SATGURU CAPITAL & FINANACE P. LTD, MUMBAI v. DCIT CIR 4(2), MUMBAI

ITA 2505/MUM/2010 | 2006-2007
Pronouncement Date: 16-09-2011 | Result: Allowed

Appeal Details

RSA Number 250519914 RSA 2010
Assessee PAN AAACS7189K
Bench Mumbai
Appeal Number ITA 2505/MUM/2010
Duration Of Justice 1 year(s) 5 month(s) 15 day(s)
Appellant SATGURU CAPITAL & FINANACE P. LTD, MUMBAI
Respondent DCIT CIR 4(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 16-09-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted F
Tribunal Order Date 16-09-2011
Date Of Final Hearing 07-09-2011
Next Hearing Date 07-09-2011
Assessment Year 2006-2007
Appeal Filed On 31-03-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER AN D SHRI V. DURGA RAO JUDICIAL MEMBER ITA NO. 2505/MUM./2010 (ASSESSMENT YEAR : 2006-07 ) SATGURU CAPITAL & FINANCE P. LTD. 505 ACME PLAZA ANDHERI KURLA ROAD ANDHERI (E) MUMBAI 400 059 PAN AAACS7189K .. APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE-4(2) MUMBAI .... RESPONDENT ASSESSEE BY : NONE REVENUE BY : MR. PARTHASARATHI NAIK DATE OF HEARING 07.09.2011 DATE OF ORDER 16.9.2011 O R D E R PER J. SUDHAKAR REDDY A.M. THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 12 TH FEBRUARY 2010 PASSED BY THE COMMISSIONER (APPEALS)-VIII MUMBAI FOR ASSESSMENT YEAR 2006-07 . IN THIS CASE THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF SH ARE BROKING AND THE SOLE DISPUTE IN THIS APPEAL IS WHETHER OR NOT THE COMMISSIONER (APPEALS) WAS JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF BAD DEBTS OF ` 3 84 069 MADE BY THE ASSESSING OFFICER. 2. ON THE DATE OF HEARING NONE APPEARED ON BEHALF OF THE ASSESSEE. THE NOTICE ISSUED BY THE REGISTRY THROUGH REGISTERED AD AT THE ADDRESS MENTIONED AT COL.10 OF FORM-36 WAS RETURNED UN-SER VED BY THE POSTAL SATGURU CAPITAL & FINANCE P. LTD. ITA NO.2505/M./2010 2 AUTHORITY WITH A REMARK LEFT . THERE IS NO APPLICATION FOR CHANGE OF ADDRESS BY THE ASSESSEE EITHER. UNDER THESE CIRCUMSTANCES WE PROCEED TO DISPOSE OFF THE APPEAL EX-PARTE ON MERIT AFTER HEARING THE CONTENTIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE. 3. AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTAT IVE MR. PARTHASARATHI NAIK APPEARING ON BEHALF OF THE REVE NUE WE FIND THAT THE COMMISSIONER (APPEALS) HELD THAT A BROKER CANNOT BE COMPARED WITH A TRADER AND THAT THE ACCOUNTING PROCEDURE FOLLOWED B Y THE STOCK BROKER TAKES ONLY THE BROKERAGE INCOME INTO ITS PROFIT & LOSS AC COUNT. HE ALSO HELD THAT THE SHARE TRANSACTIONS WERE NEVER CONSIDERED IN THE PROFIT & LOSS ACCOUNT. THE COMMISSIONER (APPEALS) AFTER REFERRING TO CERT AIN JUDICIAL DECISIONS DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM O F BAD DEBTS UPTO THE AMOUNT OF BROKERAGE EARNED. THIS FINDING OF THE COM MISSIONER (APPEALS) IS CONTRARY TO THE DECISION OF THE MUMBAI SPECIAL BENC H IN (2010) 5 ITR (TRIB.) 1 (MUM.) (SB) WHEREIN THE TRIBUNAL HELD AS UNDER: - 29. AT THE TIME OF HEARING BEFORE US THE LD. COUNS EL FOR THE ASSESSEE HAS STRONGLY RELIED ON THE DECISIONS OF HO NBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DB (INDIA) SECURITIES LTD.(SUPRA) AND IN THE CASE OF CIT VS. BONANZA PORTFOLIO LTD. (SUPRA) STATING THAT THE SAME ARE DIRECTLY ON THE POINT IN ISSUE AND THERE B EING NO CONTRARY DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT O R ANY OTHER HIGH COURTS THIS SPECIAL BENCH HAS TO FOLLOW THE SAME. WE HAVE CAREFULLY PERUSED THE SAID DECISIONS OF THE HONBLE DELHI HIG H COURT. IN THE CASE OF DB (INDIA) SECURITIES LTD.(SUPRA) THE ASSESSEE WAS A MEMBER OF DELHI STOCK EXCHANGE AND WAS CARRYING ON THE BUSINE SS OF SHARES AND STOCK BROKING. THE ASSESSEE HAD PURCHASED SHARES ON BEHALF OF HIS CLIENT FOR THE TOTAL VALUE OF RS. 1.06 CRORES AT AN AVERAGE PRICE OF RS. 55 PER SHARE. THE SAID CLIENT MADE A PAYMENT TO TH E EXTENT OF RS. 65 LACS ONLY TO THE ASSESSEE AND THE REMAINING AMOUNT OF RS. 41 LACS HAD REMAINED UNPAID. THE BROKERAGE INCOME EARNED BY TH E ASSESSEE IN RESPECT OF THE SAID TRANSACTION OF PURCHASE OF SHAR ES WAS DULY DECLARED IN ITS RETURN OF INCOME AND WAS ASSESSED AS WELL IN THE EARLIER YEAR. THE BALANCE AMOUNT OF RS. 41 LACS REMAINED UNPAID E VEN IN THE NEXT YEAR ALSO APPARENTLY BECAUSE OF THE REASON THAT THE PRICE OF SHARES FELL FROM RS. 55 TO RS. 5 PER SHARE. IN THE RETURN OF I NCOME FILED FOR THE SAID YEAR THE ASSESSE CLAIMED DEDUCTION OF RS. 41 LACS AS BAD DEBTS U/S 36(1)(VII). THE A.O. DISALLOWED THE CLAIM OF T HE ASSESSEE FOR THE SAID DEDUCTION WHICH WAS CONFIRMED BY THE LD. CIT(A ). ON FURTHER APPEAL BY THE ASSESSEE THE TRIBUNAL HOWEVER ALLO WED THE SAID DEDUCTION AND WHEN THE MATTER REACHED TO THE HONBL E DELHI HIGH COURT IT WAS SOUGHT TO BE CANVASSED ON BEHALF OF T HE REVENUE THAT THE AMOUNT RECEIVABLE BY THE ASSESSEE FROM ITS CLIE NT AGAINST PURCHASE OF SHARES COULD NOT BE TREATED AS DEBT UNDER THE PROVISIONS OF SECTION 36(2) AND THEREFORE THE QUESTION OF ALLOWI NG ANY DEDUCTION FOR SATGURU CAPITAL & FINANCE P. LTD. ITA NO.2505/M./2010 3 THE SAID AMOUNT TREATING THE SAME AS BAD DEBT WOULD NOT ARISE. HONBLE DELHI HIGH COURT DID NOT FIND MERIT IN THIS CONTENTION RAISED ON BEHALF OF THE REVENUE HOLDING THAT THERE WAS A VALI D TRANSACTION BETWEEN THE ASSESSEE AND HIS CLIENT AND SINCE THE A SSESSEE HAD TO MAKE PAYMENT ON BEHALF OF HIS CLIENT WHICH HE COULD NOT RECOVER TO THE EXTENT OF RS. 41 LACS THE SAID SUM HAS TO BE TREAT ED AS HIS DEBT. IT WAS ALSO HELD THAT THE BROKERAGE WHICH WAS RECEIVED FOR THE SAID TRANSACTION WAS SHOWN AS INCOME BY THE ASSESSEE IN THE EARLIER YEARS AND THE SAME WAS TAXED AS SUCH BY THE ASSESSING AUT HORITY. IT WAS HELD THAT THE ASSESSEE THEREFORE WAS ENTITLED FOR D EDUCTION ON ACCOUNT OF BAD DEBT U/S 36(1)(VII) R.W.S. 36(2). A SIMILAR ISSUE AGAIN CAME UP FOR CONSIDERATION BEFORE THE HONBLE DELHI HIGH COU RT IN THE CASE OF CIT VS. BONANZA PORTFOLIO LTD. (SUPRA) WHEREIN THE QUES TION OF LAW WHICH AROSE FOR CONSIDERATION WAS WHETHER IN VIEW OF THE PROVISIONS OF SECTION 36(1)(VII) THE TOTAL DEBIT BALANCE INCLUDI NG THE CONSIDERATION COLLECTIBLE BY THE ASSESSEE COMPANY FOR THE SALE/PU RCHASE OF SHARES COULD BE CLAIMED BY THE ASSESSEE AS BAD DEBTS WHEN IT HAD ONLY CREDITED BROKERAGE IN THE P&L ACCOUNT AND IT WAS HE LD BY THE HONBLE DELHI HIGH COURT FOLLOWING INTER ALIA THE DECISI ON IN THE CASE OF CIT VS. DB (INDIA) SECURITIES LTD. THAT THE MONEY RECEI VABLE BY THE ASSESSEE AS SHARE BROKER FROM HIS CLIENTS AGAINST P URCHASE OF SHARES MADE ON THEIR BEHALF HAS TO BE TREATED AS DEBT A ND SINCE THE BROKERAGE PAYABLE BY THE CLIENT WAS A PART OF THAT DEBT AND THAT PART HAD BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF HIS I NCOME THE CONDITIONS STIPULATED IN SECTION 36(1)(VII) AND 36( 2) STOOD SATISFIED AND THE ASSESSEE WAS ENTITLED FOR DEDUCTION IN RESPECT OF THE SAID AMOUNT SINCE IT HAD BECOME BAD. IN OUR OPINION THE RATIO OF THESE DECISIONS OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DB (INDIA) SECURITIES LTD.(SUPRA) AND IN THE CASE OF CIT VS. B ONANZA PORTFOLIO LTD. (SUPRA) IS SQUARELY APPLICABLE TO THE ISSUE WHICH I S UNDER CONSIDERATION IN THE PRESENT CASE BEFORE THIS SPECIAL BENCH. 30. THE LEARNED D.R. HAS CONTENDED BEFORE US THAT T HE RULES AND REGULATIONS OF STOCK EXCHANGE GOVERNING RELATIONS B ETWEEN BROKER AND HIS CLIENTS AS WELL AS THE GUIDELINES ISSUED BY THE SEBI FROM TIME TO TIME PROTECTING THE INTEREST OF SHARE BROKER WERE N OT BROUGHT TO THE NOTICE OF THE HONBLE DELHI HIGH COURT IN THE CASES OF CIT VS. DB (INDIA) SECURITIES LTD.(SUPRA) AND CIT VS. BONANZA PORTFOLIO LTD. (SUPRA) AND THEIR LORDSHIPS THUS HAD NO OCCASION TO CONSIDER THE ISSUE IN THE LIGHT OF THE SAME. HOWEVER AS ALREADY HELD BY US THE SAID RULES AND REGULATIONS AS WELL AS GUIDELINES ARE NOT RELEVANT IN THE CONTEXT OF ISSUE REFERRED TO THIS SPECIAL BENCH WHI CH RAISES A SPECIFIC QUESTION OF LAW. WE HAVE ALREADY NOTED THAT THE FA CT WHICH IS NOT IN DISPUTE IS THAT THE ASSESSEE HAS ACTUALLY SUFFERED THE LOSS AS A RESULT OF THE AMOUNT IN QUESTION REPRESENTING DEBT BECOMING I RRECOVERABLE. IT IS THEREFORE NOT RELEVANT WHETHER SUCH LOSS HAS BEE N INCURRED BY THE ASSESSEE AS A RESULT OF NOT FOLLOWING THE RELEVANT RULES AND REGULATIONS AND GUIDELINES OR EVEN AFTER FOLLOWING THE SAME. A S OBSERVED BY US THIS ASPECT MAY BE RELEVANT IN THE CONTEXT OF QUANT IFICATION OF SUCH LOSS. AS A MATTER OF FACT ONE OF THE ARGUMENTS RA ISED ON BEHALF OF THE REVENUE IN THE CASE OF DB (INDIA) SECURITIES LTD. (SUPRA) WAS THAT THE ASSESSEE HAVING NOT SOLD THE SHARES TO ANYBODY ELSE IN THE MARKET THE ASSESSEE COULD NOT CLAIM THE AMOUNT IN QUESTION AS BAD DEBT AND WHILE DEALING WITH THE SAME IT WAS HELD BY THE HONBLE D ELHI HIGH COURT THAT THE SALE CONSIDERATION WHICH SUCH SHARES COULD FETC H IN THE MARKET SATGURU CAPITAL & FINANCE P. LTD. ITA NO.2505/M./2010 4 NEEDS TO BE ADJUSTED AGAINST THE AMOUNT OF BAD DEBT CLAIMED BY THE ASSESSEE FOR ARRIVING AT THE ACTUAL FIGURE OF BAD DEBTS. 31. THE CONTENTION RAISED ON BEHALF OF THE REVENUE BASED ON THE SALE VALUE OF SHARES WHICH ARE BOUND TO REMAIN WITH THE ASSESSEE AND WHICH THE ASSESSEE IS ENTITLED TO SALE AND ADJUST T HE SALE CONSIDERATION THEREOF AGAINST THE AMOUNT RECEIVABLE FROM THE CLIE NT SO AS TO ARRIVE AT THE ACTUAL AMOUNT OF BAD DEBT THUS IS RELEVANT FOR QUANTIFYING THE ACTUAL AMOUNT OF BAD DEBT AND IT IS AT LIBERTY TO R AISE THE SAME IF PERMISSIBLE BEFORE THE DIVISION BENCH DURING THE C OURSE OF HEARING OF THE APPEAL. THE LD. D.R. HAS ALSO RAISED CERTAIN O THER DOUBTS OR DISPUTES IN THE WRITTEN SUBMISSIONS FILED BEFORE TH IS SPECIAL BENCH RELATING TO CERTAIN FACTUAL ASPECTS OF THE CASE. AL THOUGH NO SUCH DOUBTS OR DISPUTES APPEAR TO HAVE BEEN RAISED EVEN BY THE A.O. IN THE ASSESSMENT ORDER THE LD. COUNSEL FOR THE ASSESSEE HAS FAIRLY AGREED THAT IF IT IS SO FELT BY THE DIVISION BENCH AFTER C ONSIDERING THE ARGUMENTS OF BOTH THE SIDES WHILE HEARING THE APPEA L OF THE ASSESSEE THAT THESE ASPECTS NEED VERIFICATION THE ASSESSEE WILL HAVE NO OBJECTION FOR GETTING SUCH VERIFICATION DONE FROM T HE A.O. 32. KEEPING IN VIEW ALL THE FACTS OF THE CASE AND T HE LEGAL POSITION EMANATING FROM THE VARIOUS JUDICIAL PRONOUNCEMENTS AS DISCUSSED ABOVE WE ARE OF THE VIEW THAT THE AMOUNT RECEIVABL E BY THE ASSESSEE WHO 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 BROKERAGE/COMMISSION INCOME ARISING FROM SUCH TRANSAC- TIONS VERY MUCH FORMS PART OF THE SAID DEBT AND WHE N THE AMOUNT OF SUCH BROKERAGE/COMMISSION HAS BEEN TAKEN INTO ACCOU NT IN COMPUTA- TION OF INCOME OF THE ASSESSEE OF THE RELEVANT PREV IOUS 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 H IS BOOKS OF ACCOUNT AS IRRECOVERABLE. WE THEREFORE ANSWER THE QUESTI ON REFERRED TO THIS SPECIAL BENCH IN THE AFFIRMATIVE THAT IS IN FAVOUR OF THE ASSESSEE. 4. KEEPING IN VIEW THE AFORESAID DECISION OF MUMBAI SP ECIAL BENCH OF THE TRIBUNAL CITED SUPRA WE HOLD THAT THE IMPUGNED AMO UNT IS ALLOWABLE AS BAD DEBT. CONSEQUENTLY WE SET ASIDE THE ORDER OF THE C OMMISSIONER (APPEALS) AND ALLOW THE GROUND RAISED BY THE ASSESSEE. 2. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH SEPTEMBER 2011 SD/- V. DURGA RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI DATED: 16 TH SEPTEMBER 2011 SATGURU CAPITAL & FINANCE P. LTD. ITA NO.2505/M./2010 5 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A) MUMBAI CONCERNED; (4) THE CIT MUMBAI CITY CONCERNED; (5) THE DR F BENCH ITAT MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT MUMBAI BENCHES MUMBAI DATE INITIAL 1. DRAFT DICTATED ON 7.9.2011 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 8.9.2011 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 9.9.2011 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 9.9.2011 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 9.9.2011 SR.PS 6. DATE OF PRONOUNCEMENT 16.9.2011 SR.PS 7. FILE SENT TO THE BENCH CLERK 16.9.2011 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER