DCIT CEN CIR 3(3) CEN RG 3, MUMBAI V. SHAREKHAN LTD, MUMBAI

ITA 5727/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1360 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2011-2012
• Appeal Filed On: 21-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARJU GORADIASR
• Keywords: Bad and doubtful debts; Revised return

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -JBENCH MUMBAI , , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND R.L. NEGI,JUDICIAL MEMBER ./I.T.A./5727/MUM/2015, / ASSESSMENT YEAR: 2011-12 DY. CIT-, CENTRAL CIRCLE-3(3) ROOM NO.401, AAYAKAR BHAVAN, 4TH FLOOR, M.K. ROAD, MUMBAI-400 020. VS. M/S.SHAREKHAN LTD. LODHA I, THINK TECHNO CAMPUS 10TH FLOOR, BETA BUILDING, OFF JVLR, KANJURMARG (E),MUMBAI-400 002. PAN:AAECS 5096 H ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: MS. ARJU GORADIA-SR.CIT-DR /ASSESSEE BY: SHRI DHARAN GANDHI / DATE OF HEARING: 03/04/2017 / DATE OF PRONOUNCEMENT: 03.04.2017 PER RAJENDRA, AM - CHALLENGING THE ORDER DTD.10.09.2015,OF THE CIT(A)- 51,MUMBAI THE ASSESSING OFFICER(AO)HAS FILED THE PRESENT APPEAL. ASSESSEE-COMPANY IS ENGAG ED IN THE BUSINESS OF SHARE BROKING, FILED ITS RETURN OF INCOME OF 30/09/2011 DECLARING INCOME OF RS.1,10,25,71,740/-.LATER ON A REVISED RETURN WAS FILED ON 25.10.2012 DECLARING INCOME OF RS.109.20 CRORES.THE AO COMPLETED THE ASSESSMENT ON 28/03/2014 U/S.143(3) OF THE ACT DET ERMINING HIS INCOME AT RS.110.29 CRORES. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANCE OF CLAIM OF BAD DEBTS U/S. 36(1)(VII) R.W.S. 36 (2).IN HIS GROUND THE AO HAS OBJECTED TO DELETIN G THE DISALLOWANCE BY THE FIRST APPELLATE AUTHORITY (FAA) BY RELYING ON THE CASE OF SHREYAS S. MORAKHIA (342ITR385). 2.1. DURING THE COURSE OF HEARING BEFORE US, THE REPRESE NTATIVES OF BOTH THE SIDES STATED THAT IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESS EE AND AGAINST THE AO BY THE TRIBUNAL IN ITS ORDER DATED 24.03.17 (ITA 5581/MUM/2015, AY 2009-10 ).WE FIND THAT THE TRIBUNAL HAS DEALT WITH THE ISSUE AS UNDER :- 2. FIRST GROUND OF APPEAL FILED BY THE AO DEALS WITH D ELETING THE ADDITION, AMOUNTING TO RS. 5. 48 CRORE,MADE BY HIM TOWARDS BAD DEBTS. DURING THE ASS ESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD MADE A CLAIM OF RS.5,48,62,845/- UNDER THE HEAD BAD DEBTS CLAIMING THAT THE AMOUNT WAS RECEIVABLE FROM THE CLIENTS IN THE COURS E OF THE BUSINESS CARRIED OUT. IT WAS FURTHER CLAIMED THAT DUE TO DISPUTES WITH THE CLIENTS AMOUN T IN QUESTION WAS NO MORE RECEIVABLE AND WAS WRITTEN OFF AS BAD DEBTS. HOWEVER THE AO WAS NOT CO NVINCED AND HELD THAT THE AMOUNT CLAIMED AS BAD DEBT HAD NEVER BEEN TAKEN INTO ACCOUNT FOR COMP UTING THE INCOME OF THE ASSESSEE, THAT SAME DID NOT FULFILL THE CONDITIONS SET FORTH IN THE SEC TION 36 (2) OF THE ACT.FINALLY,HE DISALLOWED THE CLAIM MADE BY THE ASSESSEE. 2.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA)AND MADE ELABORATE SUBMISSIONS BEFOR E HIM. AFTER CONSIDERING THE SUBMISSION OF 5727/M/15(11-12) SHAREKHAN LTD. 2 THE ASSESSEE AND THE ASSESSMENT ORDER, HE REFERRED TO THE CASE OF SHREYAS S MORAKHIYA(342 ITR 285) OF THE HONORABLE BOMBAY HIGH COURT AND ALLOWED THE CLAIM MADE BY THE ASSESSEE. 2.2. DURING THE COURSE OF HEARING BEFORE US, REPRESENTA TIVES OF BOTH THE SIDES ARGUED THAT WHILE DECIDING THE APPEALS FOR THE TWO EARLIER ASSESSMENT YEARS I.E.2007-08(ITA/9065/MUM/2010- &ITA/1027/MUM/2011-AY.2007-08,DTD.15.05.2015) AND 2 008-09 (ITA.S.6350 AND 6999/ MUM/2011-AY.2008-09,DTD.30/09/2016.),THE TRIBUNAL H AD DECIDED THE ISSUE AGAINST THE AO. WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL FOR THE AY. 2007 - 08(SUPRA), AND IT READS AS UNDER: 6. APROPOS GROUND NO.1, THE ONLY GRIEVANCE OF THE R EVENUE IN THIS GROUND IS THAT LD. CIT(A) HAS ERRED IN ALLOWING RELIEF ON THE BASIS OF DECISION IN THE CASE OF SHREYAS S. MORAKHIA SPECIAL BENCH (MUM) AS THE SAME IS NOT ACC EPTED BY THE DEPARTMENT. NOW IT IS THE CASE OF LD. AR THAT HONBLE BOMBAY HIGH COURT H AS UPHELD THE SAID DECISION OF SPECIAL BENCH IN THE APPEAL FILED BY THE REVENUE AN D REFERENCE WAS MADE TO THE DECISION IN THE CASE OF CIT VS. SHREYAS S.MORARKIA, 342 ITR 285(BOM). 6.1 LD. AO DISALLOWED A SUM OF RS.1,18,82,970/-, RS .90,035 AND RS.52,283/-,WHICH WERE CLAIMED AS BAD DEBTS WRITTEN OFF IN THE P&L ACCOUNT . LD. CIT(A) ALLOWED THE SAME ON THE BASIS OF SPECIAL BENCH DECISION IN THE CASE OF SHRE YAS S. MORARKHIA (SUPRA). AGAINST THE AFOREMENTIONED DECISION OF SPECIAL BENCH, THE REVEN UE TOOK UP THE MATTER IN FURTHER APPEAL BEFORE HONBLE BOMBAY HIGH COURT AND IT WAS HELD THAT THE VALUE OF THE SHARES TRANSACTED BY THE ASSESSEE AS STOCK BROKER ON BEHAL F OF HIS CLIENTS WAS AS MUCH A PART OF THE DEBT AS WAS CHARGED BROKERAGE BY THE ASSESSEE O N THE TRANSACTION. THE BROKERAGE HAVING BEEN CREDITED TO THE P&L 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 BROKERAGE MAY ARISE AT A POINT IN TIME ANTERIOR TO THE LIABILITY TO PAY THE VALUE OF THE SHARES TRANSACTED WOULD NOT MAKE ANY M ATERIAL DIFFERENCE TO THE POSITION. BOTH CONSTITUTE A PART OF THE DEBT WHICH ARISES FRO M SAME TRANSACTION INVOLVING THE SALE OR, AS THE CASE, PURCHASE OF SHARES. SINCE BOTH FOR M A PART OF COMPONENT OF DEBT, THE REQUIREMENT OF SECTION 36(2)(I) ARE FULFILLED, WHER E A PART THEREOF IS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. THEREFORE, IT WAS HELD THAT ASSESSEE IS ENTITLED TO DEDUCTION BY WAY OF BAD DEBT UNDER SECTION 36(1)(VI II) R.W.S. 36(2) IN RESPECT OF AMOUNT WHICH COULD NOT BE RECOVERED FROM ITS CLIENTS IN RE SPECT OF TRANSACTIONS EFFECTED BY HIM ON BEHALF OF HIS CLIENTS. 7. IN THIS VIEW OF THE SITUATION, AFTER HEARING BOT H THE PARTIES, WE FOUND NO INFIRMITY IN THE RELIEF GRANTED BY LD. CIT(A), THEREFORE, GROUND NO. 1 OF THE REVENUES APPEAL IS DISMISSED. RESPECTFULLY,FOLLOWING THE ABOVE ORDER,WE DECIDE FI RST GROUND OF APPEAL AGAINST THE AO. CONSIDERING THE ABOVE EFFECTIVE GROUND OF APPEAL IS DECIDED AGAINST THE AO. AS A RESULT APPEAL FILED BY THE AO STANDS DISMISSED . . ORDER PRONOUNCED I N THE OPEN COURT ON 3 RD APRIL, 2017. 03 , 2017 SD/- SD/- ( / RAM LAL NEGI ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : .04.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 5727/M/15(11-12) SHAREKHAN LTD. 3 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.