THE DCCC-22, C.R.5, MUMBAI v. M/S. SSKI SECURITIES LTD, MUMBAI

ITA 2800/MUM/2008 | 1999-2000
Pronouncement Date: 30-12-2010 | Result: Dismissed

Appeal Details

RSA Number 280019914 RSA 2008
Assessee PAN AAACK1586E
Bench Mumbai
Appeal Number ITA 2800/MUM/2008
Duration Of Justice 2 year(s) 8 month(s) 7 day(s)
Appellant THE DCCC-22, C.R.5, MUMBAI
Respondent M/S. SSKI SECURITIES LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-12-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 30-12-2010
Date Of Final Hearing 16-12-2010
Next Hearing Date 16-12-2010
Assessment Year 1999-2000
Appeal Filed On 23-04-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH MUMBAI BEFORE SHRI R.S. PADVEKAR JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 2800/MUM//2008 (ASSESSMENT YEAR: 1999-2000) DCIT CENTRAL CIRCLE 22 M/S. SSKI SECURITIES LTD. ROOM NO. 403 4TH FLOOR 803/804 TULSIANI CHAMBERS AAYAKAR BHAVAN M.K. ROAD VS. NARIMAN POINT MUMBAI 400005 MUMBAI 400020 PAN - AAACK 1586 E APPELLANT RESPONDENT ITA NO. 2850/MUM//2008 (ASSESSMENT YEAR: 1999-2000) M/S. IDFC SSKI SECURITIES LTD. DCIT CENTRAL CIRCLE 22 803/804 TULSIANI CHAMBERS ROOM NO. 403 4TH FLOOR NARIMAN POINT MUMBAI 400005 VS. AAYAKAR BHAVAN M.K. ROAD PAN - AAACK 1586 E MUMBAI 400020 APPELLANT RESPONDENT REVENUE BY: SHRI AJIT KUMAR SINHA ASSESSEE BY: SHRI HIRO RAI O R D E R PER B. RAMAKOTAIAH A.M. THESE ARE CROSS APPEALS BY THE REVENUE AND THE ASSE SSEE FOR A.Y. 1999- 2000 AGAINST THE ORDER OF THE CIT(A) CENTRAL IV M UMBAI DATED 25.20.2008. 2. THESE APPEALS ARISE OUT OF THE ORDER OF A.O. PASSED UNDER SECTION 143(3) R.W.S. 153A. IN THE COURSE OF ASSESSMENT THE A.O. MADE AN ADDITION OF DEEMED DIVIDEND OF ` 54 03 496/- BAD DEBTS OF ` 5 00 73 791/- AND SOFTWARE EXPENSES OF RS.2 50 000/-. ITA NO. 2800/MUM//2008 3. BRIEFLY STATED THERE WAS A SEARCH AND SEIZURE ACTI ON CONDUCTED ON ASSESSEES GROUP BY WARRANT DATED 01.08.2003 AND IN THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT THERE ARE TRANSACTIONS BETWEEN ASSESSEE AND THE GROUP CONCERNS M/S. SSKI I NVESTOR SERVICES P. LTD. IT IS ALSO NOTICED THAT ONE OF THE MAJOR SHARE HOLDER OF THE ASSESSEE ITA NOS. 2800&2850/MUM//2008 M/S. SSKI SECURITIES LTD. 2 COMPANY WAS SHRI SHRIPAL MORAKHIA HOLDING 60.22% SH ARES IN THE ASSESSEE COMPANY AND ALSO HOLDS 51.40% SHARES IN OTHER GROUP CONCERN M/S. SSKI INVESTOR SERVICES P. LTD. INVOKING THE PROVISIONS O F SECTION 2(22)(E) THE A.O. MADE AN ADDITION OF ` 55 03 496/- AS DEEMED DIVIDEND. THE CIT(A) FOLLOWI NG HIS ORDERS IN EARLIER YEARS HELD THAT THESE TRANSAC TIONS ARE PURE COMMERCIAL TRANSACTIONS AND THE A.O. HAS ERRED IN INVOKING PRO VISIONS OF SECTION 2(22)(E) AS THE PAYMENTS WERE MADE IN THE NORMAL COURSE OF B USINESS. ACCORDINGLY HE DELETED THE ADDITION. REVENUE IS AGGRIEVED ON TH IS ISSUE AND IN APPEAL. 4. AT THE OUT SET IT WAS SUBMITTED THAT THIS ISSUE WAS CONSIDERED IN ASSESSEE COMPANYS CASE FOR A.Y. 2001-02 BY THE ITA T IN ITA NO. 5664/ MUM/2007 DATED 30 TH MARCH 2009 WHEREIN ON THIS ISSUE INVOKING SPECIAL BENCH DECISION IN THE CASE OF ACIT VS. BHAUMIK COLO UR (P) LTD. 27 SOT 270 (MUM) (SB) THE ADDITION UNDER SECTION 2(22)(E) WAS HELD TO BE NOT WARRANTED. THE FINDINGS OF THE ITAT ARE AS UNDER: - 11. WE HAVE CONSIDERED HIS SUBMISSIONS. IN OUR VIEW DECISION IN THE CASE OF BHAUMIK COLOUR PVT. LTD. (SUPRA) WOULD APPL Y TO THE FACTS OF THE PRESENT CASE. THE FACTS IN THE CASE OF BHAUMIK COLO UR PVT. LTD. (BCPL) IS THAT BCPL IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE OF PENCIL-PAINTS. BCPL TOOK AN INTEREST BEARING LOAN OF RS. 9 LAKHS FROM M/S. UMESH PENCILS PVT. LTD. (UPPL). IT WAS OBSERVE D BY THE ASSESSING OFFICER THAT THOUGH BCPL IS NOT A SHAREHOLDER OF UP PL BOTH THE COMPANIES HAD ONE COMMON SHAREHOLDER I.E. NARMADABE N NANDLAL TRUST(NNT). THE SAID TRUST WAS HOLDING 20% SHARES I N BCPL I.E. HOLDING SUBSTANTIAL INTEREST AND 10% SHARES IN UPPL. THE AS SESSING OFFICER WAS OF THE VIEW THAT THE SAID TRANSACTION WAS COVERED B Y THE SECOND LIMB OF PROVISIONS OF SECTION 2(22)(E) VIZ. PAYMENT BY A C OMPANY TO ANY CONCERN IN WHICH A SHAREHOLDER HOLDING A SUBSTANTIAL INTERE ST IN THE PAYEE COMPANY IS ALSO A MEMBER OR A PARTNER HAVING A SUB STANTIAL INTEREST IN THE CONCERN OF THE RECIPIENT OF THE PAYMENT. THE Q UESTION BEFORE THE SPECIAL BENCH WAS AS TO WHETHER DEEMED DIVIDEND U/S . 2(22)(E) OF THE INCOME TAX ACT 1961 CAN BE ASSESSED IN THE HANDS O F A PERSON OTHER THAN A SHAREHOLDER OF THE LENDER ? THE SPECIAL BEN CH HELD THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PER SON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HA NDS OF A PERSON OTHER THAN A SHAREHOLDER. IN THE PRESENT CASE ADMI TTEDLY BOTH THE ASSESSEES WERE NOT SHAREHOLDER OF THE PERSON MAKING THE PAYMENTS AND THEREFORE DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT CANNOT BE ASSESSED IN THEIR HANDS. 12. IN ITA NO. 566/MUM/07 IN GROUND NO. 3 THE REVE NUE HAS CHALLENGED ACTION OF LEARNED CIT(A) IN HOLDING THAT CHARGING OF INTEREST U/S. 234D BY THE ASSESSING OFFICER WAS NOT CORRECT SINCE THESE PROVISIONS WERE INTRODUCED ONLY W.E.F. 1.6.2003 AN D CANNOT BE APPLIED ITA NOS. 2800&2850/MUM//2008 M/S. SSKI SECURITIES LTD. 3 TO ASSESSMENT YEARS PRIOR TO A.Y. 2004-05. ON THIS ISSUE WE FIND THAT SPECIAL BENCH OF THE ITAT DELHI IN THE CASE OF ITO VS. EKTA PROMOTERS PVT. LTD. 113 ITD 719 (SB)(DEL) HAS HELD THAT INTER EST U/S. 234D CANNOT BE CHARGED FOR ASSESSMENT YEAR PRIOR TO A.Y. 2004-0 5. IN THE LIGHT OF THE AFORESAID SPECIAL BENCH DECISION WE ARE OF THE VIE W THAT THIS GROUND OF THE REVENUE SHOULD ALSO FAIL. 13. WE ALSO MAKE IT CLEAR THAT WE HAVE NOT ADJUDICA TED ON THE MERITS OF THE ISSUE REGARDING DEEMED DIVIDEND. 5. CONSIDERING THE PRECEDENT IN ASSESSEES OWN CASE AN D ALSO THE FACT THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF U NIVERSAL MEDICARE PVT. LTD. 324 ITR 263 HAS ALSO APPROVED THE FINDINGS IN BHAUMIK COLOUR P. LTD. (SUPRA) WE ARE OF THE OPINION THAT PROVISIONS OF S ECTION 2(22)(E) ARE NOT APPLICABLE ON THE FACTS OF THE CASE. WE ALSO MAKE I T CLEAR THAT WE HAVE NOT ADJUDICATED ON THE MERITS OF THE ISSUE REGARDING DE EMED DIVIDEND. ACCORDINGLY THE GROUNDS RAISED BY THE REVENUE ON TH IS ARE REJECTED. 6. REVENUE APPEAL IS DISMISSED. ITA NO. 2850/MUM//2008 7. IN ASSESSEES APPEAL THE ASSESSEE IS CONTESTING TH E CONFIRMATION OF BAD DEBTS TO THE EXTENT OF ` 5 00 73 791/- WHICH WERE CLAIMED AS BAD DEBTS AND IN THE ALTERNATE AS BUSINESS LOSS. THE A.O. HAS DISALLOWED THE AMOUNT HOLDING THAT THE DEBT HAS NOT BECOME BAD. THE AMOUN T OF ` 5 00 73 791/- CLAIMED AS RECEIVABLE FROM M/S. MONOPLAN METALLURGY PVT. LTD. ON THE PLEA THAT THE AMOUNT OUTSTANDING ON ACCOUNT OF VARIOUS C REDITS WITH THE MAIN BROKER WAS RECOVERED FROM THE SUB-BROKER THE ASSES SEE. THE AO WAS OF THE VIEW THAT THESE AMOUNTS COULD NOT BE ALLOWED AS THE RE WERE RECEIPTS UP TO 26.03.1999 AND SINCE THERE WAS RECOVERY TO THE EXTE NT OF ` 43 60 000/- WRITING OFF OF THE AMOUNT TO THE EXTENT OF ` 5 00 73 791/- LEAVING THE OUTSTANDING BALANCE OF ` 75 00 000/- WAS NOT CORRECT. THE CIT(A) FURTHER DISCUSSED VARIOUS CASE LAWS WHILE CONFIRMING DISALL OWANCE. HOWEVER HE HAS ALSO GIVEN A FINDING WITH REFERENCE TO THE CLAIM MA DE IN EARLIER YEAR. HIS FINDINGS IN PARA 12.14 AND 12.15 ON THE ISSUE ARE A S UNDER: - 12.14 THE APPELLANT BROUGHT TO MY NOTICE THAT FOR THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 1998-99 THE APPELLANT HAD CLAIMED BAD DEBT AGAINST MONOPLAN METALLURGY PVT. LTD. AGGREGATING R S.12500000/-. IN THAT YEAR THE AO HELD THAT THE APPELLANT WAS ABLE TO RECOVER A SUM OF RS.30001567/- AND THE NECESSITY FOR WRITING OFF AN AMOUNT OF ITA NOS. 2800&2850/MUM//2008 M/S. SSKI SECURITIES LTD. 4 RS.12500000/- WAS NOT EXPLICABLE NOR EXPLAINED. IN THE APPEAL PROCEEDINGS BEFORE MY PREDECESSOR THE APPELLANT EX PLAINED TO MY PREDECESSOR THAT ALTHOUGH AN OUTSTANDING WITH THE SAID PARTY WAS TO THE TUNE OF RS.104633000/- THE APPELLANT WAS ABLE TO REALIZE RS.744334643/- BY THE END OF MARCH 1998. HOWEVER A SUM OF RS.12500000/- WAS NOT RECOVERABLE AND THE SAME HAD BEEN WRITTEN OFF AS BAD DEBT. THE LD. CIT(A) VIDE ORDER NO. CIT(A)/ 208/2001-02 DATED 21.03.2002 HELD THAT FOR WRITING OFF A BAD DEBT IN A PARTICULAR YEAR WHAT IS PARAMOUNT IS WHETHER THERE IS A HONEST AND BONAFIDE JUDGMENT ON THE PART OF THE APPELLANT REGARDING THE RECOVERY OF DEBT. ALL THAT IS REQUIRED IS AN HONEST JUDGEMENT AND THE APPELLANT M UST FEEL HONESTLY CONVINCED THAT THE FINANCIAL POSITION OF THE DEBTOR WAS SO PRECARIOUS AND SHAKY THAT IT WOULD BE IMPOSSIBLE TO COLLECT ANY MO NEY FROM HIM. THE CIT(A) ALSO RELIED ON THE SUBSEQUENT EVENTS AND ACC EPTED THE APPELLANTS PLEAS THAT THE FINANCIAL POSITION OF THE MONOPLAN M ETALLURGY PVT. LTD. WAS INDEED NOT SOUND. THE DISALLOWANCE MADE BY THE AO W AS DELETED. 12.15 I HAVE CONSIDERED THE ORDER OF MY PREDECESSOR AND I AM NOT INCLINED TO ACCEPT THE VIEW TAKEN BY MY PREDECESSOR ON THE GROUND THAT IN THE APPEAL PROCEEDINGS BEFORE ME FOR A.Y. 1999-2 000 THE APPELLANT HAD A OPENING DEBIT BALANCE OF RS.61933468/- AND TH ERE WERE RECEIPTS UPTO 26.03.1999 . AT THE END OF THE YEAR THERE WAS A NET BALANCE O F RS.57573791/- OUT OF WHICH RS.50073791/- HAS BEEN W RITTEN OFF AS IRRECOVERABLE LEAVING AN OUTSTANDING BALANCE OF RS. 7500000/-. THE CONDUCT OF THE APPELLANT CLEARLY SHOWS THAT IT COUL D HAVE TRANSPIRED IN THE NEXT 4 DAYS THAT A DECISION WAS TAKEN TO WRITE OFF A MAJOR PORTION OF 5.00 CRORES I.E. RS.50073791/- WAS WRITTEN OFF AS B AD DEBT. DURING THE PREVIOUS YEAR THE APPELLANT HAS RECOVERED RS.43600 00/-. FOR THE REASONS WHICH I HAVE DISCUSSED IN PARA 12.1 TO 12.1 3 I HOLD THAT THE CLAIM OF THE APPELLANT IS NOT TENABLE AND CANNOT BE ALLOWED. 8. DRAWING OUR ATTENTION TO THE CLAIMS MADE WITH REFER ENCE TO THE ABOVE COMPANY THE LEARNED COUNSEL SUBMITTED THAT THE AMOU NT IS ALLOWABLE AS BAD DEBT FOLLOWING THE ITAT SPECIAL BENCH DECISION IN T HE CASE OF DCIT VS. SHREYAS S. MORAKHIA (MUM) (SB) 5 ITR TRIB.1 AND FUR THER ON THE PRINCIPLES ESTABLISHED BY THE HON'BLE SUPREME COURT IN THE CAS E OF TRF LTD. 323 ITR 397. HE HAS ALSO MADE A STATEMENT ON RECORD THAT TH E ASSESSEE COMPANY HAS NOT RECEIVED ANY AMOUNT SO FAR FROM THE SAID CO MPANY AND ASSESSEE WAS JUSTIFIED IN WRITING OFF THE AMOUNT. 9. THE LEARNED D.R. HOWEVER RELIED ON THE ORDER OF T HE CIT(A). 10. WE HAVE CONSIDERED THE ISSUE AND RIVAL CONTENTIONS. AS SEEN FROM THE RECORD THE ASSESSEE HAS WRITTEN OFF AN AMOUNT OF ` 1.15 CRORES IN THE PREVIOUS YEAR AS BAD DEBTS WHICH WAS ALLOWED BY TH E CIT(A) IN THE EARLIER YEAR AND AS SEEN FROM REVENUES APPEAL FILED FOR TH AT YEAR IN WHICH THE ITA NOS. 2800&2850/MUM//2008 M/S. SSKI SECURITIES LTD. 5 REVENUE CONTESTED THE ISSUE OF 2(22)(E) ALONE THE CLAIM OF BAD DEBTS AGAINST THE SAME COMPANY IN EARLIER YEAR WAS ACCEPTED BY TH E REVENUE. THE REASONS FOR NON-ACCEPTANCE IN THIS YEAR AS CONSIDERED BY TH E CIT(A) WAS ONLY THAT THE SOME AMOUNTS WERE RECEIVED UPTO 26.03.1999. THE FACTS IN THIS YEAR ARE SIMILAR TO EARLIER YEAR WHICH THE REVENUE HAS ACCE PTED. EVEN IN THE EARLIER YEAR OUT OF THE OUTSTANDING AMOUNT OF ` 10 46 33 000/- THE ASSESSEE HAS CLAIMED BAD DEBT OF ABOUT ` 125 LAKHS WHEREAS THE RECEIPTS WERE TO THE EXTENT OF ` 7.44 LAKHS. SIMILARLY IN THIS YEAR ALSO OUT OF THE OPENING BALANCE OF ` 6 19 33 468/- THERE WERE RECEIPTS AND THE NET BALAN CE OF ` 5 75 73 791/- WAS OUTSTANDING OUT OF WHICH ONLY RS.5 00 73 791/- HAS BEEN WRITTEN OFF SHOWING AN OUTSTANDING BALANCE OF ` 75 00 000/- WHICH SEEMS TO HAVE BEEN RECOVERED IN THE LATER YEAR. IN VIEW OF THIS WE AR E OF THE OPINION THAT THE ASSESSEES CLAIM IS JUSTIFIABLE ON FACTS AND ALSO O N LAW. THE REVENUE IS FREE TO BRING TO TAX THE AMOUNT IF ANY RECOVERED OUT OF THIS AMOUNT IN THE YEAR OF RECEIPT. THE AMOUNT OF BAD DEBT IS THEREFORE ALLOWA BLE TO THE ASSESSEE AND ACCORDINGLY THE GROUND IS CONSIDERED ALLOWED. THE A .O. IS DIRECTED TO ALLOW THE BAD DEBT CLAIMED. 11. THE OTHER ISSUE IN ASSESSEES APPEAL IS WITH REFERE NCE TO THE CLAIM OF SOFTWARE EXPENDITURE OF ` 2 50 000/- INCURRED ON PURCHASE OF COMPUTER SOFTWARE CLAIMED AS REVENUE EXPENDITURE BUT TREATED AS CAPITAL EXPENDITURE. THE A.O. DID NOT ALLOW DEPRECIATION. THE CIT(A) APP ROVED THE ACTION OF THE A.O. ON THE BASIS OF ITAT ORDER IN ASSESSEES GROUP CASE FOR A.Y. 2001-02 WHEREIN THE EXPENDITURE ON COMPUTER SOFTWARE IS TRE ATED AS CAPITAL EXPENDITURE AND DEPRECIATION WAS TO BE ALLOWED. IT WAS SUBMITTED THAT THE ISSUE IS TO BE RE-EXAMINED IN THE LIGHT OF THE SPEC IAL BENCH DECISION IN THE CASE OF AMWAY INDIA ENTERPRISES 111 ITD 112 AND FOR THAT THE ISSUE IS TO BE RESTORED BACK TO THE FILE O0F THE A.O. 12. CONSIDERING THE SUBMISSIONS AND ORDERS ON THE ISSUE WE ARE OF THE OPINION THAT THIS ISSUE REQUIRE RE-EXAMINATION BY T HE A.O. IN THE LIGHT OF THE PRINCIPLES ESTABLISHED BY THE SPECIAL BENCH OF THE ITAT IN THE CASE OF AMWAY INDIA ENTERPRISES (SUPRA). ACCORDINGLY THE MATTER I S RESTORED BACK TO THE FILE OF THE A.O. TO EXAMINE THE ISSUE AFRESH. THE GROUND IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. ITA NOS. 2800&2850/MUM//2008 M/S. SSKI SECURITIES LTD. 6 13. IN THE RESULT REVENUES APPEAL IS DISMISSED AND AS SESSEES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DECEMBER 2010. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 30 TH DECEMBER 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CENTRAL-IV MUMBAI 4. THE CIT CENTRAL RANGE-II MUMBAI CITY 5. THE DR C BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.