M/S. ACK CAPITAL MANAGEMENT PVT. LTD, MUMBAI v. THE ITO 4(1)(1),

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI BEFORE SHRI R.S.SYAL AM AND SMT.ASHA VIJAYARAGHAVA N JM ITA NO.2203/MUM/2008 : ASST.YEAR 2004-2005 M/S.ACK CAPITAL MANAGEMENT PVT.LTD. 106 VIKAS BUILDING 11 BANK STREET FORT MUMBAI 400 023. PAN : AACCA9047L. VS. THE INCOME TAX OFFICER WARD 4(1)(1) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.V.JHAVERI RESPONDENT BY : SHRI SRAVAN KUMAR O R D E R PER R.S.SYAL AM : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE LEARNED CIT(A) ON 25.02.2008 IN RELATION TO THE ASSESSMENT YEAR 2004-2005. 2. THE FIRST GROUND IS AGAINST THE CONFIRMATION OF ADDITION OF BAD DEBT / BUSINESS LOSS OF RS.7 04 074. BRIEFLY STATED THE FACTS OF TH E CASE ARE THAT THE ASSESSEE A MEMBER OF BOMBAY STOCK EXCHANGE WAS CARRYING ON THE BUSINESS AS SHARE AND STOCK BROKER. A SUM OF RS.7 04 074 WAS WRITTEN OFF AS BAD DEBTS IN THE BOOKS OF ACCOUNT. PARTY-WISE BREAK UP OF BAD DEBTS WRITTEN OFF WAS FILED BEFORE THE A.O. WHICH HAS BEEN REPRODUCED ON PAGES 1 AND 2 OF THE A SSESSMENT ORDER. THE ASSESSING OFFICER CAME TO HOLD THAT THE AMOUNT WAS NEITHER DEDUCTIBLE AS BAD DEBT NOR AS BUSINESS LOSS U/S.37(1) OF THE ACT. HE THER EFORE MADE ADDITION OF RS.7 04 074 WHICH CAME TO BE UPHELD IN THE FIRST AP PEAL. ITA NO.2203/MUM/2008 M/S.ACK CAPITAL MANAGEMENT PVT.LTD. 2 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD IT IS CLEAR THAT THE ASSESSEE WAS ACTING AS A SHARE BROKER AND SUFFERED THIS LOSS ON THE TRANSACTIONS GIVEN ON PAGES 1 AND 2 OF THE A SSESSMENT ORDER. THE LEARNED A.R. HAS PLACED ON RECORD A CHART WHICH CONTAINS DE TAILS OF BAD DEBT AND BUSINESS LOSS WRITTEN OFF. THE INFORMATION GIVEN IN THIS CHA RT IS MORE THAN THAT WHICH WAS GIVEN TO THE ASSESSING OFFICER AS HAS BEEN REPRODUC ED IN THE ASSESSMENT ORDER. IN PRINCIPLE THE QUESTION OF BAD DEBT IN THE HANDS OF STOCK BROKER STANDS SETTLED IN ASSESSEES FAVOUR BY THE JUDGEMENT OF THE HONBLE D ELHI HIGH COURT IN CIT VS. D.B. (INDIA) SECURITIES [(2009) 318 ITR 26 (DELHI)] HOLDING THAT THE UNRECOVERED AMOUNT BY THE SHARE BROKER ON BEHALF OF ITS SUB-BRO KER HAS TO BE TREATED AS DEBT AND DEDUCTION IS ALLOWABLE. IT HAS FURTHER BEEN LAID DO WN IN THIS CASE THAT THE SHARES REMAINING IN THE POSSESSION OF THE ASSESSEE CAN BE SOLD IN THE MARKET FOR WHATEVER CONSIDERATION AND ADJUSTED AGAINST THE BALANCE OUT STANDING PAYABLE BY THE DEBTORS AND THE NET FIGURE WHICH RESULTS THEREAFTER HAS T O BE ALLOWED AS BAD DEBT. THE SPECIAL BENCH OF THE TRIBUNAL IN DCIT VS. SHREYAS S.MORAKHIA [(2010) 5 ITR (TRI.) 1 (MUM.) (SB)] HAS ALSO DECIDED THIS ISSUE IN ASSESSEES FAVOUR B Y HOLDING THAT THE SUM RECEIVABLE BY SHARE BROKER FROM CLIENT S FOR TRANSACTIONS UNDERTAKEN OR ON THEIR BEHALF IS A TRADING DEBT. UNRECOVERED PART HAS TO BE ALLOWED AS DEDUCTION. IN VIEW OF THE ABOVE JUDGEMENT AND SPECIAL BENCH OR DER WE HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION IN RESPECT OF THE AMOUNT B ECOMING UNRECOVERABLE FROM ITS CLIENTS. HOWEVER THE DEDUCTION HAS TO BE RESTRICTED TO THE AMOUNT DETERMINED AFTER REDUCING THE AMOUNT RECOVERABLE FROM SALE PROCEEDS OF SHARES WITH ASSESSEE IF ANY IN TERMS OF THE JUDGEMENT IN D.B. (INDIA) SECURITIES (SUPRA). WE THEREFORE SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF A.O. FOR TAKING A FRESH DECISION ACCORDINGLY AFTER ALLOWIN G A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NO.2203/MUM/2008 M/S.ACK CAPITAL MANAGEMENT PVT.LTD. 3 4. GROUND NO.2 ABOUT THE CONFIRMATION OF DISALLOWAN CE OF ELECTRICITY AND TELEPHONE CHARGES WAS NOT PRESSED BY THE LEARNED A. R. WHICH IS HEREBY DISMISSED. 5. IN THE RESULT THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 11 TH DAY OF FEBRUARY 2011. SD/- SD/- (ASHA VIJAYARAGHAVAN) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 11 TH FEBRUARY 2011. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) IV MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI.