PARUL P. SHAH, MUMBAI V. ITO 17(2)(1), MUMBAI

ITA 5836/MUM/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6118 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-11-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 03-11-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIVAS RAO
• Assessee Lawyers: D C JAIN
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI VIJAY PAL RAO, JM ITA NO.5836/MUM/2009 : ASST.YEAR 2004-2005 SMT.PARUL P.SHAH 321-A, RAVI KIRAN, DEODHAR ROAD MATUNGA (CR), MUMBAI 400 019. PA NO.AOIPS6497K. VS. THE INCOME TAX OFFICER WARD 17(2)(1) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D.C.JAIN RESPONDENT BY : SHRI GOLI SRINIVAS RAO O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 03.06.2009 IN RELATION TO THE ASSESSMENT YEAR 2004-2005. 2. FIRST GROUND IS AGAINST THE CONFIRMATION OF DISA LLOWANCE OF RS.6,94,125 BEING THE AMOUNT OF BAD DEBT. BRIEFLY STATED THE FA CTS OF THIS GROUND ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SHARE TRADI NG AS WELL AS SHARES INVESTMENT. SHE CLAIMED DEDUCTION FOR THE ABOVE SAID SUM. THE A SSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN THE NATURE OF BAD DEBT STATING THE NATURE OF DEBT, RELATIONSHIP WITH THE DEBTOR AND PERIOD OF DEBT. THE ASSESSEE WA S ALSO REQUESTED TO FILE THE COPY OF LEDGER ACCOUNT OF THE DEBTOR FROM THE DAY WHEN I T BECAME THE DEBTOR. THE ASSESSEE DID NOT SUBMIT ANY EXPLANATION AS CALLED F OR BY THE AO EXCEPT THE LEDGER ACCOUNT OF M/S.PROSOBEE INVESTMENT, WHOSE BALANCE W AS CLAIMED AS BAD DEBT. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD SHOWN TO HAVE PURCHASED AND SOLD SHARES IN TRANSACTIONS WITH PROSOBEE INVESTMENT, WH ICH WAS A RELATED CONCERN. IT WAS FURTHER SEEN THAT THE ASSESSEE WAS TRADING IN S HARES AS WELL AS WAS ACTING AS INVESTOR. IN THE ABSENCE OF ANY MATERIAL TO INDICAT E THAT THE SHARES PURCHASED FROM PROSOBEE INVESTMENT WERE ON TRADING ACCOUNT AND FU RTHER IN THE ABSENCE OF ANY ITA NO.5836/MUM/2009 SMT.PARUL P.SHAH. 2 EVIDENCE IN SUPPORT OF THE DEDUCTION, THE ASSESSING OFFICER MADE DISALLOWANCE OF THE CLAIM OF BAD DEBT. IN THE COURSE OF FIRST APPEA L THE ASSESSEE FILED CERTAIN DETAILS. THE LEARNED CIT(A) FORWARDED THE SAME TO THE ASSESS ING OFFICER FOR REMAND REPORT. THE A.O. SUBMITTED THE REMAND REPORT STATI NG THAT IN ALL TRANSACTIONS WITH PROSOBEE INVESTMENT, NO MONEY WAS PAID OR RECEIVE D BUT ONLY BOOK ENTRIES WERE MADE. IT WAS, THEREFORE, OPINED THAT THE CLAIM OF B AD DEBT WAS NOT SUPPORTED BY THIRD PARTY EVIDENCE BUT ONLY THROUGH THE LEDGER AC COUNT, WHICH WAS SELF-GENERATED. THERE WAS NO EVIDENCE THROUGH BANK ENTRIES TO SHOW THAT THE SHARES WERE PURCHASED AND SOLD, RESULTING INTO BAD DEBT. THE ASSESSEE WAS FOUND TO BE LACKING IN FILING EVEN COPY OF BROKERS NOTE DURING THE COURSE OF AS SESSMENT PROCEEDINGS AS WELL AS THE REMAND PROCEEDINGS. THE LEARNED CIT(A) NOTED TH AT PROSOBEE INVESTMENT IS A FAMILY CONCERN AND THERE WAS NO EVIDENCE OF THE TRA NSACTIONS OF PURCHASE AND SALE OF SHARES ACTUALLY TAKING PLACE AND FURTHER THE AM OUNT BECOMING IRRECOVERABLE. HE, THEREFORE, UPHELD THE IMPUGNED ORDER ON THIS ISSUE, AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD IT IS NOTED THAT THE ASSESSEE RECORDED THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES WITH M/S.PRASOBEE INVESTMENT IN HER BOOKS OF ACCOUNT. COPY OF LEDGER ACCOUNT IS AVAILABLE. FROM THE COPY OF SAID ACCOUNT AVAILABLE AT PAGE 11 OF THE PAPER BOOK, IT IS SEEN THAT THERE ONLY SOME DEBIT A ND CREDIT ENTRIES THROUGH JOURNAL. ON A SPECIFIC QUERY FROM THE BENCH, THE LEARNED A.R . COULD NOT PLACE ON RECORD ANY MATERIAL TO INDICATE THAT THE TRANSACTIONS OF PURCH ASE AND