M/s. SOVEREIGN SECURITIES P. LTD., MUMBAI V. ITO - 4(2)(2), MUMBAI

ITA 6048/MUM/2006

• Counselvise Citation: 604819914 RSA 2006
• Duration Of Justice: 5 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 22-12-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 16-11-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: V V SHASTRI
• Keywords: Depreciation; Speculation loss; Bad and doubtful debts; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI J. SUDHAKAR REDDY (ACCOUNTANT MEMBER) ITA NO.6048/MUM/2006 ASSESSMENT YEAR-2003-04 M/S. SOVERIGN SECURITIES PVT. LTD., 5A, KHATAU BLDG., ALKESHG DINESH MODY MARG, FORT, MUMBAI-400 023 PAN-AAECS 5874P VS. THE ITO-4(2)(2), MUMBAI ITA NO.5639/MUM/2006 ASSESSMENT YEAR-2003-04 THE ITO-4(2)(2), MUMBAI VS. M/S. SOVERIGN SECURITIES PVT. LTD., 5A, KHATAU BLDG., ALKESHG DINESH MODY MARG, FORT, MUMBAI-400 023 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI V.V. SHASTRI RESPONDENT BY: SHRI VIPUL B. JOSHI SHRI SAMEER G. DALAL DATE OF HEARING :27.12.2011 DATE OF PRONOUNCEMENT: 30.12.2011 O R D E R PER B.R. MITTAL, JM : THESE CROSS APPEALS ARE FILED BY ASSESSEE AS WELL A S DEPARTMENT AGAINST ORDERS OF LD. CIT(A) DT. 10.8.2006 ON FOLLO WING GROUNDS: ITA NO. 6048/MUM/06 ASSESSEES APPEAL SOVERIGN SECURITIES PVT. LTD. 2 1. THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF SHARE TRADING LOSS MORE SO BY INVOKING EXPLANATION TO SEC . 73 AND TREATING THE SAME AS SPECULATION LOSS. 2. THE LD. CIT(A) ERRED IN ESTIMATING A SUM OF RS. 3, 62,121/- BEING EXPENSES INCURRED ON BUSINESS OF PURCHASE AND SALE OF SHARES AND TREATING THE SAME AS PART OF SPECULAT ION LOSS. 3. THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE PF SOFTWARE EXPENSES AS CAPITAL EXPENDITURE AMOUNT TO RS. 1,32, 884/-. ITA NO. 5639/M/09 DEPARTMENTAL APPEAL 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN ALLOWING THE BAD DEBT WRITTEN O FF OF RS. 7,15,459/- TREATING THE SAME AS BUSINESS LOSS U/S. 28(1) OF THE ACT WITHOUT APPRECIATING THAT THE SAME HAD NOT BEEN SHOWN TO HAVE CRYSTALLIZED DURING THE CURRENT YEAR IN QUESTION. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN ALLOWING THE BAD DEBT WRITTEN O FF OF RS.7,15,459/- AS BUSINESS LOSS WITHOUT APPRECIATING THAT FOR WRITING OFF OF DEBTS, THERE BEING SPECIFIC PROVISIO N OF 36(2) THE SAME CANNOT BE CONSIDERED UNDER OTHER PROVISION S AS HELD BY ITAT BOMBAY BENCH IN THE CASE OF HARSHAD J. CHOKSI, 52 ITD 511 WHEREIN IT HAS BEEN HELD THAT LO SS ON ACCOUNT OF BAD DEBTS CAN ONLY BE ALLOWED WITH REFER ENCE TO THE FULFILLMENT OF CONDITIONS CONTAINED U/S. 36(2). THE APPLICABILITY OF THE SPECIFIC PROVISION CANNOT BE I GNORE. 3. IN RESPECT OF GROUND NO. 1 OF APPEAL, RELEVANT FACTS ARE THAT ASSESSEE IS IN THE BUSINESS OF SHARE TRADING. ON ACCOUNT OF TRADING IN SHARES AND SECURITIES, ASSESSEE DECLARED LOSS OF RS. 28,06,630 /- AS BUSINESS LOSS. THE SAID LOSS WAS DISALLOWED CONSIDERING IT AS SPECULAT ION LOSS. 4. THE ASSESSEE FILED APPEAL BEFORE FIRST APPELLATE AU THORITY. HOWEVER, LD. CIT(A) CONFIRMED ACTION OF ASSESSING OFFICER. HENCE ASSESSEE IS IN FURTHER APPEAL BEFORE TRIBUNAL. 5. AT THE TIME OF HEARING, LD. AR SUBMITTED THAT SAID LOSS WAS ARISING ON ACCOUNT OF VALUATION OF CLOSING STOCK OF SHARES AS ON 31.3.2003 AND AS SUCH SOVERIGN SECURITIES PVT. LTD. 3 IT IS OUTSIDE THE PURVIEW OF EXPLANATION TO SEC. 73 OF THE ACT. HE FURTHER REFERRED TO PAGE-1 OF HIS COMPILATION WHICH GIVES B REAK-UP OF SAID AMOUNT OF RS. 28,06,630/- AND SUBMITTED THAT IN THE SAID AMOU NT ASSESSEE ALSO CONSIDERED LOSS OF RS. 6,68,533.85 WHICH WAS AGAIN ADDED BY AO WHILE COMPUTING INCOME AT PAGE-9 OF ASSESSMENT ORDER. TH US THERE IS A DOUBLE ADDITION AS FAR AS RS. 6,68,534/- IS CONCERNED. HE SUBMITTED THAT IT IS MISTAKE WHICH HAS NOT BEEN CONSIDERED BY LD. CIT(A) . 6. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ABOV E ISSUE IS COVERED AGAINST ASSESSEE BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. PRASAD AGENTS PVT. LTD. VS ITO IN ITA NO. 19 OF 2009 VIDE ORDER DT. 20 TH MARCH, 2009. HOWEVER IN RESPECT OF FACTUAL MISTAK E POINTED OUT BY LD. AR, LD. DR SUBMITTED THAT SAME COULD BE RESTORED TO AO TO DO THE NEEDFUL AFTER VERIFICATION OF FACTS. 7. ON CONSIDERATION OF SUBMISSIONS OF LD. REPRESENTATI VES OF PARTIES AND THE FACT THAT ISSUE IS COVERED AGAINST ASSESSEE BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT (SUPRA) WHICH LD. AR COUL D NOT CONTROVERT, WE UPHOLD THE ORDER OF LD. CIT(A) BY REJECTING GROUND NO. 1 OF APPEAL TAKEN BY ASSESSEE. HOWEVER, IN RESPECT OF FACTUAL MISTAKE P OINTED OUT BY LD. AR THAT THERE IS DOUBLE DISALLOWANCE OF RS. 6,68,534/-, AS THE SAID AMOUNT ASSESSEE INCLUDED WHILE AGGREGATING THE SHARE LOSS OF RS. 28 ,06,630/- WHICH WAS DISALLOWED BY AO AND ALSO MADE SEPARATE DISALLOWANC E OF RS. 6,68,534/-, WE AGREE WITH REPRESENTATIVES OF PARTIES THAT AO WILL EXAMINE THE FACTS AND DO THE NEEDFUL WHILE GIVING EFFECT TO OUR ORDER. HENC E GROUND NO. 1 TAKEN BY ASSESSEE IS REJECTED SUBJECT TO ABOVE OBSERVATION. 8. GROUND NO. 2 OF APPEAL IS CONSEQUENTIAL TO GROUND N O. 1 OF APPEAL OF ASSESSEE. IN VIEW OF OUR ABOVE DECISION, GROUND NO . 2 IS REJECTED. 