ACIT Rg. - 4(1), MUMBAI v. M/s. SREE GANESH ENTERPRISES, MUMBAI

ITA 3473/MUM/2006 | 2003-2004
Pronouncement Date: 22-10-2010 | Result: Dismissed

Appeal Details

RSA Number 347319914 RSA 2006
Assessee PAN AANFS0388N
Bench Mumbai
Appeal Number ITA 3473/MUM/2006
Duration Of Justice 4 year(s) 4 month(s) 20 day(s)
Appellant ACIT Rg. - 4(1), MUMBAI
Respondent M/s. SREE GANESH ENTERPRISES, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 22-10-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 22-10-2010
Date Of Final Hearing 20-10-2009
Next Hearing Date 20-10-2009
Assessment Year 2003-2004
Appeal Filed On 02-06-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH MUMBAI BEFORE SHRI S.V. MEHROTRA ACCOUNTANT MEMBER. AND SHRI VIJAY PAL RAO JUDICIAL MEMBER ITA NO.3473/MUM./2006 (ASSESSMENT YEAR : 200304 ) DATE OF HEARING: 25.8.2010 ASSTT. COMMISSIONER OF INCOME TAX RANGE4(1) AAYAKAR BHAVAN M.K. ROAD MUMBAI 400 020 .. APPELLANT VERSUS M/S. SHREE GANESH ENTERPRISES 5/7 OAK LANE KOTHARI HOUSE OPP. MUMBAI UNIVERSITY FORT MUMBAI 400 023 AANFS0388N .... RESPONDENT REVENUE BY : SHRI O.P. SHARMA ASSESSEE BY : SHRI K. SHIVARAM O R D E R PER S.V. MEHROTRA A.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 30 TH MARCH 2006 PASSED BY THE LEARNED CIT(A)IV MUMBAI FOR ASSESSMENT YEAR 200304 ON THE SOLE GROUND THAT WHETHER OR NOT T HE LEARNED CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSE SSING OFFICER ON ACCOUNT OF BAD DEBTS AMOUNTING TO ` 2 34 05 761 BEING THE AMOUNT RECEIVABLE FROM M/S. CENTURY CONSULTANTS LTD. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEEFIRM IN THE RELEVANT ASSESSMENT YEAR CARRIED ON BUSINESS AS SUB-BROKER IN SHARES. IT HAD FILED RETURN OF INCOME DECLARING BUSINESS LOSS OF ` 2 33 31 373 INTER-ALIA AFTER ITA NO.3473/MUM./2006 SHRI GANESH ENTERPRISES 2 CLAIMING BAD DEBTS OF ` 2 34 05 761=30. THE ASSESSEEFIRM IN REPLY TO ASSESSING OFFICERS QUERY POINTED OUT THAT THE ASS ESSEEFIRM DURING THE YEAR WAS WORKING AS SUB-BROKER FOR CENTURY CONSULT ANTS LIMITED A BROKER OF BOMBAY STOCK EXCHANGE AND NATIONAL STOCK EXCHANG E. THE ASSESSEE FIRM AS A SUB-BROKER USED TO HAVE REGULAR DEALS W ITH THE BROKER FOR THEIR CLIENTS. THE BROKER FAILED TO HONOUR HIS COMMITMENT TO THE EXCHANGE AUTHORITIES AND WAS DECLARED DEFAULTER. THEREFORE THE DUES RECEIVABLES FROM THE BROKER BY THE ASSESSEEFIRM COULD NOT BE REALIS ED. THE ASSESSING OFFICER AFTER CONSIDERING THE ASSESSEEFIRMS SUBMISSIONS A ND AFTER CONSIDERING THE PROVISIONS OF SECTION 36(I)(VII) R/W SECTION 36(2) INTER-ALIA OBSERVED THAT THE ASSESSEEFIRM BEING A SUB-BROKER WAS ENTITLED O NLY TO THE BROKERAGE IN THE SALE / PURCHASE TRANSACTIONS IN SHARES IN RESPE CT OF WHICH THE ASSESSEE FIRM WAS STATED TO HAVE INCURRED LOSSES. THE ASSESS ING OFFICER TAKING INTO CONSIDERATION THE FACT THAT THE AMOUNT CLAIMED AS B AD DEBTS HAD NEVER BEEN OFFERED AS TAX AS ITS INCOME DISALLOWED THE ASSESS EEFIRMS CLAIM. 3. THE ASSESSEEFIRM BEING AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER CARRIED THE MATTER IN FIRST APPE AL WHEREIN THE LEARNED CIT(A) ALLOWED THE ASSESSEEFIRMS CLAIM TAKING NOT E OF THE FACT THAT CENTURY CONSULTANTS LIMITED WAS DECLARED A DEFAULTER BY THE BOMBAY STOCK EXCHANGE AND AS PER THE ARBITRATION AWARD DATED 9 TH FEBRUARY 2002 THE BOMBAY STOCK EXCHANGE THROUGH ITS INVESTORS PROTECTION FUND GA VE A SUM OF ` 10 00 000 TO THE ASSESSEEFIRM AND THEREFORE THE LOSS CLAIM ED BY THE ASSESSEEFIRM HAD CRYSTALLISED AND WAS ALLOWED. THE REVENUE IS AG GRIEVED AND IS IN APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US DURING THE COURSE OF HEARING THE LEARNE D COUNSEL FOR THE ASSESSEEFIRM POINTED OUT THAT THE BAD DEBT LOSS H AS BEEN CLAIMED AFTER TAKING INTO CREDIT OF ` 10 00 000 BEING THE AMOUNT RECEIVED FROM INVESTORS PROTECTION FUND. HE FURTHER POINTED OUT THAT THE IS SUE FOR ADJUDICATION IS COVERED AGAINST THE REVENUE AND IN FAVOUR OF ASSESS EEFIRM BY THE SPECIAL BENCH DECISION OF THIS TRIBUNAL RENDERED IN DCIT VS SHRI SHREYAS S. MORAKHIA ITA NO.3374/MUM.2004 VIDE ORDER DATED 16 TH JULY 2010. HE ALSO ITA NO.3473/MUM./2006 SHRI GANESH ENTERPRISES 3 POINTED OUT THAT SIMILAR VIEW HAS ALSO BEEN TAKEN B Y THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS D.B. (INDIA) SECURITIES LIMITED 318 ITR 26 (DEL.) AND THE SPECIAL LEAVE PETITION AGAINST THE SAID JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT WAS ALSO DISMISSED BY THE HONBLE SUPREME COURT WHICH IS REPORTED AS CIT VS D.B. (INDIA) SECU RITIES LIMITED (2010) 325 ITR 5 (STATUTE SECTION). LEARNED DEPARTMENT REPRESE NTATIVE ON THE OTHER HAND COULD NOT BRING ON RECORD ANY DECISION CONTR ARY TO THE DECISIONS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEEFIRM AND RE LIED ON THE ORDER OF THE ASSESSING OFFICER. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS PERUSED THE OR DERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE HON'BLE SUPREME COURT DISMISSED THE DEPARTMENTS SPECIAL LE AVE PETITION AGAINST THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN CIT VS D.B. (INDIA) SECURITIES LIMITED. 318 ITR 26 (DEL.) WHEREIN IT HAS BEEN HELD AS UNDER:- HELD THAT ONLY BECAUSE THE SHARES WERE NOT DELIVER ED FOR WANT OF FULL PAYMENT WHICH WAS TO BE MADE BY THE SUB-BROKER TO T HE ASSESSEE IT COULD NOT BE SAID THAT THERE WAS NO TRANSACTION BET WEEN THE PARTIES. SINCE THE SHARES REMAINED IN THE POSSESSION OF THE ASSESSEE IT COULD SELL THE SHARES IN THE MARKET FOR WHATEVER CONSIDER ATION THEY COULD FETCH AND THAT WAS TO BE ADJUSTED AGAINST THE BALAN CE AMOUNT OF RS.41 37 881 PAYABLE BY THE SUB-BROKER TO THE ASSES SEE BEFORE ARRIVING AT THE ACTUAL FIGURE OF BAD DEBT. 6. WE ALSO FIND THAT A SPECIAL BENCH OF THIS TRIBUNAL IN DCIT VS SHRI SHREYAS S. MORAKHIA ITA NO.3374/MUM./2004 VIDE OR DER DATED 16 TH JULY 2010 HAS HELD AS UNDER:- 29. AT THE TIME OF HEARING BEFORE US THE LD. COUN SEL 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 O N 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 ITA NO.3473/MUM./2006 SHRI GANESH ENTERPRISES 4 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 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 ITA NO.3473/MUM./2006 SHRI GANESH ENTERPRISES 5 (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 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. ITA NO.3473/MUM./2006 SHRI GANESH ENTERPRISES 6 7. KEEPING IN VIEW THE AFORESAID DECISION OF THE SPECI AL BENCH OF THIS TRIBUNAL IN DCIT VS SHRI SHREYAS S. MORAKHIA (SUPRA ) RESPECTFULLY FOLLOWING THE SAME WE DISMISS THE GROUND OF APPEAL RAISED BY THE REVENUE. 8. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22.10.2010 SD/- VIJAY PAL RAO JUDICIAL MEMBER SD/- S.V. MEHROTRA ACCOUNTANT MEMBER MUMBAI DATED: 22 ND OCTOBER 2010 COPY TO : (1) THE ASSESSEEFIRM (2) THE RESPONDENT (3) THE CIT(A) MUMBAI CONCERNED (4) THE CIT MUMBAI CITY CONCERNED (5) THE DR A BENCH ITAT MUMBAI TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ITA NO.3473/MUM./2006 SHRI GANESH ENTERPRISES 7 DATE INITIAL 1. DRAFT DICTATED ON 26.8.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 27.8.2010 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 30.8.2010 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 31.8.2010 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 31.8.2010 SR.PS/PS 6. DATE OF PRONOUNCEMENT 22.10.2010 SR.PS 7. FILE SENT TO THE BENCH CLERK 22.10.2010 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER