M/s. EMKAY SHARE & STOCK BROKERS LTD., MUMBAI V. ACIT CIR. - 4(1), MUMBAI

ITA 6741/MUM/2006

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49145 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 17-03-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 12-12-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Assessee Lawyers: SANJEEV M SHAH
• Keywords: Capital asset; Business income; Depreciation; Rule of consistency; Bad and doubtful debts
• Section: 143(3); 37(1); 37; 28

Judgement Text

1 ITA 6562 & 6741/ /M/2006 M/S EMKAY SHARE & STO CK BROKERS PVT. LTD. `IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E BEFORE SHRI D. MANMOHAN, V.P. AND SHRI R.K. PANDA, A.M. ITA NO. 6562/MUM/2006 ASSESSMENT YEARS 2003-04 D.C.I.T. RANGE -4(1), 6 TH FLOOR, R. NO. 640, AAYAKAR BHAWAN, MUMBAI 400 020. VS. M/S EMKAY SHARE & STOCK BROKERS PVT. LTD., 4D, 4 TH FLOOR, HAMAM HOUSE, AMBALAL DOSHI MARG, FORT, MUMBAI 23. PAN AAACE0994L APPLICANT RESPONDENT ITA NO. 6741/MUM/2006 ASSESSMENT YEARS 2003-04 M/S EMKAY SHARE & STOCK BROKERS PVT. LTD., 4D, 4 TH FLOOR, HAMAM HOUSE, AMBALAL DOSHI MARG, FORT, MUMBAI 23. PAN AAACE0994L VS. D.C.I.T. RANGE -4(1), 6 TH FLOOR, R. NO. 640, AAYAKAR BHAWAN, MUMBAI 400 020. APPLICANT RESPONDENT ASSESSEE BY SHRI SANJEEV M. SHAH RESPONDENT BY MS. ASHIMA GUPTA ORDER PER R.K. PANDA A.M. THE ABOVE CROSS APPEALS ARE DIRECTED AGAINST THE OR DER DT. 21.9.2006 OF THE CIT(A)- IV, MUMBAI RELATING TO A.Y. 2003-04. TH ESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. ITA NO. 6562/MUM/2006 (BY REVENUE) 2 ITA 6562 & 6741/ /M/2006 M/S EMKAY SHARE & STO CK BROKERS PVT. LTD. 2. IN GROUNDS OF APPEAL NO. 1, THE REVENUE HAS CHAL LENGED THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION OF ` 3,16,582/- BEING DEPRECIATION ON BSE/NSE STOCK EXCHANGE MEMBERSHIP CARD. 3. AFTER HEARING BOTH THE SIDES, WE FIND THE ABOVE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY T HE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TECHNO SHARES AND STOC KS LTD. REPORTED IN 327 ITR 323 WHEREIN IT HAS BEEN HELD THAT DEPRECIATION IS ALLOWABLE ON THE COST OF THE MEMBERSHIP CARD U/S 32(1)(II) OF THE INCOME TAX ACT, 1961. GROUNDS OF APPEAL NO. 1 RAISED BY THE REVENUE IS THEREFORE DIS MISSED. 4. IN GROUNDS OF APPEAL NO. 2, THE REVENUE HAS CHA LLENGED THE ORDER OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF ` 17,217/- ON ACCOUNT OF PENALTY/FINE PAID TO BSE/NSE OF INDIA FOR INFRINGEMENT OF STATUT ORY LAW SINCE SEBI IS A STATUTORY BODY. 5. AFTER HEARING BOTH THE SIDES, WE FIND THE A.O. D ISALLOWED AN AMOUNT OF ` 17,217/- PAID TO BSE/NSE ON THE GROUND THAT THE SAM E HAS BEEN PAID AS PENALTY/FINE FOR INFRINGEMENT OF STATUTORY LAW SINC E SEBI IS A STATUTORY BODY. ON APPEAL, THE LD. CIT(A) DELETED THE DISALLOWANCE ON THE GROUND THAT THE SAME HAS BEEN MADE FOR VIOLATION OF REGULATIONS REGARDIN G PROCEDURES TO BE FOLLOWED FOR ENTERING INTO SHARE TRANSACTION. THESE PAYMENT S WERE JUST COMPENSATORY IN NATURE AND THERE IS NO INFRINGEMENT OF ANY LAW. WE FIND SIMILAR ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2002-03 AND THE TRIBUNAL VIDE ORDER DATED 23 RD JULY, 2008 IN ITA NO. 438/MUM/06 HAS DISMISSED THE APPEAL FILED BY THE REVENUE. RESPECT FULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 200 2-03 AND IN ABSENCE OF ANY CONTRARY DECISION BROUGHT TO OUR NOTICE BY THE LD. D.R., THE GROUND RAISED BY THE REVENUE IS DISMISSED. 3 ITA 6562 & 6741/ /M/2006 M/S EMKAY SHARE & STO CK BROKERS PVT. LTD. 6. IN GROUNDS OF APPEAL NO. 3, THE REVENUE HAS CHAL LENGED THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION OF BAD DEBTS OF ` 6,59,780/- MADE BY THE A.O. 7. AFTER HEARING BOTH THE SIDES, WE FIND THE A.O. D ISALLOWED AN AMOUNT OF ` 6,59,780/- CLAIMED BY THE ASSESSEE AS BAD DEBTS ON THE GROUND THAT THE ASSESSEE COULD NOT PROVE THAT THE DEBTS HAS BECOME REALLY BAD AND THE SAME IRRECOVERABLE WITHIN THE MEANING OF SECTION 36(1)(V II) OF THE ACT. HE ALSO HELD THAT MERELY WRITING OFF AN AMOUNT FROM THE BOOKS OF ACCOUNT DID NOT MAKE THE SAME AS ELIGIBLE FOR DEDUCTION. FURTHER, THE AMOUN T WRITTEN OFF ALSO INCLUDED THE PRINCIPAL AMOUNT OF PURCHASE CONSIDERATION WHIC H OTHERWISE WAS ALSO NOT ELIGIBLE FOR DEDUCTION WITHIN THE MEANING OF PROVIS IONS OF SUB-SECTION (II) OF SECTION 36(1) AS THE SAME WAS NOT ACCOUNTED FOR WHI LE COMPUTING THE INCOME FOR A.Y 2003-04. HE ALSO REJECTED THE ALTERNATIVE CLAIM OF BUSINESS LOSS AS MADE BY THE ASSESSEE. IN APPEAL, THE LD. CIT(A) R ELYING ON THE DECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS. V. VRIJLAL LALLUBH AI & SONS, DELETED THE ADDITION FOR WHICH THE REVENUE IS IN APPEAL BEFORE US. 8. AFTER HEARING, BOTH THE SIDES, WE FIND THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECI SION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SHREYAS S. MORAKHIA REP ORTED IN 131 TTJ 641 WHEREIN IT HAS BEEN HELD THAT AMOUNT RECEIVABLE BY THE ASSESSEE, WHO IS A SHARE BROKER, FROM HIS CLIENTS AGAINST THE TRANSACT IONS OF PURCHASE OF SHARES ON THEIR BEHALF CONSTITUTES DEBT WHICH IS A TRADING DE BT. IT WAS ALSO HELD THAT THE BROKERAGE/COMMISSION INCOME ARISING FROM SUCH TRANS ACTIONS VERY MUCH FORMS PART OF THE SAID DEBT AND WHEN THE AMOUNT OF SUCH B ROKERAGE/COMMISSION HAS BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVANT PREVIOUS YEAR OR ANY EARLIER YEAR, IT SATI SFIES THE CONDITION STIPULATED IN SECTION 36(2)(I) AND THE ASSESSEE IS ENTITLED TO DE DUCTION U/S 36(1)(VII) BY WAY OF BAD DEBTS AFTER HAVING WRITTEN OF THE SAID DEBTS FR OM HIS BOOKS OF ACCOUNT AS IRRECOVERABLE. RESPECTFULLY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE 4 ITA 6562 & 6741/ /M/2006 M/S EMKAY SHARE & STO CK BROKERS PVT. LTD. TRIBUNAL AND IN ABSENCE OF ANY CONTRARY DECISION BR OUGHT TO OUR NOTICE BY THE LD. D.R., WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION MADE BY THE A.O. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. 9. GROUND NO. 4 BY THE REVENUE READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE A.O. TO ALLOW THE CREDIT FOR THE TDS OF ` 1,15,585/-, WHEN OUT OF THE CORRESPONDING DIVIDEND INCOME OF ` 11,06,551/- AN AMOUNT OF ` 10,27,400/- WAS REMITTED BY THE ASSESSEE TO ITS CLIENTS AND ONLY ` 79,150/- WAS ASSESSED IN THE HANDS OF THE ASSESSEE. 10. FACTS OF THE CASE IN BRIEF ARE THAT DURING THE ASSESSMENT PROCEEDINGS, THE A.O. NOTED THAT THE ASSESSEE HAD CLAIMED CREDIT FOR TAX DEDUCTED AT SOURCE OF ` 1,15,585/- ON DIVIDEND AMOUNTING TO ` 11,06,551/-. HOWEVER, THE ASSESSEE HAS SHOWN ` 79,150/- FOR TAXATION IN ITS HANDS SINCE IT HAD PA ID DIVIDEND OF ` 10,27,401/- TO THE CLIENTS TO WHOM THE SHARES ACTUA LLY BELONG. ACCORDING TO THE A.O. CREDIT FOR TDS CANNOT BE ALLOWED TO ANY PE RSON OTHER THAN TO WHOM THE INCOME ACTUALLY BELONGS IN VIEW OF PROVISIONS O F SECTION 199 OF THE ACT. HE, THEREFORE, GRANTED TDS CREDIT OF ` 8310/- ONLY I.E. TO THE EXTENT OF DIVIDEND OF ` 79,150/- ACTUALLY SHOWN BY THE ASSESSEE. 10.1 IN APPEAL, THE LD. CIT(A) DIRECTED THE A.O. TO DELETE THE ADDITION BY HOLDING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND FIND MERIT IN THE SAME. WHAT IS TO BE ASSESSED IS THE INCOME DER IVED FROM DIVIDEND. EVEN IF FOR A MOMENT, IT IS PRESUMED THA T THE TOTAL INCOME FROM DIVIDEND AMOUNTING TO ` 11,06,551/- WAS TO BE SHOWN BY THE APPELLANT FOR CLAIMING THE CREDIT OF TDS THEREON, F ROM THE DETAILS FILED IT IS CLEAR THAT ` 11,06,551.52 WERE SHOWN AS RECEIVED BY THE APPELLANT. ONLY ` 10,27,400.95 WERE REMITTED TO THE CLIENTS WHICH HAVE BEEN RIGHTFULLY REDUCED FROM ITS INCOME. THUS , ONLY AN AMOUNT ONLY A DIFFERENCE OF ` 79,150.57 REMAINED WHICH WAS SHOWN BY THE APPELLANT AS INCOME. THEREFORE, THE TOTAL OF TDS O F ` 1,15,585.07 AS WELL AS THE NET DIVIDEND WAS SHOWN AS INCOME. AS S UCH, NO ADDITION WAS CALLED FOR BY THE A.O. THE ADDITION MADE IS DEL ETED. 5 ITA 6562 & 6741/ /M/2006 M/S EMKAY SHARE & STO CK BROKERS PVT. LTD. 10.2 AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), T HE REVENUE IS IN APPEAL BEFORE US. 11. AFTER HEARING BOTH THE SIDES, WE FIND NO INFIRM ITY IN THE ORDER OF THE LD. CIT(A). ADMITTEDLY, OUT OF THE TOTAL DIVIDEND OF ` 11,06,551.52, THE ASSESSEE HAS REFUNDED DIVIDEND OF ` 10,27,400.95 TO THE CLIENTS AND THEREBY IT HAD OFFERED NET DIVIDEND AMOUNT FOR TAXATION ALONG WITH TDS. THE LD. D.R. COULD NOT CONTROVERT THE FINDINGS GIVEN BY THE LD. CIT(A) . THERE WOULD HAVE BEEN NO MATERIAL DIFFERENCE IF THE ASSESSEE HAD SHOWN THE G ROSS DIVIDEND IN THE CREDIT SIDE AND DIVIDEND PAID IN THE DEBIT SIDE. THE ORDER OF THE LD. CIT(A) BEING IN ORDER IS ACCORDINGLY UPHELD AND THE GROUND RAISED B Y THE REVENUE IS ACCORDINGLY DISMISSED. 12. GROUNDS OF APPEAL NO. 5 & 6 ARE GENERAL IN NATU RE HENCE DISMISSED. ITA NO. 6741/MUM/2006 (BY ASSESSEE) 13. GROUNDS OF APPEAL NO. 1 TO 4 READ AS UNDER:- 1) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) HAS GROSSLY ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IS NOT SETTING OFF LOSS ON SALE OF INVESTMENTS OF ` 41,35,004/- AGAINST GAIN IN SHARES OF ` 37,30,171/- UNDER THE PROVISIONS OF SECTIONS 73 OF THE INCOME TAX ACT, 1961 BOTH BEING CONSISTENTLY TREATE D AT PAR AS SPECULATION. 2) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HA S FURTHER ERRED IN CONFIRMING THE CHANGE IN THE OPINI ON OF ASSESSING OFFICER FOR NOT APPLYING THE EXPLANATION TO SECTION 73 TO ALL THE TRANSACTIONS IN RELATION TO SHARES WHETHER OF TRADI NG, SPECULATION OR INVESTMENT WHICH THE ASSESSEE HAS BEEN FOLLOWING CO NSISTENTLY FROM INCEPTION OF THE COMPANY AND TAXING CAPITAL GAINS S EPARATELY AND TAKING IT OUT FROM THE PURVIEW OF EXPLANATION TO SE CTION 73. 3) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS FURTHER ERRED IN NOT TREATING THE GAIN IN DERIVATIV E TRANSACTIONS AS 6 ITA 6562 & 6741/ /M/2006 M/S EMKAY SHARE & STO CK BROKERS PVT. LTD. CAPITAL GAINS AND NOT SETTING IT OFF AGAINST CAPITA L GAINS IN SHARES AND THE REASONS ASSIGNED BY HIM IN DOING SO ARE WRONG A ND ARE CONTRARY TO THE PROVISIONS OF INCOME TAX ACT, 1961 AND RULES MADE THEREUNDER. 4) CONSEQUENTLY HAVING CONFIRMED THE CHANGE IN OPIN ION ON TAX TREATMENT ON CAPITAL GAINS, THE COMMISSIONER OF INC OME TAX (APPEALS) HAS FURTHER CONFIRMED THE ADDITIONS OF ` 1,53,369/- BY TREATING IT AS SHORT TERM CAPITAL GAIN. 13.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESS EE IS A MEMBER OF BOTH BSE AND NSE AND IS CARRYING ON THE BUSINESS ACTIVITY IN SECONDARY AS WELL AS PRIMARY MARKET. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE A.O. NOTED THAT THE ASSESSEE HAS MADE PROFIT IN TRADING IN SHA RES/DERIVATIVES OF ` 37,30,171/-. THE ASSESSEE HAS SET OFF THIS PROFIT AGAINST LOSS ON SALE OF INVESTMENT AMOUNTING TO ` 41,35,004/-. ON BEING QUESTIONED BY THE A.O., IT WAS SUBMITTED BY THE ASSESSEE THAT IN VIEW OF PROVI SIONS OF SECTION 73, THE BUSINESS OF PURCHASE AND SALE OF SHARES, IRRESPECTI VE OF THEIR TREATMENT IN THE BOOKS OF ACCOUNT, SHALL BE TREATED AS SPECULATION B USINESS. CORRESPONDINGLY, THE LOSS ON SALE OF INVESTMENT COULD BE TREATED AS BUSINESS LOSS ELIGIBLE TO BE SET OFF AGAINST BUSINESS INCOME. 13.2 HOWEVER, THE A.O. WAS NOT SATISFIED WITH THE E XPLANATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM, THE DISPOSAL OF SHARES EARLIER HELD BY THE ASSESSEE AS INVESTMENT CANNOT BE BROUGHT UNDER THE AMBIT OF SHARE TRANSACTION COVERED BY EXPLANATION TO SEC. 73 OF THE ACT. HE, ACCORDIN GLY, ADOPTED THE INCOME OF THE ASSESSEE ON ACCOUNT OF PROFIT IN SHARES/DERIVAT IVES TRANSACTIONS AT ` 37,30,171/- AND DISALLOWED THE CLAIM OF SET OFF OF LOSS OF SALE OF INVESTMENTS OF ` 41,35,004/-. 13.3 IN APPEAL, THE LD. CIT(A), UPHELD THE ACTION O F THE A.O.. WHILE DOING SO, HE NOTED THAT INCOME OR LOSS FROM INVESTMENT IN CAP ITAL ASSETS IS GOVERNED UNDER THE PROVISIONS OF SECTIONS 45 TO 55A OF THE A CT AND SUCH INCOME OR LOSS MAY BE LONG TERM OR SHORT TERM. THERE ARE SPECIFIC PROVISIONS IN THE ACT 7 ITA 6562 & 6741/ /M/2006 M/S EMKAY SHARE & STO CK BROKERS PVT. LTD. GOVERNING THE SET OFF OF SUCH LOSSES WHICH ARE DIST INCT FROM OTHER BUSINESS LOSSES. EVEN IF IN THE EARLIER YEARS THE ASSESSEES CONTENTION HAD BEEN ACCEPTED, IT DOES NOT FOLLOW THAT THE CLAIM CONTRARY TO THE P ROVISIONS OF LAW SHOULD BE ACCEPTED IN EVERY YEAR SINCE PRINCIPLE OF RES JUDIC ATA DOES NOT APPLY TO THE PROVISIONS OF INCOME TAX LAW. SINCE THE ASSESSEE W AS NOT ABLE TO MAKE OUT THE CASE FOR SET OFF OF INVESTMENT LOSS AGAINST BUSINES S LOSS, THE A.O. IS JUSTIFIED IN DENYING THE SET OFF. 13.4 AS REGARDS THE ALTERNATIVE PLEA OF THE ASSESSE E THAT SUCH LOSS, IF TREATED AS CAPITAL LOSS, MAY BE ALLOWED TO BE SET OFF AGAIN ST THE INCOME FROM DERIVATIVES TREATING THE SAME ALSO AS CAPITAL GAIN, HE HELD THA T THIS CLAIM ALSO CANNOT BE ALLOWED AS IN DERIVATIVE ALSO THE INCOME CANNOT BE TREATED TO BE A CAPITAL GAIN GOVERNED BY SECTION 45 TO 55A OF THE ACT. ACCORDING TO HIM, DERIVATIVES OR FUTURES AND OPTIONS ARE NOT CAPITAL ASSETS NOR DOES THE TRANSACTION IN THEM RESULTS IN ANY PHYSICAL DELIVERY. THESE TRANSACTION S ARE TOTALLY SPECULATIVE IN NATURE. SINCE THE TRANSACTIONS MADE IN SHARES HELD AS INVESTMENT ALSO INCLUDED SHARES HELD FOR LESS THAN ONE YEAR I.E. SH ORT TERM CAPITAL ASSET, THE PROFIT THEREFROM HAD TO BE TAKEN AS SHORT TERM CAPI TAL GAIN WHICH COULD NOT BE ADJUSTED AGAINST LONG TERM CAPITAL LOSS AS PER PROV ISIONS OF LAW. HE, ACCORDINGLY, UPHELD THE ACTION OF THE A.O. IN BRING ING TO TAX OF ` 1,53,369/-. 13.2 AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), T HE ASSESSEE IS IN APPEAL BEFORE US. 13.3 THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE STATEMENT OF COMPUTATION OF INCOME FOR A.Y. 2002-03, A COPY OF W HICH IS PLACED AT PAPER BOOK PAGE 59 TO 61, SUBMITTED THAT THE ASSESSEE HAD DISCLOSED THE TAXABLE SPECULATION INCOME AT ` 49,81,851/-. REFERRING TO THE COMPUTATION STATEMEN T FOR A.Y.2000-01PLACED AT PAPER BOOK PAGE 67, HE SUB MITTED THAT THE ASSESSEE HAS DISCLOSED SPECULATION INCOME OF ` 452,605/-. REFERRING TO THE COPY OF THE 8 ITA 6562 & 6741/ /M/2006 M/S EMKAY SHARE & STO CK BROKERS PVT. LTD. ASSESSMENT ORDER PASSED U/S 143(3) FOR A.Y. 2000-01 AND 2002-03, HE SUBMITTED THAT THE A.O. HAS ACCEPTED SUCH SPECULATI ON INCOME. EVEN IN SUBSEQUENT A.Y. I.E. FOR A.Y. 2005-06 ALSO THE A.O. HAS ACCEPTED THE SPECULATION INCOME. HE SUBMITTED THAT FROM A.Y. 199 7-98 ONWARDS THE ASSESSEE HAS NEVER OFFERED CAPITAL GAIN. THE ASSESS EE BEING A SHARE BROKER OFFERED INCOME FROM SALE OF SHARES ON ACCOUNT OF CL IENTS AS WELL AS ON ITS OWN ACCOUNT AS BUSINESS INCOME ALTHOUGH THE SHARES WERE SHOWN AS INVESTMENT IN THE BALANCE SHEET SINCE IT HAS TO BE TREATED AS ADV ENTURE IN NATURE OF TRADE. REFERRING TO A NUMBER OF DECISIONS, HE SUBMITTED TH AT ENTRIES IN THE BOOKS OF ACCOUNT ARE NOT CONCLUSIVE. HE SUBMITTED THAT THE PRINCIPAL BUSINESS OF THE ASSESSEE IS BROKERAGE. REFERRING TO THE LETTER ADDR ESSED TO CIT(A) (COPY OF WHICH IS PLACED AT PAPER BOOK PAGE 28) HE SUBMITTED THAT THE VARIOUS SUBMISSIONS FILED BEFORE HIM WERE NOT AT ALL CONSIDERED BY HIM PROPERLY. HE SUBMITTED THAT NO ONE HAS ACCEPTED AS TO WHAT ARE THE PARAMETERS T O BE FOLLOWED. REFERRING TO THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT VS. GOPAL PUROHIT REPORTED IN 122 TTJ 87, HE SUBMITTED THAT RULE OF CONSISTENCY SHOULD BE FOLLOWED AND THE ASSESSEE SHOULD BE ALLOW ED TO SET OFF LOSS ON SALE OF INVESTMENT ` 41,35,004/- AGAINST GAIN IN SHARES OF ` 37,30,171/-. REFERRING TO THE DECISION OF THE FULL BENCH OF THE HONBLE BOMBA Y HIGH COURT IN THE CASE OF CIT VS. SHREE NIRMAL COMMERCIAL LTD. REPORTED IN 21 3 ITR 361, THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE FOLLOWING OBSERVATIONS:- TO WRIGGLE OUT OF THIS SITUATION, AN ATTEMPT IS MAD E TO CONTEND ON BEHALF OF THE REVENUE THAT THERE IS NO PRINCIPLE OF RES JUDICATA APPLICABLE IN THE MATTER OF ASSESSMENT UNDER THE I NCOME-TAX ACT. THERE IS NO DOUBT THAT THE SAID CONTENTION IS LEGA LLY SOUND. HOWEVER, AT THE SAME TIME, SHRI DASTUR, LEARNED COUNSEL APP EARING FOR THE ASSESSEE, HAS INVITED OUR ATTENTION TO A DECISION OF OUR COURT IN H. A. SHAH AND CO. V. CIT [1956] 30 ITR 618, WHEREIN CHA GLA C. J. HELD THAT THE EFFECT OF REVISING AN EARLIER DECISION SH OULD NOT LEAD TO INJUSTICE AND THE COURT MUST ALWAYS BE ANXIOUS TO A VOID INJUSTICE BEING DONE TO THE ASSESSEE AND, THEREFORE, THE PRES ENT CASE IS NOT A FIT CASE FOR WHICH THE ISSUE REFERRED BY THE DIVISION B ENCH TO THE FULL BENCH SHOULD BE GONE INTO. IT IS FURTHER RIGHTLY CO NTENDED BY SHRI DASTUR THAT THE DEPARTMENT HAVING ACCEPTED THE DEC ISION, THERE IS NO 9 ITA 6562 & 6741/ /M/2006 M/S EMKAY SHARE & STO CK BROKERS PVT. LTD. OCCASION TO TAKE A DIFFERENT VIEW. WE DO FEEL THAT THERE IS CONSIDERABLE FORCE IN THE ARGUMENT OF SHRI DASTUR. HAVING URGED EARLIER THAT THE INCOME IN THE EARLIER ASSESSMENT YEARS WAS INCOME FROM BUSINESS OR TRADE, IT WOULD NOT BE PROPER TO ALLOW THE DEPARTM ENT TO COMPLETELY TURN AROUND AND NOW CONTEND THAT THE INCOME OF THE ASSESSEE IS TAXABLE UNDER THE HEAD 'HOUSE PROPERTY' SO AS TO D ISALLOW THE DEDUCTIONS CLAIMED BY THE ASSESSEE IN RESPECT OF I NTEREST PAID ON THE NON-REFUNDABLE DEPOSITS OF THE SHAREHOLDERS EITHER UNDER SECTION 28 OR SECTION 37 OF THE INCOME-TAX ACT, 1961. THE INCO ME OF THE ASSESSEE MUST BE TREATED AS INCOME FROM TRADE OR BUSINESS. 13.4 HE ACCORDINGLY SUBMITTED THAT SINCE THE REVENU E HAS ALL ALONG ACCEPTED THE SPECULATION INCOME OF THE ASSESSEE FOR DIFFEREN T ASSESSMENT YEARS U/S 143(3) ASSESSMENT IN BOTH PRECEDING AND SUCCEEDING YEARS, THEREFORE, THE REVENUE CANNOT TAKE A DIFFERENT VIEW FOR THIS PARTI CULAR YEAR. HE ALSO RELIED ON VARIOUS DECISIONS AS PER PAPER BOOK FILED. 14. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDER OF THE LD. CIT(A). HE SUBMITTED THAT THE ASSESSEE HAD OPPORTUNITY BEFORE THE A.O. AS WELL AS CIT(A) TO EXPLAIN HIS CASE. 14.1 HOWEVER, HE COULD NOT EXPLAIN IT PROPERLY. TH E TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2005-05 WHILE DECIDING THE ISSUE HAD NOT GONE INTO THE FACTS ON THIS ISSUE. HE ACCORDINGLY SUBMITTED THAT THE OR DER OF THE LD. CIT(A) ON THIS ISSUE BE UPHELD. 14.2 THE LD. COUNSEL FOR THE ASSESSEE IN THE REJOIN DER RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT REPORTED IN 193 ITR 321 AND SUBMITTED THAT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS H AS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AS THE PARTIES HAVE ALLOWED TH AT PORTION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT AL L APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. 10 ITA 6562 & 6741/ /M/2006 M/S EMKAY SHARE & STO CK BROKERS PVT. LTD. 15. AFTER HEARING BOTH THE SIDES, WE ARE OF THE CON SIDERED OPINION THAT THE MATTER REQUIRES FRESH ADJUDICATION AT THE LEVEL OF THE A.O. THE ASSESSEE UNDISPUTEDLY HAD SHOWN INCOME FROM SALE OF SHARES A ND HAD ALSO INCURRED LOSS ON SHARES HELD BY IT AS INVESTMENT. FROM THE VARIO US SUBMISSIONS MADE BY THE LD. COUNSEL FOR THE ASSESSEE, WE FIND THAT THE ASSE SSEE ALL ALONG WAS SHOWING SPECULATIVE INCOME WHICH HAS BEEN ACCEPTED BY THE D EPARTMENT IN 143(3) ASSESSMENTS. HOWEVER, WHETHER DURING THOSE YEARS, THE ASSESSEE HAD ALSO SOLD SOME OF THE SHARES SHOWN IN THE BALANCE SHEET UNDER THE HEAD INVESTMENT AND THE TREATMENT THEREOF BY THE A.O. NEEDS TO BE VERIF IED AT THE LEVEL OF THE A.O. IF IN THOSE YEARS THE REVENUE HAS ACCEPTED SUCH GAIN O R LOSS ARISING ON ACCOUNT OF SALE OF SHARE SHOWN AS INVESTMENT IN THE BALANCE SHEET AS BUSINESS INCOME/LOSS, THE A.O., IN OUR OPINION, SHOULD NOT T AKE AN ALTOGETHER DIFFERENT VIEW DURING THIS YEAR. ALTHOUGH PRINCIPLES OF RES J UDICATA DO NOT APPLY TO INCOME TAX PROCEEDINGS SINCE EVERY A.Y. IS SEPARATE AND DISTINCT, HOWEVER, THE RULE OF CONSISTENCY ALSO CANNOT SIMPLY BE GIVEN A G O-BYE. IN OUR OPINION, IF THE DEPARTMENT HAS ACCEPTED IN THE EARLIER ASSESSMENT Y EARS THAT THE INCOME FROM SALE OF SHARES SHOWN IN THE BALANCE SHEET UNDER THE HEAD INVESTMENT AS BUSINESS INCOME/LOSS, IT WOULD NOT BE PROPER ON THE PART OF THE DEPARTMENT TO COMPLETELY TURN AROUND AND TAKE AN ALTOGETHER DIFFE RENT VIEW BY TREATING THE SAME AS CAPITAL GAIN. WE, THEREFORE, RESTORE THE IS SUE TO THE FILE OF THE A.O. WITH THE DIRECTION TO DECIDE THE ISSUE AFRESH IN THE LIG HT OF OUR ABOVE OBSERVATIONS AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROU NDS OF APPEAL NO. 1 TO 4 ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 16. GROUND NO. 5 BY THE ASSESSEE READS AS UNDER:- THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HA S FURTHER ERRED IN CONFIRMING THE ADDITIONS OF ` 7,96,255/- BEING ADVANCES NOT RECOVERABLE WRITTEN OFF AND THE REASONS ASSIGNED BY HIM IN DOING SO ARE WRONG AND ARE CONTRARY TO THE PROVISIONS OF INC OME TAX ACT, 1961 AND RULES MADE THEREUNDER. 11 ITA 6562 & 6741/ /M/2006 M/S EMKAY SHARE & STO CK BROKERS PVT. LTD. 16.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESS EE HAD WRITTEN OFF AN AMOUNT OF ` 7,96,255/- AS BAD DEBTS BEING LOAN WRITTEN OFF. O N BEING QUESTIONED BY THE A.O., IT WAS SUBMITTED THAT THE ASSESSEE COMPANY DU RING THE COURSE OF BUSINESS ACTIVITY HAD ADVANCED LOAN TO MR. YOGESH R . CHOKSEY WHICH WAS IN OPERATION FROM APRIL, 1996 ONWARDS. THE LOAN WAS AD VANCED AS WELL AS RECEIVED ACCORDING TO BUSINESS NEED OF BOTH SIDES. THE LAST REPAYMENT WAS IN FEBRUARY, 2000 LEAVING A DEBIT BALANCE OF ` 7,96,255/- AS ON 31 ST MARCH, 2000. THE PARTY MADE FURTHER REPAYMENT IN NEXT YEAR BUT THE CHEQUE WAS BOUNCED. SINCE THE CHANCES OF RECOVERY WERE QUITE NEGLIGIBLE, THE ASSE SSEE COMPANY DURING THE IMPUGNED A.Y. WROTE OFF THE ENTIRE AMOUNT AS NOT RE COVERABLE AND THE SAME WAS CLAIMED AS BUSINESS LOSS U/S 28 OF THE ACT. 16.2 HOWEVER, THE A.O. DID NOT ACCEPT THE CONTENTIO N OF THE ASSESSEE. HE NOTED THAT NON-RECOVERED DEBT CANNOT BE TREATED AS A BAD DEBT U/S 37(1)(VII) OF THE ACT SINCE THE AMOUNT HAS NOT BEEN OFFERED FOR T AXATION IN ANY EARLIER YEARS AS INCOME OF THE ASSESSEE. FURTHER, THE LOSS CANNO T BE TREATED AS BUSINESS LOSS FOR A.Y. 2003-04 SINCE THE LOSS DOES NOT PERTAIN TO THE YEAR. HE ACCORDINGLY MADE ADDITION OF ` 7,96,255/-. IN APPEAL, THE LD. CIT(A) UPHELD THE ACTION OF THE A.O. FOR WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 16.2 AFTER HEARING BOTH THE SIDES, WE FIND NO INFIR MITY IN THE ORDER OF THE LD. CIT(A). ADMITTEDLY, THE PROVISIONS OF SECTION 37(1) (VII) R.W.S. 36(2) ARE NOT COMPLIED WITH. THEREFORE, THE SAME CANNOT BE ALLOWE D AS BAD DEBTS. FURTHER, THE AMOUNT ALSO CANNOT BE ALLOWED AS BUSINESS LOSS SINCE THE SAME RELATES TO A DIFFERENT ASSESSMENT YEAR AND DOES NOT RELATE TO TH E IMPUGNED ASSESSMENT YEAR. WE, THEREFORE, FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN UPHOLDING THE ACTION OF THE A.O. THE GROUND RAISED BY THE ASS ESSEE IS ACCORDINGLY DISMISSED. 17. GROUND NO. 6 BY THE ASSESSEE READS AS UNDER: - 12 ITA 6562 & 6741/ /M/2006 M/S EMKAY SHARE & STO CK BROKERS PVT. LTD. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS FURTHER ERRED IN CONFIRMING THE ADDITIONS OF ` 43,642/- ON ACCOUNT OF SOFTWARE EXPENSES AND THE REASONS ASSIGNED BY HIM IN DOING S O ARE WRONG AND ARE CONTRARY TO THE PROVISIONS OF INCOME TAX ACT, 1 961 AND RULES MADE THEREUNDER. 17.1 BOTH PARTIES FAIRLY AGREED THAT THE ISSUE NEEDS FRE SH ADJUDICATION BY THE A.O. IN THE LIGHT OF THE DECISION OF THE SPECIAL BE NCH OF THE TRIBUNAL IN THE CASE OF AMWAY (INDIA) LTD. REPORTED IN 111 ITD 112. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION IN T HE LIGHT OF THE DECISION CITED SUPRA AND IN ACCORDANCE WITH LAW AFTER GIVING DUE O PPORTUNITY OF HEARING TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GRO UND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 18. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLO WED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 15.06.2011. SD/- SD/- (D. MANMOHAN) (R.K. PANDA) VICE PRESIDENT ACCO UNTANT MEMBER MUMBAI, DATED 15 TH JUNE, 2011. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) IV, MUMBAI 4. THE CIT- 4, MUMBAI 5. THE DR BENCH, E 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI 13 ITA 6562 & 6741/ /M/2006 M/S EMKAY SHARE & STO CK BROKERS PVT. LTD. DATE INITIALS 1 DRAFT DICTATED ON 7.6.1110.6.11 SR. PS 2 DRAFT PLACED BEFORE THE AUTHOR 9.6.11,13.6.11 SR. PS 3 DRAFT PLACED BEFORE THE SECOND MEMBER 4 APPROVED DRAFT COMES TO THE SR. PS SR. PS 5 KEPT FOR PRONOUNCEMENT ON SR. PS 6 FILE SENT TO THE BENCH CLERK SR. PS 7 DATE ON WHICH FILE GOES TO THE HEAD CLERK 8 DATE ON WHICH FILE GOES TO THE AR 9 DATE OF DISPATCH OF ORDER