M/S. SOVEREIGN GLOBAL FINANCE P.LTD., MUMBAI V. ITO 4(2)(2), MUMBAI

ITA 6200/MUM/2008

• Counselvise Citation: 620019914 RSA 2008
• Duration Of Justice: 3 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 22-12-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 17-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V V SHASTRI
• Keywords: Bad and doubtful debts

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.6200/MUM/2008 ASSESSMENT YEAR-2004-05 M/S. SOVERIGN GLOBAL FINANCE PVT. LTD., 5A, KHATAU BLDG., ALKESHG DINESH MODY MARG, FORT,MUMBAI-400 023 PAN-AACCS 2152C VS. THE ITO-4(2)(2), MUMBAI 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: 13.1.2012 O R D E R PER B.R. MITTAL, JM : THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2004-05 AGAINST ORDER OF LD. CIT(A) DT. 1 ST SEPTEMBER, 2008 ON FOLLOWING GROUND: ON THE FACTS, IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE O F BUSINESS LOSS/BAD DEBTS OF RS. 30,27,742/-. 2. THE RELEVANT FACTS GIVING RISE TO THIS APPEAL AR E THAT ASSESSEE CLAIMED SUNDRY DEBIT BALANCE WRITTEN OFF IN RESPECT OF FOLL OWING PARTIES: NAME OF PARTY RS. SOVERIGN NARIMAN FINVEST PVT. LTD. (WRONGLY WRITTEN SOVERIGN GLOBAL FINANCE PVT. LTD. BY AO) 25,18,300.00 MUKESH BROKERAGE & FIN. (I) LTD. 15,127.30 HARISHBHAI VAISHNAV 1,770.30 MARADIA NILESH C 2,344.61 SOVERIGN SECURITIES PVT. LTD. 2 MAKRAND 7,084.12 K. MATHEW 1,888.56 DIPTI SHAH 2.58 MEHUL VINDO MEHTA 22,493.53 RIYAZ N. MARFATIA 288.80 NANDKUMAR DNYANOBA BHUTE 2,088.74 NARESH S.PARWANI 35,886.38 D.R ARULANANDAN 59,112.41 JITESH SHAH 20,099.29 MANISH C MADADIA 21,615,55 CHANDRIKA PANDYA 14,562.15 SANDEEP PARIKH 3,66,748.22 SUJATA THATTE 9,304.88 S.K. NADEEM 21,024.37 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASS ESSEE GAVE SUBMISSIONS, WHICH ARE STATED BY ASSESSING OFFICER AT PAGE 2 & 3 OF ASSESSMENT ORDER AS UNDER: IN ALL THE CASES AS SHOWN IN OUR LETTER DT. 26 TH SEPT. 2006 LOSS IS BUSINESS LOSS WHICH WERE DUE TO DISPUTE FOR EXCE SS BROKERAGE CHARGED BY US TO THE CLIENTS. EXCEPT IN ONE CASE OF SOVERIGN NARIMAN FINVEST PVT . LTD., WHERE WE HAVE APPLIED FOR SHARE IN SOVERIGN FINVEST PVT. LTD. RS. 10,00,000/- AND ALSO WE WERE HAVING OUTSTANDING OF RS. 15,18,300/-. WE HAVE APPLIED IN THE SHARES OF SOVE RIGN NARIMAN FINVEST PVT. LTD. TO TAB THE OPPORTUNITY OF BUSINESS WITH M/S. SOVERIGN NARIMAN FINVEST PVT. LTD. BUT IN F.Y. 2003- 04 THE NET WORTH OF SOVERIGN NARIMAN WAS NEARLY ERO DED AND ULTIMATELY WE HAVE TO BOOK THE LOSS FOR BOTH FOR SH ARE APPLICATION AS WELL AS OUTSTANDING. SHARE APPLICAT ION WAS ALSO IN THE NATURE OF BUSINESS LOSS AS IT WAS START THE JOINT VENTURE WITH SOVERIGN NARIMAN FINVEST PVT. LTD., JUSTIFICATION FOR WRITE OFF OF SOVERIGN NARIMAN BR OKING PVT. LTD. OUTSTANDING SHOWN IN SOVERIGN NARIMAN BROKING PVT. LTD. RS. 15,18,300 WAS ON ACCOUNT OF INVESTMENT MADE FOR STA RTING THE SOVERIGN SECURITIES PVT. LTD. 3 BRANCH NETWORK. SOVERIGN GLOBAL FINANCE PVT. LTD. WAS INVESTMENT MADE FOR STARTING THE BRANCH NETWORK. S OVERIGN GLOBAL FINANCE PVT. LTD. WAS HAVING THE SUB-BROKERA GE REGISTRATION OF BSE AND SOVERIGN NARIMAN BROKING PV T. LTD. WAS HAVING THE SUB-BROKER REGISTRATION OF NSE . THE AM OUNT WAS INVESTED TO HAVE ACCESS TO BOTH NSE AS WELL AS BSE. THE BRANCH WERE TO SET UP BEFORE 2001-02. BUT THERE WA S CONTINUOUS DELAY AND IN THE MEANTIME SOVERIGN NARIM AN BROKING PVT. LTD. WENT INTO LOSS AND ITS CAPITAL W AS ERODED. THE COMPANYS BROKING BUSINESS WAS ALSO NOT PERFOR MING. IT WAS NECESSARY TO ARRIVE AT TRUE POSITION OF THE COM PANY. IT WAS IN COMPANYS INTEREST TO PUT FULL STOP FOR THE POSSIBILITY OF ANY BUSINESS WITH SOVERIGN NARIMAN BROKING PVT. LTD .. THE OUTSTANDING RS. 15,18,300/- AND THE SHARE APPLICATI ON MONEY RS. 10,00,000 WERE NOT RECOVERABLE AT ALL AS THERE WERE NO ASSETS WITH THE SOVERIGN NARIMAN BROKING PVT. LTD. THE AUDITORS ALSO INSISTED TO WRITE OFF THE AMOUNT WHIC H IS NOT RECOVERABLE. THE LEGAL ACTION WOULD NOT HAVE YIEL DED ANYTHING. THEREFORE TO CLEAN UP THE BALANCE SHEET IT WAS ESSENTIAL THAT COMPANY MUST WRITE OFF THE IRRECOVER ABLE AMOUNT AND KEEP ONLY PERFORMING ASST. HENCE OUTSTANDING WE RE WRITTEN OFF AS BAD AS A MATTER OF PRUDENCE AND BETTER ACCOU NTING POLICIES. THE AO DID NOT ACCEPT THE CLAIM OF ASSESSEE. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE FIRST APPELLATE AUTHORITY. 4. LD. CIT(A) CONFIRMED THE ACTION OF AO BY OBSERVI NG AS UNDER: A) THAT OUT OF CLAIM OF RS. 25,18,300/- PERTAINING TO SOVERIGN NARIMAN BROKING PVT. LTD. RELATES TO AMOUNT GIVEN AS SHARE APPLICATION MONEY. THE ASSESSEE AND SAID SOVERIGN NARIMAN BROK ING PVT. LTD. ARE EXTREMELY CLOSELY LINKED. THE DECISION TO PAY OR NOT TO PAY IS A MATTER BETWEEN TWO CONCERNS IN WHICH MAJOR DECISION MAKERS ARE COMMON. FURTHER ASSESSEE HAS SHOWN RECOVERY OF RS. 5,00,000/- FROM SOVERIGN NARIMAN BROKING PVT. LTD. AS ON 31 ST MARCH, 2005. B) IN RESPECT OF BAD DEBT PERTAINING TO VARIOUS OTHER 1 7 PARTIES AGGREGATING TO RS. 5,09,441/- IS CONCERNED ASSESSEE MADE A CLAIM OF BAD DEBT BY MERELY WRITING OFF THE AMOUNT BUT NO T PRODUCED AN SOVERIGN SECURITIES PVT. LTD. 4 IOTA OF EVIDENCE REGARDING EFFORTS MADE TO RECOVER THE AMOUNTS DUE. HENCE, ASSESSEE IS IN FURTHER APPEAL BEFORE TRIBUNA L. 5. DURING THE COURSE OF HEARING, LD. AR SUBMITTED T HAT ASSESSEE APPLIED FOR SHARES OF SOVERIGN NARIMAN FINVEST PVT. LTD. TO TAB THE OPPORTUNITY OF BUSINESS WITH THAT COMPANY. HOWEVER, ITS FINANCIAL NET WORTH NEARLY ERODED AND ULTIMATELY SHARE APPLICATION MONEY AS WELL AS O UTSTANDING AMOUNT BECAME BUSINESS LOSS AS ASSESSEE WAS TO START JOINT VENTURE WITH SOVERIGN NARIMAN FINVEST PVT. LTD. HE FURTHER SUBMITTED THA T SUM OF RS. 15,18,300/- WAS ON ACCOUNT OF INVESTMENT MADE FOR STARTING THE BRANCH NETWORK BECAUSE ASSESSEE WAS HAVING SUB-BROKERAGE REGISTRATION OF B SE AND WHEREAS SOVERIGN NARIMAN BROKING PVT. LTD., WAS HAVING SUB-BROKERAGE REGISTRATION OF NSE. THE ASSESSEE INVESTED THE AMOUNT TO HAVE ACCESS TO BOTH NSE AS WELL AS BSE. LD. AR SUBMITTED THAT ABOVE FACTS WERE STATED BEFOR E AO AND REFERRED TO PAGES 1 TO 4 OF PAPER BOOK TO SUBSTANTIATE HIS SUBM ISSION. HE FURTHER SUBMITTED THAT BALANCE AMOUNT AGGREGATING TO RS. 5, 09,441/- WAS DUE FROM VARIOUS PARTIES WHICH ASSESSEE COULD NOT RECOVERED AND HENCE CLAIMED AS BAD DEBT AS SAID AMOUNT WAS WRITTEN OFF BY ASSESSEE IN THE ASSESSMENT UNDER CONSIDERATION. LD. AR SUBMITTED THAT SAID AMOUNT HAD BECOME BAD D EBT IN THE REGULAR COURSE OF BUSINESS OF ASSESSEE AND SAME COULD BE AL LOWED AS BUSINESS LOSS. HE FURTHER SUBMITTED THAT OUT OF RS. 25,18,300/-, A SSESSEE RECEIVED RS. 5,00,000/- IN ASSESSMENT YEAR 2005-06 AND SAME WERE OFFERED FOR TAXATION AND SUBSTANTIATE HIS ABOVE SUBMISSION REFER PAGE 34 OF PAPER BOOK WHICH IS A COPY OF LEDGER ACCOUNT FROM 1.4.2004 TO 31.3.2005. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF LD. REPRESENTATIVES OF PARTIES. WE OBSERVE THAT IN THE CASE OF SOVERIGN N ARIMAN FINVEST PVT. LTD (PARTYS NAME WRONGLY MENTIONED BY AO) ASSESSEE APP LIED FOR SHARE OF RS.10 SOVERIGN SECURITIES PVT. LTD. 5 LAKHS FOR THE PURPOSE OF ENTERING INTO A JOINT VENT URE BUT NETWORTH OF THAT COMPANY ERODED AND ASSESSEE COULD NOT RECOVER ANY A MOUNT AS THERE WAS NO ASSET AVAILABLE WITH THAT COMPANY. WE OBSERVE THAT ASSESSEE ENTERED INTO SAID JOINT VENTURE FOR BROKING BUSINESS AND THEREFO RE IT WAS A BUSINESS LOSS TO ASSESSEE. FURTHER WE OBSERVE THAT THE AMOUNT OF RS. 15,18,300/- WAS THE OUTSTANDING FROM SOVERIGN NARIMAN BROKING PVT. LTD. , ON ACCOUNT OF INVESTMENT MADE FOR STARTING BRANCH NETWORK AND SAM E ALSO COULD NOT BE RECOVERED BY ASSESSEE. THE ABOVE FACTS ARE NOT IN DISPUTE. WE ARE OF THE CONSIDERED VIEW THAT ENTIRE AMOUNT WHICH WERE DUE T O ASSESSEE WAS ON ACCOUNT OF NORMAL BUSINESS ACTIVITY OF ASSESSEE. HE NCE SAME IS TO BE ALLOWED AS BUSINESS LOSS FOR ASSESSMENT YEAR UNDER CONSIDER ATION. WE OBSERVE THAT ASSESSEE RECOVERED IN ASSESSMENT YEAR 2005-06 A SUM OF RS. 5,00,000/- AS IS EVIDENT FROM PAGE-34 OF PAPER BOOK. THE ASSESSEE O FFERED THE SAME FOR TAXATION AND SAID FACT WAS NOT DISPUTED BY LD. DR. 7. FURTHER IN RESPECT OF BALANCE AMOUNT OF RS. 5,09 ,441/-, ON PERUSAL OF DETAILS MENTIONED HEREINABOVE, WE OBSERVE THAT SAID AMOUNT WAS DUE FROM THE PARTIES IN THE NORMAL COURSE OF BUSINESS OF ASS ESSEE. SINCE ASSESSEE HAD WRITTEN OFF THE AMOUNT IN THE ASSESSMENT YEAR UNDER CONSIDERATION, WE ARE OF THE CONSIDERED VIEW THAT SAME IS TO BE ALLOWED ALSO AS BUSINESS LOSS BECAUSE SAID AMOUNT WAS DUE RELATING TO DISPUTED BROKERAGE WHICH WAS NOT RECOVERED. 8. IN VIEW OF ABOVE, WE ALLOW GROUND OF APPEAL TAK EN BY ASSESSEE BY REVERSING THE ORDERS OF AUTHORITIES BELOW. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED ON THIS 13 TH DAY OF JANUARY, 2012. SD/- SD/- ( J.SUDHAKAR REDDY) (B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 13 TH JANUARY, 2012 RJ SOVERIGN SECURITIES PVT. LTD. 6 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