ANUGRAH STOCK & BROKING P. LTD, MUMBAI V. ACIT RG 4(1), MUMBAI

ITA 4732/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9336 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 13-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: B V JHAVERI
• Keywords: Depreciation; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A BENCH BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI SANJAY ARORA (ACCOUNTANT MEMBER) ITA NO.4732/MUM/2011 ASSESSMENT YEAR: 2008-09 ANUGRAH STOCK & BROKING P. LTD.,103, NISARG APARTMENTS, BESANT ROAD, VILE PARLE (W), MUMBAI-400056 PA NO.AAACQ 2920 N ACIT, RANGE 4(1), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI B.V.JHAVERI RESPONDENT BY: SHRI A.K.NAYAK DATE OF HEARING: 20.11.2012 DATE OF PRONOUNCEMENT: 23. 11.2012 ORDER PER B.R.MITTAL, JM: THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT Y EAR 2008-09 AGAINST ORDER DATED 6.5.2011 OF LD CIT(A) -8, MUMBAI. 2. IN GROUND NOS.1 TO 3 OF APPEAL, ASSESSEE HAS DIS PUTED THE ORDER OF LD CIT(A) IN NOT ALLOWING THE CLAIM OF THE ASSESSEE OF RS.35,56, 978 AS BAD DEBT. 3. THE RELEVANT FACTS ARE THAT ASSESSEE IS A COMPAN Y ENGAGED IN THE BUSINESS OF SHARE BROKING AND TRADING IN SHARES AND SECURITIES. THE ASSESSEE PURCHASED SHARES ON BEHALF OF ITS CLIENTS AND AGAINST THE PURCHASE OF T HE SAID SHARES, ASSESSEE HAD PAID MONEY ITSELF AS CLIENTS FAILED TO MAKE THE PAYMENT . ASSESSEE STATED THAT THERE WAS A BALANCE AMOUNT TO THE EXTENT OF RS.38,00,962 ALONGW ITH INTEREST OF RS.2,43,984 AND SAME WAS WRITTEN OFF DURING THE ASSESSMENT YEAR AS BAD DEBT AS THE AMOUNT COULD NOT BE RECOVERED FROM THE CLIENTS. AO DID NOT ALLOW TH E CLAIM OF ASSESSEE AND THE STAND TAKEN BY THE AO HAS BEEN SUMMARIZED BY LD CIT(A) IN PARA 1 AS UNDER: 2 THE FIRST GROUND OF APPEAL IS AGAINST DISALLOWANCE OF BAD DEBT OF RS.35,56,978/-. THE A.O. HAD MADE THE DISALLOWANCE HOLDING THAT AMO UNTS WRITTEN OFF WAS NOT ALLOWABLE TO BE DEDUCTED AS THE CONDITION AS LAID D OWN IN SECTION 36(2) WAS NOT FULFILLED SINCE THE DEBT WAS NOT COLLECTIBLE FROM T HE CLIENT. ACCORDINGLY, THE A.O. CONCLUDED THAT DEBT REMAINS OUTSIDE THE PURVIEW OF SECTION 36(1)(VII) OF THE INCOME-TAX ACT. THE A.O. HAS FURTHER POINTED OUT TH AT THE AMOUNT PAID TO THE EXCHANGE FOR VALUE OF SHAPE PURCHASED FOR CLIENT WA S PENAL IN NATURE AND WAS ON ACCOUNT OF AN ACT WHICH WAS AN OFFENCE UNDER SEBI A CT FOR VIOLATION OR ABATEMENT OF VIOLATION OF THE ACT, RULES AND REGULA TIONS MADE HEREUNDER WHICH COULD NOT BE ALLOWED AS DEDUCTION IN VIEW OF THE PR OVISIONS OF