ACIT 25(3), MUMBAI V. SANJAY V. DOSHI, MUMBAI

ITA 8145/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9540 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 25-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'E' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT & SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 8145/MUM/2010 (ASSESSMENT YEAR: 2007-08) A C I T - 25(3) SHRI SANJAY V. DOSHI C-11, PRATHAKSH KAR BHAVAN B-1003, RAJ RESIDENCY-1 BANDRA-KURLA COMPLEX VS. MAHAAVIR NAGAR, DHANUKARWADI BANDRA (E), MUMBAI 400051 KANDIVALI (W), MUMBAI 40 0067 PAN - AAPHD 5572 D APPELLANT RESPONDENT APPELLANT BY: SHRI DINESH KUMAR RESPONDENT BY: SHRI BHUPENDRA SHAH DATE OF HEARING: 12.11.2012 DATE OF PRONOUNCEMENT: 30.11.2012 O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A)-35, MUMBAI DATED 08.09.2010 ON THE ISSUE OF CLAIM OF SU NDRY BALANCE WRITTEN OFF UNDER SECTION 36(1)(VII). 2. BRIEFLY STATED, THE AO NOTICED FROM THE P & L ACCOU NT THAT A SUM OF ` 12,13,807/- WAS DEBITED TOWARDS SUNDRY BALANCE WRIT TEN OFF AND THE ASSESSEE FILED A CONFORMATION LETTER FROM THE BROKE R, M/S. BALANCE EQUITY BROKING (I) PVT. LTD. (M/S. BEBIPL) STATING THAT TH E ASSESSEE AS A SUB-BROKER WAS ENTITLED TO BROKERAGE ON THE BASIS OF TOTAL QUA NTUM OF BROKERAGE EARNED BY THEM AND THE ONUS OF MAKING THE COLLECTION FROM OUTSTANDING DUE WAS WITH THE ASSESSEE AND ANY OUTSTANDING AMOUNT WHICH REMAINED PAYABLE WAS ADJUSTED BY THEM AGAINST THE BROKERAGE PAYABLE TO T HE ASSESSEE AND SUBMITTED A COPY OF THE ACCOUNT OF THE ASSESSEE IN THE BOOKS OF M/S. BEBIPL AND IT WAS FURTHER CLARIFIED THAT WHENEVER A NY PAYMENT IS RECEIVED, THE SAME WAS REVERSED. THE AO DID NOT ACCEPT THE AB OVE EXPLANATION ON THE REASONING THAT THE DUTY OF THE ASSESSEE IS ONLY TO INTRODUCE CLIENTS TO BROKER AND THE CHEQUES ARE ISSUED DIRECTLY TO THE BROKER A ND NOT IN FAVOUR OF THE ITA NO. 8145/MUM/2010 SHRI SANJAY V. DOSHI 2 ASSESSEE AND, THEREFORE, IF ANY AMOUNT BECOME BAD D EBTS OR IRRECOVERABLE, THE SAME COULD BE CLAIMED ONLY BY THE BROKER AND NO T BY THE ASSESSEE. 3. THE LEARNED CIT(A), AFTER VERIFYING THE CONFIRMATIO N LETTER FROM THE BROKER ALONGWITH THE AGREEMENT AND ALSO THE RECORD BUT WITHOUT GIVING OPPORTUNITY TO AO, ALLOWED ASSESSEES CLAIM BY STAT ING AS UNDER: - 3.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE REPR ESENTATIVE AND THE STAND TAKEN BY THE A.O. IT IS SEEN FROM THE REC ORDS THAT THE APPELLANT BY LETTER DATED 05/08/2010 FILED BEFORE T HE A.O. SUBMITTED AS UNDER ON THIS ISSUE: IN THE EVENT OF ANY CLIENT BALANCE REMAINING UNPAI D, BEPIPL RESERVES THE RIGHT TO ADJUST THE DEBIT BALANCES OF THE CLIEN TS INTRODUCED BY THE ASSESSEE LYING IN THEIR ACCOUNT WITH BEBIPL AGAINST THE BROKERAGE PAYABLE TO THE ASSESSEE. THIS SHALL BE REVERSED WHE N THE FUNDS ARE RECEIVED BY BEBIPL FROM THE RESPECTIVE CLIENT. SUCH TRANSFER OF BALANCES TO THE BROKERAGE PAYABLE ACCOUNT IS TRANSF ERRED TO SUNDRY BALANCE 2/OFF ACCOUNT. FURTHER IT IS SEEN THAT A COPY OF THE ACCOUNT OF T HE APPELLANT IN THE BOOKS OF M/S. BEBIPL IS AVAILABLE ON RECORDS AND TH E SUNDRY BALANCE WRITTEN OFF IN THE