ALTIUS FINCAP MARKETS LTD ( FORMERLY KNOWN A S CAPMAN CAPITAL MARKET LTD), MUMBAI V. ACIAT CIR 4(1), MUMBAI

ITA 5723/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8350 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-10-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 10-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: BEHARILAL
• Keywords: Opportunity of being heard; Bad and doubtful debts
• Section: 37(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI . . , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND , SHRI RAJENDRA, ACCOUNTANT MEMBER I.TA. NO. 5723/MUM/2011 ASSESSMENT YEAR 2008-09 ALTIUS FINCAP MARKETS LTD., (FORMERLY KNOWN AS CAPMAN CAPITAL MARKET LTD), SARASWATI PLOT NO. 91/95, RDP 1, LINK ROAD GORAI BORIVALI (WEST), MUMBAI 400 091. PAN: AAACC 2071 L VS. ACIT, CIRCLE 4(1), AAYAKAR BHAVAN, MUMBAI. ( / APPELLANT ) ( ! / RESPONDENT ) ' / APPELLANT BY : SHRI BEHARILAL ! # ' /RESPONDENT BY : SHRI MANOJ KUMAR $ # %& / DATE OF HEARING : 10-10-2012 '() # %& / DATE OF PRONOUNCEMENT : 31-10-2012 * / O R D E R PER RAJENDRA, AM THE PRESENT APPEAL IS DIRECTED AGAINST THE ORDER DT .16.06.2011 PASSED BY THE CIT(A)-8, MUMBAI. FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISED BY THE ASSESSEE- COMPANY : GROUNDS OF APPEAL HEREUNDER ARE WITHOUT PREJUDICE TO ONE ANOTHER; 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS IN LAW THE LEARNED CIT (A) HAS ERRED IN PASSING THE APPEAL ORDER WITHOUT GIVIN G PROPER AND SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE APPELLANT. 2)A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF BAD DEBT S WRITTEN OFF AT RS.13,25,875/-. HE HAS FAILED TO APPRECIATE THAT APPELLANT FULFILLE D ALL THE CONDITIONS LAID DOWN U/S.36(1)(VII) R.W.S. 36(2) OF THE I .T. ACT AND TH EREFORE NO DISALLOWANCE OUGHT TO HAVE BEEN MADE. I.TA. NO. 5723/MUM/2011 ALTIUS FINCAP MARKETS LTD., (FORMERLY KNOWN AS CAPMAN CAPITAL MARKET LTD), 2 B) WITHOUT PREJUDICE HE HAS FURTHER ERRED IN NOT AL LOWING AMOUNTS WRITTEN OFF AT RS. 13,25,875/- AS BUSINESS LOSS OF THE APPELLANT U /S 37(1) OF THE IT ACT. 3) THE ORDER PASSED BY THE LEARNED CIT (A) IS DEVOI D OF ANY MERIT, ARBITRARY, UNCALLED FOR AND BAD IN LAW AND THEREFORE THE APPEL LANT BE GIVEN THE RELIEF AS PRAYED FOR. 4) APPELLANT CRAVES LEAVE TO ADD, ALTER AND/OR MODI FY THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING OF THE APPEAL. 2. ASSESSEE-COMPANY, A MEMBER OF NATIONAL STOCK EXCHAN GE (NSE) AND ENGAGED IN THE BUSINESS OF STOCK BROKING FILED ITS RETURN OF I NCOME ON 24.9.2008 DECLARING TOTAL INCOME AT RS.48.14 LAKHS. INITIALLY THE RETURN WAS PROCESSED U/S.143(1) OF THE INCOME TAX ACT, 1961 (ACT). LATER ON ASSESSING OFFICER (AO ) FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT ON 30.11.2010 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 61.96 LAKHS. 2.1. DURING THE HEARING BEFORE US, AUTHORISED REPRESENTA TIVE (AR) STATED THAT THE ASSESSEE DID NOT WANT TO PRESS GROUND NO.1. AS THE ASSESSEE HAS NOT PRESSED THE GROUND, THEREFORE, SAME IS TREATED AS DISMISSED. 2.2. NEXT GROUND OF APPEAL IS AGAINST DISALLOWANCE OF AS SESSEES CLAIM OF BAD DEBT WRITTEN OFF AMOUNTING TO RS.13,25,875/-.DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE HAD CLAIMED CREDIT OF RS . 13,.25 LAKHS. HE HELD THAT THE AMOUNTS NOT RECOVERED FROM THE CLIENTS COULD NOT BE TREATED AS BAD DEBTS. REFERRING TO THE VARIOUS SECTIONS OF SECURITIES AND EXCHANGE BOA RD OF INDIA ACT, HE HELD THAT PAYMENT MADE BY THE ASSESSEE ON ACCOUNT OF DEFAULTS OF THE CLIENTS WAS AGAINST PUBLIC POLICY. HE DISALLOWED THE BAD DEBTS AS PER THE PROV ISIONS OF SECTION 36 OF THE ACT. HE FURTHER HELD THAT THE ASSESSEE WAS NOT ENTITLED TO CLAIM THE SAID AMOUNT AS BUSINESS LOSS ALSO. 2.3. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER HE HELD THAT THE APPELLANT HAD NOT MADE ANY SUBMISSION IN THIS REGAR D DURING APPELLATE PROCEEDINGS, THAT EXCEPT MENTIONING IN THE STATEMENT OF FACTS TH AT THE AMOUNT WAS NOT RECOVERABLE FROM THE CLIENTS DURING THE NORMAL COURSE OF APPELL ANTS BUSINESS IT DID NOT MAKE ANY SUBMISSION, THAT ASSESSEE HAD NOT CONTRAVENED THE F INDINGS OF THE AO ABOUT NOT SELLING THE SHARES REMAINING WITH IT, THAT THE DISALLOWANCE MADE BY THE AO WAS JUSTIFIED. RELYING UPON THE CASE OF SHREYASH S. MORAKHIA (13 1 TTJ MUMBAI SB 641) HE FURTHER HELD THAT THE SALE VALUE OF SHARES WHICH WE RE BOUND TO REMAIN WITH THE ASSESSEE AND WHICH THE ASSESSEE WAS ENTITLED TO SE LL AND ADJUST THE SALE CONSIDERATION THEREOF AGAINST THE AMOUNT RECEIVABLE FROM THE CLIE NT SO AS TO ARRIVE AT THE ACTUAL AMOUNT OF BAD DEBT, WAS RELEVANT FOR QUANTIFYING TH E ACTUAL AMOUNT OF BAD DEBT. HE ALSO HELD THAT AMOUNT CAN BE ALLOWED TO BE DEDUCTE D AS BAD DEBT WRITTEN OFF WHICH REMAINS AFTER ADJUSTMENT OF SALE CONSIDERATION AND THE SHARES WHICH WERE BOUND TO REMAIN WITH THE ASSESSEE WHICH THE ASSESSEE WAS ENT ITLED TO SELL. HE PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE. 2.4. BEFORE US, AR SUBMITTED THAT ISSUE WAS DECIDED IN F AVOUR OF THE ASSESSEE AS PER THE DECISION DELIVERED BY THE HONBLE JURISDICTIONA L HIGH COURT IN THE CASE OF SHREYASH S. MORAKHIA (342ITR 285). HE FURTHER REL IED UPON THE CASE OF TRF LTD. OF THE HONBLE SC(323ITR397). DEPARTMENTAL REPRESE NTATIVE (DR) RELIED UPON THE ORDERS OF THE AO AND THE FAA. I.TA. NO. 5723/MUM/2011 ALTIUS FINCAP MARKETS LTD., (FORMERLY KNOWN AS CAPMAN CAPITAL MARKET LTD), 3 2.5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL AVAILABLE ON FILE. WE FIND THAT IN THE CASE OF SHREYASH S. MORAKHIA H ONBLE BOMBAY HC HAS UPHELD THE ORDER OF THE MUMBAI ITAT (SPECIAL BENCH). HON BLE COURT HAS HELD AS UNDER : AFTER APRIL 1, 1989, IT IS NOT NECESSARY FOR THE A SSESSEE TO ESTABLISH THAT THE DEBT HAS IN FACT BECOME IRRECOVERABLE AND IT WOULD BE SUFFIC IENT IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. SUB- SECTION (2) OF SECTION 36 OF THE INCOME-TAX ACT, 1961, STIPULATES THAT A DEDUCTION F OR A BAD DEBT OR PART THEREOF SHALL NOT BE ALLOWED UNLESS (A) THE DEBT HAS BEEN TAKEN I NTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHIC H THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YE AR ; OR (B) THE DEBT REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OF BANKING OR MONEY-LENDING WHICH IS CARRIED ON BY THE ASSESSEE.THAT THE VALUE OF THE SHARES T RANSACTED BY THE ASSESSEE AS A STOCK BROKER ON BEHALF OF HIS CLIENT WAS AS MUCH A PART OF THE DEBT AS WAS THE BROKERAGE CHARGED BY THE ASSESSEE ON THE TRANSACTIO N. THE BROKERAGE HAVING BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSE SSEE, IT WAS EVIDENT THAT A PART OF THE DEBT WAS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. THE FACT THAT THE LIABILITY TO PAY THE BROKERAGE MAY ARISE AT A POINT IN TIME ANTERIOR TO THE LIABILITY TO PAY THE VALUE OF THE SHARES TRANSACTED WOULD NOT MA KE ANY MATERIAL DIFFERENCE TO THE POSITION. BOTH CONSTITUTE A PART OF THE DEBT WHICH ARISES FROM THE VERY SAME TRANSACTION INVOLVING THE SALE OR, AS THE CASE MAY BE, PURCHASE OF SHARES. SINCE BOTH FORM A COMPONENT PART OF THE DEBT, THE REQUIREMENTS OF SECTION 36(2)(I) ARE FULFILLED WHERE A PART THEREOF IS TAKEN INTO ACCOUNT IN COMPU TING THE INCOME OF THE ASSESSEE. THEREFORE, THE ASSESSEE WAS ENTITLED TO DEDUCTION B Y WAY OF BAD DEBTS UNDER SECTION 36(1)(VII) READ WITH SECTION 36(2) IN RESPECT OF TH E AMOUNT WHICH COULD NOT BE RECOVERED FROM ITS CLIENTS IN RESPECT OF TRANSACTIO NS EFFECTED BY HIM ON BEHALF OF HIS CLIENTS RESPECTFULLY FOLLOWING THE ORDERS OF THE HONBLE HI GH COURT, WE ALLOW THE APPEAL FILED BY THE ASSESSEE IN PRINCIPAL. THE ASSE SSEE IS ENTITLED TO CLAIM THAT AMOUNT IN QUESTION AS BAD DEBTS U/S. 36 OF THE ACT. BUT, AT THE SAME TIME WE ARE OF THE VIEW THAT CALCULATION OF THE EXACT AMOUNT OF BAD DEBTS H AVE TO BE REWORKED. WE FIND THAT THE SPECIAL BENCH DID NOT COMMENT ON THE ISSUE OF Q UANTIFICATION OF THE AMOUNT OF BAD DEBT, AS IT WAS RAISED BEFORE IT FOR THE FIRST TIME BY THE REVENUE AUTHORITIES. THIS RELATES TO WHETHER THE POTENTIAL SALE VALUE OF SUCH SHARES NEEDS TO BE ADJUSTED AGAINST THE AMOUNT OF BAD DEBT CLAIMED BY THE STOCK BROKER, FOR COMPUTING THE ACTUAL AMOUNT OF THE BAD DEBT INCURRED BY IT? THE MUMBAI ITAT (SP ECIAL BENCH) DIRECTED THE REVENUE AUTHORITIES TO RAISE THIS ISSUE BEFORE THE DIVISION BENCH OF THE MUMBAI ITAT, SUBJECT TO THEM BEING PERMITTED TO DO SO. HO NBLE HIGH COURT HAS ALSO NOT DECIDED THE SAID ISSUE. IN OUR OPINION, IN THE INT EREST OF JUSTICE, MATTER SHOULD BE REMANDED BACK TO THE FILE OF THE AO FOR THE LIMITED PURPOSE OF DETERMINING THE FIGURE OF BAD DEBTS. HE IS DIRECTED TO ADJUDICATE UPON TH E ISSUE AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2012. SD/- SD/- ( . . / I.P. BANSAL ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI, +$ DATE: 31 ST OCTOBER, 2012 I.TA. NO. 5723/MUM/2011 ALTIUS FINCAP MARKETS LTD., (FORMERLY KNOWN AS CAPMAN CAPITAL MARKET LTD), 4 TNMM * * * * # ## # %, %, %, %, -,)% -,)% -,)% -,)% / COPY OF THE ORDER FORWARDED TO : 1. APP ELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR A BENCH, ITAT, MUMBAI 6. GUARD FILE !,% % //TRUE COPY// *$ *$ *$ *$ / BY ORDER, . .. . / / / / / DY./ASSTT. REGISTRAR , / ITAT, MUMBAI