KIRIT KANTILAL VAKHARIA, MUMBAI V. ITO 4(1)(2), MUMBAI

ITA 7496/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4261 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-07-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 02-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURINDER JIT SINGH
• Keywords: Earning of tax free income; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI . , ! ' #'' '$ , % ! & BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 7496 / / 2010 A.Y. 2006-07 ITA NO. : 7496/MUM/2010 (ASSESSMENT YEAR: 2006-07) M/S. KIRIT KANTILAL VAKHARIA, A-1 NAVJEEVAN SOCIETY, 121/127 KAZI SAYED STREET, MUMBAI -400 003 .: PAN: AABPV 2603 B VS ITO 4(1)(2), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SATISH R. MODY RESPONDENT BY : SHRI SURINDER JIT SINGH /DATE OF HEARING : 02-07-2013 !' / DATE OF PRONOUNCEMENT : 10 -07-2013 * O R D E R #'' '$ , : PER VIVEK VARMA, JM: THE APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF C IT(A) 8, MUMBAI, DATED 21.10.2009, WHEREIN, THE FOLLOWING GROUNDS ARE TAKEN: 1. LEARNED AO/CIT(A) HAS ERRED IN ALLOWING BAD DEB TS ONLY TO THE EXTENT OF RS. 2750051/- INSTEAD OF RS. 2993648/-. 2. LEARNED AO HAS ERRED IN MAKING DISALLOWABLE U/S 14-A DISREGARDING FACTS OF THE CASE. 3. LEARNED AO/CIT(A) HAS FAILED TO APPRECIATE THAT BAD DEBT WRITTEN OFF IN BOOKS OUGHT TO BE ALLOWED IN FULL. 4. LEARNED AO HAS FAILED TO APPRECIATE THAT FOR DIS ALLOWANCE U/S 14-A, CLEAR NEXUS BETWEEN INCOME EARNED & EXPENDITURE INC URRED FOR EARNING M/S. KIRIT KA NTILAL VAKHARIA ITA NO. 7496/MUM/2010 2 THE EXEMPT INCOME SHOULD BE ESTABLISHED IN WHICH AO HAS FAILED TO DO SO. 5. LOOKING AT ABOVE FACTS, YOUR APPELLANT PRAYS YOU R HONOUR TO ALLOW THE CLAIM OF BAD DEBTS IN FULL, DELETE THE ADDITION MAD E U/S 14-A. 2. THE ASSESSEE IS AN INDIVIDUAL AND TRADER AS SUB BROKE R WITH NIRJAY SECURITIES LTD. THE ASSESSEE WAS HAVING CREDIT BALA NCE OF RS. 9,29,333/- AS ON 31.03.2001. WHEN THE MARKETS CRASHED, NIR JAY SECURITIES LTD. SUFFERED HEAVY LOSSES WHILE SQUARING THE OUT STANDING POSITION ON DSQ SOFTWARE LTD. STOCKS AND RESULTED IN A DE BIT BALANCE OF RS. 39,22,981/-, THUS HAVING A NET DEBIT BALANCE OF RS. 29,93,648/-, AS PER SETTLEMENT NO. 2001011, WHICH RUN UPTO THE PRECE DING YEAR. THE ASSESSEE, DURING THE INSTANT YEAR, CLAIMED BAD DEBT O F RS. 29,93,648/- IN HIS RETURN. 3. THE AO, AFTER DELIBERATIONS DISALLOWED THE BAD DEBT AS CLAIMED. 4. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A), WHO SU STAINED THE DISALLOWANCE. 5. THE ASSESSEE IS NOW BEFORE THE ITAT. 6. BEFORE US, THE AR SUBMITTED THAT IT IS A CASE WHERE T HE ASSESSEE HAD SHOWN THE DEBIT BALANCES BEING CARRIED OVER SINCE 2 001-02 AND ONLY IN THIS YEAR THE ASSESSEE CLAIMED THE AMOUNT IRR RECOVERABLE AND DEBT BECOMES BAD. HE FURTHER SUBMITTED THAT THE ISSUE IS NOW SQUARELY COVERED BY THE DECISION IN THE CASE OF SHREYAS S. MORAKH IA, REPORTED IN 342 ITR 285, WHEREIN THE HONBLE BOMBAY HIGH COURT DEALIN G WITH THIS ISSUE HELD THAT THE ASSESSEE HAS TO SHOW IN ITS BOO KS THAT THE AMOUNT IS IRRECOVERABLE AND NOTHING MORE. HENCE, THE ISSUE BEING COVERED BY THE JURISDICTIONAL HIGH COURT, THE BAD DEBTS, A S CLAIMED, HAS TO BE ALLOWED. 7. THE DR RELIED ON THE ORDER OF THE REVENUE AUTHORITIES. 8. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. THE CASE PERTAINS TO A SUB BRO KER, WHO WAS TO M/S. KIRIT KA NTILAL VAKHARIA ITA NO. 7496/MUM/2010 3 RECOVER THE BALANCE FROM HIS BROKER, WHO SUFFERED LOSSES A ND FAILED TO REMIT THE FUNDS TO THE ASSESSEE. IT IS NOT THE CASE OF THE AO OR THE CIT(A) THAT THE DEBIT BALANCE IS TRAVELING FROM EARLIER YEAR S, I.E. FROM ASSESSMENT YEAR 2001-02, BUT THAT UNLESS IT IS PROVED T HAT IF DEBT HAS BECOME BAD, THE CLAIM CANNOT BE ALLOWED. WE HAVE SEEN FR OM THE ORDER OF THE AO THAT THE DEBIT BALANCE IS COMING FROM 31.03.2001. IN OUR OPINION, IF THE BALANCE IS IRRECOVERABLE FOR THE PAST FIVE YEA RS, THIS, IN ITSELF PROVES THE FACTUM OF BALANCE BECOMING BAD. NOW THAT THE ISSUE HAS GOT THE BACKING OF THE JURISDICTIONAL HIGH COURT AS R EFERRED TO BY THE AR, TAKES US TO THE CONCLUSION THAT THE CLAIM SHOULD BE ALLOWED. 9. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW THE CLAIM OF BAD DEBT OF RS. 29,93,648.08. 10. GROUND NO. 1 & 3 ARE THEREFORE ALLOWED. 11. GROUND NO. 2, 4 & 5 PERTAIN TO THE ISSUE OF DISALLOWANC E U/S 14A. 12. THE AO HAS DISALLOWED RS. 99,439/- AN INCOME CLAIMED EX EMPT (EXACT FIGURE NOT MENTIONED IN EITHER ORDER). BEFORE THE CIT (A), THE ASSESSEE CLAIMED THAT IF AT ALL THE EXPENDITURE HAS TO BE DISALLOWED THEN IT SHOULD NOT EXCEED RS. 17,331/-. 13. ON THIS, THE CIT(A) HAS DIRECTED THE AO TO VERIFY THE RECORDS AND RECOMPUTE THE DISALLOWANCE UNDER RULES 8D. 14. THE AR, SUBMITTED THAT SIMILAR DIRECTION MAY BE GIVEN. 15. AFTER HEARING THE PARTIES, WE ARE OF THE VIEW THAT SIN CE TILL THIS DAY, AO HAS NOT COMPLIED WITH THE DIRECTION OF THE CIT(A), WE GIVE SIMILAR DIRECTION TO THE AO. 16. THE GROUNDS NO. 2, 4 & 5 ARE THEREFORE ALLOWED. M/S. KIRIT KA NTILAL VAKHARIA ITA NO. 7496/MUM/2010 4 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JULY, 2013. SD/- SD/- ( . ) ( #'' '$ ) ! ! (B. RAMAKOTAIAH) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 10 TH JULY, 2013 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) & & ' ( ) - 8 MUMBAI / THE CIT (A)-8, MUMBAI. 4) & & ' 4, MUMBAI / THE CIT4, MUMBAI, 5) )*+ , - , & , , ./ / THE D.R. A BENCH, MUMBAI. 6) +0 1 COPY TO GUARD FILE. &23 / BY ORDER 4 / 5 6 & , , ./ DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *895 . . * CHAVAN, SR. PS