PEREGRINE SECURITIES INDIA P. LTD, MUMBAI V. DCIT 10(1), MUMBAI

ITA 7297/MUM/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4749 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 31-08-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 26-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S SRIVASTAVA
• Assessee Lawyers: K R LAKSHMI NARAYANAN
• Keywords: Business income; Depreciation; Bad and doubtful debts; Unabsorbed depreciation
• Section: 115JB; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.7297/MUM/2008 (ASSESSMENT YEAR: 2002-03) M/S. PEREGRINE SECURITIES INDIA P. LTD. DCIT-10(1) RAHEJAS 4TH FLOOR, CORNER OF AAYAKAR BHAVAN, M.K. R OAD MARINE AVENUE, V.P. ROAD VS. MUMBAI 400020 SANTACRUZ (W), MUMBAI 400054 PAN - AAACP 3526 H APPELLANT RESPONDENT APPELLANT BY: SHRI K.R. LAKSHMINARAYANAN RESPONDENT BY: SHRI R.S. SRIVASTAVA O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)-X, MUMBAI DATED 14.11.2008. 2. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. THE ORDER PASSED BY THE LEARNED CIT (APPEAL) IS BAD IN LAW. 2. THE LEARNED A.O. ERRED IN HOLDING THAT A SUM OF RS.72,20,030/- WHICH HAS BEEN FOUND BY THE APPELLANT AS NO LONGER PAYABLE TO M/S. FLAGSTAFF VENTURE CAPITAL IS TAXABLE U/S 28 (V I) OF THE INCOME- TAX ACT. 3. THE LEARNED CIT (APPEALS) ERRED IN RELYING ON CI T V. T.V. SUNDARAM IYANGAR 222 ITR 344 (SC) WHEREIN THE APEX COURT HAD HELD THAT CREDIT BALANCE OF ANOTHER PARTY IN ASSESSEES BOOKS IS TAXABLE WHEN THE AMOUNT BECOME ASSESSEES OWN MONEY BECAUSE OF L IMITATION OR BY ANY OTHER STATUTORY OR CONTRACTUAL RIGHT WHICH I S NOT THE POSITION IN APPELLANT CASE. 4. THE LEARNED CIT (APPEALS) FAILED TO APPRECIATE T HAT APPELLANT WAS THE OWNER OF STOCK EXCHANGE CARD AND WAS ENTITLED T O DEPRECIATION OF RS.1,40,00,000/- THEREON IN A.Y. 1997-98 AND THA T UNABSORBED DEPRECIATION OF RS.2,01,24,855/- BEING LOWER THAN T HE B/F. BUSINESS LOSS OF RS.9,72,27,684/- THE SAME SHOULD BE REDUCED FROM BOOK PROFIT OF RS.1,22,37,529/- THEREBY TAXABLE INCOME U /S 115JB BECOMES NIL. ITA NO.7297/MUM/2008 M/S. PEREGRINE SECURITIES INDIA P. LTD. 2 5. THE LEARNED CIT (A ERRED IN NOT ALLOWING AN AMOU NT OF RS.24.70 LACS AS TRADING LOSS WHICH HAD NOT BEEN ALLOWED BY THE A .O. ONLY ON THE GROUND THAT DETAILS HAD NOT BEEN FILED WHEREAS FULL DETAILS HAD BEEN FILED.) GROUND NOS. 1 & 6 ARE BEING GENERAL IN NATURE. 3. DURING THE COURSE OF ARGUMENT THE LEARNED COUNSEL F OR THE ASSESSEE DID NOT PRESS GROUND NO. 4 WITH REFERENCE TO DEPREC IATION ON STOCK EXCHANGE CARD, HENCE, THIS GROUND IS TREATED AS WITHDRAWN. 4. WE HAVE HEARD THE LEARNED COUNSEL FOR THE ASSESSEE AND THE LEARNED D.R. 5. REGARDING GROUND NOS. 2 & 3 THE BRIEF FACTS ARE THA T IN THE COURSE OF SCRUTINY PROCEEDINGS, THE A.O. NOTED THAT A SUM OF ` 72,20,030/- PAYABLE TO M/S. FLGSTAFF VENTURE CAPITAL, WHICH HAD BEEN WRITT EN BACK IN THE P & L ACCOUNT, HAD BEEN CLAIMED AS EXEMPT IN THE COMPUTAT ION OF INCOME. THE A.O. THEREFORE, ASKED THE ASSESSEE TO EXPLAIN WHY T HIS AMOUNT SHOULD NOT BE BROUGHT TO TAX AS A REVENUE RECEIPT IN THE HANDS OF THE ASSESSEE COMPANY. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED THAT THIS AMOUNT REPRESENTED AMOUNTS PAYABLE TO M/S. FLAGSTAF F VENTURE CAPITAL ON ACCOUNT OF SALE OF SHARES. HOWEVER, AS THE AMOUNT W AS FOUND TO BE NO LONGER PAYABLE AND THE SAME WAS WRITTEN BACK TO THE P & L ACCOUNT. NEVERTHELESS, IT WAS SUBMITTED, THAT THIS AMOUNT WAS NOT TAXABLE UNDER SECTION 41(1) OF THE I.T. ACT AS NO ALLOWANCE OR DEDUCTION HAD BEEN CLAIMED IN THE PAST ON THIS AMOUNT. THE ASSESSEE RELIED UPON THE DECISION OF CIT VS. CHETAN CHEMICALS PVT. LTD. 139 TAXMAN 301 (GJU) AND MAHIND RA & MAHINDRA LTD. VS. CIT 128 TAXMAN 394 (BOM) IN SUPPORT OF ITS PROP OSITION THAT THE PROVISIONS OF SECTION 41(1) ARE NOT ATTRACTED IN TH E GIVEN SITUATION. FURTHER, VIDE ITS LETTER DATED 12.12.2006, THE ASSESSEE EXPL AINED TO THE A.O. THAT THE AMOUNT IN QUESTION REPRESENTED SALE PROCEEDS OF SHA RE SOLD ON BEHALF OF FLAGSTAFF VENTURE CAPITAL (MAURITIUS) LTD., WHICH W AS PAYABLE TO THAT COMPANY AS SALE PROCEEDS OF ITS EQUITY SOLD BY THE ASSESSEE COMPANY ON ITS BEHALF. IT WAS THIS AMOUNT WHICH WAS WRITTEN BACK. THE ASSESSEE FURTHER SUBMITTED THAT THE PROVISIONS OF SECTION 28(IV) WER E ALSO NOT ATTRACTED AS IT WAS NOT INCOME FROM BUSINESS. RELIANCE WAS PLACED U PON THE DECISIONS IN ITA NO.7297/MUM/2008 M/S. PEREGRINE SECURITIES INDIA P. LTD. 3 CHETAN CHEMICALS PVT. LTD. AND MAHINDRA & MAHINDRA LTD. CITED SUPRA. THE A.O., HOWEVER, DID NOT ACCEPT THE EXPLANATION OF TH E ASSESSEE AND HELD THAT THE AMOUNT WRITTEN OFF WAS RECEIVED BY THE ASSESSEE IN THE COURSE OF ITS BUSINESS AND THEREFORE, REPRESENTED A BENEFIT RECEI VED IN THE NORMAL COURSE OF BUSINESSES. HENCE, THE SAID SUM WAS TAXABLE AS A TRADING RECEIPT U/S. 28(IV). RELIANCE WAS PLACED BY THE A.O. ON THE FOLL OWING DECISIONS: PROTOS ENGINEERING CO. PVT. LTD. VS. CIT 211 ITR 91 9 (BOM) CIT VS. KARAMCHAND THAPAR & ORS. 222 ITR 112 (SC) IN THE COURSE OF APPELLATE PROCEEDINGS, IT WAS SUBM ITTED THAT THE PROVISIONS OF SECTION 41(1) AND 28(IV) ARE NOT ATTR ACTED. WITH REGARD TO SECTION 28(IV), IT WAS SUBMITTED THE PROVISIONS OF THAT SECTION WAS NOT ATTRACTED, KEEPING IN VIEW OF THE FOLLOWING DECISIO NS: CIT VS. KHAIRUNNISA EBRAHIM 201 ITR 903 (KER) MAHIINDRA & MAHINDRA LTD. VS. CIT (SUPRA) 6. AFTER CONSIDERING VARIOUS CASE LAWS, BOTH ON SECTIO N 41(1) AND 28(IV) AND THE LEGAL PRINCIPLES INVOLVED, THE CIT(A) SUMMA RISED THE LEGAL PRINCIPLES AS UNDER: - 3.8 THE SALIENT FEATURES OF THE ABOVE JUDGEMENT OF THE SUPREME COURT, AS WELL AS THE OTHER JUDGEMENTS, RELIED UPON (QUOTE D SUPRA), IS SUMMARISED AS FOLLOWS: (A) THE DEPOSITS WERE RECEIVED IN THE COURSE OF THE REG ULAR BUSINESS ACTIVITY OF THE ASSESSEE. (B) THE DEPOSITS WERE RECEIVED IN ALL THE CASES FROM TH E TRADE DEBTORS OF THE ASSESSEE. (C) IN ALL THE CASES THE UNCLAIMED DEPOSITS WERE BALANC ES REMAINING AFTER ADJUSTMENT OF SALE RECEIPTS. (D) IN MOST OF THE CASES THE DEPOSITS WERE WRITTEN BACK TO THE P & L ACCOUNT BY THE ASSESSEE. 3.9. NOW LET US EXAMINE THE FACTS IN THE INSTANT CA SE. THE APPELLANT IS A TRADER IN SHARE AND ALSO ACTS AS A BROKER FOR ITS CLIENTS. ACCORDINGLY, IN THE PAST, THE APPELLANT HAD RECEIVED FROM M/S. FLAG STAR VENTURE CAPITAL EQUITY SHARES OF FIDELITY AND GABRIEL INDUSTRIES FO R SALE. THE SALE CONSIDERATION OF RS.72.20 LAKHS WAS CREDITED TO THE PARTIES ACCOUNT. SUBSEQUENTLY, IN THE FY 2001-02, FOR REASONS UNKNOW N, THE APPELLANT WROTE BACK THE SALE PROCEEDS AND CREDITED THE SAME TO ITS P & L ACCOUNT. IT THEREFORE, CANNOT BE DENIED THAT THE SUM OF ` 72,20 LAKHS WAS RECEIVED ITA NO.7297/MUM/2008 M/S. PEREGRINE SECURITIES INDIA P. LTD. 4 BY THE APPELLANT IN THE REGULAR COURSE OF ITS BUSIN ESS. IT ALSO CANNOT BE DENIED THAT SALE PROCEEDS OF EQUITY SHARES IS A REV ENUE RECEIPT, RECEIVED IN THE ORDINARY COURSE OF BUSINESS. THE PROVISIONS OF SECTION 28(IV), READ WITH THE ABOVE CITED DECISION OF THE SUPREME COURT, CLEARLY HIT THE FACTS IN THE INSTANT CASE. IN THE CIRCUMSTANCES, I AM IN AGREEMENT WITH THE A.O. THAT THE SUM OF RS.72,20 LAKHS IS TAXABLE IN T HE HANDS OF THE APPELLANT U/S. 28(IV). THE DECISION OF MAHINDRA & M AHINDRA AND M/S. CHETAN CHEMICALS, IS DISTINGUISHABLE AS IN THAT CAS E THE AMOUNT WRITTEN OFF WAS A LOAN RECEIVED BY THE APPELLANT. THE BUSIN ESS OF THE APPELLANT, IN THAT CASE, WAS NOT THAT OF GIVING AND RECEIVING LOANS. THE COURTS THEREFORE, HELD THAT LOAN WAS NOT A TRADING RECEIPT RECEIVED IN THE ORDINARY COURSE OF BUSINESS. IN THE INSTANT CASE, T HE FACT IS THAT THE RECEIPT OF RS.72.20 LAKHS WAS RECEIVED AS SALE CONS IDERATION FOR SHARE SOLD BY THE ASSESSEE; THE ASSESSEES BUSINESS BEING THAT OF A SHARE BROKER AND TRADER. HENCE, IN THE INSTANT CASE, THE RECEIPTS ARE TRADING RECEIPTS AND RECEIVED IN THE ORDINARY COURSE OF BUS INESS. IN THE CIRCUMSTANCES, THE ORDER OF THE A.O. IS CONFIRMED A ND THE APPEAL DISMISSED ON THIS GROUNDS. 7. WE HAVE CONSIDERED THE ISSUE AND CONSIDERED THE ARG UMENTS OF THE LEARNED COUNSEL. THE LEARNED COUNSEL RELIED UPON TH E DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDR A LTD. AND HON'BLE GUJARAT BOMBAY HIGH COURT DECISION IN THE CASE OF C HETAN CHEMICALS PVT. LTD. 267 ITR 770. AS RIGHTLY DISTINGUISHED BY THE C IT(A) THE AMOUNTS WRITTEN OFF WERE RECEIVED AS LOANS BY THE ASSESSEE IN THOSE CASES AND IN THOSE SET OF FACTS THE AMOUNTS ARE NOT CONSIDERED TAXABLE BOTH U NDER SECTION 28(IV) AND 41(1). HOWEVER, IN THIS ASSESSEES CASE THE FACTS A RE THAT THE ASSESSEE HAD SOLD THE SHARES OF COMPANIES AND SINCE THOSE COMPAN IES HAVE BEEN CLOSED, THE SALE PROCEEDS LIABLE TO BE PAYABLE TO THEM HAVE NOW BEEN CREDITED TO P & L ACCOUNT AS ASSESSEES RECEIPTS/INCOME. SINCE IT I S CLEARLY A BENEFIT ARISING OUT OF ASSESSEES BUSINESS, THE AMOUNT IS TAXABLE I N ASSESSEES HANDS UNDER SECTION 28(IV). THE SAME IS ALSO IN LINE WITH THE P RINCIPLES ESTABLISHED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONT AINERS LTD. VS. DICT 308 ITR 417. ACCORDINGLY THE GROUND IS REJECTED. 8. GROUND NO. 5 PERTAINS TO NOT ALLOWING TRADING LOSS ON THE GROUND THAT DETAILS HAVE NOT BEEN FILED. THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF ` 24,70,659/- AS BAD DEBTS AND DISALLOWED THE SAME. T HE A.O. MENTIONED THAT THE ASSESSEE HAS NOT FURNISHED DETAI LS OF BAD DEBTS WHEREAS IT WAS CONTENTED BEFORE THE CIT(A) THAT ASSESSEE VI DE LETTER DATED 27.11.2006 ITA NO.7297/MUM/2008 M/S. PEREGRINE SECURITIES INDIA P. LTD. 5 HAS FURNISHED THE DETAILS. THE RELEVANT DETAILS ARE ALSO PLACED IN THE PAPER BOOK IN PAGES 7-9 FILED BY THE ASSESSEE. AFTER CONS IDERING THE ARGUMENTS OF THE ASSESSEE THE CIT(A) HAS GIVEN THE FOLLOWING FIN DING: - 5.2 I HAVE PERUSED THE FACTS IN THIS CASE. IN THE ASSESSMENT ORDER, AT PARA 6, THE A.O. HAS DISALLOWED THE CLAIM OF RS. 24.70 LAKHS, AS BALANCE WRITTEN OFF, ON THE GROUNDS THAT NO DETAILS HAD BEEN SUBMITTED. THE APPELLANT HAS TO THE CONTRARY, FILED COPY OF IT S SUBMISSIONS BEFORE THE A.O. DATED 27-11-2006. ON PERUSAL OF THE SAME, IT IS SEEN THAT AT POINT NO. 2, THE APPELLANT HAS STATED THAT THE DETA ILS OF BALANCES WRITTEN OFF ARE GIVEN IN THE ANNEXURE. ON PERUSAL OF THE AN NEXURE, I FIND THAT THE ASSESSEE HAS PROVIDED THE NAMES OF THE PARTIES, THE AMOUNT AND REMARKS. HOWEVER, ON PERUSAL OF THE REMARKS, IT CAN NOT BE SAID THAT THE CONDITIONS OF SECTION 36(2), R.W.S. 36(1)(VII) ARE BEING FULFILLED. IN THE CIRCUMSTANCES, I AGREE WITH THE A.O. THAT THESE AMO UNTS DO NOT QUALIFY FOR DEDUCTION AS BAD DEBT U/S. 36(1)(VII). THE APPE LLANT HAS NOT MADE A CLAIM UNDER ANY OTHER SECTION. IN THE CIRCUMSTANCES , THIS GROUND OF APPEAL IS ALSO DISMISSED . 9. IT WAS THE CONTENTION OF THE LEARNED COUNSEL THAT W ITHOUT EXAMINING THE DETAILS OF THE BALANCES WRITTEN OFF, THE CIT(A) HELD THAT PROVISIONS OF SECTION 36(2) ARE NOT FULFILLED. HE DREW OUR ATTENT ION TO THE DETAILS PLACED IN PAGE 9 TO SUBMIT THAT THESE ARE OR TRADING/BUSINESS RECEIPTS THAT HAVE BEEN WRITTEN OFF AND SINCE THE A.O. HAS NOT EXAMINED THE AMOUNTS, HE HAS NO OBJECTION IF THE MATTER IS RESTORED BACK TO THE A.O . FOR EXAMINATION. 10. THE LEARNED D.R. SUBMITTED THAT DETAILS ARE NOT FIL ED AND RELIED ON THE ORDER OF THE CIT(A). 11. WE HAVE EXAMINED THE ISSUE. EXCEPT ITEM NO. 22, WHI CH IS COLLATERAL DEPOSIT CUSTODIAN OF ` 5,92,276/- FOR WHICH NO REMARKS ARE MENTIONED ALL OTHER AMOUNTS HAVE REMARKS ABOUT THE NATURE OF THE AMOUNT AND ASSESSEE ALSO ENCLOSED NECESSARY LEDGER COPIES IN THE PAPER BOOK FROM PAGES 10 TO 33. SINCE IT IS THE CONTENTION OF THE A.O. THE DETAILS ARE NOT FILED, WE ARE OF THE OPINION THAT THE A.O. SHOULD RE-EXAMINE THE ISSUE A ND ALLOW THE CLAIMS. THE PRINCIPALS ESTABLISHED BY THE HON'BLE BOMBAY HIGH C OURT IN THE CASE OF DCIT VS. OMAN INTERNATIONAL SOAG 313 ITR 128, FURT HER CONFIRMED BY THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. VS. C IT 323 ITR 397 ARE TO KEPT IN MIND BY THE A.O. WHILE CONSIDERING THE ABOV E AMOUNTS. WITH THIS ITA NO.7297/MUM/2008 M/S. PEREGRINE SECURITIES INDIA P. LTD. 6 DIRECTION THE ISSUE IN GROUND NO. 5 IS RESTORED BAC K TO THE FILE OF THE A.O. FOR EXAMINATION AND ALLOWING IT AS BAD DEBT/TRADE LOSS, AS THE CASE MAY BE. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH SEPTEMBER 2010. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 9 TH SEPTEMBER 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) X, MUMBAI 4. THE CIT X, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.