SHILPA STOCK BROKER P. LTD, MUMBAI V. ITO WD 4(2)(2), MUMBAI

ITA 8859/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1718 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 20-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI RAJENDRA SINGH, AM & SHRI VIJAY PAL RA O, JM ITA NO. 8859/MUM/2010 (ASST YEAR 2007-08 ) SHILPA STOCK BROKER P LTD 5 NATRWAR CHAMBER 1 ST FLOOR NAGINDAS MASTER ROAD, FORT MUMBAI 400 021 VS THE INCOME TAX OFFICER WARD 4(2)(2), MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAECS9799R ASSESSEE BY SH PRAKASH JHUNJHUNWALA REVENUE BY SH O P MEENA DT.OF HEARING 11 TH FEB 2013 DT OF PRONOUNCEMENT 15 TH FEB 2013 ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 24 TH SEPT 2010 OF THE COMMISSIONER OF INCOME TAX(APPEALS) FOR THE ASSESSMENT YEAR 2007-08. 2 THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE G ROUNDS IN THIS APPEAL: 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L D COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN DISALLOWING THE BA D DEBTS OF ` 11,55,496/-, WITHOUT CONSIDERING THE FACTS THAT THE SAME IS A BU SINESS LOSS AND INCURRED DURING THE REGULAR COURSE OF BUSINESS. 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED BY ADDING A SUM OF ` 6,24,398/- U/S 14A OF THE I T ACT 1961 WITHOUT CONSIDERING THE FACTS OF THE C ASE. 3 THE ASSESSEE IS A MEMBER OF BOMBAY STOCK EXCHANGE (BSE) AND NATIONAL STOCK EXCHANGE (NSE). THE ASSESSEE IS DEALING IN SH ARES & SECURITIES AND ALSO DOING ITA NO. 8859/M/2010 . 2 PURCHASE AND SALE OF SHARES ON BEHALF OF THE CLIENT S AND EARNED BROKERAGE INCOME. THE ASSESSEE HAS DEBITED A SUM OF ` 11,55,496/- UNDER THE HEAD BAD DEBTS. THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF THE A SSESSEE ON THE GROUND THAT THE ASSESSEE HAS FAILED TO SHOW THE DEBT HAS BECOME BAD AND FURTHER THE DEBT BEING RELATED TO THE CLIENTS OF THE ASSESSEE, BEING STOCK BROKER CANNOT BE ALLOWED AS BAD DEBT AS THIS AMOUNT HAS NOT BEEN INCLUDED IN THE CO MPUTATION OF INCOME AS REQUIRED U/S 36(2). THE ASSESSING OFFICER HAS ALSO REJECTED THE CLAIM OF THE ASSESSEE AS BUSINESS LOSS. 3.1 ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPEA LS), THOUGH IN PRINCIPLE AGREED WITH THE CLAIM OF THE ASSESSEE IN VIEW OF TH E DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SHREYAS S MORAKHIA RE PORTED IN 40 SOT 432; HOWEVER, THE ASSESSEES CLAIM HAS BEEN DISALLOWED BY THE COMMIS SIONER OF INCOME TAX(APPEALS) ON THE GROUND THAT THE ASSESSEE HAS NOT CONTENDED T HAT THE SAID AMOUNT OF ` 11,55,496/- HAS BEEN DETERMINED AFTER REDUCING THE AMOUNT RECEIVED FROM SALE OF SHARES OF THE CLIENTS FROM THE AMOUNT RECEIVABLE FR OM THEM. 4 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT THIS AMOUNT OF ` 11,55,496/- CLAIMED AS BAD DEBTS PERTAINS TO 4 DEB TORS NAMELY SHRI SANJEEV DATTAR; MRS NAVITA LOKESH RUSTGI; SHRI ASHOK PATIL AND SHRI KIRAN JAIN. HE HAS FURTHER SUBMITTED THAT THE WRITTEN OFF DEBTS PERTAINS TO THE BILLS RA ISED IN THE NORMAL COURSE OF BROKING BUSINESS. THE ASSESSEE EARNED BROKERAGE ON SUCH BIL LS ISSUED TO THE CLIENTS, THEREFORE, THE CONDITIONS AS PRESCRIBED U/S 36(2) HAS BEEN SAT ISFIED. HE HAS RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF COMMISSIONER OF INCOME-TAX V. SHREYAS S. MORAKHIA REPORTED IN 342 ITR 285 (BOM) AND SUBMITTED THAT THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNA L HAS BEEN UPHELD BY THE HONBLE ITA NO. 8859/M/2010 . 3 HIGH COURT. HE HAS ALSO RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASEOF CIV VS BONANZA PORTFOLIO LTD REPORTED IN 320 ITR 178(DEL). 4.1 THE LD AR HAS FURTHER SUBMITTED THAT AS PER THE AMENDED PROVISIONS OF SECTION 36(1)(VII) THE ONLY REQUIREMENT IS THAT THE ASSESS EE HAS WRITTEN OFF THE AMOUNT IN THE BOOKS OF ACCOUNT AS BAD DEBTS AND THE ASSESSEE IS N OT REQUIRED TO ESTABLISH THAT THE DEBTS HAS ACTUALLY GONE BAD FOR CLAIMING THE AMOUNT AS BAD DEBT IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F T. R. F. LTD. V. COMMISSIONER OF INCOME-TAX REPORTED IN 323 ITR 397(SC). THE LD AR HAS THUS SUBMITTED THAT THE AMOUNT CLAIMED BY THE ASSESSEE AS BAD DEBT AGAINST THESE PARTIES IS THE NET AMOUNT AND THE AMOUNT HAS GONE BAD IN CASE OF SOME OF THE PARTIES PERTAINS TO FUTURE OPTION BILLS; THEREFORE, THE ACTUAL PURCHASE S OR SALES OF SHARES WERE NOT IN QUESTION AND CONSEQUENTLY NOTHING CAN BE REALISED I N SUCH CASES. 4.2 ON THE OTHER HAND, THE LD DR HAS RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE COMMISSIONER OF INCOME TAX(APPEALS) HAS POINTED OUT THAT THE ASSESSEE HAS NOT ESTABLISHED THAT THE AMOUNT CLAIMED BY THE ASSESSEE AS BAD DEBT IS NET AMOUNT AFTER REDUCING THE AMOUNT RECEIVABLE FORM THE SALE OF SHARES AND FURTHER IT HAS ALSO NOT BEEN EXAMINED BY THE ASSESSING OFFICER WHETHER THE BROKERAGE IN RESPECT OF THESE TRANSACTIONS HAV E BEEN INCLUDED IN THE COMPUTATION OF INCOME. 5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS CLAIMED THAT THE BROKERAG E EARNED ON THESE TRANSACTIONS HAVE BEEN INCLUDED IN THE COMPUTATION OF INCOME; TH EREFORE, THE CONDITIONS AS PRESCRIBED U/S 36(2) HAS BEEN COMPLIED WITH. THE C LAIM OF THE ASSESSEE, IN PRINCIPLE IS COVERED BY THE DECISION OF THE HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF ITA NO. 8859/M/2010 . 4 SHREYAS S MORKHIA (SUPRA). HOWEVER, AS THE COMMISS IONER OF INCOME TAX(APPEALS) HAS POINTED OUT THAT THE AMOUNT CLAIMED BY THE ASSE SSEE OUGHT TO HAVE BEEN THE NET AMOUNT AFTER REDUCING THE AMOUNT RECEIVED OR RE CEIVABLE FROM SALE OF SHARES OF THE CLIENTS IN RESPECT OF WHICH THIS BAD DEBT CLAIM IS MADE. THE HONBLE HIGH COURT HAS OBSERVED IN PARA 14 AS UNDER: 14. THE VALUE OF THE SHARES TRANSACTED BY THE ASSESS EE AS A STOCK BROKER ON BEHALF OF ITS CLIENT IS AS MUCH A PART OF THE DEBT AS IS THE BROKERAGE WHICH IS CHARGED BY THE ASSESSEE ON THE TRANSACTION. TH E BROKERAGE HAVING BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESS EE, IT IS EVIDENT THAT A PART OF THE DEBT IS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. THE FACT THAT THE LIABILITY TO PAY THE BR OKERAGE MAY ARISE, AS CON- TENDED BY THE REVENUE, AT A POINT IN TIME ANTERIOR T O THE LIABILITY TO PAY THE VALUE OF THE SHARES TRANSACTED WOULD NOT MAKE ANY M ATERIAL DIFFERENCE TO THE POSITION. BOTH CONSTITUTE A PART OF THE DEBT WHI CH ARISES FROM THE VERY SAME TRANSACTION INVOLVING THE SALE OR, AS THE CASE MAY BE, PURCHASE OF SHARES. SINCE BOTH FORM A COMPONENT PART OF THE DEBT , THE REQUIREMENTS OF SECTION 36(2)(I) ARE FULFILLED WHERE A PART THEREOF IS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. BEFORE CONCLUD ING, WE AGAIN TAKE NOTE OF THE FACT THAT IN PARAGRAPH 31 OF ITS IMPUGNED DECISION THE TRIBUNAL HAS LEFT THE ISSUE AS REGARDS THE VALUE OF THE SHARES WHICH REMAIN IN THE HANDS OF THE ASSESSEE WHICH HAS TO BE ADJUSTED AGAI NST THE AMOUNT RECEIVABLE FROM THE CLIENT TO BE DETERMINED BEFORE THE REGULAR BENCH OF THE TRIBUNAL FOLLOWING THE VIEW OF THE SPECIAL BENCH. TH E VIEW WHICH HAS BEEN TAKEN BY THE SPECIAL BENCH IS, WITH RESPECT, IN ACC ORDANCE WITH LAW. WE ACCORDINGLY DISPOSE OF THE APPEAL BY ANSWERING THE QU ESTION OF LAW AS FORMULATED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. THERE SHALL BE NO ORDER AS TO COSTS. 5.1 THUS, IF THE BROKERAGE HAS BEEN INCLUDED IN TH E INCOME AS CREDITED TO THE P&L ACCOUNT OF THE ASSESSEE, THEN THE CONDITIONS AS PRESCRIBED U/S 36(2)(I) HAS BEEN FULFILLED AS THE PART OF THE AMOUNT HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. 5.2 IN VIEW OF THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE SUBJECT TO VERIFICATION OF THE FACTS THAT THIS AMOUNT OF BAD DEBT CLAIMED BY THE ASSESSEE IS AFTER REDUCING THE AMOUNT RECEIVED ITA NO. 8859/M/2010 . 5 FROM SALE OF SHARES, IF ANY HELD BY THE ASSESSEE ON BEHALF OF THE CLIENTS AGAINST WHOM THIS AMOUNT HAS BEEN CLAIMED AS BAD DEBT AS WELL AS WHETHER THE BROKERAGE AMOUNT WAS CONSIDERED IN COMPUTATION OF INCOME. 6 GROUND NO.2 IS REGARDING DISALLOWANCE U/S 14A. 7 AT THE TIME OF HEARING, THE LD AR OF THE ASSESSEE HAS STATED THAT THE ASSESSEE DOES NOT WANT TO PRESS THIS GROUND AND THE SAME MAY BE DISMISSED AS NOT PRESSED. THE LD DR HAS NO OBJECTION, IF GROUND NO.2 IS DISMI SSED AS NOT PRESSED. ACCORDINGLY, WE DISMISS GROUND NO.2 BEING NOT PRESSED. 8 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED. ORDER PRONOUNCEMENT IN THE OPEN COURT ON THIS 15 TH , DAY OF FEB 2013 SD/- S D/- ( RAJENDRA SINGH ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 15 TH , FEB 2013 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI