B.D. SHROFF SECURITIES P. LTD, MUMBAI v. DCIT 4(1), MUMBAI

CO 115/MUM/2008 | 2004-2005
Pronouncement Date: 29-07-2010 | Result: Partly Allowed

Appeal Details

RSA Number 11519923 RSA 2008
Assessee PAN AAACI5203J
Bench Mumbai
Appeal Number CO 115/MUM/2008
Duration Of Justice 1 year(s) 11 month(s) 22 day(s)
Appellant B.D. SHROFF SECURITIES P. LTD, MUMBAI
Respondent DCIT 4(1), MUMBAI
Appeal Type Cross Objection
Pronouncement Date 29-07-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted Not Allotted
Tribunal Order Date 29-07-2010
Assessment Year 2004-2005
Appeal Filed On 07-08-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI J. SUDHAKAR REDDY AM AND SHRI V. DUR GA RAO JM I.T.A. NO.2336/MUM/2008 ASSESSMENT YEAR : 2004-05 THE DY. COMMISSIONER OF INCOME- TAX-4(1) 6 TH FL. R.NO. 640 AAYAKAR BHAVAN MUMBAI 400 020 VS. M/S. B.D. SHROFF SECURITIES PVT. LTD. 1 ST FLOOR JEHANGIR WADIA BLDG. M.G. ROAD FORT MUMBAI 400 023. PAN: AAACI 5203 J (APPELLANT) (RESPONDENT) C.O. 115/MUM/2008 (ARISING OUT OF I.T.A. NO.2336/MUM/2008) ASSESSMENT YEAR : 2004-05 M/S. B.D. SHROFF SECURITIES PVT. LTD. 1 ST FLOOR JEHANGIR WADIA BLDG. M.G. ROAD FORT MUMBAI 400 023. PAN: AAACI 5203 J VS. THE DY. COMMISSIONER OF INCOME- TAX-4(1) 6 TH FL. R.NO. 640 AAYAKAR BHAVAN MUMBAI 400 020 (CROSS OBJECTOR) (APPELLANT IN APPEAL) DEPARTMENT BY : SHRI PRADEEP HEDAOO ASSESSEE BY : SHRI SANJAY R. PARIKH O R D E R PER J. SUDHAKAR REDDY AM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-IV MUMBAI DA TED 16.01.2008 ON THE FOLLOWING EFFECTIVE GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD.CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE TO RS. 97 190/- AS AGAINST THE DISALLOWANCE OF RS. 318842/- CLAIMED AS BAD DEBTS B Y THE ASSESSEE COMPANY HOLDING THAT THE ASSESSEE COMPANY HAS FULF ILLED THE CONDITIONS LAID DOWN IN SECTION 36(1)(VII). 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.CIT(A) ERRED IN ALLOWING THE BAD DEBTS OF RS. 22 1652/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD FAILED TO PROVE THAT THE BAD DEBT IS ALLOWABLE AS BUSINESS LOSS. 2 2. THE CROSS OBJECTION HAS BEEN FILED BY THE ASSESS EE CHALLENGING THE CONFIRMATION OF THE DISALLOWANCE OF BAD DEBT TO THE TUNE OF RS. 97 190/- AND DISALLOWANCE OF DEDUCTION UNDER SECTION 14A OF THE ACT. 3. WE HAVE HEARD SHRI PRADEEP HEDAOO LEARNED DEPAR TMENTAL REPRESENTATIVE AND SHRI SANJAY R. PARIKH LEARNED COUNSEL FOR THE ASSESSEE. THE ASSESSEE IN THIS CASE IS IN THE BUSINESS OF STOCK BROKING A MEMBER OF BSE AND DISTRIBUTOR FOR MUTUAL FUNDS. HE HAS ALSO INCOME FROM BROKERAGE. DURING T HE YEAR THE ASSESSEE HAD TRANSACTION FOR PURCHASE AND SALE OF SECURITIES ENT ERED INTO BY ONE SHRI BHARTI KIRIT SHETH BINDU N. SHETH AND NARESH C. SHAH THROUGH T HE ASSESSEE IN THE STOCK EXCHANGE. THE ASSESSEE HAS ACTED AS A BROKER AND EA RNED COMMISSION INCOME. 4. THE CIT(A) HAS AT PARA 2.4 TO 2.8 OF HIS ORDER H AS HELD AS FOLLOWS: 2.4. IN THIS CASE OUT OF THE TOTAL AMOUNT DUE AS ON 1 ST APRIL 98 AMOUNTING TO RS. 10 03 956/- AND THE MAJOR PORTION OF THE DEB TS HAD BEEN COLLECTED BY THE EFFORTS OF THE APPELLANT THROUGH ITS REMISSER A ND THE AMOUNT FROM THE THREE PARTIES GOT REDUCED TO RS. 3 18 842/-. THESE FACTS ARE MENTIONED AT PAGE 4 TO 6 OF THE ASSESSMENT ORDER. LOOKING INTO T HE FACTS AND CIRCUMSTANCES OF THE CASE IT CAN BE CONCLUDED THAT THE APPELLANT HAS MADE ALL EFFORTS TO RECOVER THE AMOUNT OF RS.10 03 956/- AND THE AMOUNT WHICH CANNOT BE RECOVERED AFTER CONCERTED EFFORTS HAS BE EN WRITTEN OFF AS BAD DEBT. THE DEBS IN THE CASE OF THE APPELLANT HAVE B ECOME BAD AND HAVE BEEN WRITTEN OFF. HENCE THE CONDITIONS OF SEC.36(1) (VII) IS SATISFIED. 2.5 AT PAGE 4 OF THE ASSESSMENT ORDER THE FACT THA T THE DEBTS WRITTEN OFF HAVE BEEN TAKEN INTO ACCOUNT FOR COMPUTING THE INCOME OF EARLIER YEARS IS MENTIONED IN A TABLE AT THE BOTTOM OF PAGE 4. THE S AME IS QUOTED AS UNDER: SR.NO. CLIENTS NAME BAD DEBT WRITTEN OFF BROKERAGE EARNED DIFFERENCE 1 BHARTI KIRIT SHETH 115391.50 18201.25 97190.25 2 BINDU SHETH 52417.35 57208.00 (4790.65) 3 NARESH C.SHAH 151033.60 3558600.22 (207566.62) 2.6 LOOKING INTO THE ABOVE IT IS SEEN THAT THE BA D DEBT WRITTEN OFF IN CASE OF BINDU SHETH AND NARESH SHETH IS LESS THAN T HE BROKERAGE EARNED. IN CASE OF BHARTI KIRIT SHETH AGAINST WHOM THE BAD DEB T WRITTEN OFF AMOUNTING TO RS. 1 15 391/- THE BROKERAGE EARNED IS ONLY RS. 18 201/-. HENCE AN AMOUNT OF RS. 97 190/- CANNOT BE CONSIDERED TO HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF ANY PREVIOUS YEA R. 2.7 UNDER THE CIRCUMSTANCES DISALLOWANCE UPTO RS.9 7 190/- IS CONFIRMED AS THE CONDITIONS OF SECTION 36(2) HAS NOT BEEN FUL FILLED UPTO THE SAID 3 AMOUNT. THE A.O. IS DIRECTED TO ALLOW THE BAD DEBT AMOUNTING TO RS.2 21 652/-. 2.8 THUS THE DISALLOWANCE OF RS. 97 190/- IS CONFI RMED AND THE APPELLANT GETS A RELIEF OF RS. 2 21 652/-. 5. THE REVENUE HAS FILED THE APPEAL CHALLENGING THE RELIEF GRANTED BY THE CIT(A) AND THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE O F RS. 97 190/- CONFIRMED BY THE LEARNED CIT(A). 6. THE ISSUE NOW STANDS COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL (MUMBAI BENCH C) IN THE CASE OF DY.CIT RANGE 7(2) MUMBAI VS. SHRI SHREYAS S. MORARKHIA ITA NO.3374/MUM/2004 ORDER D ATED 16 TH JULY 2010 WHEREIN THE QUESTION BEFORE THE SPECIAL WAS AS FOLLOWS: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE ASSESSEE WHO IS A SHARE BROKER IS ENTITLED TO DEDUCTION BY WAY OF BAD DEBTS UNDER SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE I NCOME-TAX ACT 1961 IN RESPECT OF THE AMOUNT WHICH COULD NOT BE RECOVERED FROM ITS CLIENTS IN RESPECT OF TRANSACTIONS EFFECTED BY HIM ON BEHALF OF HIS CLIE NT APART FROM THE COMMISSION EARNED BY HIM. AT PARA 32 OF ITS ORDER THE HONBLE SPECIAL BENCH OF THE TRIBUNAL CONCLUDED AS FOLLOWS: KEEPING IN VIEW ALL THE FACTS OF THE CASE AND THE L EGAL POSITION EMANATING FROM THE VARIOUS JUDICIAL PRONOUNCEMENTS AS DISCUSS ED ABOVE WE ARE OF THE VIEW THAT THE AMOUNT RECEIVABLE BY THE ASSESSEE WH O IS A SHARE BROKER FROM HIS CLIENTS AGAINST THE TRANSACTIONS OF PURCHASE OF SHARES ON THEIR BEHALF CONSTITUTES DEBT WHICH IS A TRADING DEBT. THE BROKE RAGE/COMMISSION INCOME ARISING FROM SUCH TRANSACTIONS VERY MUCH FORMS PART OF THE SAID DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE/COMMISSION HAS BEEN TA KEN INTO ACCOUNT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVA NT PREVIOUS YEAR OR ANY EARLIER YEAR IT SATISFIES THE CONDITION STIPULATED IN SECTION 36(2)(I) AND THE ASSESSEE IS ENTITLED TO DEDUCTION U/S.36(1)(VII) BY WAY OF BAD DEBTS AFTER HAVING WRITTEN OF THE SAID DEBTS FROM HIS BOOKS OF ACCOUNT AS IRRECOVERABLE. WE THEREFORE ANSWER THE QUESTION REFERRED TO THIS SPECIAL BENCH IN THE AFFIRMATIVE THAT IS IN FAVOUR OF THE ASSESSEE. 7. RESPECTFULLY APPLYING THE SAME WE DISMISS THE G ROUND NOS. 1 AND 2 OF THE REVENUE AND ALLOW GROUND NO. A OF THE CROSS OBJECTI ON OF THE ASSESSEE. 4 8. COMING TO GROUND NO. B OF THE CROSS OBJECTION W HICH IS ON DISALLOWANCE UNDER SECTION 14A WE DISMISS THE SAME AS NOT PRESS ED. 9. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON THI S 29 TH DAY OF JULY 2010. SD. SD. (V. DURGA RAO) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED THE 29 TH JULY 2010. KN COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT CITY 4 MUMBAI 4. THE CIT(A)-IV MUMBAI 5. THE DR B BENCH MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR ITAT MUMBAI