M/S. DANI SHARES & STOCK P.LTD., MUMBAI v. THE INCOME TAX OFFICER,4(1)(2), MUMBAI

ITA 3722/MUM/2007 | 2002-2003
Pronouncement Date: 28-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 372219914 RSA 2007
Assessee PAN AABCG1670N
Bench Mumbai
Appeal Number ITA 3722/MUM/2007
Duration Of Justice 3 year(s) 8 month(s) 14 day(s)
Appellant M/S. DANI SHARES & STOCK P.LTD., MUMBAI
Respondent THE INCOME TAX OFFICER,4(1)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 28-01-2011
Date Of Final Hearing 27-09-2010
Next Hearing Date 27-09-2010
Assessment Year 2002-2003
Appeal Filed On 14-05-2007
Judgment Text
I.T.A NO. 3722 & 3794 MUM/2007 ASSESSMENT YEAR: 2002-2003 PAGE 1 OF 9 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH MUMBAI. [CORAM: PRAMOD KUMAR AM AND ASHA VIJAYRAGHVAN JM ] I.T.A NO. 3722 MUM/2007 ASSESSMENT YEAR: 2002-2003 DANI SHARES & STOCKS P. LTD. APPELLANT 12 ORICON HOUSE 7 TH FLOOR 14 K DUBASH MARG KALA GHODA FORT MUMBAI. PA NO.AABCG 1670 N VS INCOME TAX OFFICER 4(1)(2) .. RESPONDENT AAYAKAR BHAVAN M.K. ROAD MUMBAI. I.T.A NO. 3794 MUM/2007 ASSESSMENT YEAR: 2002-03 INCOME TAX OFFICER 4(1)(2) .. APPELLANT AAYAKAR BHAVAN M.K. ROAD MUMBAI VS DANI SHARES & STOCKS P. LTD. RESPONDENT 12 ORICON HOUSE 7 TH FLOOR 14 K DUBASH MARG KALA GHODA FORT MUMBAI. PA NO.AABCG 1670 N APPEARANCES: SANJAY R PARIKH FOR THE ASSESSEE HARI GOVIND SINGH FOR THE REVENUE I.T.A NO. 3722 & 3794 MUM/2007 ASSESSMENT YEAR: 2002-2003 PAGE 2 OF 9 O R D E R PER PRAMOD KUMAR: 1. THESE CROSS APPEALS ARE DIRECTED AGAINST THE CIT(A)S ORDER DATED 19 TH FEBRUARY 2007 IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 2002-03. 2. WE WILL FIRST TAKE UP THE APPEAL FILED BY THE ASSESSE E I.E. ITA NO 3722/MUM/07. 3. IN THE FIRST GROUND OF APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW IN C ONFIRMING THE ORDER OF THE ITO HOLDING THAT EXPENSES WERE REQUIRED TO BE A PPORTIONED TOWARDS DEEMED SPECULATION LOSS TAXED UNDER EXPLANATION TO SECTION 73 AND HOLDING THAT A SUM OF RS 2 00 000 OUT OF INTEREST EXPENSES OF RS 8 93 007 WAS ALLOCABLE TO DEEMED SPECULATION LOSS. 4. IN AN INTERCONNECTED GROUND OF APPEAL ( I.E. GRO UND NO. 2 IN ASSESSING OFFICER APPEAL) THE ASSESSING OFFICER HAS RAISED THE FOLLOWING G RIEVANCE: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT (A) ERRED IN ALLOWING THE INTEREST EXPENDITURE OF RS 6 93 007 WITHOUT APPRECIATING THE FACT THAT IT IS CLEARLY BROUGHT OU T IN THE ASSESSMENT ORDER THAT THE ASSESSEES ENTIRE CAPITAL AND RESERVES ARE FULLY UTILIZED TOWARDS ACQUISITION OF FIXED ASSETS CARD DEPOSIT INVESTMEN TS AND CASH AND BANK DEPOSITS ETC AND THE ENTIRE STOCK IN TRADE OF THE ASSESSEE HAS BEEN ACQUIRED OUT OF BORROWED FUNDS. 4. BRIEFLY STATED THE MATERIAL FACTS ARE LIKE THIS. D URING THE COURSE OF ASSESSMENT PROCEEDINGS ON PERUSAL OF THE DETAILS OF LOANS AND I NTEREST PAID THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PAID INTEREST OF R S 8 93 007 ON LOANS BORROWED DURING THE YEAR. THE AO ALSO NOTED THAT THE ASSESSEE HA S USED THE BORROWED FUNDS TOWARDS SHARE TRADING ACTIVITY. THE ASSESSING OFFICER AL SO NOTICED THAT THE ASSESSEES OWN FUNDS OF RS 5.57 CRORES ARE UTILIZED TOWARDS ACQUISI TION OF FIXED ASSETS INVESTMENTS DEPOSITS AND SUNDRY DEBTORS. IN VIEW OF TH IS IN THE ABSENCE OF SPECIFIC I.T.A NO. 3722 & 3794 MUM/2007 ASSESSMENT YEAR: 2002-2003 PAGE 3 OF 9 DETAILS THE AO HELD THAT THE ENTIRE INTEREST EXPEND ITURE OF RS 8 93 007 WAS ATTRIBUTABLE TO SHARE TRADING ACTIVITY AND ACCORDIN GLY TREATED THE SAME AS SPECULATIVE LOSS AND NOT ALLOWED TO BE ADJUSTED AGAINST OTHER BUSINE SS INCOME AS PER PROVISIONS OF SECTION 73(1) OF THE ACT. BEING AGGRIEVED THE A SSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). THE CIT (A) PARTLY AGRE ED WITH THE CONTENTIONS OF THE AO ATTRIBUTING THE EXPENDITURE TO THE SHARE TRADING ACT IVITY AND THEREBY ENHANCING THE LOSS. HOWEVER WITH REGARD TO ALLOCATION OF 100% OF INTEREST EXPENSES TO THE SPECULATION BUSINESS THE CIT (A) WAS OF THE VIEW THAT THE ACTION OF THE AO APPEARS TO BE UNREASONABLE. ACCORDINGLY KEEPING IN VIEW THE F ACTS AND CIRCUMSTANCES OF THE ASSESSEES BUSINESS HE ESTIMATED RS 2 00 000 TO BE ALLOCATED AS ATTRIBUTABLE TO SPECULATION BUSINESS AND DIRECTED THE AO TO ALLOW INTE REST OF RS 6 93 007. STILL AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLI CABLE LEGAL POSITION. 6. WE HAVE NOTED THAT THERE IS NO DISPUTE THAT THE ASSE SSEE HAD SUFFICIENT INTEREST FREE FUNDS BUT THEN THE PRESUMPTION WAS DRAWN BY THE AUTHORITIES BELOW THAT A PART OF THE INTEREST BEARING FUNDS WERE ALSO USED IN INVESTME NTS IN SHARES INASMUCH AS NOT ALL THE INTEREST FREE FUNDS CAN ASSUMED TO HAVE BEEN UT ILIZED IN INVESTMENTS. THIS APPROACH HOWEVER IS NO LONGER PERMISSIBLE IN VIEW O F HONBLE JURISDICTIONAL HIGH COURTS JUDGMENT IN THE CASE OF CIT VS RELIANCE UTILI TIES AND POWER LIMITED (313 ITR 340) WHEREIN THEIR LORDSHIPS HAVE INTER ALIA OBSERVE D AS FOLLOWS : IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO AN ASS ESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE H AD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTE REST-FREE FUNDS AVAILABLE. IN OUR OPINION THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD.S CASE ( SUPRA ) HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD.S CASE ( SUPRA ) WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR A ND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS A ND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM T HE DEDUCTIONS. THE I.T.A NO. 3722 & 3794 MUM/2007 ASSESSMENT YEAR: 2002-2003 PAGE 4 OF 9 SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERA BLE FORCE BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BE EN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBERS OF INDIA LTD.S CASE ( SUPRA ) THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVE RDRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED T HAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE THEREFORE WOULD BE TH AT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR L OANS TAKEN THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE O UT OF THE INTEREST- FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. 7. RESPECTFULLY FOLLOWING THE ESTEEMED VIEWS OF HONBL E JURISDICTIONAL HIGH COURT WE HOLD THAT THE NO PART OF THE INTEREST COULD HAVE BEEN ALLOCATED TO INVESTMENTS IN SHARES AS INVESTMENTS IN SHARES WAS ADMITTEDLY LESS THAN INT EREST FREE FUNDS AVAILABLE TO THE ASSESSEE. WHEN NO PART OF INTEREST CAN BE HELD TO BE RELATABLE TO THE INVESTMENTS THE QUESTION OF ALLOCATING THE SAME TO SPE CULATION ACTIVITY IN SHARES DOES NOT ARISE. ACCORDINGLY WHILE ASSESSEE SUCCEEDS IN HIS GRO UND OF APPEAL THE GRIEVANCE RAISED BY THE ASSESSING OFFICER IS RENDERED INFRUCTUOUS. 8. GROUND NO. 1 OF THE ASSESSEE IS THUS ALLOWED AND GR OUND NO. 2 OF THE ASSESSING OFFICER IS THUS DISMISSED. 9. GROUND NOS. B TO H READ AS UNDER:- B. THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW I N UPHOLDING THE ORDER OF THE AO DISALLOWING DEPRECIATION/EXPENSES ON BOLT VSAT AMOU NTING TO RS. 1 23 957/-. C. THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE AO DISALLOWING FOREIGN TRAVELING EXPENSES AMOUNTING TO RS. 5 62 090/-. D. THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE AO DISALLOWING AMALGAMATION EXPENSES OF RS 92 580/-. E. THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE AO DISALLOWING PRELIMINARY EXPENSES OF RS 15 985/-. I.T.A NO. 3722 & 3794 MUM/2007 ASSESSMENT YEAR: 2002-2003 PAGE 5 OF 9 F. THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE AO DISALLOWING DEFERRED REVENUE EXPENSES AMOUNTING TO RS 2 43 173/-. G. THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE AO DISALLOWING PREPAID EXPENSES AMOUNTING TO `` 13 123/-. I. THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE AO DISALLOWING DEDUCTION U/S.80G AMOUNTING TO RS. 16 642 /-. H. THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF THE AO DISALLOWING A SUM OF RS. 12 78 000/- OUT OF MEDICAL EXPENSES. 10. AT THE TIME OF HEARING LEARNED COUNSEL FOR THE ASSESSEE IN RESPECT OF ABOVE GROUNDS SUBMITS BEFORE US THAT BEFORE THE CIT (A) ADD ITIONAL EVIDENCES WERE FILED BY THE ASSESSEE IN CONNECTION WITH THE ALLOWANCE OF CLA IM BUT THE CIT (A) REFUSED TO ADMIT THE ADDITIONAL EVIDENCES AND PROCEEDED TO DISP OSE OF THE ABOVE GROUNDS. HE THEREFORE SUBMITS THAT IN THE INTEREST OF JUSTICE T HE CIT (A) SHOULD HAVE ADMITTED THE FRESH EVIDENCE AND DECIDE THE MATTER ON MERITS. LEARNED DEPARTMENTAL REPRESENTATIVES ON THE OTHER HAND HAS SUPPORTED THE ORDER OF THE CIT (A) AND RELIED UP RULE 46 A OF THE INCOME TAX RULES WHICH RE STRICT ADMISSION OF ADDITIONAL EVIDENCE BY THE CIT(A) UNLESS THERE ARE GOOD AND SUFFI CIENT REASONS FOR ASSESSEE NOT BEING ABLE TO PRODUCE THOSE EVIDENCES BEFORE THE ASSESSIN G OFFICER. 11. WE FIND THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF SMT. PRABHAVATI S. SHAH V. CIT (231 ITR 1) HAS OBSERVED THAT RULE 46A DOES FETTE R THE RIGHT OF THE ASSESSEE TO PRODUCE EVIDENCE BUT IT DOES NOT RESTRAIN CIT(A)S POWERS UNDER SECTION 250(4) OR 250(5) OF THE IT ACT AND THAT THIS RULE APPEARS TO ENSURE THT EVIDENCE IS PRIMARILY LED BEFORE THE ASSESSING OFFICER. IN VIEW OF THIS JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IF PRIMA FACIE AN INFORMATION IS NECESSARY TO EXAMINE THE CLAIM O F THE ASSESSEE THE CIT(A) SHOULD CONSIDER THE NECESSARY EVIDENCE IN EXERCISE OF HIS POWERS UNDER SUB-SECTIONS (4) AND (5) OF SECTION 250. IT IS TRITE THAT RULE HAVE TO BE FRAMED WITHIN THE SCOPE OF MAIN PROVISION AND THAT A RULE WHICH TRAVELS BEYOND OR IS INCONSISTENT WITH OR IS REPUGNANT TO THE PROVISIONS IN THE STATURE WILL BE ULTRA VIRES AND VOID. RULE 46A WAS INTRODUCED W.E.F. 1-4-1973 AND AS A RESULT OF INSERTION OF SECTION 29 5(2)( MM ) IN THE IT ACT WHICH EMPOWERED BOARD TO PROVIDE FOR THE CIRCUMSTANCES IN WHICH THE CONDITION SUBJECT TO I.T.A NO. 3722 & 3794 MUM/2007 ASSESSMENT YEAR: 2002-2003 PAGE 6 OF 9 WHICH AND THE MANNER IN WHICH CIT(A) MAY PERMIT AN APPELLANT TO PRODUCE AN EVIDENCE WHICH THE APPELLANT DID NOT PRODUCE OR WAS NOT ALLO WED TO PRODUCE BEFORE THE ASSESSING OFFICER. HOWEVER THESE POWERS OF THE BOARD WHICH HAVE BEEN VESTED IN THEM FOR CARRYING OUT FOR THE PURPOSES OF THE ACT HAVE TO BE EXERCISED IN SUCH A JUDICIOUS MANNER SO AS NOT TO MAKE ANY STATUTORY PROVISION REDUND ANT AND NUGATORY. THE RULES MADE IN EXERCISE OF THESE POWERS SHOULD ALSO NOT BE INTERPRETED IN SUCH MANNER AS TO NARROW DOWN DILUTE OR CURTAIL THE STATU TORY POWERS CONFERRED ON THE CIT(A) BY THE PROVISIONS OF SECTION 250(4) OR (5) OF THE IT ACT 1961. THEREFORE A HARMONIOUS INTERPRETATION OF SECTION 250 EVEN READ WITH RULE 46A CANNOT BUT MEAN THAT IF FACTS OF A CASE WARRANT THAT BEFORE DISPOSAL O F ANY APPEAL CIT(A) IS REQUIRED TO MAKE FURTHER INQUIRIES EITHER ON HIS OWN OR THRO UGH THE ASSESSING OFFICER HE IS NOT DENUDED OF THE POWERS TO DO SO BECAUSE OF THE PROV ISIONS OF RULE 46A. AS OBSERVED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF PRABHAVATI S SHAH (SUPRA) (T)HE POWER CONFERRED ON THE AAC [ NOW CIT(A)] UNDER SUB-SECTION (4) OF SECTION 250 BEING QUASI-JUDICIAL POWER IT IS INCUMBENT ON HI M TO EXERCISE THE SAME IF THE FACTS AND CIRCUMSTANCES JUSTIFY AND THAT (I)F THE A AC [ NOW CIT(A)] FAILS TO EXERCISE HIS DISCRETION JUDICIALLY AND ARBITRARILY REFUSES TO MA KE ENQUIRY IN A CASE WHERE THE FACTS AND CIRCUMSTANCES SO DEMAND HIS ACTION WOULD BE O PEN FOR CORRECTION BY A HIGHER AUTHORITY. IN THIS VIEW OF THE MATTER AND B EARING IN MIND ENTIRETY OF THE CASE WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A) SH OULD RECONSIDER THE ABOVE GRIEVANCES AFTER ADMITTING SUCH ADDITIONAL EVIDENCES AS MAY BE RELEVANT TO THE FACTS OF THE CASE AND AS THE ASSESSEE MAY WISH TO PRODUCE AND DEAL WITH THE MATTER IN ACCORDANCE WITH THE LAW AND BY WAY OF A SPEAKING ORD ER. 12. GROUND NOS. B TO H ARE THUS ALLOWED FOR STATISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. 13. GROUND NO.J PERTAINS TO CONFIRMATION OF DISALLO WANCE OF RS. 30 000 OUT OF BUSINESS PROMOTION EXPENSES. THIS GROUND WAS NOT PRESSED THEREFORE THE SAME IS DISMISSED AS NOT PRESSED. I.T.A NO. 3722 & 3794 MUM/2007 ASSESSMENT YEAR: 2002-2003 PAGE 7 OF 9 14. GROUND NO.K IS AGAINST CONFIRMATION OF DISALLOWANC E OF DEPRECIATION ON STOCK EXCHANGE MEMBERSHIP CARD OF RS. 49 21 875. 15. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY HONBLE SUPREME COURTS JUDGMENT IN THE CASE OF TECHNO SHARES & STOCKS LIMITED VS CIT (327 ITR 323) EVEN AS LEARNED DEPARTMENTAL REPRESENTATIVE RATHER DUTIFULLY RELIED UPON THE STAND OF THE ASSESSING OFFICER. 16. RESPECTFULLY FOLLOWING THE ESTEEMED VIEWS OF HONB LE SUPREME COURT IN THE CASE OF TECHNO SHARES (SUPRA) WE ALLOW THE CLAIM OF THE ASSESSEE. THIS GROUND IS ALLOWED. 17. THE APPEAL OF THE ASSESSEE IS THUS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 18. WE NOW TAKE UP THE APPEAL OF THE DEPARTMENT IN ITA NO.3794/M/2007 19. IN THE FIRST GROUND OF APPEAL REVENUE HAS RAISED THE FOLLOWING GRIEVANCE:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT (A) ERRED IN DELETING THE DISALLOWANCE OF RS 3 72 024/- CLAIMED AS BAD DEBTS HOLDING THAT THE SAME IS ALLOWABLE AS BUSINESS LOSS ELIGIBLE FOR DEDUCTION U /S.28(1) OF THE I.T.ACT 1961. 20. APROPOS GROUND NO.1 MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED BAD DEBTS AMOUNTING TO RS 3 72 024 . IN RESPONSE TO ASSE SSING OFFICERS REQUISITION TO FURNISH THE DETAILS OF BAD DEBTS THE ASSESSEE SUBMITTE D THAT BAD DEBTS BEING CARRIED FORWARD AND IRRECOVERABLE SINCE MANY YEARS WA S WRITTEN OFF IN THE SPECIFIC PREVIOUS YEAR. THEREAFTER THE ASSESSEE WAS ASKED TO FUR NISH THE NAME ADDRESS PAN AMOUNT OF THE PARTY ALONGWITH COPY OF LEDGER ACCOUNTS WITH DOCUMENTARY EVIDENCE AND THE ACTION TAKEN TO RECOVER THE DUES. THE ASSESSEE FURNISHED THE DETAILS AS WERE POSSIBLE AT THIS STAGE BUT THE ASSESSING OF FICER DECLINED THE CLAIM FOR TWO MAIN REASONS FIRST THAT THE ASSESSEE DID NOT ESTABL ISH THAT THE AMOUNTS HAVE I.T.A NO. 3722 & 3794 MUM/2007 ASSESSMENT YEAR: 2002-2003 PAGE 8 OF 9 ACTUALLY BECOME BAD; AND SECOND THAT THE AMOUNT W HICH WAS CREDITED TO INCOME WAS ONLY WITH REGARD TO BROKERAGE ELEMENT AND NOT TH E ENTIRE DEBT. IN APPEAL HOWEVER THE CIT(A) FOLLOWED THE TRIBUNALS ORDER I N THE CASE OF THE DCIT VS VRIJLAL LALLUBHAI & SONS [ 99 TAXMAN (MAG) 322] AND ALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED BY THE STAND SO TAKEN BY THE CIT(A) ASSESSING OFFICER IS IN APPEAL BEFORE US. 21. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE RECORD OF THE CASE. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE ITAT MUMBAI (SB) IN THE CASE OF DCIT V. SHRI SHREYAS S. MORAKHIA 5 I TR (TRIB) 1 (BOM) WHEREIN UNDER SIMILAR FACTS INTER ALIA OBSERVED AS FOLLOWS: KEEPING IN VIEW ALL THE FACTS OF THE CASE AND THE 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 TRANSACTIONS VERY MUCH FORMS PART OF THE SAID DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE/COMMISSION HAS BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVA NT PREVIOUS YEAR OR ANY EARLIER YEAR IT SATISFIES THE CONDITION STIPUL ATED 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 QUESTION REFERRED TO THIS SPECIAL BENCH IN THE AFFIRMATIVE THAT IS IN FAVOUR OF THE ASSESSEE. 22. IN THE PRESENT CASE ALSO THE ASSESSEE IS A SHARE BROKER AND WRITTEN OFF THE UNRECOVERABLE AMOUNTS IN THE BOOKS OF ACCOUNTS AS BAD D EBTS AS THE ASSESSEE DID NOT ASCERTAIN THE WHEREABOUTS OF THE PARTIES. THEREF ORE RESPECTFULLY FOLLOWING THE DECISION OF THE SPECIAL BENCH IN THE CASE OF SHRI SH REYAS S. MORAKHIA REFERRED ( SUPRA) WE UPHOLD THE CONCLUSIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 23. GROUND NO. 1 IS THUS DISMISSED. 24. GROUND NO. 2 RAISED IN THE APPEAL BY THE ASSESSING O FFICER HAS ALREADY BEEN DEALT BY US WHILE ADJUDICATING UPON THE APPEAL FILE D BY THE ASSESSEE. AS WE HAVE I.T.A NO. 3722 & 3794 MUM/2007 ASSESSMENT YEAR: 2002-2003 PAGE 9 OF 9 HELD HEREINABOVE GRIEVANCE OF THE ASSESSING OFFICER IS TO BE DISMISSED AS INFRUCTUOUS AS THE VERY DISALLOWANCE HAS BEEN DELETED AND THE QUESTION OF ALLOCATION OF DISALLOWANCE IS PURELY ACADEMIC. GROUND NO. 2 IS TH US DISMISSED AS INFRUCTUOUS. 25. IN THE RESULT THE APPEAL FILED BY THE ASSESSING OFF ICER IS DISMISSED. TO SUM UP WHILE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWE D IN THE TERMS INDICATED ABOVE THE APPEAL FILED BY THE ASSESSING OFFICER IS DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON 28 TH DAY OF JANUARY 2011. SD/- (ASHA VIJAYRAGHVAN) (JUDICIAL MEMBER) SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI DATED 28 TH JANUARY 2010 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-IV MUMBAI 4. COMMISSIONER OF INCOME TAX-4 MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH D MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI