PRIME BROKING CO. INDIA LTD, MUMBAI V. ACIT CIR 4(2), MUMBAI

ITA 4247/MUM/2009

• Counselvise Citation: 424719914 RSA 2009
• Duration Of Justice: 2 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 11-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 10-07-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALEXANDER CHANDY
• Assessee Lawyers: VIPUL B JOSHI
• Keywords: Bad and doubtful debts
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, C , MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND R.K.PANDA(A.M ) ITA NO.4247/MUM/2009 (ASSESSMENT YEAR:2006-07) PRIME BROKING COMPANY (INDIA) LIMITED, M/S GANDHI & ASSOCIATES, CHARTERED ACCOUNTANTS, 2 ND FLOOR, VOLTAS INTERNATIONAL HOUSE, 28, G.N.VAIDYA MARG, FORT, MUMBAI-400001 PAN: AAACP3113C ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 4(2), MUMBAI. APPELLANT V/S RESPONDENT APPELLANT BY : SHRI VIPUL B JOSHI RESPONDENT BY : SHRI ALEXAND ER CHANDY O R D E R PER D.K.AGARWAL (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 12.5.2009 PASSED BY THE LEA RNED COMMISSIONER OF INCOME TAX (A) FOR THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF BROKING IN SH ARES AND SECURITIES. IT IS ALSO HOLDING MEMBERSHIP OF NATIO NAL STOCK EXCHANGE AND BOMBAY STOCK EXCHANGE. THE RETURN WAS FILED DECLARING TOTAL INCOME AT RS.2,20,24,280/-. HOWEVE R, THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS.3,00,4 6,000/- 2 VIDE ORDER DATED 29.8.2008 PASSED UNDER SECTION 1 43(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). ON AP PEAL, THE LEARNED COMMISSIONER OF INCOME TAX (A), PARTLY ALLO WED THE APPEAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. GROUND NO.I (A) AND (B) AND GROUND NO.II (A) A ND (B) ARE AGAINST THE SUSTENANCE OF DISALLOWANCE OF BAD D EBTS OF RS.61,89,728/-. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE HAS WRITTEN OFF THE FOLLOWI NG AMOUNT UNDER THE HEAD BAD DEBTS (PARA 5.1,PAGE 4 OF ASSE SSMENT ORDER): S.NO. NAME OF THE CLIENT BAD DEBTS CLAIMED (RS.) TOTAL BROKERAGE EARNED (RS.) 1 LALIT BANG 50,660 19,755 2 SARWAN KR.BALDWA 8753.29 17,375 3 SUNITA V.MENON 23,320 17,691 4 CHINTA LAKSHMI 17,405 11,754 5 ASHOK ADVANI 1,176 219,600 6 DINESH M.HEMDEV 2,07,241 1,07,101 7 SHASANK MAHAJAN 62,415 6,76,310 3 8 SONAL KHANDWALA 57,37,002 15,53,830 9 RELIANCE CAPITAL 81,756 13,51,750 TOTAL 61,89,728 39,75,166 ON BEING ASKED TO JUSTIFY THE CLAIM IT WAS SUBMIT TED BY THE ASSESSEE THAT THE RECOVERY OF THE AMOUNT HAD ARISEN IN THE ORDINARY COURSE OF THE ASSESSEES BUSINESS OF BROKI NG IN SHARES AND SECURITIES ON THE NSE. THE ASSESSEE H AS ACTED IN A PRUDENT MANNER AND GOING BY THE CONDUCT OF TH E PARTY. THE ASSESSEE HAD NO INKLING OF SUCH AN UNFORTUNATE EVENTUALITY. AS THE EFFORTS TO RECOVER THE AMOUNT HAD FAILED, THE ASSESSEE COMPANYS MANAGEMENT IN ITS COMMERCIA L WISDOM WROTE-OFF THE AMOUNT FROM THE BOOKS OF ACCOU NT AS AN UNRECOVERABLE BAD DEBTS. IT IS SUBMITTED THAT THE ASSESSEE HAD FULFILLED ALL THE REQUIREMENTS OF ALLOWABILITY OF DEDUCTION UNDER SECTION 36(1)(VII) OF THE ACT. IT WAS FURT HER SUBMITTED THAT THE ASSESSEE, BEING A STOCK BROKER, HAS FULF ILLED THE REQUIREMENTS OF SECTION 36(2) OF THE ACT AND THERE FORE IS ELIGIBLE FOR DEDUCTION OF RS.57,37,002/- UNDER SEC TION 36(1)(VII) OF THE ACT. WITHOUT PREJUDICE TO THE ABOVE, IT WAS FURTHER SUBMITTED THAT IF THE DEDUCTION UNDER SECT ION 36(1)(VII) COULD NOT BE GRANTED FOR ANY REASONS WHA TSOEVER, THEN, IN THE ALTERNATE THE ASSESSEE COMPANY BE ALLO WED A DEDUCTION OF THE AMOUNT WRITTEN OFF AS A BUSINESS / TRADING LOSS UNDER SECTION 28 OF THE ACT. 4 6. HOWEVER, THE AO OBSERVED THAT THE ASSESSEE DOES NOT FULFILL THE CONDITIONS STIPULATED UNDER SECTION 36 (2) OF THE ACT AND THERE IS NO REFUSAL BY THE PARTIES, THEREFO RE, HE DISALLOWED THE BAD DEBT OF RS.61,89,728/-. 7. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (A) OBSERVED THAT THE CONDITIONS OF SECTION 36(2) A RE MADE ONLY UP TO THE AMOUNT OF BROKERAGE SHOWN AS INCOME IN THE PREVIOUS YEAR AND HENCE HE DIRECTED THE AO TO ALLO W THE CLAIM OF BAD DEBT UP TO THE BROKERAGE INCOME SHOWN IN THE PREVIOUS YEAR AND CONFIRMED THE BALANCE DISALLOWANC E. 8. AT THE TIME OF HEARING BOTH PARTIES HAVE AGREE D THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN DCIT V/S SHREYAS S.MORAKHIA (2010) 5 ITR (TRIB) 1 (MUM)(SB), THEREFORE THE ISSUE MAY BE DECIDED ACCORDINGLY. 9. HAVING CAREFULLY CONSIDERED THE SUBMISSIONS OF T HE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON REC ORD, WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS SHOWN THE AMOU NT OF BROKERAGE FROM ALL HIS CLIENTS AGAINST WHOM THE ASS ESSEE IS CLAIMING BAD DEBTS. 5 10. IN SHREYAS S.MORAKHIA (SUPRA) IT HAS BEEN HELD (PAGE 4 OF HEADNOTES) AS UNDER :- HELD, THAT THE AMOUNT RECEIVABLE BY THE ASSESSEE, A SHARE BROKER, FROM HIS CLIENTS AGAINST TRANSACTIONS OF PURCHASE OF SHARES ON THEIR BEHALF CONSTITUTED A TR ADING DEBT. THE BROKERAGE INCOME ARISING FROM SUCH TRANSACTIONS VERY MUCH FORMED PART OF THE DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE HAD BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVANT PREVIOUS YEAR OR ANY EARLIER YEAR, IT SATI SFIED THE CONDITION STIPULATED IN SECTION 36(2)(I) AND THE AS SESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 36(1)(VII) BY WAY OF BAD DEBTS AFTER HAVING WRITTEN OFF THE SAID DEBT S FROM HIS BOOKS OF ACCOUNT AS IRRECOVERABLE. 11. IN THE ABSENCE OF ANY DISTINGUISHING FEATURES BROUGHT ON RECORD BY THE REVENUE, WE RESPECTFULLY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL (SU PRA) HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF BAD DEBTS AS CLAIMED AND ACCORDINGLY THE GROUNDS TAKEN BY THE ASSESSEE ARE ALLOWED. 12. GROUND NO.III (A) AND (B) ARE AGAINST THE SUST ENANCE OF ADDITION OF SECURITIES TRANSACTION TAX OF RS.16,0 6,085/-. 13. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE AO OBSERVED THAT THE ASSESSEE HAS REDUCED FROM THE GROSS BROKER AGE EARNED AN AMOUNT OF SECURITIES TRANSACTION TAX AMOU NTING TO RS.16,06,085/- WHICH HAS NOT BEEN ADDED TO THE COMPUTATION OF INCOME EVEN THOUGH IT IS NOT AN ALL OWABLE EXPENDITURE AS PER SECTION 40(IB) OF THE ACT. THE ASSESSEE WAS ASKED AS TO WHY THIS AMOUNT SHOULD NOT BE ADDE D BACK. 6 IT WAS EXPLAINED BY THE ASSESSEE THAT THIS AMOUNT PERTAINED TO CLIENTS ON WHOSE BEHALF THE ASSESSEE HAS EXECUTE D SAUDAS AND THE STT PERTAINING TO THOSE SAUDAS IS BORNE BY THE ASSESSEE SINCE IT IS INCLUDED IN THE BROKE RAGE. IT WAS FURTHER STATED BY THE ASSESSEE THAT THEY HAVE DEBITED THIS AMOUNT WHICH IS A LAWFUL EXPENSE FOR PROCURING THE BUSINESS DURING THE YEAR 2005-06. HOWEVER, THE AO DID NOT ACCEPT THE ASSESSEES EXPLANATION. HE OBSERVE D THAT SINCE THE STT PAID IS SPECIFICALLY PROHIBITED UNDE R THE ACT AS DEDUCTION, THEREFORE, HE DISALLOWED THE CLAIM OF THE ASSESSEE. 14. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (A) UPHELD THE DISALLOWANCE MADE BY THE AO. 15. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE AO AND THE LEARNED COMMISSIONE R OF INCOME TAX(A) FURTHER SUBMITS THAT THIS BENCH OF TH E TRIBUNAL ON THE SIMILAR ISSUE HAS RESTORED THE MATT ER TO THE FILE OF THE LEARNED COMMISSIONER OF INCOME TAX (A) VIDE ORDER PASSED IN M/S PRAVIN V. SHAH STOCK BROKING P. LTD. V/S DY. COMMISSIONER OF INCOME TAX (ITA NO.1983/MUM/2010)(AY-2006-07), ORDER DATED 3.2.2011 . FOLLOWING THE SAME, HE HAS NO OBJECTION, IF THE IS SUE IS SET ASIDE TO THE FILE OF THE LEARNED COMMISSIONER OF IN COME TAX 7 (A). HE HAS ALSO PLACED ON RECORD A COPY OF THE SA ID ORDER OF THE TRIBUNAL. 16. ON THE OTHER HAND, THE LEARNED D.R. SUPPORTS TH E ORDER OF THE AO AND THE LEARNED COMMISSIONER OF INCOME TA X (A). 17. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND MERITS IN THE SUBMISSIONS OF THE LEARNED CO UNSEL FOR THE ASSESSEE THAT ON THE SIMILAR FACTS, THE TRIBUN AL IN THE CASE OF M/S PRAVIN V.SHAH STOCK BROKING P.LTD (SUPR A) HAS RESTORED BACK THE MATTER TO THE FILE OF THE LEARN ED COMMISSIONER OF INCOME TAX (A) VIDE FINDINGS RECORD ED IN PARAGRAPHS 6 OF THE ORDER WHICH ARE REPRODUCED AS U NDER (PARA 6, PAGE 5 ): 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABL E ON RECORD. WE FIND THAT THE CLAIM OF THE ASSESSEE IS T HAT IN SOME CASES STT WAS CHARGED SEPARATELY AND IN OTHER CASES THE STT WAS INCLUDED IN THE BROKERAGE BILL AN D IN BOTH CASES THE ASSESSEE WORKED AS A MIDDLE MAN ON BEHALF OF GOVERNMENT TO COLLECT STT AND PAID THE SA ME TO THE GOVERNMENT TREASURY THROUGH STOCK EXCHANGE, THEREFORE, THE STT COLLECTED BY THE ASSESSEE WHICH WAS SUBSEQUENTLY PAID IS NEITHER THE INCOME OF THE ASSE SSEE NOR THE EXPENDITURE AND HENCE THE SAME IS NOT LIABL E TO TAX. PER CONTRA THE CLAIM BY THE REVENUE IS THAT IN VIEW OF THE SPECIFIC PROVISIONS OF PROHIBITION OF ALLOWANCE OF DEDUCTION ON STT U/S.40(A)(IB) AND TAX REBATE U/S.8 8E THE CLAIM OF DEDUCTION OF RS.9,90,487 U/S.37 IS NOT ALLOWABLE. FROM THE READING OF THE ASSESSMENT ORDER AND THE ORDER BY THE LEARNED CIT(A), WE FIND THAT BOTH THE AUTHORITIES HAVE NOT EXAMINED THE FACTS OF THE ASSESSEES CASE IN THE LIGHT OF MATERIAL AVAILABLE ON RECORD AND THE DISALLOWANCE WAS MADE MERELY BY 8 FOLLOWING THE PROVISIONS OF SECTION 40(A)(IB) OF TH E ACT. THERE IS NO FINDING AS TO WHETHER THE ASSESSEE HAS COLLECTED STT ON BEHALF OF CLIENTS AND THE SAME WAS PAID TO THE GOVERNMENT AS PROVIDED UNDER THE ACT. THIS B EING SO AND KEEPING IN VIEW THAT THE ASSESSEE HAS NOT FI LED RELEVANT MATERIAL EXCEPT DETAILED NOTE BEFORE THE ASSESSING OFFICER AND ALL OTHER PAPERS WERE FILED B EFORE THE LEARNED CIT(A), WE ARE OF THE VIEW THAT IN THE INTEREST OF JUSTICE THE MATTER SHOULD GO BACK TO THE FILE OF CIT(A) AND ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY TH E REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND THE MA TTER TO THE FILE OF CIT(A) WHO SHALL DECIDE THE SAME AFR ESH IN THE LIGHT OF THE OBSERVATIONS HEREIN ABOVE AND ACCO RDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BE ING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY THE ASSESSEE IS THEREFORE PARTLY ALLOWED FOR STATISTICA L PURPOSE. 18. IN THE ABSENCE OF ANY DISTINGUISHING FEATURES BROUGHT ON RECORD BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUN AL (SUPRA) CONSIDER IT FAIR AND REASONABLE THAT THE MATTER SH OULD GO BACK TO THE FILE OF THE LEARNED COMMISSIONER OF IN COME TAX (A) AND ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A) ON THIS ACCO UNT AND SEND BACK THE MATTER TO THE FILE OF THE LEARNED COM MISSIONER OF INCOME TAX(A) TO DECIDE THE SAME AFRESH IN THE L IGHT OF THE OBSERVATIONS GIVEN IN THE SAID ORDER OF THE TRIBUN AL (SUPRA) AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND TAKEN BY TH E ASSESSEE IS THEREFORE PARTLY ALLOWED FOR STATISTICA L PURPOSE. 9 19. GROUND NO.IV, V AND VI ARE GENERAL IN NATURE A ND IN THE ABSENCE OF ANY SPECIFIC PLEA, THE SAME ARE THE REFORE REJECTED. 20. IN THE RESULT, THE ASSESSEES APPEAL STANDS PAR TLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JULY, 2011. SD. SD (R.K.PANDA) (D.K.AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 20 TH JULY, 2011 SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI