ITO 4(3)(4), MUMBAI V. M/s. MKM FINANCE & INVESTMENT P. LTD., MUMBAI

ITA 6655/MUM/2005

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0929 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 26-07-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 16-11-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADEEP S HEDAOO
• Assessee Lawyers: MRS AARTI VISSANJI
• Keywords: Bad and doubtful debts
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI D.K. AGARWAL, J.M. AND SHRI A.L. GEHLOT , A.M. ITA NO. 6655/M/2005 ASSESSMENT YEAR: 2001-02 INCOME TAX OFFICER-4(3)(4), APPELLANT R.NO. 637, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020 VS. M/S M.K.M. FINANCE & INVESTMENT PVT. LTD., RESPON DENT C/25, EMPIRE MAHAL, 806, DR. A.B. ROAD, KHODADAD CIRCLE, DADAR, MUMBAI 400 014 (PAN AACBM6735G) APPELLANT BY : MR. PRADEEP S. HEDAOO RESPONDENT BY : MRS. AARTI VISSANJI ORDER PER A.L. GEHLOT, A.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)- XIV, MUMBAI, PASSED ON 30.08.2005 FO R THE ASSESSMENT YEAR 2001-02 WHEREIN THE REVENUE HAS RAI SED THE FOLLOWING GROUND OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF BAD DEBTS AMOUNTING TO RS. 1,12,90,171/- U/S 28 OF THE I.T. ACT, 1961, WITHOUT APPRECIATING THE AOS C ONTENTION THAT THE BAD DEBTS CLAIMED BY THE ASSESSEE WAS PREM ATURE TO BE WRITTEN OFF IN THE FINANCIAL YEAR RELEVANT TO AS SESSMENT YEAR UNDER CONSIDERATION. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE CLAIMED BAD DEBTS OF RS. 1,26,99,163/- U/S 36(1)(VII) READ WIT H SECTION 36(2) OF THE ACT. THE AO DISALLOWED THE SAID CLAIM OF THE AS SESSEE ON THREE GROUNDS, NAMELY, I) THE ASSESSEE HAS NOT SATISFIED THE CONDITION SPECIFIED U/S 36(2) OF THE ACT AS THE ASSESSEE IS A SHARE BROKER AND HE HAS CLAIMED THE BAD DEBTS ON PRINCIPAL AMOUNT AS WELL AS ON BROKERAGE AMOUNT. THE AO HAS GIVEN PARTY-WISE DETAI LS OF THE BAD DEBTS AT PAGE 2 OF THE ASSESSMENT ORDER. II) THE SE COND REASON WAS GIVEN BY THE AO IS THAT THE ASSESSEE HAS FAILED TO PROVE THAT THE ITA NO. 6655/M/2005 MKM FINANCE & INVESTMENT P. LTD.. 2 DEBTS BECOME BAD DURING THE YEAR UNDER CONSIDERATIO N. III) THE THIRD REASON IS THAT THE AO REJECTED THE ASSESSEES CLAIM TO BE ALLOWED AS BUSINESS LOSS U/S 28 OF THE ACT. THE CI T(A) CONFIRMED THE AOS VIEWS AND AS REGARDS THE ALLOWABILITY OF B AD DEBTS U/S 36(1)(VII) READ WITH SECTION 36(2) ON THE GROUND TH AT THE ASSESSEE HAS NOT SATISFIED THE CONDITION LAID DOWN IN SECTIO N 36(2) OF THE ACT. HOWEVER, THE CIT(A) ALLOWED THE ASSESSEES CLA IM AS BUSINESS LOSS. HENCE, THE REVENUE IS IN APPEAL AGAINST THE O RDER OF CIT(A). 3. THE LEARNED DR SUBMITTED THAT THE CIT(A) DID NOT APPRECIATE THE REASON OF DISALLOWANCE THAT THE DEBT DID NOT BE COME BAD IN THE YEAR UNDER CONSIDERATION. HE FURTHER SUBMITTED THAT THE ASSESSEE DID NOT FILE ANY APPEAL, THEREFORE, THE CLAIM OF TH E ASSESSEE U/S 36(1)(VII) READ WITH SECTION 36(2) CANNOT BE ALLOWE D FOLLOWING THE ORDER OF ITAT, SPECIAL BENCH, IN THE CASE OF SHRI SHREYAS S. MORAKHIA VIDE ITA NO. 3374/MUM/04 ORDER DATED 16 TH JULY, 2010. 4. THE LEARNED AR, ON THE OTHER HAND, RELIED UPON T HE ORDER OF CIT(A) AND SUBMITTED THAT THE ASSESSEE HAS RAISED A LL THE RELEVANT GROUNDS AND IF THE CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON THE BASIS OF ONE OF THE GROUND, THE ASS ESSEE IS ENTITLED TO CHALLENGE THE FINDING OF CIT(A) IN ACCORDANCE WI TH RULE 27 OF THE ITAT RULES. SHE FURTHER SUBMITTED THAT IN SUBSEQUEN T YEARS, THE ASSESSEE HAS WRITTEN OFF THE BAD DEBTS IN THE BOOKS OF ACCOUNT IN THE YEAR UNDER CONSIDERATION. FOR THIS PURPOSE, SHE REFERRED PAGE 41 OF THE ASSESSEES PAPER BOOK AND SUBMITTED THAT ONE OF THE PARTY KAUSHIK UNADKAT, WHOSE CHEQUE HAS BEEN DISHONOURED ON 14 TH DECEMBER, 2000 AND THE BALANCE AMOUNT WAS TRANSFERR ED TO 31 ST MARCH 01. THE ASSESSEE HAS PRIMA-FACIE ESTABLISHED THAT THE DEBT HAS BECOME BAD IN THE YEAR UNDER CONSIDERATION ITSE LF. SHE FURTHER SUBMITTED THAT IN THE SUBSEQUENT YEAR THERE WERE RE COVERIES, WHICH HAD BEEN OFFERED TO TAX BY THE ASSESSEE AND THE SAM E WERE ACCEPTED BY THE REVENUE. THE LEARNED AR FURTHER SUBMITTED TH AT THE AO HAS NOT APPRECIATED COMPLETE FACTS AS HE NOTED THE ISSU ANCE OF DISHONOUR OF CHEQUES IN SECOND INSTANCE, WHICH IS P ERTAINING TO SUBSEQUENT YEAR BUT ORIGINALLY THE CHEQUE WAS DISHO NOURED DURING ITA NO. 6655/M/2005 MKM FINANCE & INVESTMENT P. LTD.. 3 THE YEAR UNDER CONSIDERATION. THE LEARNED AR REFERR ED A LETTER DATED 22 ND AUGUST, 2005 ADDRESSED TO CIT(A) AND POINTED OUT T HE SAID FACT IN THE SAID LETTER AND THE SAME HAS BEEN PLACED AT PAGE 16 OF THE PAPER BOOK. 5. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. THE ADMITTED FACTS OF THE CASE ARE THAT THE ASSESSEE HAS WRITTEN OFF THE BAD DEBTS IN THE BOOKS OF ACCOUNT FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS PRIM A-FACIE PROVIDE THAT THE DEBTS BECAME BAD. AS REGARDS CONDITION SPE CIFIED IN SECTION 36(2) OF THE ACT, WE FIND THAT THE ASSESSEE IS A SHARE BROKER AND IN CASE OF SHARE BROKER THE PRINCIPAL AMOUNT AS WELL AS BROKERAGE IS ALLOWABLE AS BAD DEBTS U./S 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT. WE RESPECTFULLY FOLLOW THE ORDER OF ITAT SPECIAL BENCH MUMBAI IN THE CASE OF SHRI SHREYAS S. MORAKH IA (SUPRA) AND IN THE LIGHT OF THAT THE CLAIM OF THE ASSESSEE IS ALLOWABLE U/S 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT. A CO PY OF THE SAID ORDER FILED BY THE LEARNED AR HAS BEEN PLACED ON RECORD. KEEPING IN VIEW OF THE RULE 27 OF THE ITAT RULES, WE ARE OF THE CON SIDERED VIEW THAT THE ASSESSEE HAS CLAIMED BAD DEBTS U/S 361)(VII) RE AD WITH SECTION 36(2) OF THE ACT, THEREFORE, THE SAME IS ALLOWABLE THOUGH THE CIT(A) HAS ALLOWED THE ASSESSEES CLAIM AS BUSINESS LOSS. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JULY, 2010. SD/- SD/- (D. K. AGARWAL) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED: 30 TH JULY, 2010 ITA NO. 6655/M/2005 MKM FINANCE & INVESTMENT P. LTD.. 4 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, H BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 26.7.10 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 27.7.10 SR.P.S/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.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER