ASSESS EE HAD NO RIGHT TO APPEAL AGAINST THE LEVY OF INTEREST U/S.220(2) A ND IN THIS REGARD HE RELIED ON THE DECISION OF HON'BLE MADHYA PRADESH HI GH COURT IN THE CASE OF PRINCESS USHA TRUST VS. CIT [176 ITR 227]. 11. IN THE REJOINDER, LD. COUNSEL OF THE ASSESSEE S UBMITTED THAT THIS DECISION IS DISTINGUISHABLE ON FACTS BECAUSE THE AS SESSEE IS DENYING THE LIABILITY TO PAY THE TAX, AS NO DEMAND ITSELF WAS R AISED AND RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CENTRAL PROVINCES MANGANESE ORE CO. LTD. VS. CIT 16 0 ITR 961. 4 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT THE HON'BLE SUPREME COURT IN THE CASE OF CENTRAL PR OVINCES MANGANESE ORE CO. LTD. VS. CIT [SUPRA] HAS OBSERVED AS UNDER: INTEREST IS LEVIED UNDER SECTION 139(8) OR SECTION 215 OF THE INCOME- TAX ACT, 1961, BECAUSE BY REASON OF THE OMISSION OR DEFAULT MENTIONED IN THE RESPECTIVE PROVISION, THE REVENUE IS DEPRIVED OF THE BENEFIT OF THE TAX FOR THE PERIOD DURING WHICH IT H AS REMAINED UNPAID. THE LEVY OF INTEREST IS PART OF THE PROCESS OF ASSE SSMENT. ALTHOUGH SECTIONS 143 AND 144 DO NOT SPECIFICALLY PROVIDE FO R THE LEVY OF INTEREST AND THE LEVY IS, IN FACT, ATTRIBUTABLE TO SECTION 1 39(8) OR SECTION 215, IT IS NEVERTHELESS A PART OF THE PROCESS ASSESSING THE TAX LIABILITY OF THE ASSESSEE. INASMUCH AS THE LEVY OF INTEREST IS A PAR T OF THE PROCESS OF ASSESSMENT, IT IS OPEN TO AN ASSESSEE TO DISPUTE TH E LEVY IN APPEAL PROVIDED HE LIMITS HIMSELF TO THE GROUND THAT HE IS NOT LIABLE TO THE LEVY AT ALL. THEREFORE FOLLOWING THE ABOVE ORDER, WE SET ASIDE T HE ORDER OF THE LD. CIT[A] AND REMIT THE MATTER BACK TO HIS FILE WITH A DIRECTION TO ADJUDICATE THIS ISSUE ON MERITS. 13. IN THE RESULT, APPEAL IS PARTLY ALLOWED. 14. I.T.A.NO.3087/M/08 A.Y 2005-06 : IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED BUT AT THE TIME OF HEARING , THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ONLY DISPUTES ARE INVOL VED, VIZ., 1. TO ALLOW THE CLAIM FOR CARRY FORWARD OF LOSS & 2. LEVY OF INTEREST U/S.234B 15. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES WE FIND FORCE IN T HE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE THAT IF ANY LOSS IS DETERMINED IN VIEW OF OUR ORDER FOR A.Y 2004-05 IN I.T.A.NO.3086/M/08, THEN SAME HAS TO BE ALLOWED IN THE NEXT YEAR. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT[A] AND REMIT THIS MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO ALLOW THE LOSS, IF 5 ANY, WHICH MAY BE DETERMINED AFTER GIVING APPEAL EF FECT ON THE BASIS OF OUR ORDER IN A.Y 2004-05. 16. GROUND NO.2 : THE ISSUE REGARDING LEVY OF INTEREST U/S.234B IS OF CONSEQUENTIAL NATURE AND AO IS DIRECTED TO LEVY THE INTEREST IN ACCORDANCE WITH LAW. 17. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF NOVEMBER, 2010. SD/- SD/- (D.MANMOHAN) (T.R.SOOD) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI: 4 TH 2010. P/-*