MANGAL KESHAV SECURITIES LTD, MUMBAI V. ADDL CIT RG 4(3), MUMBAI

ITA 8047/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101268 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 15-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 23-11-2010
• Court: TRIBUNAL
• Department Lawyers: MRS J K GARG DR
• Assessee Lawyers: PRASANT J THACKER; NISHAN THAKKAR
• Keywords: Business expenditure; Bad and doubtful debts
• Section: 37

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.8047/MUM/2010 ASSESSMENT YEAR: 2006-07 MANGAL KESHAV SECURITIES LIMITED, 501, HERITAGE PLAZA, J.P. ROAD, OPP. INDIA OIL COLONY, ANDHERI (W), MUMBAI-400 053 / VS. ACIT 4(3), AAYAKAR BHAVAN MUMBAI- ( '# $ /ASSESSEE) ( / REVENUE) P.A. NO.AAACM8597F '#$ / ASSESSEE BY SHRI NISHAN THAKKAR & SHRI PRASANT J. THACKER (AR) / REVENUE BY MRS. J. K. GARG ( DR ) % & ' ( / DATE OF HEARING : 27/08/2015 ! ' ( / DATE OF ORDER: 29/09/2015 ! / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST ORDER DATED 11.10.2010, PASSED BY THE LD. COMMISSIO NER OF MANGAL KESHAV SECURITIES LIMITED 2 INCOME TAX-11, MUMBAI FOR THE ASSESSMENT YEAR 2006- 07. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1 GROUND NO.1: DISALLOWANCE OF FINES, PENALTIES ETC., OF RS. 908,193 1.1 THE COMMISSIONER OF INCOME-TAX (APPEALS)-11 ['THE CIT (APPEALS)], MUMBAI ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW ERRED IN UPHOLDING THE DISALLOWANCE OF FINES, PENALTIES ETC. , LEVIED FOR NON MAINTENANCE OF KYC FORMS, SHORT COLLECTION OF MARGIN MONEY ETC., AGGREGATING TO RS. 908,193 UNDER THE PROVISIONS OF THE INCOME-TAX ACT, 1961 ('THE ACT') ON THE PREMISE THAT SUCH PAYMENTS ARE INCURRED IN RELATION TO OFFENCE WHICH IS PROHIB ITED BY LAW. 1.2 THE APPELLANT SUBMITS THAT IT HAS NEITHER UNDERTAKEN ANY ACTIVITY WHICH WAS 'VIOLATION' OR OFFENCE OF ANY LAW NOR HAS CONCLUDED ANY ACTIVITY WHICH IS 'PROHIBITED' BY LAW. THE APPELLANT SUBMITS THAT PAYMENT OF FINE, PENALTIES ETC., IN QUESTION H AVE BEEN PAID ON ACCOUNT OF PROCEDURAL NON-COMPLIANCE AND ARE COMPENSATORY IN NATURE AND THAT THE CIT(APPEALS) FAILED TO APPRECIATE THE SUBMISSIONS MADE IN THE COURSE OF THE APPELLATE PROCEEDINGS. 1.3 THE APPELLANT PRAYS THAT THE ASSESSING OFFICER BE DIRECTED TO GIVE APPROPRIATE DIRECTION IN THIS MATT ER TO DELETE THE DISALLOWANCE OF RS. 908, 193. 2 GROUND NO.2: DISALLOWANCE OF BAD DEBTS OF RS. 211,109 2.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ACIT ERRED IN DISALLOWING THE BAD DEBTS CLAIM OF RS. 211,109. 2.2 THE APPELLANT SUBMITS THAT THE CIT(APPEALS) FAILED TO APPRECIATE THE FACT THAT THE DEBTS WERE WRITTEN OFF AS 'BAD' AS CLAIMED AS DEDUCTION SINCE THERE HAS NOT BEEN ANY RECOVERY FROM THE PARTIES. T HE CIT(APPEALS) OUGHT TO HAVE ALLOWED THE DEDUCTION OF BAD DEBTS IN ACCORDANCE WITH SECTION 36(1)(VII) REA D WITH SECTION 36(2) OF THE ACT. 2.3 THE APPELLANT PRAYS FOR DUE RELIEF. MANGAL KESHAV SECURITIES LIMITED 3 2. AFTER HEARING BOTH THE SIDES, THE APPEAL IS DISPOS ED AS UNDER: 3 . GROUND NO.1 : THE ASSESSEE HAS CHALLENGED THE ACTION OF ASSESSING OFFICER (HEREINAFTER CALLED AS AO), IN MAKING DISALLOWANCE OF A SUM OF RS.9,08,193/- BEING THE AM OUNT OF FINE PAID BY THE ASSESSEE TO SEBI/STOCK EXCHANGE FO R NON- MAINTENANCE OF KYC FORMS, SHORT COLLECTION OF MARGI NS MONEY ETC., ON THE GROUND THAT SUCH PAYMENTS WERE INCURRE D IN RELATION TO AN OFFENCE WHICH IS PROHIBITED BY THE L AW. 3.1 THE BRIEF FACTS ARE THAT THE ASSESSEE IS A CLOSELY HELD COMPANY ENGAGED IN THE BUSINESS OF SHARE/STOCK BROK ING AND IS A MEMBER OF BSE, NSE, IS A DP FOR CDSL & NSDL AN D MUTUAL FUND DISTRIBUTION. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, IT WAS NOTED BY THE AO FROM THE TAX AU DIT REPORT IN FORM NO. 3CA, THAT THE ASSESSEE HAS PAID PENALT Y/FINE, LEVIED BY THE STOCK EXCHANGE AMOUNTING TO RS.9,08,1 93/-. THE AO INFORMED THE ASSESSEE THAT IN VIEW OF EXPL ANATION 1 TO SECTION 37 OF THE ACT, THE AFORESAID AMOUNT WAS NOT ALLOWABLE AS BUSINESS EXPENDITURE. THE ASSESSEE, IN REPLY, SUBMITTED THAT IT HAS NEITHER UNDERTAKEN ANY ACTIVI TIES WHICH WERE IN VIOLATION OR OFFENCE OF ANY LAW, NOR HA S CONDUCTED ANY ACTIVITIES WHICH WERE PROHIBITED BY LAW. IT WAS SUBMITTED BY THE ASSESSEE THAT FINES, PENALTY ETC. HAVE BEEN PAID FOR SOME PROCEDURAL NON-COMPLIANCES, INADVERTENTLY DONE BY THE ASSESSEE COMPANY AND THEREFORE, THE SAME COULD NOT BE STRICTLY CONSTRUED AS AN OFFENCE OR SOMETHING WH ICH IS PROHIBITED BY LAW. BUT THE AO WAS NOT SATISFIED AN D AFORESAID MANGAL KESHAV SECURITIES LIMITED 4 AMOUNT WAS DISALLOWED BY INVOKING EXPLANATION TO SE CTION 37 OF THE ACT. 3.2 . BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LEARNED COMMISSIONER OF INCOME TAX (HEREINAFTER CAL LED AS LD CIT(A)}, WHEREIN DETAILED SUBMISSIONS WERE MAD E BY THE ASSESSEE COMPANY. BUT THE LD CIT(A) WAS NOT SATISFI ED AND DISALLOWANCE MADE BY THE AO WAS CONFIRMED. BEING AG GRIEVED AGAIN, THE ASSESSEE HAS FILED THE PRESENT APPEAL BE FORE THE TRIBUNAL. 3.3 . DURING THE COURSE OF HEARING BEFORE US, LD COUNSE L HAD MADE DETAILED ARGUMENTS AND REITERATED MOST OF THE SUBMISSIONS MADE BY THE ASSESSEE COMPANY BEFORE THE AUTHORITIES BELOW. IN ADDITION TO THAT, HE HAS RELI ED UPON THE JUDGMENT OF HONBLE TRIBUNAL IN ASSESSEES OWN CASE , WHEREIN SIMILAR DISALLOWANCE HAS BEEN DELETED BY THE TRIBUN AL IN ASSESSMENT YEAR 2007-08 VIDE ORDER DATED 04.11.2010 IN ITA NO.121/MUM/2010. 3.4 . ON OTHER HAND, LD DR HAS RELIED UPON THE ORDERS O F THE LOWER AUTHORITIES. 3.5 . WE HAVE GONE THROUGH THE SUBMISSIONS OF BOTH THE PARTIES AND DETAILS & DOCUMENTARY EVIDENCES SHOWN T O US BY LD. COUNSEL. HE HAS TAKEN US THROUGH VARIOUS PAGES OF THE PAPER BOOK TO SHOW THAT THE IMPUGNED PAYMENTS HAVE BEEN MADE ON ACCOUNT OF ROUTINE FINES FOR MINOR PROCEDUR AL IRREGULARITIES, IN DAY- TO- DAY WORKING OF THE ASSE SSEE MANGAL KESHAV SECURITIES LIMITED 5 COMPANY. THE ASSESSEE COMPANY IS ENGAGED INTO STOCK BROKING ACTIVITIES AND ALSO IN FINANCIAL SERVICES W HICH INVOLVES SUBSTANTIAL COMPLIANCE REQUIREMENTS WITH VARIOUS RE GULATORY AUTHORITIES E.G. BSE, NSE, CDSL, NSDL, & SEBI ETC. IN THE REGULAR COURSE OF THE BUSINESS OF THE ASSESSEE COMP ANY, CERTAIN PROCEDURAL NON-COMPLIANCES ARE NOT UNUSUAL, FOR WHICH ASSESSEE IS REQUIRED TO PAY SOME FINES OR PEN ALTIES. IN OUR CONSIDERED VIEW, THESE ROUTINE FINES OR PENALTI ES ARE COMPENSATORY IN NATURE; THESE ARE NOT PUNITIVE. T HESE FINES ARE GENERALLY LEVIED TO ENSURE PROCEDURAL COMPLIANC ES BY THE CONCERNED PERSONS. THEIR LEVY DEPEND UPON FACTS AND CIRCUMSTANCES OF THE CASE, AND PECULIARITIES OR COM PLEXITIES OF THE SITUATIONS INVOLVED. SOMETIMES ELEMENTS OF DISC RETIONS OF LEVYING AUTHORITIES ARE ALSO INVOLVED THEREIN. 3.6 . ON THE OTHER HAND, AN OFFENCE WOULD BE THE ON E WHICH WILL ARISE AS A RESULT TO COMMISSION OF AN ACTION W HICH IS PROHIBITED BY LAW, AND, IN ALL THE GIVEN SITUATIONS , NO ELEMENT OF ANY CONSENT OF THE PARTIES INVOLVED CAN BRING AN Y CHANGE IN ITS LEGAL CONSEQUENCES. SIMILARLY, ANY AMOUNT PAID BY THE ASSESSEE, IN THE FORM OF COMPENSATION, AS A CONSEQU ENCE OF BREACH OF CONTRACT BETWEEN THE TWO PARTIES, CANNOT BE SAID TO BE AMOUNT PAID FOR ANY PURPOSE WHICH IS AN OFFENCE , PROHIBITED BY THE LAW. IN OTHER WORDS, UNDER THE IN COME TAX LAW, ONE IS REQUIRED TO GO INTO THE REAL NATURE OF THE TRANSACTIONS AND NOT TO THE NOMENCLATURE THAT MAY H AVE BEEN ASSIGNED BY THE PARTIES. THUS, TO DECIDE SUCH ISSUE S, WE ARE REQUIRED TO SEE REAL SUBSTANCE UNDER THE INCOME TAX LAW, AND MANGAL KESHAV SECURITIES LIMITED 6 NOT MERELY ITS FORM. THUS, ONLY THOSE PAYMENTS, WHI CH HAVE BEEN MADE BY THE ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW, SHALL AL ONE WOULD BE HIT BY THE EXPLANATION TO SECTION 37. WE TAKE SUPPO RT FROM THE ORDERS OF HONBLE TRIBUNAL IN ASSESSEES OWN CASE F OR A.Y. 2007-08 IN ITA NO.121/MUM/2010 DATED 04.11.2010, AN D THE RELEVANT PORTION IS REPRODUCED BELOW: 2. THE ONLY ISSUE IN THIS APPEAL IS AGAINST THE DE LETION OF ADDITION MADE ON ACCOUNT OF PENALTY PAID TO STOCK EXCHANGE AMOUNTING TO RS.6,83,507 IN VIOLATION OF T HE BYE- LAWS OF THE STOCK EXCHANGE. BRIEFLY STATED THE FACT S OF THE CASE ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSIN ESS OF SHARE AND STOCK BROKER AS MEMBER OF BOMBAY STOCK EXCHANGE AND NATIONAL STOCK EXCHANGE ETC. A SUM OF RS.6,83,507 WAS CLAIMED BY IT TOWARDS PENALTY PAID TO STOCK EXCHANGE. THE ASSESSING OFFICER CAME TO THE CONCLUS ION THAT THE DISALLOWANCE WAS TO BE MADE IN THE LIGHT O F EXPLANATION TO SECTION 37(1). HE, THEREFORE, MADE T HE ADDITION, WHICH CAME TO BE DELETED IN THE FIRST APP EAL. 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD IT IS NOTED THAT THE PE NALTY WAS PAID BY THE ASSESSEE ON ACCOUNT OF EXECUTION OF TRA DES WITHOUT SUBMISSION OF PAN CARD BY THE CLIENTS, NON- SUBMISSION OF UNIQUE CLIENT CODE DETAILS, INSPECTIO N, EXECUTION OF OPTION TRADES, SHORT DELIVERY, MARGIN VIOLATION FEES. FROM THE VERY NATURE OF THE AMOUNTS PAID IT I S PALPABLE THAT THERE IS NO INFRACTION OF LAW BY THE ASSESSEE AS CONTEMPLATED IN EXPLANATION TO SEC. 37(1). IT IS ON LY A CASE OF CERTAIN IRREGULARITIES COMMITTED WHILE CARRYING ON THE BUSINESS IN NORMAL COURSE. VARIOUS BENCHES OF THE T RIBUNAL HAVE CONSISTENTLY TAKEN VIEW IN ASSESSEES FAVOUR I N SUCH CIRCUMSTANCES. THE LD. AR HAS PLACED ON RECORD COPI ES OF SUCH ORDER IN GOLDCREST CAPITAL MARKETS LTD. VS.ITO [(2010) 130 TTJ 446 (BOM) AND MASTER CAPITAL SERVICES LTD. VS. DCIT [(2007) 108 TTJ 0389 (CHD.)], ETC. IN OUR CONS IDERED OPINION, THE LEARNED CIT(A)WAS JUSTIFIED IN ORDERIN G FOR THE DELETION OF THIS ADDITION. WE, THEREFORE, UPHOLD TH E IMPUGNED ORDER. MANGAL KESHAV SECURITIES LIMITED 7 3.7. WE FIND THAT THE FACTS IN THIS YEAR ARE SAME. NATU RE OF EXPENSES INCURRED IN THE NAME OF FINES OR PENALTIES ARE SAME AS HAVE BEEN INCURRED IN ASSESSMENT YEAR 2007-08. T HESE FACTS COULD NOT BE CONTROVERTED BY THE LD DR DURING THE COURSE OF HEARING. THEREFORE, RELYING UPON THE JUDG MENT OF HONBLE TRIBUNAL IN ASSESSEES OWN CASE, WE FIND TH AT DISALLOWANCE IS CONTRARY TO LAW AND THE SAME IS DIR ECTED TO BE DELETED. THUS, GROUND NO.1 IS ALLOWED. 4 . GROUND NO.3: THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF THE BAD DE BTS OF RS.2,11,109/-. 4.1 . THE BRIEF FACTS ARE THAT ASSESSEE HAD CLAIMED BAD DEBTS AMOUNTING TO RS.14,75,076/-, ON ACCOUNT OF BAD DEBT S WRITTEN OFF U/S 36(1)(VII) OF THE INCOME TAX ACT 1961. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO JUSTIFY ITS CLAIM. ON THE BASIS OF REPLY OF THE ASSESSEE, THE AO FOUND THAT THE CLAIM WAS JUSTIFIED PARTLY AND TH EREFORE, A SUM OF RS.2,11,109/- WAS DISALLOWED ON THE GROUND T HAT ASSESSEE WAS NOT ABLE TO ESTABLISH THAT THIS AMOUNT HAD BECOME BAD. 4.2 . BEFORE THE LD CIT(A), THE ASSESSEE SUBMITTED TH AT, THERE WAS NO REQUIREMENT, AS PER LAW, TO ESTABLISH THAT T HE DEBT HAD BECOME BAD AND MERE WRITE OFF IN THE BOOKS OF ACCOU NTS WAS ENOUGH. LD CIT(A) WAS NOT SATISFIED ON THE GROUND T HAT PROPER MANGAL KESHAV SECURITIES LIMITED 8 DETAILS WER NOT FILED BY THE ASSESSEE. BEING AGGRIE VED, THE ASSESSEE CARRIED THE MATTER BEFORE THE TRIBUNAL. 4.3. DURING THE COURSE OF HEARING BEFORE US, IT WAS SUB MITTED BY THE ASSESSEE THAT NON-FILING OF DETAILS WAS NEVE R QUESTIONED BY THE AO AND THE CLAIM WAS DISALLOWED MERELY ON TH E GROUND THAT ASSESSEE WAS NOT ABLE TO PROVE THAT DEBT HAD BECOME BAD. THEREFORE, BOTH OF THE LOWER AUTHORITIES HA VE ERRED IN MAKING THE DISALLOWANCE. LD COUNSEL ALSO DREW OUR A TTENTION TO THE EVIDENCES PROVIDING REQUISITE DETAILS WITH R EGARD TO THE IMPUGNED AMOUNT OF RS.2,11,109/- AND ALSO RELIED UP ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF TR F LTD. VS. CIT 323 ITR 397. 4.4. ON THE OTHER HAND, LD DR RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 4.5. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BO TH THE SIDES. WE FIND THAT THIS ISSUE, ON LEGAL PRINCI PLES, NOW STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUD GMENT OF HONBLE SUPREME COURT IN THE CASE OF TRF LTD., SUPR A, WHEREIN IT HAS BEEN HELD THAT IN VIEW OF THE AMENDE D LAW, THE ASSESSEE IS NOW REQUIRED TO MERELY SHOW THE WRITE O FF OF THE DEBTS, AND THE ESTABLISHING A DEBT AS BAD IS NOT MANDATORY. THEREFORE, ON LEGAL PRINCIPLE, WE HOLD THAT THE IMP UGNED CLAIM IS ALLOWABLE TO THE ASSESSEE. WE SEND THIS ISSUE BA CK TO THE FILE OF THE AO FOR THE LIMITED PURPOSE OF VERIFICATION O F THE DETAILS AS WERE REQUIRED BY THE LD CIT(A) AND WHICH WERE AL LEGEDLY NOT FILED BY THE ASSESSEE. NEEDLESS TO SAY THAT AO SHAL L GIVE FULL MANGAL KESHAV SECURITIES LIMITED 9 OPPORTUNITY TO THE ASSESSEE TO FILE THE REQUISITE D ETAILS AND THEREAFTER HE SHALL ADJUDICATE THIS ISSUE IN VIEW O F THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F TRF LTD., SUPRA. THUS, GROUND NO.2 IS ALLOWED FOR STATI STICAL PURPOSES. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH SEPTEMBER 2015. SD/- (JOGINDER SINGH ) SD/- (ASHWANI TANEJA) ' # / JUDICIAL MEMBER $ # / ACCOUNTANT MEMBER % & MUMBAI; ) DATED : 29/09/2015 CTX? P.S/. .. ! %'&'( )(*& / COPY OF THE ORDER FORWARDED TO : 1. +,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 % 1 ( + ) / THE CIT, MUMBAI. 4. 0 0 % 1 / CIT(A)- , MUMBAI 5. 34 .' , 0 +( ' 5 , % & / DR, ITAT, MUMBAI 6. 6# 7& / GUARD FILE. ! / BY ORDER, /3+ . //TRUE COPY// +/, - (DY./ASSTT. REGISTRAR) , % & / ITAT, MUMBAI