EXPLANATION TO SECTION 1 OF SECTION 37. THE AO HAS FURTHER HELD TH AT THE AMOUNT WAS NOT ALLOWABLE AS BUSINESS LOSS. THE A.O. HAS FURTHER CO NCLUDED THAT THE DEBT OF THE ASSESSEE ARISING ON ACCOUNT OF NON-RECOVERY OF DUE S FROM THE CLIENTS IN EXCESS OF THE BROKERAGE WAS NOT TRADING DEBT AS THE TRADIN G DEBT INCLUDED IN TOTAL DEBT WAS ONLY IN RESPECT OF BROKERAGE ACCOUNT. THE REASO NING CITED BY THE A.O. ARE THAT AS PER THE REGULATIONS ISSUED BY THE SEBI, THE DEBT ON ACCOUNT OF VALUE OF THE SHARE WAS NOT TRADING DEBT OF THE ASSESSEE WHIC H THOUGH INCIDENTAL TO BUSINESS, IN THE REGULATED MODE OF FUNCTIONING IS G UARANTEED BY THE VALUE OF THE SHARES WHICH THE ASSESSEE CAN SELL WITHIN TWO OF CL OSURE OF ACCOUNT WITHOUT CONSENT OF THE CLIENT AND IF THE ASSESSEE CHOSE NOT TO DO SO THE SAME WAS VOLUNTARY ACT OF LOSS AND NOT BUSINESS LOSS, THE A. O. HAS FURTHER POINTED OUT THAT THE DEBT BECAME THE LIABILITY OF THE ASSESSEE ONLY BECAUSE THE ASSESSEE FAILED TO CARRY ON THE BUSINESS AS LAID DOWN IN THE REGULATIO NS AND NOTIFICATIONS ISSUED. IN VIEW OF SUCH FINDING, THE AO DECLINED TO ALLOW ASS ESSEES CLAIM OF DEDUCTION ON ACCOUNT OF WRITE OFF OF BAD DEBIT THE EXTENT OF RS. 2,43,984/- PERTAINING TO INTEREST CHARGED BY THE ASSESSEE ON THE BALANCE WHI CH WAS SHOWN BY THE ASESSEE AS ITS INCOME IN PREVIOUS YEAR. THIS RESULT ED IN ADDITION OF RS.35,56,978/.. 4. ASSESSEE FILED APPEAL BEFORE LD CIT(A) AND PLACE D RELIANCE ON THE DECISION OF ITAT MUMBAI (SB) IN THE CASE OF SHREYAS S MORAKHIA, 40 SOT 432 (MUM), THE DECISION OF ITAT IN THE CASE OF AMISHREE SHYARE BROKING CO. LTD ( I.T.A. NO.702 & 703/MUM/2008 DATED 04.11.2010), AS ALSO THE DECISIO N IN THE CASE OF KALYANI CORPORATION (ITA NO.4563/MUM/2007 DATED 27.08.20O1) . HOWEVER, LD CIT(A) CONFIRMED THE ACTION OF AO. LD CIT(A) FURTHER STAT ED THAT ASSESSEE HAS NEITHER CONTENDED NOR PRODUCED ANY MATERIAL TO ESTABLISHED THAT THE ACTUAL AMOUNT OF BAD DEBT WAS ARRIVED AT AFTER ADJUSTMENT OF THE SALE CONSIDE RATION OF THE SHARES WHICH WERE BOUND TO REMAIN WITH THE ASSESSEE AGAINST THE AMOUN T RECEIVABLE FROM THE CLIENT. HENCE, ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRI BUNAL. 5. DURING THE COURSE OF HEARING, LD A.R. SUBMITTED THAT THE ISSUE INVOLVED IN THIS GROUND IS COVERED BY THE DECISION OF ITAT MUMBAI (S B) IN THE CASE OF SHREYAS S 3 MORAKHIA (SUPRA). HE SUBMITTED THAT ASSESSEE HAD W RITTEN VARIOUS LETTERS TO THE PARTIES FOR RECOVERY OF THE AMOUNTS. HE SUBMITTED THAT XER OX COPIES OF THE CORRESPONDENCES ARE PLACED AT PAGES 73 TO 89 OF PB. LD A.R. SUBMIT TED THAT THE SAID AMOUNT HAS BEEN GIVEN TO VARIOUS PARTIES DURING THE ORDINARY COURSE OF BUSINESS OF ASSESSEE AND SINCE ASSESSEE COULD NOT RECOVER THE SAME, ASSESSEE HAS W RITTEN OFF THE AMOUNT IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND SAME SHOULD BE ALLOWED AS BAD DEBT OR BUSINESS LOSS TO THE ASSESSEE. AT THE TIME OF HEAR ING, A QUERY FROM THE BENCH WAS RAISED AS TO WHETHER THE SAID LOSS HAS BEEN ARRIVED AT BY THE ASSESSEE AFTER GIVING ADJUSTMENT OF SALE CONSIDERATION OF THE SHARES, DE LIVERY OF WHICH WERE TAKEN BY THE ASSESSEE WHEN CLIENTS FAILED TO MAKE THE PAYMENT, L D A.R. SUBMITTED THAT MATTER BE RESTORED TO THE FILE OF AO FOR VERIFICATION AND THE REAFTER WHATEVER IS THE ACTUAL LOSS SUFFERED BY THE ASSESSEE AFTER ADJUSTING THE SALE P ROCEEDS OF THE SAID SHARES, MAY BE ALLOWED AS BAD DEBT. HE FURTHER SUBMITTED THAT CAS E OF SHREYAS S MORAKHITA (SUPRA) HAS BEEN CONFIRMED BY HONBLE JURISDICTIONAL HIGH COURT REPORTED IN 342 ITR 285 (MUM). HE SUBMITTED THAT CLAIM OF ASSESSEE BE ALLOWED BY THE AO AS PER THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHREYAS S MORAKHIA(SUPRA) . 6. ON THE OTHER HAND, LD D.R SUPPORTED THE ORDERS OF AUTHORITIES BELOW. HE FURTHER SUBMITTED THAT HE HAS NO OBJECTION IF IT IS SENT BA CK TO THE FILE OF AO FOR EXAMINATION AS PER DECISION OF HONBLE HIGH COURT (SUPRA). 7. IN VIEW OF ABOVE SUBMISSIONS OF REPRESENTATIVES OF PARTIES, WE CONSIDER IT PRUDENT TO SET ASIDE THE ORDERS OF AUTHORITIES BELO W AND TO RESTORE THE MATTER TO THE FILE OF AO. ACCORDINGLY, WE RESTORE THE ISSUE TO THE FI LE OF AO WITH THE DIRECTION THAT AO WILL ALLOW CLAIM OF THE ASSESSEE AS PER LAW AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE AND CONSIDERING SUCH EVIDENCE AS MAY BE PL ACED BEFORE HIM AFRESH. GROUND NOS.1 TO 3 OF APPEAL IS ALLOWED FOR STATISTICAL PUR POSES. 8. IN GROUND NOS. 4 TO 6 OF APPEAL, ASSESSEE HAS DI SPUTED THE ORDER OF LD CIT(A) IN DISALLOWING THE SOFTWARE EXPENSES OF RS.3,31,864 AS REVENUE EXPENDITURE 9. AO HAS STATED THAT ON VERIFICATION, IT IS FOUND THAT ASSESSEE HAS INCURRED SOFTWARE EXPENDITURE OF RS.5,69,920 AS UNDER: 4 I) GREEKSOFT SOFTWARE (AMC CLAUSE INCLUDED) : RS.1 ,12,320 II) SMARINT X-CHANGE SERVICE LICENSE CHARGES : RS. 26,000 (PAYMENT TOWARDS 1 ST INSTALLMENT ONLY) III) MONEY WARE INTEGRA STANDARD EDITION : RS.2,08, 000 IV) CDSL BACK OFFICE SOFTWARE (OF VITAL BENEFIT TO THE ASSESSEE) : RS.1,56,000 V) WEB BACK OFFICE SOFTWARE : RS. 67,000 (OF VITAL BENEFIT TO THE ASSESSEE) RS.5,69,920 10. AO STATED THAT ABOVE EXPENDITURE IS CAPITAL IN NATURE AND AFTER ALLOWING DEPRECIATION, HE MADE DISALLOWANCE OF RS.3,31,864. 