ACIT CIR. - 4(2), MUMBAI V. Sri. RAMESH M. DAMANI, MUMBAI

ITA 5764/MUM/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0985 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 26-07-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 03-11-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Keywords: Opportunity of being heard; Bad and doubtful debts; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI R.K. PANDA. ACCOUNTANT MEMBER I.T.A. NO. 5764/MUM/2006 ASSESSMENT YEAR : 2002-03 ASST. CIT, CIRCLE-4(2) R. NO. 642, 6 TH FLOOR AAYAKAR BHAVAN MK ROAD, MUMBAI-400 020 VS. SHRI RAMESH M. DAMANI 1 ST FLOOR, SURYA MAHAL 5, BURJORJI BHARUCHA MARG, FORT, MUMBAI-400 023 PAN: ADJPD 2551 P APPELLANT RESPONDENT ASSESSEE BY : SHRI SURENDRA KUMAR RESPONDENT BY : SHRI HERO RAI ORDER DATE OF HEARING: 29.07.2010 DATE OF ORDER: 02.08.2010 PER R.K. PANDA, AM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 11 TH AUGUST, 2006 OF THE CIT(A)-IV, MUMBAI RELATING TO ASSESSMENT YEAR 2002-03. 2. GROUNDS OF APPEAL NO.1(I) AND 1(II) BY THE REVENUE ARE AS UNDER: 1(I) IN THE FACTS AND ON CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF BAD DEBTS AMOUNTING TO RS.28,59,656/-. (II) IN THE FACTS AND ON CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THE FINDING OF THE AO THAT PROVISIONS OF SEC.36(2) AND SEC. 36(1)(VII) DO NOT APPLY IN THE CASE. I.T.A. NO. 5764/MUM/2006 SHRI RAMESH M. DAMANI ==================== 2 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A SHARES AND SECURITIES BROKER AND IS CARRYING ON BUS INESS OF DEALING IN SHARES, SECURITIES AND MUTUAL FUND UNITS ON BEHALF OF CLIENTS AND ON HIS OWN BEHALF. THE ASSESSING OFFIC ER IN THE ASSESSMENT ORDER PASSED U/S. 143(3)/147 OF THE INCO ME-TAX ACT, 1961 DISALLOWED THE CLAIM OF BAD DEBT OF RS.28 ,59,656 ON THE GROUND THAT AMOUNTS NOT RECOVERED OR TREATED AS NOT RECOVERABLE FROM CLIENTS IN THE CASE OF SHARE BROKE RS CANNOT BE ALLOWED U/S. 36(1)(VII) AS BAD DEBTS UNLESS THE DEB T WAS ONLY IN RESPECT OF UNRECOVERED BROKERAGE. 4. IN APPEAL, THE CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER FOR WHICH THE REVENUE IS IN APPEA L BEFORE US. 5. AFTER HEARING BOTH THE SIDES, WE FIND THE ISSUE NOW STANDS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL I N THE CASE OF DCIT VS. SHRI SHREYAS S. MORAKHIA VIDE I.T.A. NO. 3 374/MUM/ 2004 ORDER DATED 16 TH JULY, 2010 FOR THE A.Y. 1998-99. WE FIND THE TRIBUNAL AT PARA 32 OF THE ORDER HAS HELD AS UN DER: KEEPING IN VIEW ALL THE FACTS OF THE CASE AND THE LEGAL POSITION EMANATING FROM THE VARIOUS JUDICIAL PRONOUNCEMENTS AS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE AMOUNT RECEIVABLE BY THE ASSESSEE, WHO IS A SHARE BROKER, FROM HIS CLIENTS AGAINST THE TRANSACTIONS OF PURCHASE OF SHARES ON THEIR BEHALF CONSTITUTES DEBT WHICH IS A TRADING DEBT. THE BROKERAGE COMMISSION INCOME ARISING FROM SUCH TRANSACTIONS VERY MUCH FORMS PART OF THE SAID DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE/COMMISSION HAS BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVANT PREVIOUS YEA R OR ANY EARLIER YEAR, IT SATISFIES THE CONDITION STIPULATED IN SECTION 36(2)(I) AND THE ASSESSEE IS ENTITLED TO DEDUCTION U/S. 36(1)(VII) BY WAY OF BAD DEBTS AFTER HAVING WRITTEN OF THE SAID DEBTS FROM H IS BOOKS OF ACCOUNT AS IRRECOVERABLE. WE, THEREFORE, I.T.A. NO. 5764/MUM/2006 SHRI RAMESH M. DAMANI ==================== 3 ANSWER THE QUESTION REFERRED TO THIS SPECIAL BENCH IN THE AFFIRMATIVE THAT IS IN FAVOUR OF THE ASSESSEE. 6. RESPECTFULLY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL, THIS GROUND BY THE REVENUE IS DISMISS ED. 7. GROUNDS OF APPEAL NO. 2 BY THE REVENUE READS AS UND ER: IN THE FACTS AND ON CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT SOFTWARE EXPENSES ON A PARTICULAR SOFTWARE SHOULD BE ALLOWED AS REVENUE EXPENDITURE WITHOUT APPRECIATING THE FAC T THAT THE SAME ARE CAPITAL IN NATURE. 8. BOTH THE PARTIES FAIRLY CONCEDED THAT THIS ISSUE SH OULD GO BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF THE DECISION OF DELHI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY INDIA REPORTED IN 111 ITD 112 (SB) (DEL). ACCORDINGLY, THE ISSUE IS RESTORED BACK TO THE ASSE SSING OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH OF THE RIB CITED ABOVE. THE ASSESSING OFFICE R SHALL GIVE ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE THE ISSUE AS PER LAW. WE HOLD AND DIRECT ACCORDING LY. THIS GROUND BY THE REVENUE IS ALLOWED FOR STATISTICAL PU RPOSES. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THE DATE OF HEARING ITSELF, I.E., 29 TH JULY, 2010 SD/- (D. MANMOHAN) VICE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED 2 ND AUGUST, 2010 I.T.A. NO. 5764/MUM/2006 SHRI RAMESH M. DAMANI ==================== 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-IV, MUMBAI 4. THE CIT-4, MUMBAI 5. THE DR D BENCH. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES, MUMBAI TPRAO