SALE WITH PROSOBEE INVESTMENT DID ACTUALLY TAKE PLACE. NO EVIDENCE IN THE SHAPE OF BROKERS ADVICE WAS SUBMITTED. NO PAYMENT AT THE TIME OF PURCHASE O F SHARES WAS MADE NOR ANY RECEIPT WAS THERE AT THE TIME OF MAKING THE SALE. T HE LEARNED A.R., ON A SPECIFIC QUERY, COULD NOT POINT OUT THE NAMES OF THIRD PART IES TO WHOM THE SHARES PURCHASED FROM PROSOBEE INVESTMENT, WERE SOLD. IN VIEW OF TH E ABOVE DISCUSSION IT IS CLEAR THAT THE VERY FACT OF GENUINENESS OF TRANSACTION IN THIS ACCOUNT WITH A RELATED ITA NO.5836/MUM/2009 SMT.PARUL P.SHAH. 3 CONCERN, IS NOT PROVED BEYOND THE SHADOW OF DOUBT. ANOTHER IMPORTANT FACTOR, WHICH NEEDS TO BE TAKEN INTO CONSIDERATION IS THAT THE ASSESSEE WAS BOTH AN INVESTOR AS WELL AS TRADER IN SHARES. IT IS ONLY ON ACCOUNT OF THE TRADING IN SHARES THAT THE QUESTION OF BAD DEBTS IS RELEVANT. IF HOWEVER, THE AMOUNT RECEIVABLE HAS BECOME BAD IN THE COURSE OF INVESTMENT ACTIVITY, THEN IT W OULD CEASE TO BE BAD DEBT. THE ASSESSEE DID NOT INDICATE ANY MATERIAL TO ESTABLISH THAT THE LOSS OF BAD DEBT, EVEN IF PRESUMED TO BE GENUINE, RELATED TO THE SHARES IN R ESPECT OF WHICH TRADING WAS DONE. IN VIEW OF THESE FACTS WE HOLD THAT THE LEARNED CIT (A) WAS JUSTIFIED IN NOT GRANTING DEDUCTION ON THIS ISSUE. 4. THE ONLY OTHER GROUND IS AGAINST THE CONFIRMATIO N OF DISALLOWANCE OF RS.1,95,956 OUT OF ADMINISTRATIVE EXPENSES ON PRO-R ATA BASIS. THE A.O. NOTED THAT THE ASSESSEE CLAIMED ADMINISTRATIVE EXPENSES OF RS. 5,93,432, AS PER HER INCOME AND EXPENDITURE ACCOUNT. NO BASIS OF ALLOCATION OF THES E EXPENSES BETWEEN TRADING INCOME AND CAPITAL GAIN WAS FILED. AS THE ASSESSEE WAS DEALER AS WELL AS INVESTOR IN SHARES, THE ASSESSING OFFICER HELD THAT DISTRIBUTIO N OF EXPENSES WAS CALLED FOR ON THE BASIS OF SHARE TRADING INCOME AND CAPITAL GAIN. HE, THEREFORE, HELD THAT THE SUM OF RS.3,37,706 WAS RELATABLE TO CAPITAL GAIN AND HE NCE NOT ALLOWABLE. WHEN THE MATTER CAME UP BEFORE THE LEARNED CIT(A), THE ASSES SEE ARGUED THAT THE SUM OF RS.1,72,634 INCLUDED IN THE ABOVE EXPENDITURE, REP RESENTED THE INTEREST RELATING TO TRADING ACTIVITY. THE LEARNED CIT(A) CONCURRED WITH THE SUBMISSIONS ADVANCED ON BEHALF OF THE ASSESSEE ON THIS SCORE AND HELD THAT THE PRO-RATA ALLOCATION WAS CALLED FOR ON THE AMOUNT OF EXPENDITURE REMAINING AFTER RE DUCING INTEREST OF RS.1,72,634 FROM TOTAL ADMINISTRATIVE EXPENSES OF RS.5,19,432. IN THIS WAY, HE DETERMINED THE AMOUNT DISALLOWABLE AT RS.1,95,956. THE ASSESSEE IS AGGRIEVED AGAINST THE SUSTENANCE OF THIS DISALLOWANCE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED A.R. CONTENDED THAT NO EXPENDIT URE WAS INCURRED ON THE SHARES ITA NO.5836/MUM/2009 SMT.PARUL P.SHAH. 4 HELD AS INVESTMENT. WE ARE NOT CONVINCED WITH THE S UBMISSION ADVANCED ON BEHALF OF THE ASSESSEE FOR THE REASON THAT WHEN THE ASSESS EE IS A DEALER AS WELL AS INVESTOR IN SHARES, SOME SORT OF COMMON EXPENDITURE IS ALWA YS BOUND TO BE INCURRED FOR BOTH THE STREAMS OF ACTIVITIES. IN THE ABSENCE OF THE ASSESSEE HAVING FURNISHED ANY REASONABLE BASIS FOR ALLOCATION OF SUCH COMMON EXPE NDITURE BETWEEN THE TWO TREADING AND INVESTMENT ACTIVITIES, WE ARE OF THE CONSIDERED OPINION THAT THE LEARNED CIT(A) WAS JUSTIFIED IN RESTRICTING THE DIS ALLOWANCE OF RS.1,95,956 ON THE BASIS OF TRADING INCOME AND CAPITAL GAIN. NO INTERF ERENCE IS CALLED FOR IN THE IMPUGNED ORDER ON THIS SCORE. 4. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 3 RD DAY OF DECEMBER, 2010. SD/- SD/- ( VIJAY PAL RAO ) ( R.S.SYAL ) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI : 3 RD DECEMBER, 2010. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - XVII, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.