ANGEL COMMODITIES BROKING P.LTD, MUMBAI V. DCIT CEN CIR 46, MUMBAI

ITA 3993/MUM/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71434 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 17-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURINDER JIT SINGH
• Assessee Lawyers: D V LAKHANI
• Keywords: Search and seizure; Bad and doubtful debts
• Section: 143(3); 142(1); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI , BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, AM I.T.A. NO. 3993/MUM/2013 ( / ASSESSMENT YEAR: 2006-07) ANGEL COMMODITIES BROKING PVT. LTD. G-1, AKRUTI TRADE CENTRE, ROAD NO.7, MIDC MAROL, ANDHERI (E), MUMBAI-400 093 VS. DY. CIT, CENTRAL CIRCLE 46, R. NO.659, 6 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 ! ' ./PAN/GIR NO. AAACK 3472 D ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) !#& / APPELLANT BY : SHRI D. V. LAKHANI $%!#'& / RESPONDENT BY : SHRI SURINDER JIT SINGH ( )*'+, / DATE OF HEARING : 08.08.2013 -./'+, / DATE OF PRONOUNCEMENT : 11.10.2013 0 O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE ARISING OUT OF TH E ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-36, MUMBAI (CIT(A) FOR SHORT ) DATED 28.03.2013, DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.144 R.W.S 254 OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEA R (A.Y.) 2006-07 VIDE ORDER DATED 07.12.2011. 2 ITA NO.3993/MUM/2013 (A.Y. 2006-07) ANGEL COMMODITIES BROKING PVT. LTD. VS. DY. CIT 2. THIS IS A SECOND ROUND BEFORE THE TRIBUNAL. WE M AY BEGIN BY RECOUNTING THE FACTS OF THE CASE. IN THE ORIGINAL PROCEEDINGS, THE ASSES SING OFFICER (A.O.) DENIED THE ASSESSEE, A STOCK BROKER IN THE COMMODITY MARKET, AND A REGIS TERED MEMBER OF TWO STOCK EXCHANGES, BEING NATIONAL COMMODITY & DERIVATIVES E XCHANGE LIMITED (NCDEX) AND MULTI COMMODITY EXCHANGE (MCX), A CLAIM FOR BUSINES S LOSS IN THE SUM OF RS.34,45,747/-. THE SAME BEING ON ACCOUNT OF WRITE OFF OF DEBTS OWED TO THE ASSESSEE- COMPANY BY ITS CLIENTS, WAS CONSIDERED BY THE A.O. AS NOT ELIGIBLE FOR BEING CLAIMED U/S. 36(1)(VII), AS IT IS ONLY THE DEBT QUA THE BROKERAGE CHARGED BY THE ASSESSEE TO ITS CLIEN TS FOR THE SERVICES RENDERED THERETO THAT COULD QUALIF Y AS A TRADE DEBT ARISING OUT AND IN THE COURSE OF ITS BUSINESS AS A STOCK BROKER. IN FACT, NO LOSS WOULD ARISE TO THE BROKER IF HE HAD SCRUPULOUSLY FOLLOWED THE VARIOUS NOTIFICATIONS AND REGULATIONS OF THE STOCK EXCHANGES, WHEREBY HE IS TO EXECUTE A TRADE ON BEHALF OF THE C USTOMER ONLY ON RECEIPT OF ADEQUATE ADVANCE TOWARD MARGIN AND, FURTHER, SQUARE UP THE T RANSACTION ON NO MONIES BEING REALIZED, ADJUSTING THE MARGIN. THE ASSESSEE HAD DE LIBERATELY CHOSEN NOT TO FOLLOW THE PRESCRIBED AND STANDARD PROCEDURES AND PRACTICES, A CTING IN VIOLATION THEREOF, AND WHICH AMOUNTS TO AN OFFENCE INASMUCH AS THE SAID REGULATI ONS, BEING PRESCRIBED IN