DCIT - 8(1), MUMBAI V. M/s. ACTION FINANCIAL SERVICES (I) LTD., MUMBAI

ITA 939/MUM/2008

• Counselvise Citation: 93919914 RSA 2008
• Duration Of Justice: 3 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2001-2002
• Appeal Filed On: 08-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS USHA NAIR
• Assessee Lawyers: K SHIVARAM
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A : MUMBAI BEFORE SHRI D.K. AGARWAL, ( JUDICIAL MEMBER) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO.939/MUM/2008 ASSESSMENT YEAR : 2001-02 DY. COMMISSIONER OF INCOME TAX -8(1) ROOM NO.210 AAYAKAR BHAVAN, MK ROAD FORT MUMBAI-400 023. ..( APPELLANT ) VS. M/S. ACTION FINANCIAL SERVICES(INDIA) LTD. 31, RAJGIR CHAMBERS 4 TH FLOOR, 12/14 SHAHID BHAGAT SINGH ROAD FORT, MUMBAI-400 023. ..( RESPONDENT ) P.A. NO. (AAACA 4423 G) APPELLANT BY : MRS. USHA NAIR RESPONDENT BY : SHRI K. SHIVARAM DATE OF HEARING : 24.10.11 DATE OF PRONOUNCEMENT : 31 ST OCTOBER, 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDE R DATED 29.11.2007 OF CIT(A) FOR THE ASSESSMENT YEAR 2001-02. T HE REVENUE IN THIS APPEAL HAS RAISED DISPUTES ON TWO DIFFERENT GROU NDS. ITA NO.939/M/10 A.Y:01-02 2 2. THE FIRST DISPUTE IS REGARDING DISALLOWANCE OF BAD DE BT OF RS.1,23,54,608/-. THE AO NOTED THAT THE AMOUNT DECLA RED AS BAD DEBT WAS THE AMOUNT PAID BY THE ASSESSEE ON BEHALF OF CL IENTS TO PURCHASE SHARES FOR THEM AND EARN BROKERAGE INCOME WHICH HAD BEEN OFFERED FOR TAXATION. THE ASSESSEE DURING THE ASSESSMENT P ROCEEDINGS SUBMITTED THAT IT WAS ENGAGED IN THE SHARE BROKING BU SINESS ON BEHALF OF THE CLIENTS AND THE BAD DEBT CLAIMED DETAILS OF WHICH HAVE BEEN GIVEN WAS IN REGARD TO MONEY PAID ON BEHALF OF CLIEN TS WHICH HAD NOT BEEN REALIZED. THE AO HOWEVER OBSERVED THAT DEBT COU LD BE ALLOWED ONLY IF IT HAD BEEN TAKEN INTO ACCOUNT WHEN COMPUTING INCOME OF THE ASSESSEE IN THE EARLIER YEAR. HE, THEREFORE, DISALLOWED THE CLAIM. IN APPEAL THE ASSESSEE SUBMITTED THAT IT WAS BUYING AND SELLI NG SHARES ON BEHALF OF THE CLIENTS AS BROKER AND MONEY PAID ON BEH ALF OF THE CLIENTS FOR PURCHASE OF SHARES HAD NOT BEEN REIMBURSED IN MANY CA SE WHICH TOTAL TO RS.1,23,54,608/-. THE ASSESSEE FILED AN AFFID AVIT OF THE CHAIRMAN AND MD OF THE ASSESSEE COMPANY STATING THAT NO R ECOVERY HAD BEEN MADE. COPIES OF POLICE COMPLAINTS FOR RECOVER Y OF THE AMOUNTS HAD ALSO BEEN FILED. ON PERUSAL OF RECORDS, CI T(A) OBSERVED THAT THE ASSESSEE HAD FILED FULL DETAILS OF BAD DEBTS AS W ELL AS RECOVERY ACTION TAKEN. IT WAS THEREFORE, HELD BY HIM THAT CLA IM OF BAD DEBT WAS ITA NO.939/M/10 A.Y:01-02 3 ALLOWABLE AND ACCORDINGLY HE ALLOWED THE CLAIM AGGRIE VED BY WHICH REVENUE IS IN APPEAL. 2.1 BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTED THA T CLAIM OF BAD DEBT WAS ALLOWABLE EVEN IN RESPECT OF MONEY PAID B Y BROKER ON BEHALF OF THE CLIENTS IF THE BROKERAGE INCOME HAD BEEN DECLARED AS INCOME. HE PLACED RELIANCE ON THE DECISION OF THE SPECIA L BENCH OF THE TRIBUNAL IN THE CASE OF SHREYAS S. MORARKHIA (5 IT R (TRIB.) (1). IT WAS POINTED OUT THAT THE AO HAD HIMSELF OBSERVED THAT BROKERAGE INCOME HAD BEEN OFFERED FOR TAXATION. AS REGARDS THE R ECOVERABILITY OF THE AMOUNT THE BURDEN WAS NO LONGER ON THE ASSESSEE IN V IEW OF THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF TRF L TD. (323 ITR 347). HOWEVER, IN THIS CASE THE ASSESSEE HAD FILED AN AF FIDAVIT AS WELL AS POLICE COMPLAINTS TO SHOW THAT THE MONEY HAD BEEN RE COVERED. THE LD. DR SUPPORTED THE ORDER OF AO AND PLACED RELIANCE O N THE FINDINGS GIVEN IN THE ASSESSMENT ORDER. 2.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWAB ILITY OF CLAIM OF BAD DEBT IN RESPECT OF AMOUNT PAID BY THE ASSESSEE WHO IS A BROKER ON BEHALF OF CLIENTS FOR PURCHASE OF SHARES. THERE IS NO DISP UTE THAT BROKERAGE INCOME IN RESPECT OF PURCHASE OF SHARES HAD BEEN OFFERED BY ITA NO.939/M/10 A.Y:01-02 4 THE ASSESSEE FOR TAXATION WHICH HAD BEEN DULY NOTED BY T HE AO HIMSELF. THEREFORE, FOLLOWING THE DECISION OF THE SPE CIAL BENCH OF THE TRIBUNAL IN CASE OF DCIT VS. SHREYAS S. MORARKHIA (SUPRA ), BAD DEBT IS ALLOWABLE AS DEDUCTION. IN VIEW OF THE AMENDED PROVISI ONS FROM 1.4.1989, THE BURDEN IS NO LONGER ON THE ASSESSEE TO ESTA BLISH THAT THE DEBT HAD ACTUALLY BECOME IRRECOVERABLE AS HELD BY HON'BL E SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA). IN THIS CASE THE ASSESSEE HAD ALSO FILED AN AFFIDAVIT AND COPY OF POLICE COMPLAINT TO SHOW THAT THE AMOUNT HAD NOT BEEN RECOVERED. WE, THEREFORE, SEE NO INFIRMITY IN THE ORDER OF CIT(A) ALLOWING THE CLAIM AND SAME IS THEREFO RE UPHELD. 3. THE SECOND DISPUTE IS REGARDING ALLOWABILITY OF LOA NS ARISING OUT OF SHARE TRANSACTION AS BUSINESS LOSS. THE AO NOTED THAT TH E ASSESSEE HAD DEBITED A SUM OF RS.1,25,88,978/- AS BUSINESS LOSS O N ACCOUNT OF SALE OF SHARES. THE AO, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY LOSS SHOULD NOT BE TAKEN AS INVESTMENT LOSS. THE ASSESSEE SUBMIT TED THAT IT WAS ENGAGED IN SHARE BROKING AND DEPOSITORY ACTIVIT IES BUT IN ADDITION IT WAS ALSO BUYING AND SELLING SHARES BOTH AS TR ADING ACTIVITY AND AS INVESTMENT ACTIVITY WHICH HAD BEEN SHOWN SEPARATEL Y. THE LOSS HAD ARISEN FROM THE TRADING ACTIVITY WHICH HAD BEEN CLAIMED AS BUSINESS LOSS. THE AO HOWEVER DID NOT ACCEPT THE EXPLANATI ON ON THE GROUND THAT THE SAME WAS NOT SUBSTANTIATED BY COGENT EVI DENCE. HE ITA NO.939/M/10 A.Y:01-02 5 THEREFORE, DISALLOWED THE CLAIM AND ADDED TO THE TOTA L INCOME. IN APPEAL THE ASSESSEE SUBMITTED BEFORE CIT(A) THAT ENTIRE DETAILS OF LOSS SCRIP-WISE AS WELL AS STOCK REGISTER HAD BEEN PLACED BEFORE AO WHO HAD BRUSHED ASIDE THE SAME. THE ASSESSEE HAD ALSO FILED COPIES OF LEDGER ACCOUNT OF THE FIVE MAIN SCRIPS WHICH HAD RESULTED INTO LOSS. CIT(A) ON EXAMINATION OF MATERIAL ON RECORD OBSERVED THAT THE LOSS HAD BEEN INCURRED IN BUSINESS TRANSACTIONS CARRIED ON BY TH E ASSESSEE AND NOT IN THE INVESTMENT CATEGORY. IT WAS ALSO OBSER VED BY HIM THAT THE ASSESSEE HAD KEPT SEPARATE ACCOUNT FOR INVESTMENT AND T RADING TRANSACTION. HE THEREFORE ALLOWED THE CLAIM OF THE ASSESSE E AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFORE THE TRIBUNA L. 3.1 BEFORE US THE, LD. AR FOR THE ASSESSEE REITERATED T HE SUBMISSIONS MADE BEFORE CIT(A) THAT ALL DETAILS AND EVI DENCE HAD BEEN FILED BEFORE AO WHICH HAD NOT BEEN CONSIDERED. THE A SSESSEE WAS MAINTAINING SEPARATE ACCOUNT FOR INVESTMENT AND TRADING STOCK. HE REFERRED TO SCHEDULE-6 OF AUDITED ACCOUNTS PLACED AT PAG E-127 OF THE PAPER BOOK IN WHICH DETAILS OF SHARES HELD AS INVESTMENT AT THE END OF THE YEAR HAD BEEN GIVEN SEPARATELY IN THE BALANCE SHEE T. IT WAS POINTED OUT THAT DETAILS OF CLOSING STOCK OF SHARES HELD AS TRADING STOCK HAD BEEN GIVEN SEPARATELY IN SCHEDULE-7 PLACED AT PAGE -128 OF THE PAPER BOOK. THE LOSS HAD BEEN INCURRED FROM TRADING O F SHARE WHICH ITA NO.939/M/10 A.Y:01-02 6 HAD BEEN SHOWN SEPARATELY AND THEREFORE COULD NOT BE DISALLOWED. THE LD. DR ON THE OTHER HAND PLACED RELIANCE ON THE F INDINGS OF AO IN THE ASSESSMENT ORDER. 3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE ASSESSEE IS A SHARE BROKER WHO WAS ALSO PURCHASING AND SELLING SHARES ON BOTH ACCOUNTS I.E. AS INVE STMENT ACTIVITY AS WELL AS TRADING ACTIVITY. ASSESSEE HAD CLAIMED LOSS OF RS .1,25,88,978/- FROM TRADING ACTIVITY WHICH HAD BEEN DISALLOWED BY AO ON THE GROUND THAT THERE WAS NO EVIDENCE THAT THE LOSS WAS FROM TRADING ACTIVITY. THE CIT(A) ON EXAMINATION OF RECOR DS NOTED THAT THE ASSESSEE HAD GIVEN FULL DETAILS BEFORE THE AO INCLUDING L EDGER COPY OF THE SHARE ACCOUNTS IN WHICH LOSS HAD BEEN INCURRED. CIT(A) HAS ALSO GIVEN A FINDING THAT THE ASSESSEE WAS MAINTAINING SEPARAT E ACCOUNT FOR INVESTMENT AND TRADING OF SHARES. THIS FINDING IS SUPPO RTED BY SCHEDULE-6 AND SCHEDULE-7 OF THE AUDITED ACCOUNTS PLACE D AT PAGE 127 AND 128 OF THE PAPER BOOK IN WHICH INVESTMENT IN SHARES AS WELL AS TRADING STOCK OF SHARES HAS BEEN SHOWN SEPARATELY. THE RE IS NOTHING PRODUCED BEFORE US TO CONTROVERT THE FINDING O F THE CIT(A). CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE, SEE N O INFIRMITY IN THE ORDER OF CIT(A) AND THE SAME IS THER EFORE, UPHELD. ITA NO.939/M/10 A.Y:01-02 7 4. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.10.2011. SD/- SD/- (D.K. AGARWAL) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 31.10.2011. 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.