9. IN RESPECT OF GROUND NO. 3 OF APPEAL, WE HAVE HEARD THE LD. REPRESENTATIVES AND PERUSED THE ORDERS OF AUTHORITI ES BELOW. WE OBSERVE FROM THE DETAILS AS GIVEN BY AO AT PAGE-4 OF ASSESS MENT ORDER THAT SAID SOVERIGN SECURITIES PVT. LTD. 4 EXPENDITURE AGGREGATING TO RS. 1,32,884/- WAS INCUR RED BY ASSESSEE FOR UPGRADATION OF SOFTWARE FOR ITS COMPUTER. CONSIDER ING THE DECISION OF ITAT, SPECIAL BENCH IN THE CASE OF AMWAY INDIA ENTERPRISE S VS DCIT 111 ITD 112 (SB), WE HOLD THAT SAID EXPENDITURE IS REVENUE IN N ATURE. THEREFORE GROUND NO. 3 OF APPEAL TAKEN BY ASSESSEE IS ALLOWED BY REV ERSING THE ORDERS OF AUTHORITIES BELOW. WE MAY STATE THAT DEPRECIATION I F ANY, ALLOWED TO ASSESSEE BY CONSIDERING THE SAID EXPENSES AS CAPITAL IN NATU RE, SAME SHALL BE REVERSED. HENCE GROUND NO. 3 OF APPEAL IS ALLOWED. 10. NOW WE TAKE UP THE APPEAL FILED BY DEPARTMENT BEING ITA NO. 5639/M/06. 11. WE HAVE HEARD LD. REPRESENTATIVES OF PARTIES AND H AVE PERUSED THE ORDERS OF AUTHORITIES BELOW. WE OBSERVE THAT ASSES SEE HAD WRITTEN OF BAD DEBTS OF RS. 7,15,459/-.32 UNDER THE HEAD SUNDRY BA LANCES WRITTEN OFF. THE ASSESSEE STATED THAT THESE DEBTS RELATED TO LEASELI NE CHARGES DEBITED TO PARTIES AND OTHER NORMAL BUSINESS OUTSTANDINGS. TH E ASSESSEE CLAIMED THAT IT COULD NOT RECOVER THE SAID SUM, HENCE WRITTEN OF F FROM ITS BOOKS OF ACCOUNT. THE AO DID NOT ALLOW THE CLAIM ON THE GRO UND THAT (I) ASSESSEE DID NOT EXHAUST ALL REMEDIES AVAILABLE UNDER LAW TO REC OVER THE OUTSTANDING DUES AND DID NOT ESTABLISH THAT DEBTS HAD BECOME BAD, (I I) THE AMOUNT WAS NOT SHOWN AS INCOME OF ASSESSEE AND AS SUCH IT WAS NOT COVERED U/S. 36(2) OF THE ACT. HOWEVER, LD. CIT(A) ACCEPTED THE FACT THA T IT WAS A BUSINESS LOSS AND SAME IS ALLOWABLE U/S. 28(I) OF THE ACT. 12. DURING THE COURSE OF HEARING, LD. DR COULD NOT DISP UTE THE ABOVE FINDING OF LD. CIT(A) SAVE AND ACCEPT RELYING ON TH E ORDER OF AO. ON THE OTHER HAND LD. AR SUBMITTED THAT LEASELINE CHARGES WERE NOT PAID BY SOME OF THE CLIENTS; HENCE THEY WERE OUTSTANDING AND WRITTE N OFF BY ASSESSEE BY TAKING A BUSINESS DECISION. CONSIDERING THE FACTS OF THE CASE AND THE REASONINGS AS GIVEN BY LD. CIT(A), WE HOLD THAT THE RE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A). THUS, WE UPHOLD THE ORDER OF LD. CIT(A) BY REJECTING GROUND OF APPEAL TAKEN BY DEPARTMENT. SOVERIGN SECURITIES PVT. LTD. 5 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART, WHEREAS APPEAL OF DEPARTMENT IS DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF DECEMBER, 2011 SD/- SD/- ( J.SUDHAKAR REDDY) (B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 30 TH DECEMBER, 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR E BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI DATE INITIALS 1. DRAFT DICTATED ON: 28.12.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 28.12.2011 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: SOVERIGN SECURITIES PVT. LTD. 6