PURSUANCE TO THE SEBI GUIDELINES, HAVE FORCE OF LAW. THE ASSESSE E HAD ALSO NOT FURNISHED THE BREAK-UP OF THE DEBTS CLAIMED, I.E., IN TERMS OF THE MARGIN MONEY RECEIVED, AND THE VALUE OF THE SHARES HELD THERE-AGAINST. THE SAME WAS, ACCORDINGL Y, DISALLOWED VIDE ORDER U/S. 143(3) DATED 26.12.2008. IN APPEAL, THE ASSESSEE RELIED ON THE DECISION BY THE SPECIAL BENCH IN THE CASE OF DY. CIT VS . OMAN INTERNATIONAL BANK [2006] 100 ITD 285 (MUM) (SB), BESIDES BY THE TRIBUNAL IN THE CASE OF DY. CIT VS. SHREYAS S. MORAKHIA , A GROUP CONCERN, AS IN FACT FOLLOWED BY IT IN THE CASE OF ANGEL CAPITAL & DEBT MARKET LTD. VS. ACIT [2008] 118 TTJ (MUM) 351. THE FIRST APPELLATE AUTHORITY WAS OF THE VIEW THAT THE ASSESSEES CLAIM WAS IN FACT IN THE NATURE OF A BUSINESS LOSS. THE DETAILS AS FURNISHED BEFORE THE A.O. REVEALED THE LOSS PERTAINING TO THE CURRENT YEAR AT RS.27,86,695 /-, WITH THE BALANCE RS.6,59,053/- BEING IN RELATION TO THE PREVIOUS YEAR RELEVANT TO A.Y. 2 005-06. HE, THEREFORE, ALLOWED THE ASSESSEE PART RELIEF, I.E., TO THE EXTENT OF THE LO SS CLAIMED RELATING TO THE CURRENT YEAR 3 ITA NO.3993/MUM/2013 (A.Y. 2006-07) ANGEL COMMODITIES BROKING PVT. LTD. VS. DY. CIT (RS.27.87 LACS) VIDE ORDER DATED 11.08.2009. IN FUR THER CROSS APPEALS, THE TRIBUNAL WAS OF THE VIEW THAT THE PRINCIPLES LAID DOWN BY THE SPECI AL BENCH DECISION IN THE CASE OF SHREYAS S. MORAKHIA (SUPRA) (SINCE REPORTED AT [2010] 40 SOT 432 (MUM) (SB) [5 ITR (TRIB) 1]), WOULD APPLY. ACCORDINGLY, THE MATTER WA S REMANDED BACK TO THE FILE OF THE A.O. TO VERIFY THE CLAIM AS BEING IN LIGHT WITH THE SAID DECISION, VIDE ORDER DATED 12.01.2011 (IN ITA NO.5754/MUM/2009) AND DATED 26.0 8.2011 (IN ITA NO.5119/MUM/2009). IN THE SET ASIDE PROCEEDINGS, THE ASSESSEE FAILED TO, DESPITE ITS PROPER SERVICE, RESPOND TO THE NOTICE U/S. 143(2) AND, AGAIN, TO TH E NOTICE U/S. 142(1) DATED 16.11.2011, SO THAT THE A.O. FOUND HIMSELF CONSTRAINED TO DECIDE T HE MATTER ON THE BASIS OF THE MATERIAL ON RECORD. NO FURTHER SUBMISSIONS OR DETAILS HAVING BEEN FURNISHED IN THE SET ASIDE PROCEEDINGS, THE FINDINGS VIDE HIS ORDER U/S. 143(3 ) DATED 26.12.2008 WOULD HOLD. IN FACT, THE REVENUE HAD ALSO APPEALED AGAINST THE DECISION BY THE TRIBUNAL IN THE CASE OF SHREYAS S. MORAKHIA (SUPRA) BEFORE THE HONBLE HIGH COURT. CONSEQUENTL Y, THE ENTIRE AMOUNT OF RS.34.46 LACS CAME TO BE DISALLOWED, I.E., RS.6.59 LACS, AS CONFIRMED IN THE FIRST ROUND (BY THE FIRST APPELLATE AUTHORITY), AND RS.27.87 LACS I N THE SECOND ROUND. IN APPEAL, A REMAND REPORT WAS CALLED FOR BY THE LD. CIT(A); THE ASSESS EE HAVING FAILED TO FURNISH ANY DETAILS IN THE ASSESSMENT PROCEEDINGS. THE ASSESSEE SUBMITT ED PARTY-WISE DETAILS, CLARIFYING OF ITS VARIOUS ATTEMPTS TO RECOVER THE AMOUNTS FROM ITS CL IENTS AS BEING IN VAIN AND, FURTHER, RELIED ON THE DECISION BY THE HONBLE COURT IN THE CASE OF CIT VS. SHREYAS S. MORAKHIA [2012] 342 ITR 285 (BOM.). THE SAME, HOWEVER, DID N OT FIND FAVOUR WITH THE LD. CIT(A), WHO HELD AS UNDER, CONFIRMING THE DISALLOWANCE, SO THAT THE ASSESSEE IS IN SECOND APPEAL: 8.1 . THE SUBMISSIONS MADE BY THE APPELLANT COMPANY IS FOUND TO BE UNTENABLE. IT CAN BE SEEN THAT APPELLAN T HAS FAILED TO FURNISH WHY AND WHEN THE SAID EXPENDITURE INCURRED. THE APP ELLANT EVEN FAILED TO PROVE WHETHER THE SAME WERE EVER ROUTED THROUGH THE BOOKS OF ACCOUNTS AND APPEARED IN THE PROFIT AND LOSS ACCOUNT OF THE APPELLANT FOR THE RELEVANT PERIOD. AS PER SECTION 36(2) R.W.S 36(1)(VII), THE BAD DEBTS WRITTEN OFF ARE ALLOWABLE TO THE APPELLANT, BUT ADVANCES NOT BEING IN THE NATURE OF DEBTS ARE NOT ALLOWED AS DEDUCTION. THE BASIC CONDITIONS FOR ALLOWANCE OF A WRITING OFF OF SUCH DEBT THAT IT SHOULD BE A DEBT GIVEN IN NORMAL COURSE OF BUSINESS 4 ITA NO.3993/MUM/2013 (A.Y. 2006-07) ANGEL COMMODITIES BROKING PVT. LTD. VS. DY. CIT AND WHICH HAS BECOME BAD AND SUBSEQUENTLY WRITTEN O FF IN THE BOOKS OF ACCOUNTS. IN VIEW OF THIS, THE GROUNDS NO. 4 TO 6 ARE HEREBY DISMISSED. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL ON RECORD, GIVING OUR CAREFUL CONSIDERATION TO THE MATTER. IN OUR VIEW, THE ASSES SEE DESERVES TO SUCCEED. NO DOUBT, THE ASSESSEE DID NOT FURNISH THE NECESSARY DETAILS IN T HE SET ASIDE PROCEEDINGS, AS APPARENT FROM THE REMAND REPORT DATED 01.03.2013 (PB-II PGS. 35-38 ). IN FACT, THE ASSESSMENT HAVING BEEN MADE U/S.144, I.E., TO THE BEST JUDGMEN T OF THE ASSESSING AUTHORITY, AND WHICH AGAIN STOOD CONFIRMED BY THE LD. CIT(A) IN APPEAL, DISMISSING THE ASSESSEES GROUND NUMBERS 1 TO 3 BEFORE HIM CHALLENGING THE SAME, IT WAS NOT OPEN FOR HIM (THE LD. CIT(A)) TO CALL FOR A REMAND REPORT IN-AS-MUCH AS THE A.O. WAS OBLIGED TO MAKE THE ASSESSMENT ON THE BASIS OF THE MATERIAL ON RECORD, APPLYING HIS B EST JUDGMENT THERETO. THE APPELLATE AUTHORITY CANNOT, BY DOING SO, COVERTLY CONVERT A S ECTION 144 ASSESSMENT INTO A SECTION 143(3) ASSESSMENT, EVEN AS EXPLAINED BY THE HONBLE COURT IN THE CASE OF CIT V. RAYALA CORPORATION P. LTD. [1995] 215 ITR 883 (MAD). THE ASSESSEES RELIANCE O N THE DECISION IN THE CASE OF SHAHRUKH KHAN VS. DY. CIT [2007] 13 SOT 61 (MUM) WOULD IN THE FACTS OF THE CASE, THUS, BE OF NO ASSISTANCE. SO HOWEVER, IT CANNOT BE DENIED THAT THE A.O. HAS T O IN SEC. 144 ASSESSMENT TAKE INTO ACCOUNT ALL THE RELEVANT FACTS, ARRIVING AT A JUDICIOUS DECISION. THE ONLY SURVIVING ISSUE BEFORE THE A.O. WAS CONSIDERATION OF THE ASSE SSEES CLAIM TOWARD BAD DEBTS WRITTEN OFF, IN LIGHT OF THE DECISION IN THE CASE OF SHREYAS S. MORAKHIA (SUPRA) BY THE HON'BLE JURISDICTIONAL HIGH COURT, WHICH HAD ALSO SINCE APP ROVED THE TRIBUNALS ORDER IN THE ASSESSEES CASE IN THE FIRST ROUND (IN ITA NO.2231 OF 2011 DATED 27.02.2013). THE PARTY- WISE DETAILS OF THE DEBTS WRITTEN OFF HAD IN FACT B EEN ALREADY FURNISHED DURING THE COURSE OF THE ORIGINAL PROCEEDINGS VIDE LETTER DATED 14.11 .2008 (PB-I PGS.7-11 ). THE WRITE OFF IS TO THE DEBIT OF THE PROFIT AND LOSS ACCOUNT, WITH T HE CORRESPONDING CREDIT TO THE SUNDRY DEBTORS A/C, AS APPARENT FROM THE RELEVANT SCHEDULE S TO THE BALANCE-SHEET AS AT THE YEAR- END, FORMING PART OF THE ASSESSEES RETURN OF INCOM E FOR THE YEAR. THAT THE WRITE OFF IN ACCOUNTS ITSELF IS SUFFICIENT FOR THE CLAIM OF DEDU CTION U/S. 36(1)(VII) STANDS SINCE SETTLED 5 ITA NO.3993/MUM/2013 (A.Y. 2006-07) ANGEL COMMODITIES BROKING PVT. LTD. VS. DY. CIT BY THE APEX COURT IN T.R.F. LTD. VS. CIT [2010] 323 ITR 397 (SC), UNLESS OF-COURSE IT IS NOT BONA FIDE (REFER: DY.CIT VS. OMAN INTERNATIONAL BANK SAOG [2009] 313 ITR 128 (BOM)). THE REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO IMPUGN THE GENUINENESS OF THE WRITE OFF, WHICH THEREFORE HAS TO BE REGARDE D AS IN SATISFACTION OF THE MANDATE OF SECTION 36(1)(VII). AS REGARDS THE ELIGIBILITY OF E NTIRE AMOUNT RECEIVABLE FROM THE CLIENTS AS A DEBT, I.E., OF IT BEING IN TERMS OF SECTION 36 (1)(VII) R/W S. 36(2)(I), AS AGAINST ONLY THE BROKERAGE CHARGED THERETO, SO AS TO BE INCLUSIVE OF THE AMOUNT DUE ON THE ACCOUNT OF CONTRACT ENTERED INTO ON BEHALF OF THE CLIENTS, THE SAME STANDS AGAIN SINCE CLARIFIED BY THE HONBLE HIGH COURT IN THE CASE OF SHREYAS S. MORAKHIA (SUPRA). AS SUCH, WE ARE UNABLE TO APPRECIATE THE INSISTENCE OF THE REVENUE ON THE ASS ESSEE SHOWING THE ENTIRE AMOUNT CLAIMED AS BEING ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT, SO AS TO QUALIFY AS A DEBT U/S.36(1)(VII). AS REGARDS THE ADJUSTMENT OF MARGIN MONEY, THE SAME IS APPARENT IN-AS- MUCH AS THE SAID SUM WOULD ONLY STAND TO BE CREDITE D TO THE CLIENTS ACCOUNT, THE BALANCE OUTSTANDING PER WHICH ONLY IS RECOVERABLE, AND WHIC H STANDS WRITTEN OFF IN THE ACCOUNTS. THIS, IN FACT, STANDS CLARIFIED BY THE ASSESSEE TO THE LD. CIT(A) IN THE PARTY-WISE BREAK-UP OF THE CLAIM FURNISHED AGAIN IN THE APPELLATE PROCE EDINGS (PB-II PGS.28-33 ). LIKE-WISE FOR THE OBJECTION WITH REGARD TO THE ADJUSTMENT OF THE SHARES HELD IN PURSUANCE TO THE RELEVANT TRANSACTIONS. FIRSTLY, THE TRANSACTIONS ARE NOT IN RESPECT OF THE SHARES, BUT ONLY COMMODITIES AND, TWO, THE CLIENTS SECURITIES/MARGI N DEPOSIT ACCOUNT, WHERE UNADJUSTED, STANDS REFLECTED SEPARATELY IN THE BALANCE-SHEET UN DER THE HEAD CURRENT LIABILITY (SCHEDULE VIII) TO THE BALANCE SHEET (PB-II PGS.8-25 ). IN ANY CASE OF THE MATTER, THERE IS NOTHING ON RECORD TO SHOW THAT THE RELEVANT CONTRACTS HAVE NOT BEEN SQUARED UP BY THE ASSESSEE PRIOR TO THE YEAR-END, AND THE GAIN OR LOSS, AS THE CASE MAY BE, ARISING THEREON, BEING ONLY ON BEHALF OF THE CLIENT, ADJUSTED IN HIS ACCOUNT. CONTINUING FURTHER, EVEN IF REGARDED AS A BUSINESS LOSS, IN OUR VIEW, THE ASSESSEES CLAIM MERITS ACCEPTANCE. RATHER, THIS WOULD RENDER SUPERFLUOUS THE CONTROVERSY, THOUGH SINCE RESOLVED BY THE JURISDICTIONAL HIGH COURT IN SHREYAS S. MORAKHIA (SUPRA), AS TO WHETHER THE DEBT UNDER REFERENCE SATISFIES THE COND ITION OF SECTION 36(2)(I) IN-AS-MUCH AS THE BROKER ONLY ACTS AS A MEDIATOR/INTERMEDIARY, AN D THE PROPERTY IN THE CONTRACT BELONGS 6 ITA NO.3993/MUM/2013 (A.Y. 2006-07) ANGEL COMMODITIES BROKING PVT. LTD. VS. DY. CIT TO THE CORRESPONDING PRINCIPALS. HOWEVER, THE REVEN UES STAND THAT ONLY THE CLAIM TO THE EXTENT OF RS.27.87 LACS COULD BE CLAIMED THUS, I.E. , FOR THE CURRENT YEAR, ON THE GROUND THAT THE DEBT WRITTEN OFF PERTAINS TO THE CURRENT YEAR T O THAT EXTENT, IS WITHOUT MERIT. WHAT IS RELEVANT IS NOT THE YEAR TO WHICH THE DEBT/S WRITTE N OFF PERTAINS, BUT THE YEAR IN WHICH THE LOSS IN ITS RESPECT, WHICH IS SIGNIFIED BY ITS WRIT E OFF IN ITS ACCOUNTS AS IRRECOVERABLE, RELATES TO. THE ASSESSEE CLAIMING THE LOSS ON THE B ASIS THAT THE DEBT IS IN ITS VIEW IRRECOVERABLE AND, THEREFORE, WRITTEN OFF, WOULD, I N THE ABSENCE OF ANYTHING TO THE CONTRARY, IMPLY THE LOSS ON THAT ACCOUNT TO BE FOR THE YEAR OF ITS WRITE OFF. WE HAVE ALREADY STATED THAT THE GENUINENESS OF THE WRITE OF F HAS NOT BEEN DOUBTED BY THE REVENUE. IN FACT, NO PART OF THE SUNDRY DEBTOR WAS CONSIDERE D AS DOUBTFUL (FOR RECOVERY) AS AT THE END OF THE IMMEDIATELY PRECEDING YEAR (SCHEDULE V T O THE BALANCE-SHEET). WE HAVE ENDEAVORED TO CONSIDER SEPARATELY ALL THE O BJECTIONS ASSUMED BY THE REVENUE, I.E., INCLUDING IN THE ORIGINAL PROCEEDING S, AS THE A.O. HAD SPECIFICALLY REFERRED TO THE EARLIER ASSESSMENT U/S. 143(3) DATED 26.12.2 008, SINCE SET ASIDE, WHILE FRAMING THE FRESH ASSESSMENT, AND WHICH BECOMES RELEVANT ON ACC OUNT OF ALMOST NO REPRESENTATION BY THE ASSESSEE BEFORE HIM IN THE SECOND ROUND. THOUGH , HOWEVER, ONLY TO FIND THEM, AS AFORE-NOTED, AS WITHOUT SUBSTANCE. THE LD. CIT(A) A LSO, WE ARE AFRAID TO SAY, DID NOT APPLY HIMSELF TO THE MATTER, SO MUCH SO THAT HIS FINDINGS , REPRODUCED HEREINABOVE (PARA 3), IS A MERE REPLICATION OF THE RELEVANT PARA (PARA 7) OF T HE REMAND REPORT, WITHOUT CONSIDERING THE MATERIAL ON RECORD AS WELL AS THE ASSESSEES SU BMISSIONS AND CLARIFICATIONS, AS VIDE LETTER DATED 22.03.2013 (PB-II PGS.39-41 ). WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. 1/+23451+' ) 6 +'+7 ORDER PRONOUNCED IN THE OPEN COURT ON OCTOBER 11 TH , 2013 SD/- SD/- (D. MANMOHAN) (SANJAY ARORA) / VICE PRESIDENT / ACCOUNTANT MEMBER ( 8* MUMBAI; 9 DATED : 11.10.2013 7 ITA NO.3993/MUM/2013 (A.Y. 2006-07) ANGEL COMMODITIES BROKING PVT. LTD. VS. DY. CIT )3 ROSHANI , SR. PS ! ' #$%& ' &$ COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ( :+ ; < / THE CIT(A) 4. ( :+ / CIT - CONCERNED 5. =)>?$3+3@4 ,@4/ ( 8* / DR, ITAT, MUMBAI 6. ?5A* GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. 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