CENTRUM BROKING P.LTD, MUMBAI V. DCIT 4(1)(1), MUMBAI

ITA 4120/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2065 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 08-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN K SINGH
• Keywords: Business expenditure; Bad and doubtful debts
• Section: 143(3); 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI PAWAN SINGH, JM ITA NO.4120/MUM/2018 ( ASSESSMENT YEAR: 2013-14 ) CENTRUM BROKING LTD., CENTRUM HOUSE, 5 TH FLOOR, CST ROAD, VIDYANAGARI MARG, KALINA, SANTACRUZ (E), MUMBAI-400098. VS. D.C.I.T., 4(1)(1) MUMBAI. PAN/GIR NO.AABCA 1498 E (APPELLANT ) .. (RESPONDENT ) ASSESSEE BY SHRI JITENDRA JAIN/SHRI PANKAJ PATHAK (AR) REVENUE BY SHRI CHAUDHARY ARUN K. SINGH (DR) DATE OF HEARING 29/08/2019 DATE OF PRONOUNCEMENT 06/09/2019 / O R D E R PER: R.C. SHARMA, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 20/03/2018 OF LD. CIT(A)-09, MUMBAI FOR THE A.Y. 20 13-14 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1 961 (IN SHORT, THE ACT). FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSE SSEE: 1. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN IGN ORING THE DOCUMENTS FILED BY YOUR APPELLANT TO SUPPORT THAT IRRECOVERABLE AMO UNT OF RS. 55,18,606/- WAS ON ACCOUNT OF MISAPPROPRIATION OF F UNDS BY ONE OF THE DIRECTORS, MR. P.K. ADVANI. 2. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONF IRMING THE DISALLOWANCE OF RS. 55,18,606/- CLAIMED AS BAD DEBTS/BUSINESS LO SS CONSIDERING THE SAME AS PERSONAL EXPENSES. ITA NO. 4120/MUM/2018 CENTRUM BROKING LTD. VS DCIT 2 3. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONF IRMING DISALLOWANCE OF RS. 20,99,056/- BEING ARBITRATION AWARD GRANTED IN FAVO UR OF MR. P.K. ADVANI, CONSIDERING THE SAME AS NOT INCURRED IN THE ORDINARY COURSE OF BUSINESS OF YOUR APPELLANT. YOUR APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIFY, SUBSTITUTE, ALTER OR WITHDRAWN ANY OF THE GROUNDS OF APPEAL. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. THERE IS DELAY OF 7 DAYS IN FILING THE APPEAL. AS PER THE RE ASONS GIVEN FOR DELAY, IT WAS SUBMITTED THAT THE DELAY ACCORDED DUE TO SHIFTI NG OF OFFICE OF THE ASSESSEE COMPANY. THE ASSESSEE HAS ALSO FILED AN AF FIDAVIT OF ITS DIRECTOR IN SUPPORT THEREOF. CONSIDERING THE REASON FOR DELA Y, WE ARE SATISFIED THAT THERE WAS JUSTIFIABLE REASONS FOR DELAY, THERE FORE, IN THE SUBSTANTIAL INTEREST OF JUSTICE, WE CONDONE THE DELAY OF 7 DAYS AND APPEAL IS BEING HEARD ON MERIT. 3. FIRST GRIEVANCE OF THE ASSESSEE RELATES TO DISAL LOWANCE OF AMOUNT OF RS. 55,18,606/- ON ACCOUNT OF MISAPPROPRIATION O F FUNDS BY THE DIRECTOR MR. P.K. ADVANI. THE A.O. HAS DISCUSSED TH IS ISSUE IN PARA 3.3 OF HIS ORDER AND HAS DISALLOWED THE SAME ON THE GROUND THAT THESE ARE PERSONAL EXPENSES OF THE DIRECTOR AND HENCE NOT ALL OWABLE. BY THE IMPUGNED ORDER, THE LD. CIT(A) HAS CONFIRMED THE AC TION OF THE A.O., AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEF ORE THE ITAT. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAR EFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOU ND FROM THE RECORD ITA NO. 4120/MUM/2018 CENTRUM BROKING LTD. VS DCIT 3 THAT PRIOR TO 2004, THE ASSESSEE COMPANY WAS OWNED AND MANAGED BY ADVANI GROUP. IN 2004, THE ASSESSEE COMPANY WAS TAK EN OVER BY CENTRUM GROUP AND NAME WAS CHANGED TO CENTRUM BROKI NG PVT. LTD. HOWEVER, MR. ADVANI CONTINUED AS A DIRECTOR OF THE ASSESSEE COMPANY TILL JUNE, 2005. IN 2005, DUE TO DIFFERENCES AND DISPUTE S BETWEEN MR. ADVANI AND THE CENTRUM GROUP, MR. ADVANI WAS REMOVE D AS A DIRECTOR OF THE COMPANY. AFTER THE EXIT OF MR. ADVANI, THE ASSE SSEE COMPANY ON PERUSAL OF ITS BOOKS OF ACCOUNTS REALISED THAT A SU M OF RS. 95,44,693/- [DETAILS AT PG 6 OF CIT(A) ORDER] WAS MISAPPROPRIAT ED BY MR. ADVANI BY DEBITING THE ASSESSEE COMPANY'S ACCOUNTS ON ACCOUNT OF HIS VARIOUS PERSONAL EXPENSES OR NON-BUSINESS EXPENSES. THE ASS ESSEE COMPANY RECOVERED A SUM OF RS. 40,26,087/- AND THE BALANCE AMOUNT OF RS. 55,18,606/- WAS WRITTEN OFF AND CLAIMED AS BUSINESS LOSS WHICH IS AGITATED IN THIS APPEAL. 5. FROM THE RECORD WE ALSO FOUND THAT THE ASSESSEE IN ARBITRATION PROCEEDINGS INITIATED BY ADVANI GROUP BEFORE NSE MA DE A CLAIM OF THE SAID AMOUNT AS EVIDENT FROM PGS 3, 4 AND 5, PARAS 6 AND 10 OF THE SAID AWARD DATED 13 TH DECEMBER 2011. HOWEVER, THE TRIBUNAL HELD THAT SINC E THE ASSESSEE COMPANY HAS NOT MADE A COUNTERCLAIM OR FILED A SEPARATE ARBITRATION FOR THE SAID AMOUNT NO RELIEF WAS GRANT ED TO THE ASSESSEE COMPANY. THE SAID ORDER BECAME FINAL ON 28 TH AUGUST 2012 WHEREBY ITA NO. 4120/MUM/2018 CENTRUM BROKING LTD. VS DCIT 4 CONSENT TERMS WERE AGREED BETWEEN THE ADVANI GROUP AND THE ASSESSEE COMPANY. 6. AS PER MATERIAL PLACED ON RECORD, WE FOUND THAT THE CLAIM IS MADE ON ACCOUNT OF MISAPPROPRIATION OF FUNDS BY THE EX-D IRECTOR OF THE COMPANY. THE SAID DIRECTOR MISUSED HIS AUTHORITY WH ILE HOLDING THE POSITION AND INCURRED VARIOUS EXPENSES FROM THE COM PANY'S FUNDS WHICH WERE OF PERSONAL IN NATURE. THE FACT THAT OUT OF RS . 95.44 LAKHS, THE ASSESSEE COMPANY IS CLAIMING ONLY RS. 55.18 LAKHS P ROVES THE BONAFIDENESS OF THE ASSESSEE IN RECOVERING PART OF THE MONEY AND WRITING OFF THE BALANCE. THUS WE FOUND THAT THE AFO RESAID LOSS HAS INCURRED IN THE COURSE OF BUSINESS OF THE COMPANY A ND THEREFORE SHOULD BE ALLOWED AS A BUSINESS LOSS. RELIANCE IS PLACED O N FOLLOWING DECISIONS: A. SASSOON J. DAVID & CO. PVT LTD. - 98 ITR 50 (BO M), B. BADRIDASDAGA - 34 ITR 10 (SC). C. HARSHAD CHOKSI - 349 ITR 250 (BOM), D. BOOTS PIRAMAL HEALTH CARE LTD - 3213/MUM/2009 (NOW KNOWN AS M/S NICHOLAS PIRAMAL CONSUMER PRODUCTS PVT. LTD). 7. IT WAS ARGUED BY THE LD. AR THAT THE HON'BLE SUP REME COURT IN THE CASE OF ASSOCIATED BANKING CORPORATION OF INDIA LIM ITED VS CIT REPORTED IN 56 ITR 1(SC) HAS HELD THAT 'THE LOSS BY EMBEZZLE MENT MUST BE DEEMED TO HAVE OCCURRED WHEN THE ASSESSEE CAME TO K NOW ABOUT THE EMBEZZLEMENT AND REALIZED THAT THE AMOUNT EMBEZZLED COULD NOT BE RECOVERED'. IN ANOTHER DECISION, THE HON'BLE SUPREM E COURT IN THE CASE ITA NO. 4120/MUM/2018 CENTRUM BROKING LTD. VS DCIT 5 OF BADRIDAS DAGA V/S CIT REPORTED IN 34 ITR 10) (SC ) HAS HELD THAT 'THE LOSSES WHICH HAVE BEEN SUFFERED BY THE ASSESSEE AS A RESULT OF MISAPPROPRIATION BY AN EMPLOYEE HAVE (1) WHICH WAS INCIDENTAL TO THE CARRYING ON THE BUSINESS AND SHOULD THEREFORE BE DE DUCTED IN COMPUTING THE PROFIT OF THE BUSINESS. 8. IN VIEW OF THE ABOVE DISCUSSION, WE DIRECT THE A .O. TO ALLOW SUM OF RS. 55,18,606/- AS BUSINESS LOSS. 9. THE NEXT GRIEVANCE OF THE ASSESSEE RELATES TO AD DITION OF SUM OF RS. 20,99,056/- BEING ARBITRATION AWARD GRANTED IN FAVOUR OF ADVANI GROUP BY THE ARBITRAL TRIBUNAL CONSTITUTED BY NSE. 10. THE AO HAS DISCUSSED THIS ISSUE IN PARA 3.2 OF HIS ORDER AND ON THE GROUND THAT SAME IS NOT FOR BUSINESS HAS DISALL OWED THE CLAIM. THE CIT(A) IN HIS ORDER IN PARA 3.2.2 HAS CONFIRMED THE SAME. 11. FROM THE DOCUMENTS PLACED ON RECORD, IT IS ADMI TTED POSITION THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF BROKING AND A MEMBER OF NSE. UNDER THE NSE ACT AND RULES, THE DISPUTE BETWE EN THE TRADING MEMBERS OF NSE AND ITS CONSTITUENT IS TO BE RESOLVE D AS PER THE PROCEDURE PRESCRIBED THEREIN. ONE OF THE PROCEDURE IS BY FILING AN ARBITRATION CLAIM BY THE PARTIES TO THE DISPUTE. PU RSUANT THERETO ADVANI GROUP FILED ARBITRATION PROCEEDINGS AGAINST THE ASS ESSEE COMPANY FOR RECOVERY OF THE SHARES BELONGING TO THE ADVANI GROU P AND HELD BY THE ITA NO. 4120/MUM/2018 CENTRUM BROKING LTD. VS DCIT 6 ASSESSEE COMPANY. THE ARBITRAL TRIBUNAL VIDE ITS OR DER DATED 13 TH DECEMBER 2011 ALLOWED THE CLAIM OF THE ADVANI GROUP . IN PARA 6 OF THE SAID AWARD THE TRIBUNAL HAS GIVEN A FINDING THAT TH E TRANSACTION IN DISPUTE ARISES FROM THE BUSINESS OF THE ASSESSEE CO MPANY. THE TRIBUNAL DIRECTED THE ASSESSEE COMPANY TO PAY A SUM OF RS. 2 0,15,097/- TO THE ADVANI GROUP ALONG WITH INTEREST OF RS. 83,959/-. T HE SAID ARBITRAL AWARD BECAME FINAL BY THE ASSESSEE COMPANY WITHDRAWING IT S ARBITRATION PETITION BEFORE THE HON'BLE HIGH COURT ON 28 TH AUGUST 2012 BY ENTERING INTO CONSENT TERMS WITH ADVANI GROUP. 12. IN VIEW OF THE ABOVE DISCUSSION, WE DIRECT THE A.O. TO ALLOW A SUM OF RS. 20,99,056/- AS BUSINESS LOSS ARISING OUT OF BUSINESS OF THE ASSESSEE COMPANY. IT HAS BEEN VERY WELL DISCUSSED I N THE ARBITRATION AWARD UNDER NSE ACT AND RULES. ACCORDINGLY THE A.O. WAS NOT JUSTIFIED IN COMING TO THE CONCLUSION THAT THE SAID CLAIM IS NOT ARISING OUT OF THE BUSINESS OF THE ASSESSEE COMPANY. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH SEPTEMBER, 2019. SD/- (PAWAN SINGH) SD/- (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED 06/09/2019 *RANJAN ITA NO. 4120/MUM/2018 CENTRUM BROKING LTD. VS DCIT 7 COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//