RATNAKAR SECURITIES PRIVATE LIMITED,AHMEDABAD V. DCIT - 1(1)(1), AHMEDABAD

ITA 773/AHD/2023

AI Insights

Ratnakar Securities Pvt. Ltd., a share broker, appealed against the order of the Commissioner of Income Tax (Appeals) which upheld the additions made by the Assessing Officer to the assessee's income for the Assessment Year 2016-17. The additions included Rs. 17,85,445 for bad debts and Rs. 19,62,167 for labor and cartage expenses, both of which the Assessing Officer disallowed due to insufficient evidence and details provided by the assessee. The Tribunal noted that while the bad debts claimed should generally be allowed if the income was previously taxed, the assessee failed to provide necessary evidence to substantiate this claim. Similarly, for the labor and cartage expenses, the Tribunal observed that the assessee did not provide adequate evidence to prove that these were genuine business expenses. Consequently, the Tribunal restored both issues to the Assessing Officer for further examination.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 652891 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Other Referred Cases: TRF Ltd. vs. CIT 323 ITR 397 (SC), CIT Central II vs. Shreyas S. Morakhia 19 taxmann.com 64 (Bombay)
• Laws Referred To: Income Tax Act
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Department Lawyers: RIGNESH DAS
• Assessee Lawyers: SAPNESH SHETH
• Keywords: Revenue expenditure; Bad and doubtful debts; TDS
• Section: 271(1)(c)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No.773/Ahd/2023 (Assessment Year: 2016-17) Ratnakar Securities Pvt. Ltd., 304, Sankalp Square-II, Nr. Jalaram Mandir Crossing, Ellis Bridge, Paldi, Gujarat-380006 Vs. Assistant Commissioner of Income Tax, Circle-1(3), Ahmedabad (Presently Jurisdiction with Deputy Commissioner of Income Tax-1(1)(1), Ahmedabad) [PAN No.AAACR7287D] (Appellant) .. (Respondent) Appellant by : Shri Sapnesh Sheth, C.A. Respondent by: Shri Rignesh Das, Sr. DR Date of Hearing 13.06.2025 Date of Pronouncement 19.06.2025 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 24.07.2023 passed for A.Y. 2016-17. 2. The assessee has raised the following grounds of appeal: “1. On the facts and in the circumstances of the case and in law the Hon’ble CIT(A) erred in upholding the addition made by the Ld. AO of 17,85,445/- to the returned income by disallowing the legitimate claim of bad debts made u/s. 36(I)(vii) of the Act without assigning any valid reason and the reason assigned for doing so are wrong and contrary to the Provisions of Income Tax Act and Rules made there under. 2. On the facts and in the circumstances of the case and in law the Hon’ble CIT(A) erred in upholding the addition made by the Ld. AO of Rs. 19,62,167/- to the returned income without assigning any valid reason and the reason assigned for doing so are wrong and contrary to the Provisions of Income Tax Act and Rules made there under. ITA No. 773/Ahd/2023 Ratnakar Securities Pvt. Ltd. vs. DCIT Asst.Year –2016-17 - 2– 3. On the facts and in the circumstances of the case and in law the Hon’ble CIT(A) erred in confirming penalty u/s. 271(1)(c) of the IT Act 1961 and the reason assigned for doing so are wrong and contrary to the Provisions of Income Tax Act and Rules made there under. 4. On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) erred in charging interest u/s. 234A/234B/234C/234D of the IT Act and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and rules made there under. 5. Your appellant craves leave to add, to amend alter or delete any of the above grounds of appeal on or before the date of hearing.” 3. The brief facts of the case are that the assessee is a share broker. During the course of assessment, the assessee had claimed bad debts amounting to Rs. 17,85,445/-. The Assessing Officer raised several queries to the assessee in respect of these bad debts, but till the pasing of assessment order, no explanation / details were furnished by the assessee. Accordingly, the claim of bad debts amounting to Rs. 17,85,445/- was added to the income of the assessee. Further, the Assessing Officer observed that assessee had incurred Labour and Cartage Expenses amounting to Rs. 19,62,167/-. The Assessing Officer inquired into the nature of these expenses, but observed that till the finalization of assessment, no details were furnished by the assessee. Accordingly, in absence of any explanation, a sum of Rs. 19,62,167/- was added to the income of the assessee. 4. In appeal, the assessee furnished ledger extracts of debtors, which were written off. The assessee submitted that these amounts are commission receivable from various clients and since the debtors had become irrecoverable, the amount was written off by the assessee. However, Ld. CIT(A) observed that during the course of appellate proceedings, the assessee had only filed ledger extracts of the clients and had not filed any other requisite information / details. Ld. CIT(A) observed that the basic requirements of a bad debt to be allowable is that ITA No. 773/Ahd/2023 Ratnakar Securities Pvt. Ltd. vs. DCIT Asst.Year –2016-17 - 3– the Revenue from the said customers is offered to tax in the past. In this case, the assessee had only file ledger extracts of the above parties and though the assessee was having transactions with these customers from 2014, the assessee has not demonstrated that it had offered income from these customers to tax. Since, the assessee had failed to discharge it’s primary onus of producing evidences that it had offered the income to tax from these parties, the order passed by the Assessing Officer was upheld. With regards to Labour and Cartage Expenses of Rs. 19,16,162/- the assessee submitted that the aforesaid expenses were incurred towards repair and maintenance of it’s furniture and certain glassware, which were claimed as revenue expenditure. On perusal of the invoices, Ld. CIT(A) observed that the assessee had in fact purchased new furniture and the invoices did not pertain to mere repair activity, as claimed by the assessee. Further, the CIT(A) observed that the assessee has also not been able to demonstrate that the required TDS was deducted at the time of making payments towards repairs and maintenance of these furniture items. Ld. CIT(A) also observed that many of the invoices / vouchers had no signature of the material provider / labourer and therefore, the genuineness of the invoices were also doubted by Ld. CIT(A). Accordingly, Ld. CIT(A) dismissed the appeal of the assessee. 5. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A). 6. Before us, the Counsel for the assessee submitted that the assessee is a registered member of BSE as well as NSE and the brokerage earned on the transactions affected on these Nationalised Stock Exchanges has been duly offered to tax by the assessee in it’s Profit & Loss Account. ITA No. 773/Ahd/2023 Ratnakar Securities Pvt. Ltd. vs. DCIT Asst.Year –2016-17 - 4– The Counsel for the assessee submitted that the amount of Rs. 17.85 lakhs represented the outstanding balances which could not be recovered from the clients despite repeated reminders. The Counsel for the assessee relied on various judicial precedents in support of the proposition that once the bad debts are written in the books of accounts there is not discretion with the Assessing Officer regarding the year in the same are to be allowed. The assessee placed reliance on the case of TRF Ltd. vs. CIT 323 ITR 397 (SC), wherein it was held that it is not necessary for the assessee to establish that his debt has become bad, if the debt has been written off in the books of accounts. The Counsel for the assessee also drew our attention to the ledger account of the assessee. Further, the assessee also placed reliance on the Bombay High Court in the case of CIT Central II vs. Shreyas S. Morakhia 19 taxmann.com 64 (Bombay), wherein it may be held that the assessee is entitled by way of bad debts under Section 36(1)(vii) r.w.s. 36(ii) in respect of amount which could not be recovered by him from his clients in respect of transactions affected by him on behalf of his clients apart from the commission earned by him. 7. In response, Ld. D.R. submitted that in this case, despite issuance of several opportunities of hearing by the Assessing Officer as well as by the Ld. CIT(A), the assessee had not submitted the necessary details as called for by the Tax Authorities, to ascertain the genuineness of the claim of such bad debts / business loss by the assessee. It was submitted that the plea of business loss was not taken by the assessee before any of the Tax Authorities and was taken first time before the Tribunal. Further, the assessee has also not filed necessary details like the list of scrips / shares which were purchased and sold on behalf of it’s clients on which commission became irrecoverable, the assessee has failed to ITA No. 773/Ahd/2023 Ratnakar Securities Pvt. Ltd. vs. DCIT Asst.Year –2016-17 - 5– furnish the information from various clients on whose behalf of such scrips were traded, the assessee had also failed to furnish copies of bank statements during the impugned assessment year, to ascertain the genuineness of claim made by the assessee. Accordingly, Ld. D.R. submitted that it is a fit case where detailed inquiry is required to be made into the facts of the assessee’s case, which could not be done owing to non-compliance by the assessee and non-furnishing of details / information before the concerned Tax Authorities. 8. On going through the records of the case, while we agree with the proposition that once certain debts have become irrecoverable and the assessee has written off the same in his books of accounts, the same should be allowed to the assessee, but at the same time we also observe that for allowability of claim of bad debts the assessee has to demonstrate that income has been offered to tax in any of the earlier assessment years. In the instant case, even in the written submissions filed before Ld. CIT(A), and also from the copy of Paper Book filed by the assessee, the assessee has not been able to demonstrate as to the year when the commission income was offered to tax by the assessee in it’s return of income. Further, we also observe that the assessee has failed to furnish the necessary information as called for viz. details of shares / scrips which were purchased and sold on behalf of the clients on which losses were incurred by the assessee, the confirmation from the clients was also not furnished by the assessee, copies of bank statements for the impugned assessment year had not been furnished by the assessee. Accordingly, in the interest of justice, the matter is hereby restored to the file of Assessing Officer to carry out to necessary verification and to pass appropriate orders, in accordance with law. ITA No. 773/Ahd/2023 Ratnakar Securities Pvt. Ltd. vs. DCIT Asst.Year –2016-17 - 6– 9. In the result, Ground No. 1 of the assessee’s appeal is allowed for statistical purposes. 10. Regarding disallowance of labour charges, the Counsel for the assessee submitted that all payments were made through banking channels, all details were filed before the Ld. CIT(A) and further, during the course of assessment proceedings, as per Para 4 of the assessment order, only one notice of hearing was issued to the assessee and hence, complete evidences / details could not be furnished during the course of assessment proceedings. 11. On going through the facts of the instant case, we observe that the assessee did not file any evidences in support of these expenses either before the Assessing Officer and called before the Ld. CIT(A). However, considering the arguments of the Counsel for the assessee, in the interest of justice, the matter is restored to the file of Assessing Officer for carrying out necessary verification. 12. In the result, Ground No. 2 of the assessee’s appeal is allowed for statistical purposes. 13. In the combined result, the appeal of the assessee is allowed for statistical purposes. This Order pronounced in Open Court on 19/06/2025 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 19/06/2025 TANMAY, Sr. PS TRUE COPY ITA No. 773/Ahd/2023 Ratnakar Securities Pvt. Ltd. vs. DCIT Asst.Year –2016-17 - 7– आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 18.06.2025 2. Date on which the typed draft is placed before the Dictating Member 19.06.2025 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 19.06.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement 19.06.2025 6. Date on which the fair order comes back to the Sr.P.S./P.S 19.06.2025 7. Date on which the file goes to the Bench Clerk 19.06.2025 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Dispatch of the Order…………………………………… "