11. IN THE FIRST APPEAL, LD CIT(A) CONFIRMED THE AC TION OF AO. HENCE, THIS APPEAL BY THE ASSESSEE. 12. DURING THE COURSE OF HEARING, LD A.R. SUBMITTED THAT ABOVE EXPENDITURE IS REVENUE IN NATURE. HE SUBMITTED THAT AMC IS TO BE RENEWED EVERY YEAR AND IT IS A RECURRING EXPENDITURE. LD A.R. FILED A WRITTEN SUB MISSION AND PLACED RELIANCE ON THE DECISION OF ITAT AHMEDABAD IN THE CASE OF ANAGRAM S TOCK BROKING & ORS VS. ACIT, 118 TTJ 351 AND THE DECISION OF PUNE BENCH OF ITAT IN THE CASE OF B.G.SHIRKE CONSTRUCTION VS ACIT (I.T.A. NO.1430/PN/2010 ORDER DATED 17.7.20 12) TO CLAIM ABOVE EXPENDITURE AS REVENUE IN NATURE. HE SUBMITTED THAT SOFTWARE EXPEN DITURE WAS INCURRED BY THE ASSESSEE TO CARRY ON SHARE BROKING BUSINESS AND AS SUCH IS T O BE TREATED AS REVENUE EXPENDITURE. 13. ON THE OTHER HAND, LD D.R. RELIED ON ORDERS OF AUTHORITIES BELOW. 14. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTA TIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW AS WELL AS DECISIONS CITED BEFORE US. WE OBSERVE THAT THE SAID EXPENDITURES HAVE BEEN INCURRED BY THE ASSESSEE TOW ARDS AMC AND FOR MAINTENANCE TO ENABLE TO USE COMPUTERS SMOOTHLY FOR ITS BUSINESS PURPOSES. IT IS A FACT THAT IN THE CHANGING TECHNOLOGICAL ENVIRONMENT, IT IS NECESSARY TO KEEP THE SOFTWARE IN THE COMPUTER UPTODATE TO ENABLE THEM TO USE FOR THE PUR POSE OF BUSINESS OF ASSESSEE EFFECTIVELY, PARTICULARLY WHEN ASSESSEE IS IN THE B USINESS OF SHARE BROKING AND SECURITIES. WE ARE OF THE CONSIDERED VIEW THAT ABOVE EXPENDITUR E DO NOT GIVE ANY ENDURING BENEFIT 5 TO THE ASSESSEE. MOREOVER, ASSESSEE ALSO ADMITTED THAT THE SAID EXPENDITURE HAS TO BE INCURRED ON ANNUAL BASIS. CONSIDERING ABOVE FACTS, WE ARE OF THE CONSIDERED VIEW THAT ABOVE EXPENDITURE IS IN THE NATURE OF REVENUE AND A RE TO BE ALLOWED IN THE YEAR IN WHICH THEY HAVE BEEN INCURRED. ACCORDINGLY, WE DELETE TH E DISALLOWANCE OF RS.3,31,864/- BY ALLOWING THE GROUND NOS.4 TO 6 OF APPEAL TAKEN BY THE ASSESSEE. 15. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLO WED IN PART. PRONOUNCED IN THE OPEN COURT ON 23 RD NOVEMBER, 2012 SD/- (SANJAY ARORA) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI, DATED 23 RD NOVEMBER, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),8, MUMBAI 4. COMMISSIONER OF INCOME TAX,III , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH A MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI