THE ITO -4(2)(1), MUMBAI V. M/S. RAPID CAPITAL SERVICES, MUMBAI

ITA 7469/MUM/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3892 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 09-11-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 14-12-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: PARAS S SAVLA
• Keywords: Opportunity of being heard; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI RAJENDRA SINGH,(AM) ITA NO.7469/MUM/2007 ASSESSMENT YEAR : 2004-05 INCOME TAX OFFICER WARD 4(2)(1) ROOM NO.644, 6 TH FLOOR AAYAKAR BHAVAN MUMBAI-20. ..( APPELLANT ) VS. M/S. RAPID CAPITAL SERVICES BILQUEES MANSION, 2 ND FLOOR NORTH SIDE, 261/263 D.N. ROAD MUMBAI. ..( RESPONDENT ) P.A. NO. (AAACR 8889 G) APPELLANT BY : SHRI SURENDRA KUMAR RESPONDENT BY : SHRI P ARAS S. SAVLA O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 8.10.2007 PASSED BY THE LD. CIT(A) FOR THE AS SESSMENT YEAR 2004-05. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE FIRM IS ENGAGED IN THE BUSINESS OF SHARE AND STOCK BROKER, FILED RETUR N DECLARING TOTAL INCOME AT RS.6,79,660/-. DURING THE COURSE OF ASSESSMENT IT WAS INTERALIA OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS CLAIMED BAD DEBTS RS.10,42,382/-. THE ASSESSEE WAS ASKED TO FILE THE DETAILS AND TO SUBSTANTIATE ITS CLAIM. THE ASSESSEE WAS ALSO ASKE D TO FURNISH THE CIRCUMSTANCES WHICH GAVE RISE TO THE DEBT AND THE B ROKERAGE THAT THE FIRM RECEIVED FROM THE DEBTORS. IN COMPLIANCE, THE ASSE SSEE FILED DETAILS VIDE ITA NO.7469/M/07 A.Y:04-05 2 LETTER DATED 28.8.2006 ALONG WITH COPY OF ACCOUNTS OF THE PARTIES FOR THE LAST THREE PREVIOUS YEARS. THE ASSESSING OFFICER AFTER CONSIDERING THE ASSESSEE'S EXPLANATION IN VIEW OF THE PROVISIONS OF SEC.36(1)( VII) R.W.S 36(2) OF THE INCOME TAX ACT, 1961 (THE ACT) WAS OF THE VIEW THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUBMIT THE DETAILS OF BROKERAGE IT EAR NED ON THE TRANSACTION GIVING RISE TO THE AMOUNT OUTSTANDING WHICH IS PRIO R TO THE PREVIOUS YEAR AND HENCE, HE ADDED RS .7,00,000/- TO THE INCOME OF THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER ALLOWED THE BUSINESS LOSS OF RS.3 ,42,382/- IN RESPECT OF THE THREE PARTIES ON THE GROUND THAT THE LOSS HAS BEEN CRYSTALLIZED DURING THE PREVIOUS YEAR UNDER CONSIDERATION. THE ASSESSING O FFICER AFTER MAKING SOME OTHER DISALLOWANCES COMPLETED THE ASSESSMENT AT AN INCOME OF RS.15,75,830/- VIDE ORDER DATED 5.10.2006 PASSED U/ S.143(3) OF THE ACT. ON APPEAL, THE LD.CIT(A) WHILE OBSERVING THAT THE ASSE SSEE HAS WRITTEN OFF THE DEBTS DURING THE YEAR DELETED THE DISALLOWANCE OF R S.7,00,000/-. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE REVENUE IS IN APPEAL BEFORE US TAKING FOLLOWING GROUNDS OF APPEAL. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS .7,00,000/- CLAIMED AS BAD DEBTS HOLDING THAT THE SAME IS ALLOW ABLE AS BUSINESS LOSS ELIGIBLE FOR DEDUCTION UNDER SECTION2 8(1) OF THE I. T. ACT, 1961 WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT SUBMITTED DETAILS REGARDING BROKERAGE EARNED BY IT ON THE TRANSACTION GIVING RISE TO THE OUTSTANDING DEBT AMO UNT. 2. FURTHER, PLACED IN THE ABOVE FACTUAL AND LEGAL S CENARIO, THE IMPUGNED ORDER OF THE LD. CIT(A) IS, THE APPELL ANT PRAYS, CONTRARY TO LAW AND CONSEQUENTLY MERITS TO BE SET A SIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. AT THE TIME OF HEARING BOTH THE PARTIES AGREED T HAT THIS ISSUE NOW STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE REC ENT DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN DCIT VS. SHREYAS S. MORAKH IA. HOWEVER, THE LD. DR SUBMITS THAT SINCE THE COMPLETE DETAILS IN THIS REG ARD ARE NOT ON RECORD, THEREFORE, THE ISSUE MAY BE SET ASIDE TO THE FILE O F THE ASSESSING OFFICER WHICH WAS NOT OBJECTED TO BY THE LD. COUNSEL FOR TH E ASSESSEE. ITA NO.7469/M/07 A.Y:04-05 3 5. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND F ROM THE ASSESSMENT ORDER THAT DURING THE COURSE OF ASSESSMENT PROCEEDING THE ASSESSEE SUBMITTED COMPLETE DETAILS OF BAD DEBTS EXPLAINING THE CIRCUM STANCES UNDER WHICH THE ASSESSEE HAS CLAIMED THE SAID AMOUNT AS BAD DEBT OR BUSINESS LOSS. WE FURTHER FIND THAT EXCEPT DETAILS OF BAD DEBTS THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAS SHOWN THE AMOUNT OF BRO KERAGE ARISING FROM SUCH TRANSACTION OF SHARES AS INCOME AS OBSERVED B Y THEIR LORDSHIPS IN CIT VS. D.B. (INDIA) SECURITIES (2009) 318 ITR 26 (DEL. ) 6. IN SHREYAS S. MORAKHIA SINCE REPORTED IN (2010) 5 ITR (TRIB.) 1 (MUMBAI) [SB] IT HAS BEEN HELD AT PLACITUM 33 AS UN DER : 33. KEEPING IN VIEW ALL THE FACTS OF THE CASE AND THE LEGAL POSITION EMANATING FROM THE VARIOUS JUDICIAL PRONOU NCEMENTS AS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE AMO UNT RECEIVABLE BY THE ASSESSEE, WHO IS A SHARE BROKER, FROM HIS CLIENTS AGAINST THE TRANSACTIONS OF PURCHASE OF SHA RES ON THEIR BEHALF CONSTITUTES DEBT WHICH IS A TRADING DEBT. T HE BROKERAGE/COMMISSION INCOME ARISING FROM SUCH TRANS ACTIONS VERY MUCH FORMS PART OF THE SAID DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE/COMMISSION HAS BEEN TAKEN INTO ACCOU NT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVA NT PREVIOUS YEAR OR ANY EARLIER YEAR, IT SATISFIES THE CONDITIO N 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 FROM HIS BOOKS OF ACCOUNT AS IRRECOVERABLE. WE, THEREFORE, ANSWER THE QUESTION REFERRED TO THIS SPE CIAL BENCH IN THE AFFIRMATIVE THAT IS IN FAVOUR OF THE ASSESSEE. APPLYING THE RATIO OF THE ABOVE DECISIONS TO THE FA CTS OF THE PRESENT CASE WE FIND THAT THE COMPLETE FACTS AS MENTIONED ABOVE ARE NOT ON RECORD, THEREFORE, IN THE INTEREST OF JUSTICE WE CONSIDER IT FAIR AND REASONABLE THAT THE MATTER SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER AND ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY THE REVENUE AUTHORITIES O N THIS ACCOUNT AND SEND BACK THE MATTER TO FILE OF THE ASSESSING OFFICER WH O SHALL DECIDE THE ISSUE AFRESH IN THE LIGHT OF OUR OBSERVATIONS HEREINABOVE AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . THE ITA NO.7469/M/07 A.Y:04-05 4 GROUNDS TAKEN BY THE REVENUE ARE THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT THE REVENUES APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12.11.2010. SD/- SD/- ( RAJENDRA SINGH ) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 12.11.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.