BOOKS OF ACCOUNT IS SUPPORTED BY THE CLAIM MADE BY THE MAIN BROKER AS SEEN FROM THE ABOVE ACCOUNT. FUR THER AS CONTENDED BY THE REPRESENTATIVE, THE AMOUNT WAS NOT WRITTEN OFF IN A SINGLE DAY BUT THROUGHOUT THE YEAR AND EVEN SOME AM OUNT HAVE BEEN CREDITED WHICH REPRESENTS THE AMOUNT COLLECTED BY T HE MAIN BROKER AND ONLY THE NET AMOUNT IS CLAIMED BY THE APPELLANT . THUS THE APPELLANT HAS BROUGHT ADEQUATE MATERIAL ON RECORD T O JUSTIFY THE CLAIM BY PRODUCING A COPY OF ACCOUNT OF THE APPELLANT IN THE BOOKS OF THE MAIN BROKER. BUT THE A.O. COMPLETELY IGNORED THE SA ME AND HELD THAT IT IS ONLY THE MAIN BROKER WHO HAS TO CLAIM THE AMO UNT AS BAD DEBTS WHEN THE FACT REMAINS THAT THE MAIN BROKER RECOVERE D THE AMOUNT FROM THE APPELLANT AS THE DUES ARE RECOVERABLE FROM THE CLIENTS INTRODUCED BY THE APPELLANT. THE A.O. HAS MADE THIS ADDITION ON HIS OWN ASSUMPTION IGNORING THE MATERIALS BROUGHT ON RE CORD BY THE APPELLANT. FURTHER AS CONTENDED BY THE REPRESENTATI VE, THE BAD DEBTS ARE TO BE ALLOWED ONCE THE SAME IS WRITTEN OFF IN T HE BOOKS OF ACCOUNTS AND THE A.O. HAS NO DISCRETION TO JUDGE AS TO WHETHER THE DEBTS HAVE BEEN BAD OR NOT. THERE IS NO DISPUTE THA T THE AMOUNT WAS CLAIMED BY THE MAIN BROKER AND BASED ON THE ABOVE C LAIM, THE APPELLANT DEBITED TO PROFIT AND LOSS ACCOUNT AND, T HEREFORE, THE SAME IS ALLOWABLE AD DEDUCTION. IN THE CIRCUMSTANCES, I DIRECT THE A.O. TO DELETE THE ADDITION. REVENUE IS AGGRIEVED 4. AT THE OUTSET THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIMILAR ISSUE AROSE IN A.Y. 2008-09 AND THE HON'BLE ITAT UPHELD THE ITA NO. 8145/MUM/2010 SHRI SANJAY V. DOSHI 3 CONTENTIONS OF THE ASSESSEE AND DISMISSED REVENUES APPEAL FOLLOWING THE JUDGEMENT OF THE SPECIAL BENCH IN THE CASE OF DCIT VS. SHREYAS S. MORAKIA REPORTED IN 40 SOT 432 (SB) (MUM). THE ORDER OF THE ITAT IN ITA NO. 4643/MUM/2011 DATED 16.05.2012 IS AS UNDER: - 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSE RVED THAT THE ISSUE INVOLVED IN THIS APPEAL IN PRINCIPLE IS SQUARELY CO VERED I FAVOUR OF THE ASSESSEE BY THE DECISION OF THE MUMBAI SPECIAL BENC H OF THE ITAT IN THE CASE OF ADCIT VS. SHREYAS S. MORAKHIA (MUM) (SB ) 40 SOT 432 WHEREIN IT WAS HELD THAT THE AMOUNT RECEIVABLE BY T HE ASSESSEE, WHO IS A SHARE BROKER, FROM HIS CLIENTS AGAINST TRANSAC TIONS OF PURCHASE OF SHARES ON THEIR BEHALF CONSTITUTED A DEBT, WHICH IS A TRADING DEBT. IT WAS HELD THAT THE BROKERAGE INCOME/COMMISSION INCOM E ARISING FROM SUCH TRANSACTIONS VERY MUCH FORMED PART OF THE DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE/COMMISSION HAD BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVA NT PREVIOUS YEAR OR ANY EARLIER YEAR, IT SATISFIED THE CONDITION STIPUL ATED IN SECTION 36(2)(I) AND THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SE CTION 36(1)(VII) BY WAY OF BAD DEBTS, AFTER HAVING WRITTEN OFF THE SAID DEBTS FROM HIS BOOKS OF ACCOUNT AS IRRECOVERABLE. ALTHOUGH THE ASS ESSEE IN THE PRESENT CASE IS A SUB BROKER AND NOT A BROKER AS WAS THE PO SITION IN THE CASE OF SHREYAS S. MORAKHIA (SUPRA) AS POINTED OUT BY THE L EARNED D.R., WE ARE OF THE VIEW THAT THE RATIO OF THE DECISION OF SPECI AL BENCH IN THE CASE OF SHREYAS S. MORAKHIA (SUPRA) IS EQUALLY APPLICABLE I N THE CASE OF THE ASSESSEE WHO IS A SUB BROKER BECAUSE AS PER THE CON TRACT BETWEEN THE ASSESSEE AS A SUB BROKER AND THE MAIN BROKER, THE R ESPONSIBILITY TO RECOVER THE OUTSTANDING DUES FROM THE CLIENTS INTRO DUCED BY THE ASSESSEE TO MAIN BROKER WAS THAT OF THE ASSESSEE AN D IF THERE WAS FAILURE ON THE PART OF SUCH CLIENTS TO PAY THE DUES TO THE MAIN BROKER, THE AMOUNT OF SUCH DUES WAS PAYABLE BY THE ASSESSEE AS A SUB BROKER TO THE MAIN BROKER. THE AMOUNT WHICH HAD BECOME IRR ECOVERABLE IN THE YEAR UNDER CONSIDERATION WAS ACTUALLY RECOVERED BY THE MAIN BROKER FROM THE ASSESSEE AND THIS FACT WAS CONFIRMED BY TH E MAIN BROKER IN WRITING. AS RIGHTLY HELD BY THE LEARNED CIT(A), THE EXPENDITURE ON ACCOUNT OF BAD DEBTS THUS WAS ACTUALLY INCURRED BY THE ASSESSEE AND THE SAID DEBTS HAVING BEEN WRITTEN OFF BY THE ASSES SEE IN HIS BOOKS OF ACCOUNT AS IRRECOVERABLE AND THE SUB BROKERAGE EARN ED FROM THE RELEVANT TRANSACTIONS GIVING RISE TO THE SAID DEBTS HAVING BEEN ALREADY INCLUDED IN THE INCOME OF THE ASSESSEE, WE ARE OF T HE VIEW THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION ON ACCOUNT OF BAD DEBTS U/S 36(1)(VII) RED WITH SECTION 36(2). WE, THEREFORE, F IND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(A) DIRECTING THE AO TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF S UNDRY BALANCES/DEBTS WRITTEN OFF AND UPHOLDING THE SAME O N THIS ISSUE, WE DISMISS THIS APPEAL FILED BY THE REVENUE. ITA NO. 8145/MUM/2010 SHRI SANJAY V. DOSHI 4 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE OPINION THAT THERE IS NEED TO RESTORE THE ISSUE TO THE AO. ON LE GAL PRINCIPLES WRITE OFF OF BALANCES BY A BROKER IS COVERED BY THE SPECIAL BENC H OF ITAT IN THE CASE OF DCIT VS. SHREYAS S. MORAKHIA (MUM) (SB) 5 ITR TRIB. 1 WHICH IN TURN WAS UPHELD BY THE HON'BLE JUDICIAL HIGH COURT IN THE CA SE OF DCIT VS. SHREYAS S. MORAKHIA 342 ITR 285(BOM) . BUT ASSESSEE BEING A SUB-BROKER CLAIM OF BAD DEBT WILL ARISE ONLY WHEN THE LIABILITY TO RECOVER THE AMOUNTS ARE ON ASSESSEE. THE GROUND RAISED BY REVENUE IS ON THE REASON THAT THE AGREEMENT WITH THE BROKER WAS NOT PLACED ON RECORD EVEN THOUGH CIT(A) STATES THAT HE EXAMINED THE SAME. WE HAVE SPECIFICALLY ASKED THE COUNSEL TO PLACE THE AGREEMENT ON RECORD. SO FAR NO AGREEMENT WAS PLACED ON RECORD. IN VIEW OF THIS, WE ARE UNABLE TO EXAMINE THE ISSUE AND UPHOLD THE FINDINGS OF THE LEARNED CIT(A). IN THE INTEREST OF JUSTICE, WE DEEM IT FIT TO RESTORE THE ISSUE TO THE FILE OF AO TO CALL FOR THE AGREEMENT AND OTHER EVIDENCE REQUIRED TO SATISFY THE CLAIM MADE. ASSESSEE SHOULD BE GIVEN DUE OPPORTUNITY TO JUSTIFY THE CLAIM. ACCORDINGLY, THE ORDERS OF AO AND CIT(A) ARE SET ASIDE TO DECIDE AFRESH. 6. IN THE RESULT, APPEAL FILED BY THE REVENUE IS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2012. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH NOVEMBER, 2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 35, MUMBAI 4. THE CIT 25, MUMBAI CITY 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.