DB (India) Securities Ltd., V. ACIT, Circle-10(1),

ITA 3831/DEL/2004

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7858 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 11-06-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 01-09-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K UPADHYAYA
• Keywords: Bad and doubtful debts
• Section: 28

Judgement Text

ITA NO. 3831/DEL/2004 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 3831/DEL/2004 A.Y. : 2001-02 DB (INDIA) SECURITIES LIMITED, 402, NEW DELHI HOUSE, 27, BARAKHAMBA ROAD, NEW DELHI (PAN : AAACD4570H) VS. ACIT, CIRCLE 10(1), MAYUR BHAVAN, CONNAUGHT PLACE, NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSESSEE BY : SH. SANAT KAPOOR, ADV. AND SH. VIKAS JAIN, ADV. DEPARTMENT BY : SH. S.K. UPADHYAYA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XIII, NEW D ELHI DATED 29.7.2004 PERTAINING TO ASSESSMENT YEAR 2001-02. 2. THE GROUNDS RAISED READ AS UNDER:- I) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE ASSESSING OFFICER HAS ERRED IN COMPUTING THE INCOME OF THE APPELLANT COMPANY AT RS. 10,36,155.00 AS AGAINST RETURN FILED DECLARING LOSS OF RS. 31,41,92 1.00, BY ITA NO. 3831/DEL/2004 2 DISALLOWING 'BAD DEBTS' CLAIMED U/S 36(1 )(VII) OF TH E ACT AT RS. 41,73,881.00. THAT THE AUTHORITIES BELOW HAVE DISALLOWED THE CLAIM OF 'BAD DEBTS' ON WHOLLY ERRON EOUS, ILLEGAL AND UNTENABLE GROUNDS, AND IT IS PRAYED THA T THE SAME BE ALLOWED AS IN LAW. II) THAT THE AUTHORITIES BELOW HAVE FAILED TO APPRE CIATE THAT THE APPELLANT COMPANY IS A SHARE BROKER AND A MEMBER OF T HE DELHI STOCK EXCHANGE LTD. AND IS GOVERNED BY THE RUL ES & REGULATIONS OF THE EXCHANGE WHICH MAKE IT OBLIGATORY FOR IT TO MAKE PAYMENT TO THE EXCHANGE OF AMOUNTS PAYABLE AGAINST SHARES PURCHASED IRRESPECTIVE OF WHETHER TH E APPELLANT COMPANY HAS RECEIVED PAYMENT OF THE SAME FR OM ITS CLIENT, AND THAT IN THE EVENT OF THE CLIENT DEF AULTING IN MAKING PAYMENT TO THE APPELLANT COMPANY, THE APPELLAN T COMPANY IS LIABLE TO BEAR THE LOSS RESULTING FROM SUC H NON PAYMENT OF THE PURCHASE CONSIDERATION OF SHARES BY T HE CLIENT. III) THAT THE AUTHORITIES BELOW ERRED WHEN THEY FAI LED TO CONSIDER THAT RS. 41,73,881.00 DUE TO THE APPELLANT COMPANY FROM MIS 'GLORY SECURITIES LTD.' (SUB BROKER OF THE APPELLANT COMPANY) AGAINST SHARES PURCHASED IS A 'DE BT' OF ITA NO. 3831/DEL/2004 3 REVENUE NATURE IN FAVOUR OF THE APPELLANT COMPANY RE SULTING FROM CARRYING ON OF BUSINESS AND THE SAME WAS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE APPELLANT COM PANY OF EARLIER YEARS. IV) THAT WHEN THE APPELLANT COMPANY WROTE OFF RS. 41,73,881.00 DUE FROM 'GLORY SECURITIES LTD.' AS 'BAD DEBTS' IN ITS ACCOUNTS FOR THE PERIOD 01.04.2000 TO 31.03.2001, IT HAD COMPLIED WITH THE PROVISIONS OF S ECTION 36(1)(VII) OF THE ACT, AND THE AUTHORITIES BELOW ER RED WHEN THEY DID NOT ALLOW THIS LOSS IN COMPUTING THE INCOME OF THE APPELLANT COMPANY FOR THE ASTT. YEAR 2001-2002. V) THAT THE AUTHORITIES BELOW HAVE ERRED IN HOLDING THAT THE CLAIM OF THE APPELLANT COMPANY IS NOT GENUINE AND IS FISHY, AND THERE IS NO BASIS JUSTIFIABLE IN LAW FOR THE AU THORITIES BELOW TO REACH THIS CONCLUSION. VI) THAT IN THE ALTERNATIVE RS. 41,73,881.00 IS A L OSS RESULTING TO THE APPELLANT COMPANY IN THE COURSE OF CARRYING ON O F BUSINESS BY IT, AND BEING A LOSS OF 'REVENUE NATURE ' IS AN ALLOWABLE DEDUCTION IN THE COMPUTATION OF ITS INCOME IN TERMS OF SECTIONS 28 & 29 OF THE ACT. ITA NO. 3831/DEL/2004 4 VII) THAT THE APPELLANT COMPANY CRAVES LEAVE THAT IT MAY BE PERMITTED TO AMEND, DELETE, MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL, AND / OR ADD ANY FRESH GROUND BE FORE AND / OR IN THE COURSE OF THE APPEAL PROCEEDINGS. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPA NY IS A MEMBER OF DELHI STOCK EXCHANGE AND IS CARRYING ON THE BUSI NESS OF SHARES AND STOCK BROKING ALONGWITH THE ALLIED ACTIVITIES SUCH AS BROKERS/SUB- BROKERS, UNDERWRITERS TO NEW ISSUES OF SHARES, DEB ENTURES AND SECURITIES OF ALL KINDS, BROKERS AND FIXED DEPOSIT OF COMPANIES, TRADING IN SHARES, INVESTMENT CONSULTANTS ETC. 3.1 THE ASSESSEE HAD PURCHASED SHARES FROM M/S MANNU FINLEASE LTD. IN JANUARY AND FEBRUARY, 1996 ON BEHALF OF AND ON INSTRUCTIONS FROM ITS SUB-BROKER M/S GLORY SECURITIES LTD. FOR THE T OTAL VALUE OF ` 1,06,10,247/- AT AN AVERAGE PRICE ` 55/- PER SHARE. THE SAID SUB- BROKER HAD MADE PAYMENT TO THE EXTENT OF ` 64 LACS ONLY. AS REMAINING AMOUNT OF ` 41,37,881/- WAS NOT PAID, THE A SSESSEE DID NOT DELIVER THOSE SHARES TO THE SUB-BROKER. HOWEVER, IN THE SAID YEAR, BROKERAGE WAS SHOWN AS INCOME IN THE INCOME TAX RET URN, WHICH WAS ASSESSED AS WELL. SINCE BALANCE PAYMENT WAS NO T MADE IN THE NEXT YEAR ALSO, THE ASSESSEE IN ITS RETURN OF INCOME FOR THE ASSTT. YEAR 2001- 02 CLAIMED DEDUCTION OF ` 41,37,881/- AS BAD DEBT U/ S. 36(1)(VII) OF THE ITA NO. 3831/DEL/2004 5 IT ACT. THIS DEDUCTION WAS INITIALLY DISALLOWED B Y THE AO, BUT IT WAS AFFIRMED BY THE LD. CIT(A). THE MATTER TRAVELLED TO THE ITAT AND ITAT VIDE ORDER DATED 8.9.2006 ALLOWED THE DEDUCTION OF THE AMOUNT MENTIONED ABOVE. REVENUE CONTESTED THE ABOVE ITAT ORDER BEFORE THE HONBLE HIGH COURT. THE HONBLE HIGH COURT IN ITA NO. 415/2007 VIDE ORDER DATED 2.7.2009 DEALT WITH THE REVENUES CONTENTION AS UNDER:- LEARNED COUNSEL FOR THE REVENUE, IN THIS APPEAL F ILED AGAINST THE AFORESAID ORDER, HAS CANVASSED TWO SUBMISSIONS:- (1) THE AFORESAID AMOUNT COULD NOT BE TREATED AS 'D EBT' AT ALL UNDER THE PROVISIONS OF SECTION 36(2) OF THE AC T AND, THEREFORE, THE QUESTION OF TREATING IT AS 'BAD DEBT' DOES NOT ARISE. (2) THE ASSESSEE HAD NOT SOLD THE SHARES TO AN YBODY ELSE IN THE MARKET AND IN THE ABSENCE OF SUCH A SALE, TH E ASSESSEE COULD NOT CLAIM THE AFORESAID AMOUNT AS 'B AD DEBT'. INSOFAR AS THE FIRST SUBMISSION OF LEARNED COUNSEL F OR THE REVENUE IS CONCERNED, WE DO NOT FIND ANY FORCE THER EIN. AS ITA NO. 3831/DEL/2004 6 POINTED OUT IN THE AFORESAID ADMITTED FACTS, THE ASS ESSEE HAD PURCHASED THE AFORESAID SHARES ON BEHALF OF TH E SUB-BROKER AND, IN FACT, PAID THE AMOUNT OF ` 1,06,10,247J-. AS AGAINST THIS AMOUNT, HE RECEIVED ONLY A SUM OF RS.64 LACS. THE BROKERAGE WHICH WAS RECEIVED IN THE AFORESAID TRANSACTION WAS SHOWN AS INCOME BY THE ASSESSEE IN THE PREVIOUS YEAR, WHICH WAS TAXED AS SUCH AS WELL BY THE ASSESSING AUTHORITY. UNDER THE SE CIRCUMSTANCES, ONLY BECAUSE SHARES WERE NOT DELIVERE D FOR WANT OF FULL PAYMENT, WHICH WAS TO BE MADE BY THE SUB-BRO KER TO THE ASSESSEE, IT CANNOT BE SAID THAT THERE WAS NO TRANS ACTION BETWEEN THE PARTIES. ONCE WE PROCEED ON THE BASIS THAT THERE WAS A VALID TRANSACTION BETWEEN THE ASSESSEE AND TH E SUB-BROKER AND THE ASSESSEE HAD TO MAKE PAYMENT ON BEHALF OF THE SUB- BROKER, WHICH HE COULD NOT RECOVER TO THE EXTENT OF ` 41,37,881/-, THAT SUM HAS TO BE TREATED AS DEBT. HOWEVER, WE FIND MERIT IN THE SECOND CONTENTION OF LEARNED COUNSEL FOR THE REVENUE. AS POINTED OUT ABOVE, SHAR ES REMAINED IN THE POSSESSION OF THE ASSESSEE. THEREFORE, THE ASSESSEE COULD SELL THE SAID SHARES IN THE MARKET FOR WHATEVER CONS IDERATION IT COULD FETCH AND THAT WAS TO BE ADJUSTED AGAINST THE BALANCE AMOUNT OF ` 41,37,881/- PAYABLE BY THE DEBTOR, I.E. THE SUB- ITA NO. 3831/DEL/2004 7 BROKER, TO THE ASSESSEE, BEFORE ARRIVING AT THE ACT UAL FIGURE OF BAD DEBT. THIS ASPECT HAS NOT EVEN BEEN LOOKED INTO B Y THE ITAT IN ITS IMPUGNED ORDER. FOR THIS REASON, WE SET ASIDE THE ORDER PASSED BY TH E ITAT AND REMIT THE CASE BACK FOR FRESH CONSIDERATION AFTE R TAKING ACCOUNT THE AFORESAID ASPECTS OF THE MATTER. 3.2 ACCORDINGLY, THE MATTER WAS HEARD BY US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENTS RELIED UPON. WE FIND THAT AS PER THE ABOVE EXPOSITION OF THE HONBLE HIGH COURT, THE IMPUGNED AMOUNT CAN BE TREATED AS DEBT. HOWEVER IN QUANTIFYING THE SAID D EBT THE SHARES WHICH WERE NOT DELIVERED TO THE SUB-BROKER BY THE ASSESSEE AND WERE HELD BY THE ASSESSEE HIMSELF, HAD TO BE TAKEN INTO ACCOUNT. THEREFORE, THE ASSESSEE COULD SELL THE SAID SHARES FOR WHATEVER CONSIDERATION IT COULD FETCH AND IT WOULD BE ADJUST ED AGAINST THE BALANCE AMOUNT OF ` 41,37,881/- PAYABLE BY THE DEBT OR, I.E. THE SUB- BROKER. THE ABOVE VIEW HAS BEEN APPROVED BY THE HO NBLE HIGH COURT ALSO. ACCORDINGLY, IN THE INTEREST OF JUSTICE, WE R EMIT THIS ISSUE TO THE FILE OF THE AO. AO SHALL ASCERTAIN THE VALUE OF T HE SHARES WHICH WERE NOT DELIVERED AND THE SAID AMOUNT SHOULD BE ADJUSTE D AGAINST THE AMOUNT OF ` 41,37,881 PAYABLE BY THE DEBTOR I.E. SU B-BROKER. ITA NO. 3831/DEL/2004 8 ACCORDINGLY, THE MATTER STANDS REMITTED TO THE FILE OF THE AO. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GIVEN ADEQUATE O PPORTUNITY OF BEING HEARD. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15/6/2012. SD/- SD/- [ [[ [R.P. TOLANI R.P. TOLANI R.P. TOLANI R.P. TOLANI] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 15/6/2012 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES