M/S. ACIT RG 4(2), MUMBAI v. THE UTI SECURITIES LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH MUMBAI. BEFORE SHRI R.V.EASWAR SR.VP AND SHRI B.RAMAKOT AIAH AM I.T.A. NO.4055/MUM/2008 (ASSESSMENT YEAR: 2000-01) THE ASSISTANT COMMISSIONER OF INCOME TAX RANGE-4(2) 642 6 TH FLOOR AAYAKAR BHAVAN MUMBAI-400 020. VS. UTI SECURITIES LTD. DHEERAJ ARMA 1 ST FLOOR ANANT KANEKAR MARG MUMBAI-400 051. PAN:AAACU0622M (APPELLANT) (RESPONDENT) APPELLANT BY : MR. VIRENDRA OJHA DR RESPONDENT BY : MR. NITISH JOSHI O R D E R PER R.V.EASWAR SENIOR VICE PRESIDENT: THIS IS AN APPEAL BY THE DEPARTMENT. IT RELATES TO THE ASSESSMENT YEA R 2000-01. THE ASSESSEE IS A PUBLIC SECTOR UNDERTAKING. 2. IN ALL FIVE GROUNDS HAVE BEEN TAKEN BEFORE US BUT THE ISSUE IS ONLY ONE WHETHER THE ASSESSEE WAS ELIGIB LE FOR THE DEDUCTION OF RS.13 07 671/- CLAIMED AS BAD DEBTS. T HE CONTENTION TAKEN IN THE GROUND IS THAT THE ASSESSEE DID NOT FULFIL THE CONDITIONS LAID DOWN IN SECTION 36(2) OF THE IN COME TAX ACT SO AS TO BE ELIGIBLE FOR THE DEDUCTION. 3. WHILE COMPLETING THE ASSESSMENT UNDER SECTION 14 3(3) READ WITH SECTION 147 THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAS CLAIMED LOSS OF RS.14 74 141/- FROM OP ERATIONS INCLUDING LOSS ON ACCOUNT OF FAKE SHARES DELIVERED BY M/S.SHREENATH INVESTMENT ONE OF THE BROKERS AMOUNT ING TO RS. 13 07 671/-. HE TOOK THE VIEW THAT THE CLAIM CANNOT BE CONSIDERED AS BAD DEBTS UNDER SECTION 36(1)(VII) RE AD WITH SECTION 36(2). HE ALSO OBSERVED THAT THE ASSESSEE D ID NOT FURNISH ITA NO.4055/M/08 2 ANY DETAILS OF THE EFFORTS TAKEN BY IT TO MAKE GOO D THE LOSS ON ACCOUNT OF DELIVERY OF FAKE SHARES. IN THIS VIEW OF THE MATTER HE DISALLOWED THE CLAIM OF DEDUCTION OF RS.13 07 671/- . ON APPEAL THE ASSESSEE FILED DETAILED WRITTEN SUBMISSIONS AND POINTED OUT THAT THE LOSS WAS CLAIMED AS BUSINESS LOSS UNDER SE CTION 28 ITSELF AND NOT AS BAD DEBT. IT WAS ALSO POINTED OU T THAT THE ASSESSEE WAS A REGISTERED BROKER WITH VARIOUS STOCK EXCHANGES THE MAIN BUSINESS ACTIVITY BEING TO ACT AS A BROKER ON BEHALF OF VARIOUS CLIENTS IN THEIR DEALINGS IN SHARES AND SEC URITIES IN THE STOCK EXCHANGES. IT WAS POINTED OUT THAT IN THE COU RSE OF THE BUSINESS THE ASSESSEE CARRIED OUT SEVERAL SALES AND PURCHASES ON BEHALF OF SREENATH INVESTMENTS LTD. BUT UNFORTU NATELY SOME OF THE SHARES DELIVERED BY THE ABOVE COMPANY TURNED OUT TO BE FAKE SHARES. THE ASSESSEE WAS THEREFORE PUT TO LOSS OF RS.13 07 671/-. IT WAS FURTHER POINTED OUT BEFORE T HE CIT(A) THAT THE ASSESSEE TOOK ALL EFFORTS TO RECOVER THE LOSS F ROM SREENATH INVESTMENTS LTD. AND EVEN A COMPLAINT WITH THE CID WAS FILED WITHOUT ANY SUCCESS. A PART OF THE LOSS WAS RECOVER ED FROM THE INSURANCE COMPANY WHICH LEFT A BALANCE OF RS.13 07 671/- BUT THIS COULD NOT BE RECOVERED DESPITE SINCERE EFFORTS . ULTIMATELY THE SENIOR EXECUTIVE OF THE ASSESSEE COMPANY PREPAR ED A DETAILED OFFICE NOTE DATED 27.3.2000 WHICH WAS SUBM ITTED TO THE MANAGING DIRECTOR EXPLAINING THE CIRCUMSTANCES UNDE R WHICH THE LOSS AROSE. THE MANAGING DIRECTOR IN TURN PREP ARED A DETAILED NOTE ON 16.5.2000 AND PRESENTED THE SAME T O THE BOARD OF DIRECTORS WHO APPROVED THE WRITE OFF IN THE ACC OUNTS. BESIDES ALL THESE FACTS THE ASSESSEE ALSO POINTED OUT TO T HE CIT(A) THAT IT WAS A WHOLLY OWNED SUBSIDIARY OF THE UTI A PUBLIC SECTOR UNDERTAKING AND THE WRITE OFF WAS GENUINELY MADE. 4. THE CIT(A) ON A CONSIDERATION OF ALL THE FACTS A ND SUBMISSIONS PLACED BEFORE HIM AND AFTER GOING THROU GH THE ITA NO.4055/M/08 3 DOCUMENTARY EVIDENCE TOOK THE VIEW THAT THE LOSS W AS A GENUINE BUSINESS LOSS ALLOWABLE AS A DEDUCTION. 5. THE REVENUE HAS COME IN APPEAL BEFORE THE TRIBUN AL QUESTIONING THE DECISION OF THE CIT(A). THE FIRST G ROUND SEEMS TO OVERLOOK THE FACT THAT THE ASSESSEES CLAIM BEFORE THE ASSESSING OFFICER AND THE CIT(A) WAS THAT THE LOSS WAS A BUSI NESS LOSS AND IT WAS CLAIMED UNDER SECTION 28 AND NOT UNDER SECTI ON 36(1)(VII) AS A BAD DEBT. THE CIT(A) HAS ALLOWED THE ASSESSEE S CLAIM AS BUSINESS LOSS AND NOT AS BAD DEBTS. BE THAT AS IT M AY THE CONTENTION OF THE REVENUE THAT THE LOSS WAS NOT ALL OWABLE EVEN AS BUSINESS LOSS CANNOT BE ACCEPTED BECAUSE IT AROS E IN THE COURSE OF THE ASSESSEES BUSINESS WHICH IS THAT OF SHARE BROKING. THE CIRCUMSTANCES IN WHICH THE LOSS AROSE HAVE BEEN OUTLINED IN DETAIL BY THE ASSESSEE BEFORE THE CIT(A) TO WHIC H WE HAVE ALSO REFERRED IN THE EARLIER PARAGRAPH. IN THE COURSE OF THE ASSESSEES BUSINESS ONE OF ITS CLIENTS BY NAME SREENATH INVES TMENTS LTD. DELIVERED FAKE SHARES WHICH OCCASIONED THE LOSS. TH E ASSESSEE RECOVERED PART OF THE LOSS FROM THE INSURANCE COMP ANY BUT THE BALANCE COULD NOT BE RECOVERED DESPITE SINCERE EFFE CTS AND ULTIMATELY IT WAS WRITTEN OFF IN THE ACCOUNTS AFTER FOLLOWING THE ESTABLISHED PROCEDURE OF PLACING THE FACTS BEFORE T HE MANAGING DIRECTOR AS WELL AS THE BOARD OF DIRECTORS FOR APPR OVAL. THERE CAN BE NO DOUBT THAT THE LOSS AROSE IN THE COURSE O F THE ASSESSEES BUSINESS IN SHARE DEALINGS AND WAS THERE FORE RIGHTLY ALLOWED AS A DEDUCTION BY THE CIT(A). THERE IS ALS O NO MERIT IN THE CLAIM THAT THE LOSS HAD NOT CRYSTALLIZED DURING THE FINANCIAL YEAR ENDED 31.3.2000 BECAUSE THE DETAILED OFFICE NO TE SUGGESTING WRITE OFF OF THE LOSS WAS PREPARED ON 27 .3.2000 ITSELF WHICH WAS APPROVED BY THE BOARD OF DIRECTORS LATER. THE LOSS WAS SUFFERED IN THE YEAR UNDER CONSIDERATION AND HE NCE IT IS RIGHTLY REFERABLE TO THE YEAR UNDER APPEAL. IN THE JUDGEMENT OF THE SUPREME COURT IN GLASS MINIATURE BULB INDUSTRI ES VS. ITA NO.4055/M/08 4 CIT(ADDL) (1993) 204 ITR 352 CITED IN GROUND NO.3 THE LOSS WAS SUFFERED IN A PARTICULAR YEAR BUT WAS WRITTEN OFF I N A LATER YEAR. IT WAS HELD THAT THE LOSS WAS ALLOWABLE IN THE YEAR IN WHICH IT WAS SUFFERED AND THE WRITING OFF OF THE SAME IN A L ATER YEAR HAS NO EFFECT. IN THE CASE BEFORE US THE INCURRING OF THE LOSS AS WELL AS THE WRITING OFF THE SAME TOOK PLACE IN THE SAME YEAR I.E. THE YEAR ENDED 31.3.2000. THEREFORE THE DECISION IS NO T APPLICABLE TO THE FACTS BEFORE US. 6. FOR THE ABOVE REASONS WE CONFIRM THE ORDER OF T HE CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED ON THIS 5 TH DAY OF APRIL 2010. SD/- (B.RAMAKOTAIAH) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER SENIOR VICE PRESIDENT MUMBAI DATED 5 TH APRIL 2010. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-4 MUMBAI. 4. THE CIT(A)-IV MUMBAI 5. THE DR F BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR I.T.A.T MUMBAI