KHANDWALA SECURITIES LTD, MUMBAI V. ITO-4(3)(2), MUMBAI

ITA 3300/MUM/2011

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8673 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 18-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 26-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANOJ KUMAR SINGH SRDR
• Keywords: Bad and doubtful debts; Tax effect; TDS; Rule 8D
• Section: 143(3); 234B; 14A; 115JB; 40(a)(ia); 6; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH H, MU MBAI BEFORE SHRI R.C. SHARMA ACCOUNTANT MEMBER AND SHRI PAWAN SINGH JUDICIAL MEMBER ITA NO. 3300/MUM/2011-(ASSESSMENT YEAR: 2007-08) KHANDWALA SECURITIES LTD, GROUND FLOOR, VIKAS BUILDING, GREEN STREET, FORT, MUMBAI-400020 PAN : AAACK 2214 P VS ITO 4(3)(2), AAYAKAR BHAWAN, M.K.ROAD, MUMBAI-400 020 APPELLANT RESPONDEDNT ITA NO. 4608/MUM/2011-(ASSESSMENT YEAR: 2007-08) ITO 4(3)(2), AAYAKAR BHAWAN, M.K.ROAD, MUMBAI-400 020 VS KHANDWALA SECURITIES LTD, GROUND FLOOR, VIKAS BUILDING, GREEN STREET, FORT, MUMBAI-400020 PAN : AAACK 2214 P APPELLANT RESPONDEDNT ASSESSEE BY NONE REVENUE BY SHRI MANOJ KUMAR SINGH SR-DR DATE OF HEARING 26 .08.2019 DATE OF PRONOUNCEMENT 09 .09.2019 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER : 1. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-10 [CIT(A)] MUMBAI DATED 17. 03.2011 FOR ASSESSMENT YEAR (AY) 2007-08. THE ASSESSEE HAS RAISED FOLLO WING GROUNDS OF APPEAL: (1) THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE OF WRITE BACK OF LOAN OF 15.00 LAKHS AS THE INCOME OF ASSESSEE. (2) THE LD. CIT-(A) ERRED IN CONFIRMING THAT THE DISALL OWANCE OF BAD DEBTS OF 2.10 LAKHS. (3) THE LD. CIT-(A) ERRED IN CONFIRMING THE ADDITION OF 1,84,957/-TO THE BOOK PROFITS UNDER SECTION 115 JB. ITA NO. 3300/MUM/2011& 4608/MUM/2011 KHANDWALA SECURITIES LTD 2 (4) THE LD. CIT(A) ERRED IN CONFIRMING THE CHARGES OF I NTEREST UNDER SECTION 234B. 2. THE REVENUE IN ITS CROSS APPEAL HAS RAISED FOLLOWIN G GROUNDS OF APPEAL : (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE L EARNED CIT-(A) ERRED IN DELETING THE DISALLOWANCE MADE BY AO UNDER SECTION 14A AMOUN TING TO 1,84,957/. (2) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE IN LA W, LEARNED CIT-(A) HAS ERRED IN DELETING THE ADDITION ON BAD DEBTS AMOUNTING TO 9,51,925 /- (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE U NTIL, LEARNED CIT-A ERRED IN DELETING THE DISALLOWANCE OF 7,89,087/- BEING TRANSACTION CHARGES AND RS.2,20,00 0/- BEING VSAT CHARGES MADE UNDER SECTION 40(A)(IA) PAI D TO THE STOCK EXCHANGE, WITHOUT APPRECIATING THE FACTS THAT THESE WERE COMP OSITE CHARGES FOR PROFESSIONAL AND TECHNICAL SERVICES RENDERED BY THE STOCK EXCHANGE T O ITS MEMBER AND THE ASSESSEE HAS FAILED TO DEDUCT TDS THEREON. 3. FACTS IN BRIEF AS EXTRACTED FROM THE ORDER OF LOWER AUTHORITIES ARE THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MERCHANT BANKI NG, ADVISORY SERVICES, PMS AND SHARE BROKING. THE ASSESSEE FILED ITS RETUR N OF INCOME FOR ASSESSMENT YEAR 2007-08 ON 29 OCTOBER 2007 DECLARING GROSS TOT AL INCOME AT RS. NIL. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY AND AFTE R SERVING STATUTORY NOTICES THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) O N 26 TH NOVEMBER 2009. THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER MADE VARIOUS ADDITIONS /DISALLOWANCES INCLUDING OF WRITE BACK OF LOAN OF 15.00 LAKHS, DISALLOWANCE ON ACCOUNT OF BAD DEBTS, DISALLOWANCE UNDER SECTION 14A AND DISALLOWANCE UNDER SECTION 40(A)(IA). ON APPEAL BEF ORE COMMISSIONER ITA NO. 3300/MUM/2011& 4608/MUM/2011 KHANDWALA SECURITIES LTD 3 (APPEALS), THE DISALLOWANCE OF WRITE BACK OF LOAN O F 15 LAKHS WAS CONFIRMED, DISALLOWANCE ON ACCOUNT OF BAD DEBTS WAS RESTRICTED TO RS.2.10 LAKHS, AND DISALLOWANCE UNDER SECTION 40(A)(IA) WAS DELETED. H ENCE, AGGRIEVED BY THE ORDER OF COMMISSIONER (APPEALS) BOTH THE PARTIES AR E FILED THEIR RESPECTIVE APPEAL RAISING THE VARIOUS GROUNDS OF APPEAL, WHICH WE HAVE RECORDED ABOVE. 4. NONE APPEARED ON BEHALF OF HIS DESPITE THE REPEATED CALL AND EVEN AFTER PASSING OVER. WE HAVE NOTED THAT THESE APPEALS PERTAIN TO A SSESSMENT YEAR 2007-08 AND ARE OLD APPEALS. THEREFORE, WE LEFT NO OPTION EXCEP T TO HEAR THE SUBMISSION OF LEARNED DR FOR THE REVENUE AND TO DECIDE THE APPEAL S ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. 5. AT THE OUTSET OF HEARING THE LEARNED DR FOR THE REV ENUE SUBMITS THAT TAX EFFECT INVOLVE IN REVENUES APPEAL IS LESS THAN THE MONITO RY LIMIT OF 50 LAKHS AS FIXED BY CBDT IN ITS CIRCULAR NO.17 OF 2019 DATED 8 TH AUGUST 2019. WE ARE PERUSED THE GROUNDS OF APPEAL AND FIND THAT THE TAX EFFECT INVOLVE IN REVENUES APPEAL IS BELOW THE MONETARY LIMIT OF 50 LAKHS, FIXED BY CBDT FOR FILING APPEAL BY REVENUE BEFORE TRIBUNAL. THEREFORE, CONSI DERING SUBMISSION OF LEARNED DR FOR THE REVENUE, THE APPEAL OF REVENUE I S DISMISSED. 6. HOWEVER, THE REVENUE IS GIVEN LIBERTY TO GET THE AP PEAL REVIVE IN CASE IT IS DISCOVERED A LATER STAGE THAT THE GROUNDS OF APPEAL RAISED BY REVENUE IS COVERED BY ANY EXCEPTION CLAUSE OF THE CIRCULAR OF CBDT. ITA NO. 3300/MUM/2011& 4608/MUM/2011 KHANDWALA SECURITIES LTD 4 7. IN THE APPEAL OF ASSESSEE THE LEARNED DR FOR THE RE VENUE SUPPORTED THE ORDER OF LOWER AUTHORITIES. FOR THE GROUND NO. 1, WHICH RELA TES TO CONFIRMING THE ADDITION/DISALLOWANCE OF WRITE BACK OF LOAN OF 15 LAKHS, THE LEARNED DR FOR THE REVENUE SUBMITS THAT IN SCHEDULE N TO THE TAX A UDIT REPORT THE ASSESSEE HAS SHOWN LOAN AND ADVANCES INTEREST WRITTEN BACK AND O THER INCOME. THE ASSESSEE HAS REDUCED AN AMOUNT OF RS.15.00 LAKHS UNDER THE H EAD WRITTEN BACK. THE ASSESSEE WAS ASKED TO EXPLAIN THE CIRCUMSTANCES OF WRITE BACK OF LOAN. ON SHOW CAUSE NOTICE BY THE ASSESSING OFFICER, THE ASS ESSEE SUBMITTED THAT THE ASSESSEE RECEIVED A LUMP-SUM OF 15.00 LAKHS ON ACCOUNT OF ONE-TIME SETTLEMENT FROM ITS DEBTOR. THE ASSESSEE FAILED TO SUBSTANTIATE HIS CONTENTION WITH DOCUMENTARY EVIDENCE EITHER BEFORE THE ASSESSI NG OFFICER OR BEFORE COMMISSIONER (APPEALS) ABOUT THE ALLEGED ONE TIME S ETTLEMENT. THEREFORE, THE ADDITION/DISALLOWANCE IS LIABLE TO BE SUSTAINED. TH E LEARNED DR FURTHER SUBMITS THAT SIMILAR ADDITION WAS SUSTAINED BY TRIBUNAL IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2006-07 IN ITA NO. 3100/MUM/2011 DA TED 3 RD AUGUST 2018. 8. WE HAVE CONSIDERED THE SUBMISSION OF LEARNED REPRES ENTATIVE FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. BEFOR E US NEITHER THE ASSESSEE HAS FILED ANY DOCUMENTARY EVIDENCE OR ANY WRITTEN SUBMI SSION TO SUBSTANTIATE ITS CONTENTION. MOREOVER WE HAVE NOTED THAT ON SIMILAR SET OF FACTS IN APPEAL FOR ASSESSMENT YEAR 2006-07 THE TRIBUNAL IN ASSESSEES CASE CONFIRMED THE SIMILAR ITA NO. 3300/MUM/2011& 4608/MUM/2011 KHANDWALA SECURITIES LTD 5 DISALLOWANCES. THEREFORE WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDING OF LEARNED CIT(A). HENCE, GROUND NO. 1 OF T HE APPEAL IS DISMISSED. 9. GROUND NO. 2 RELATES TO CONFIRMING THE DISALLOWANCE OF BAD DEBTS OF RS.2,10,621/-. THE LEARNED AR FOR THE REVENUE SUPPO RTED THE ORDER OF ASSESSING OFFICER AS WELL AS FIRST APPELLATE AUTHORITY. 10. WE HAVE CONSIDERED THE SUBMISSION OF LEARNED DR FOR THE REVENUE AND PERUSED THE MATERIAL OF AVAILABLE ON RECORD. DURING THE ASS ESSMENT THE ASSESSING OFFICER MADE DISALLOWANCE OF BAD DEBTS OF 9,51,925/- PERTAINING TO SHARE BROKING SEGMENT BY HOLDING THAT ONLY BROKERAGE, WHICH IS ON LY A PART OF TOTAL DEBT, IS TAKEN INTO ACCOUNT FOR COMPUTING THE INCOME OF THE SHARE BROKER, ONLY THAT PART OF BAD DEBTS SATISFY THE CONDITION LAID DOWN UNDER SECTION 36(2). THE ASSESSING OFFICER ALSO DISALLOWED THE ALTERNATE CLAIM AS BUSI NESS LOSS. HOWEVER, ON APPEAL THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSION THAT DEBTS WAS CONSIDERED IN THE COMPUTATION OF INCOME OF THE ASSESSEE IN EAR LIER YEARS, SATISFIED THE CONDITION OF SECTION36(2). THE LD CIT(A) FURTHER O BSERVED THAT THE ASSESSEE FURNISHED THE LIST OF PARTIES, CONSISTING OF THE PA RTIES WHICH DID SHARE TRADING WITH THE ASSESSEE WHEREIN CERTAIN CLIENTS INCURRED LOSSES IN THEIR TRADING BUSINESS AND FAILED TO PAY THE DUES, WHICH WERE WRI TTEN OFF AS BAD DEBTS AND CLAIMED AS ALLOWABLE UNDER SECTION 36(1)(VII). AFTE R CONSIDERING SUBMISSION OF ASSESSEE THE LEARNED CIT (A) CONCLUDED THAT THE ASS ESSEE CLAIMED DEDUCTION ON ITA NO. 3300/MUM/2011& 4608/MUM/2011 KHANDWALA SECURITIES LTD 6 ACCOUNT OF BAD DEBTS ARISING ON ACCOUNT OF BROKERAG E BUSINESS AS THE AMOUNTS COULD NOT BE RECOVERED FROM THE CLIENTS DEFAULTED O N PAYMENTS, WHICH WERE ACCOUNTED AS A BROKERAGE INCOME IN ITS BOOKS; THERE FORE, DEBTS WAS INCURRED AT THE NORMAL BUSINESS INCIDENT OF THE ASSESSEE. HOWEV ER, THE WRITE OFF IN RESPECT OF KIRAN KHERA, URMILA KEDIA, PATEL DE, AND CHOWLA GOLDIE ARE NOT RELATED TO BED DEBTS NOR IT WAS INCURRED DURING THE COURSE OF BUSINESS. THEREFORE, THE LEARNED CIT(A) CONFIRMED THE DISALLOWANCE TO THE EX TENT OF RS. 2,10,621/- AND REMAINING DISALLOWANCE WAS DELETE. BEFORE US NO CON TRARY FATS OR LAW IS BROUGHT TO OUR NOTICE TO TAKE OTHER VIEW; HENCE, TH E GROUND OF APPEAL RAISED BY ASSESSEE IS DISMISSED. 11. GROUND NO. 3 RELATES TO CONFIRMING THE ADDITION TO THE BOOK PROFIT UNDER SECTION 115JB. THE LEARNED DR FOR THE REVENUE SUPPO RTED THE ORDERS OF LOWER AUTHORITIES. WE HAVE CONSIDERED THE SUBMISSION OF L EARNED DR FOR THE REVENUE. WE HAVE NOTED THAT AFTER PASSING THE ASSESSMENT ORD ER, THE ASSESSING OFFICER RECTIFIED THE ASSESSMENT ORDER AS RECORDED BY LD CI T(A) IN ITS ORDER AND RESTRICTED/ CONSIDERED THE ADDITION OF DISALLOWANCE UNDER SECTION 14A WHILE COMPUTING THE BOOK PROFIT. THE SPECIAL BENCH OF THE DELHI TRIBUNAL IN ACIT VERSUS VIREET INVESTMENT (P) LTD (2017) 82 TAXMAN N.COM 415 ( DEL SB) HELD THAT COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2), IS TO BE MADE WITHOUT RESORTING TO COMPUTATION AS CONTEMPLAT ED UNDER SECTION 14A READ ITA NO. 3300/MUM/2011& 4608/MUM/2011 KHANDWALA SECURITIES LTD 7 WITH RULE 8D. THEREFORE, WE DIRECT THE ASSESSING OF FICER TO MAKE THE COMPUTATION UNDER SECTION 115JB BY FOLLOWING THE DE CISION OF TRIBUNAL IN ACIT VERSUS VIREET INVESTMENT (P) LTD. IN THE RESUL T THIS GROUND OF APPEAL IS ALLOWED. 12. GROUND NO. 4 RELATES TO CHARGING THE INTEREST UNDE R SECTION 234B OF THE ACT. THE CHARGING OF INTEREST UNDER SECTION 234B IS CONS EQUENTIAL AND NEED NO SPECIFIC ADJUDICATION. 13. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH SEPTEMBER 2019. SD/- SD/- (R.C. SHARMA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE : 9 TH SEPTEMBER, 2019 PS:SK COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI