M/S BRICS SECURITIES LTD, MUMBAI v. THE DCIT RG 4(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI J.SUDHAKAR R EDDY(A.M) ITA NO.4515/MUM/2008(A.Y.2004-2005) ITA NO.4516/MUM/2008(A.Y.2005-2006) BRICS SECURITIES LIMITED SADHANA HOUSE 1 ST FLOOR 570 P.B.MARG BEHIND MAHINDRA TOWERS WORLI MUMBAI 400 018. PAN:AAACB 4908R (APPELLANT) VS. THE DCIT 4(1) AAYKAR BHAVAN MK ROAD MUMBAI 400 020. (RESPONDENT) APPELLANT BY : SHRI RAJANIKANT V. CHANIYANI RESPONDENT BY : SHRI HARI GOVIND SINGH ORDER PER N.V.VASUDEVAN J.M ITA NO.4515/MUM/08 IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 5//5/2008 OF CIT(A)4 MUMBAI RELATING TO ASSE SSMENT YEAR 2004-05. ITA NO.4516/MUM/08 IS ALSO AN APPEAL BY THE ASSESSE E AGAINST THE ORDER DATED 28/5/2008 OF CIT(A) MUMBAI RELATING TO ASSESS MENT YEAR 2005-06. ITA NO.4515/MUM/08: 2. GROUND NO.1 RAISED BY THE ASSESSEE READS AS FOLL OWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX (HEREAFTE R REFERRED TO AS DCIT) HAS ERRED IN DISALLOWING EXPENSES OF RS.2 09 290/- INCURRED FOR COMPUTER SOFTWARE TREATING THE SAME AS CAPITAL IN N ATURE AND ALLOWING DEPRECIATION OF RS.1 25 574/- AND DISALLOW ING RS.83 716/- AS REVENUE EXPENDITURE. THE LEARNED COMMISSIONER OF I NCOME-TAX (APPEALS) [ HEREINAFTER REFERRED TO AS CIT(A)] HAS ERRED IN CONFIRMING THE ITA NO.4515/MUM/2008(A.Y.2004-2005) ITA NO.4516/MUM/2008(A.Y.2005-2006) 2 ACTION OF DCIT AND DISALLOWING THE ABOVE EXPENDITUR E. THE LEARNED DCIT BE DIRECTED TO ALLOW COMPUTER SOFTWARE EXPENSE S OF RS. 2 09 290/- AS REVENUE EXPENSES AND REDUCE THE TOTAL INCOME ACCORDINGLY. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF SHARE AND STOCK BROKING AND IS A MEMBER OF THE NATIONAL STOCK EXCHA NGE AND BOMBAY STOCK EXCHANGE. THE ASSESSEE CLAIMED AS A DEDUCTION IN C OMPUTING ITS INCOME A SUM OF RS.2 09 290/- UNDER THE HEAD SOFTWARE EXPEN SES. ACCORDING TO THE ASSESSEE THE SOFTWARE EXPENSES WERE INCURRED IN CO NNECTION WITH USE OF SOFTWARE AND IT DID NOT RESULT IN ENDURING BENEFIT TO THE ASSESSEE. IT WAS ALSO SUBMITTED THAT SOFTWARE HAS TO BE REGULARLY UP DATED KEEPING PACE WITH THE RAPID CHANGE OF TECHNOLOGY. THE ASSESSEE RELIE D ON SEVERAL JUDICIAL PRONOUNCEMENTS IN SUPPORT OF ITS CLAIM THAT THE EXP ENDITURE ON COMPUTER SOFTWARE WAS REVENUE EXPENDITURE. THE ASSESSING OF FICER HOWEVER DID NOT ACCEPT THE CLAIM OF THE ASSESSEE. HE BY FOLLOWING THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. ARAVALI CONSTRUCTION PVT. LTD. 259 ITR 30 HELD THAT THE EXPENDITURE WAS A CAPITAL EXPENDITURE. THE ASSESSING OFFICER HOWEVER ALLOWED DEPRECIATION AT 60%. THUS A SUM OF RS.83 716/- WAS ADDED TO THE TOTAL INCOME OF THE AS SESSEE. 4. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. BEFORE CIT(A) THE ASSESSEE HAD DRAWN THE ATTENTION TO THE NATURE OF THE SOFTWARE EXPENSES AND IN PARTICULAR P OINTED OUT THAT SUM OF RS. 25 000/- WAS PAID TO CENTRAL DEPOSITORY SERVICE S INDIA LTD. TOWARDS MAINTENANCE CHARGES AND RS.5 000 TOWARDS CONNECTING INSURANCE AND SOFTWARE MAINTENANCE CHARGES. THE CIT(A) ON CONSID ERATION OF THE SAME WAS OF THE VIEW THAT IT WAS VERY DIFFICULT TO COME TO T HE CONCLUSION AS TO WHAT EXACTLY THE MAINTENANCE CHARGES OF SOFTWARE WERE A ND WHETHER IT IS UP- GRADATION OF THE EXISTING SOFTWARE ETC. HE WAS OF THE VIEW THAT THE ITA NO.4515/MUM/2008(A.Y.2004-2005) ITA NO.4516/MUM/2008(A.Y.2005-2006) 3 CONTROVERSY REGARDING COMPUTER SOFTWARE EXPENSES BE ING CAPITAL EXPENDITURE OR NOT HAS BEEN PUT TO REST BY INSERTION OF COMPUT ER INCLUDING COMPUTER SOFTWARE AT (5)III OF PART A OF APPENDIX I TO THE I.T. RULES 1962. THE OLD APPENDIX I WAS SUBSTITUTED BY THE INCOME-TAX(TWENTY FOURTH AMENDMENT) RULES 2002 W.E.F. 1/4/2003 AND THE NEW APPENDIX I IS APPLICABLE TO A.Y. 2003-04 ONWARDS WHICH PROVIDES THAT DEPRECIATION @ 60% IS ALLOWABLE ON COMPUTER SOFTWARE. IN VIEW OF THE SAME THE ACTION OF THE AO IN TREATING COMPUTER SOFTWARE EXPENDITURE AS CAPITAL EXPENDITUR E WAS UPHELD. 5. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSE E HAS RAISED GROUND NO.1 BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. A COPY OF THE DETAILS OF THE SOFTWARE EXPENSES ARE PLACED AT PAGE -1 OF THE AS SESSEE PAPER BOOK. FROM PERUSAL OF THE SAME IT IS SEEN THAT A SUM OF RS. 30 000 HAD BEEN PAID TO CENTRAL DEPOSITORY SERVICES INDIA LTD. AS MAINTENAN CE CHARGES. A SUM OF RS. 20 000 HAD BEEN PAID TO CONTEK SOFTWARE TECHNOL OGY PVT. LTD. FOR ADDITIONAL CONNECTION FOR D-MAT PROGRAMME. A SUM O F RS. 75 000 HAD BEEN PAID TO MANISH D. SHAH FOR DEVELOPMENT OF WINDOW BA SED SOFTWARE FOR TRADING. A SUM OF RS. 10000 HAD BEEN PAID TO SHRI MANISH D. SHAH FOR DEVELOPMENT OF EQUITY STOCK MANAGEMENT SYSTEM SOFTW ARE. A SUM OF RS. 7500 WAS PAID FOR AVAILING SPAN SOFTWARE FOR BSE DE RIVATIVE MARGIN CONCLUSION. RS. 62 900 WAS PAID FOR PURCHASE OF NE W LICENCE CD FOR WINDOWS XP. FROM THE NATURE OF THE EXPENDITURE INC URRED AS AFORESAID IT IS CLEAR THAT THE SOFTWARE IN QUESTION WERE BASICALLY TO HELP THE ASSESSEE IN CARRYING ON ITS BUSINESS MORE EFFICIENTLY AND EFFE CTIVELY. WE ARE OF THE VIEW THAT NO ENDURING BENEFIT ACCRUED TO THE ASSESSEE S O AS TO TERM THE EXPENDITURE IN QUESTION AS CAPITAL EXPENDITURE. TH E FACT THAT COMPUTER SOFTWARE IS ENTITLED TO DEPRECIATION UNDER I.T. RUL ES 1962 DOES NOT MEAN THAT ITA NO.4515/MUM/2008(A.Y.2004-2005) ITA NO.4516/MUM/2008(A.Y.2005-2006) 4 ANY EXPENDITURE INCURRED ON COMPUTER SOFTWARE HAD T O BE TREATED AS CAPITAL EXPENDITURE. IN OUR VIEW THE NATURE OF EXPENSES IN QUESTION IS CLEARLY A REVENUE EXPENDITURE. WE THEREFORE DIRECT THAT TH E ENTIRE SUM OF RS.2 09 290/- BE ALLOWED AS DEDUCTION. 7. GROUND NO.2 RAISED BY THE ASSESSEE READS AS FOLL OWS: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LEARNED DCIT HAS ERRED IN DISALLOWING THE BAD DEBTS OF RS. 2 25 422/-. THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLO WANCE TO RS. 41 750/- . THE LEARNED DCIT BE DIRECTED TO ALLOW THE APPELL ANTS CLAIM OF RS.41 750/- AND REDUCE THE TOTAL INCOME ACCORDINGLY . WITHOUT PREJUDICE TO THE ABOVE THE APPELLANT COMPA NY CLAIMS THAT LOSS OF RS.41 750 BE ALLOWED AS DEDUCTION IN COMPUT ING THE INCOME UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFESSION AS PER PROVISIONS OF SECTION 28 AND REDUCE THE TOTAL I NCOME ACCORDINGLY. 8. THE ASSESSEE WROTE OFF A SUM OF RS.2 25 422/- UN DER THE HEAD BAD DEBT AND CLAIMED THE SAME AS DEDUCTION. THE BREAK UP OF THE AMOUNT CLAIMED AS DEDUCTION WAS AS FOLLOWS: (1) BROKERAGE NOT ACCOUNTED BY CLIENTS RS. 20 422.00 (2) BROKERAGE SLAB CHANGED SUBSEQUENT TO ISSUE OF CONTRACT NOTE RS. 54 730.00 (3) SECURITY SYSTEM NOT WORKING PROPERLY HENCE WRITTEN OFF RS. 96 500.00 (4) OTHERS RS. 53 770.46 TOTAL : RS 2 25 422.4 6 ============= = 9. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE A MOUNT WRITTEN OFF AS BAD AND DOUBTFUL DEBTS HAVE NOT BEEN ESTABLISHED BY THE ASSESSEE TO HAVE BECOME BAD AND DOUBTFUL. HE WAS OF THE VIEW THAT M ERE WRITE OFF AS BAD IN THE BOOKS OF ACCOUNT WOULD NOT BE SUFFICIENT TO CLA IM THE DEDUCTION. ITA NO.4515/MUM/2008(A.Y.2004-2005) ITA NO.4516/MUM/2008(A.Y.2005-2006) 5 10. ON APPEAL BY THE ASSESSEE THE CIT(A) FOUND THAT AFTER AMENDMENT OF THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT W.E .F. 1/4/1989 IT WAS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BTS WRITTEN OFF AS BAD HAS IN FACT BECOME BAD DEBT. HE THEREFORE DELETED TH E ADDITION MADE BY THE ASSESSING OFFICER. HOWEVER HE FOUND THAT IN RESPE CT OF AMOUNT DUE FROM ORIENT BANK OF COMMERCE AMOUNTING TO RS.41 000 AND UCO BANK AMOUNTING TO RS.750/- THE SAME DID NOT COMPLY WITH THE CONDITIONS MENTIONED IN SECTION 36(2) OF THE ACT I.E. THE AMO UNT WRITTEN OFF AS BAD DEBT WAS NOT OFFERED TO TAX AS INCOME IN THE PREVIOUS YE AR OR IN EARLIER PREVIOUS YEAR AND TO THAT EXTENT THE ADDITION MADE BY THE AS SESSING OFFICER WAS CONFIRMED. AS FAR AS THESE DEBTS WERE CONCERNED IT REPRESENTS THE VALUE OF THE TRANSACTION WHICH THE ASSESSEE UNDERTOOK AS A B ROKER ON BEHALF OF THE AFORESAID PARTIES. 11. AGGRIEVED WITH THE ACTION OF THE CIT(A) IN SUS TAINING PART OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER THE ASSE SSEE HAS RAISED GROUND NO.2 BEFORE THE TRIBUNAL. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS. DCIT VS. SHREYAS S. MORAKHIA (ITAT MUMBAI SPECIAL BENCH) THE ASSESSEE A BROKER CLAIMED DEDUCTION FOR BAD DEBTS IN RESPECT OF SHARES PURCHASED BY HIM FOR HIS CLIENTS. THE AO REJECTED THE CLAIM THOUGH THE CIT (A) UPHELD IT. ON APPEAL BY THE REVENUE THE MATTER WAS REFERRED TO THE SPECIAL BENCH. BEFOR E THE SPECIAL BENCH THE DEPARTMENT ARGUED THAT U/S 36(2) NO DEDUCTION ON A CCOUNT OF BAD DEBT CAN BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BE EN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. IT WAS ARGUE D THAT AS THE ASSESSEE HAD OFFERED ONLY THE BROKERAGE INCOME TO TAX BUT NO T THE VALUE OF SHARES ITA NO.4515/MUM/2008(A.Y.2004-2005) ITA NO.4516/MUM/2008(A.Y.2005-2006) 6 PURCHASED ON BEHALF OF CLIENTS THE LATTER COULD NO T BE ALLOWED AS A BAD DEBT U/S 36(1)(VII). HELD REJECTING THE CLAIM OF THE DEP ARTMENT: (I) IN VEERABHADRA RAO 155 ITR 152 THE SUPREME COUR T HELD IN THE CONTEXT OF A LOAN THAT IF THE INTEREST IS OFFERED TO TAX THE LOAN HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE AN D QUALIFIES FOR DEDUCTION U/S 36(1)(VII). THE EFFECT OF THE JUDGEME NT IS THAT IN ORDER TO SATISFY THE CONDITION STIPULATED IN S. 36(2)(I) IT IS NOT NECESSARY THAT THE ENTIRE AMOUNT OF DEBT HAS TO BE TAKEN INTO ACCOUNT IN COMP UTING THE INCOME OF THE ASSESSEE AND IT WILL BE SUFFICIENT EVEN IF PART OF SUCH DEBT IS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. TH IS PRINCIPLE APPLIES TO A SHARE BROKER. THE AMOUNT RECEIVABLE ON ACCOUNT OF B ROKERAGE IS A PART OF DEBT RECEIVABLE BY THE SHARE BROKER FROM HIS CLIENT AGAINST PURCHASE OF SHARES AND ONCE SUCH BROKERAGE IS CREDITED TO THE P &L ACCOUNT AND TAKEN INTO ACCOUNT IN COMPUTING HIS INCOME THE CONDITION STIPULATED IN S. 36(2)(I) GETS SATISFIED. WHETHER THE GROSS AMOUNT IS REFLECT ED IN THE CREDIT SIDE OF THE P&L A/C OR ONLY THE NET AMOUNT IS FINALLY REFLECTED AS PROFIT AFTER DEDUCTING THE CORRESPONDING EXPENSES OR ONLY THE NET AMOUNT O F BROKERAGE RECEIVED BY THE SHARE BROKER IS REFLECTED IN THE CREDIT SIDE OF THE P&L ACCOUNT MAKES NO DIFFERENCE BECAUSE THE ULTIMATE EFFECT IS THE SAME; (II) THE ARGUMENT THAT THE LOSS WAS SUFFERED OWING TO BREACH OF SEBI GUIDELINES FRAMED TO SAFEGUARD THE INTEREST OF BROK ERS IN RESPECT OF AMOUNT RECEIVABLE FROM THE CLIENTS AGAINST PURCHASE OF SHA RES IS IRRELEVANT. IF THE BROKER CHOOSES NOT TO FOLLOW THE GUIDELINES IT IS A DECISION TAKEN BY HIM AS A BUSINESSMAN HAVING REGARD TO HIS BUSINESS RELATIONS WITH THE CLIENT. THE LOSS CANNOT BE EQUATED TO EXPENDITURE INCURRED BY T HE ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. (CIT VS. PRANLAL ITA NO.4515/MUM/2008(A.Y.2004-2005) ITA NO.4516/MUM/2008(A.Y.2005-2006) 7 KESURDAS 49 ITR 931 (BOM) FOLLOWED WHERE BAD DEBTS ON ACCOUNT OF FORBIDDEN VAYADA TRANSACTIONS WERE HELD ALLOWABLE); (III) THE CONTENTION OF THE REVENUE THAT THE SALE V ALUE OF THE SHARES REMAINING WITH THE ASSESSEE SHOULD BE ADJUSTED AGAI NST THE AMOUNT RECEIVABLE FROM THE CLIENT SO AS TO ARRIVE AT THE A CTUAL AMOUNT OF BAD DEBT SHOULD BE RAISED IF PERMISSIBLE BEFORE THE DIVISI ON BENCH. THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF DB (INDIA) SECURITIES 318 ITR 26 (DEL) & BONANZA PORTFOLIO 320 ITR 178 (DEL) WAS FOLLOWED. 13. IT IS HOWEVER TO BE SEEN AS TO WHETHER THE COMM ISSION INCOME ACCRUING TO THE ASSESSEE AS A RESULT OF THE TRANSACTIONS DON E ON BEHALF OF THE CLIENT WHICH HAS RESULTED IN THE DEBT WHICH IS WRITTEN OFF AS BAD WAS OFFERED TO TAX. IT IS ALSO TO BE SEEN AS TO WHETHER THE ASSESSEE HA S TAKEN ANY MARGIN MONEY FROM THE CUSTOMERS AND WHETHER THE MARGIN MONEY HAS BEEN ADJUSTED AND ONLY THE NET AMOUNT IS WRITTEN OFF AS BAD DEBTS. S IMILARLY IN CASES WHERE THERE WAS NO DELIVERY TAKEN BY THE CLIENT WHETHER THE ASSESSEE HAS SOLD THOSE SHARES AND ADJUSTED THE SALE PROCEEDS AGAINST THE AMOUNTS DUE BY HIS CLIENTS HAS TO BE VERIFIED. THE ABOVE ASPECTS WIL L BE RELEVANT IN THE MATTER OF QUANTIFICATION OF THE AMOUNT TO BE ALLOWED AS DEDUC TION ON ACCOUNT OF BAD DEBTS WRITTEN OFF. THESE ASPECTS WERE ALSO CONSIDE RED BY THE SPECIAL BENCH IN THE AFORESAID DECISION AND HAVE DIRECTED THE DIV ISION BENCH TO EXAMINE THE CLAIM OF THE ASSESSEE AND THE STAND OF THE AO O N THE ABOVE ASPECTS. WE FEEL THAT THESE ASPECTS SHOULD BE LOOKED INTO BY TH E AO AND FOR THIS LIMITED PURPOSE THE ISSUE SHOULD BE REMANDED TO THE AO. 14. WE ACCORDINGLY HOLD FOLLOWING THE DECISION OF T HE SPECIAL BENCH REFERRED TO ABOVE THE AMOUNT RECEIVABLE BY THE ASS ESSEE WHO IS A SHARE ITA NO.4515/MUM/2008(A.Y.2004-2005) ITA NO.4516/MUM/2008(A.Y.2005-2006) 8 BROKER FROM HIS CLIENTS AGAINST THE TRANSACTIONS O F PURCHASE OF SHARES ON THEIR BEHALF CONSTITUTES DEBT WHICH IS A TRADING DE BT. THE BROKERAGE/COMMISSION INCOME ARISING FROM SUCH TRANS ACTIONS 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 RELEVANT PREVIOUS YEA R 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 HIS BOOKS OF ACCOUNT AS IRRE COVERABLE. THE OTHER ASPECTS REFERRED TO IN THE EARLIER PARAGRAPH OF THI S ORDER WILL HOWEVER NEED TO BE VERIFIED BY THE AO AND FOR THIS LIMITED PURPOSE THE ISSUE IS REMANDED TO THE AO WHO SHALL VERIFY THE ABOVE ASPECTS AFTER AF FORDING THE ASSESSEE OPPORTUNITY OF BEING HEARD AND DECIDE THE QUANTUM OF DEDUCTION TO BE ALLOWED. THUS GROUND NO.2 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 15. THE OTHER GROUNDS OF APPEALS WERE NOT PRESSED THEREFORE THEY ARE DISMISSED AS NOT PRESSED. ITA NO.4516/MUM/08: 16. GROUND NO.1 RAISED BY THE ASSESSEE READS AS FOL LOWS: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED DY. COMMISSIONER OF INCOME-TAX(HEREINAFTER REFERRED TO AS DCIT) HAS ERRED IN DISALLOWING THE BAD DEBTS OF RS. 1 11 720/- AND THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)(HEREIN AFTER REFERRED TO AS CIT(A)] HAS ERRED IN CONFIRMING THE ACTION OF DC IT. THE LEARNED DCIT BE DIRECTED TO DELETE THE ADDITION OF RS. 1 11 720/- MADE TO THE TOTAL INCOME AND REDUCE THE TOTAL INCOME ACCORDINGL Y. WITHOUT PREJUDICE TO THE ABOVE THE APPELLANT COMPA NY CLAIMS THAT LOSS OF RS.1 11 720/-BE ALLOWED AS DEDUCTION IN COM PUTING THE INCOME UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFESSION AS PER PROVISIONS OF SECTION 28 AND REDUCE THE TOTAL I NCOME ACCORDINGLY. ITA NO.4515/MUM/2008(A.Y.2004-2005) ITA NO.4516/MUM/2008(A.Y.2005-2006) 9 17. THIS GROUND OF APPEAL IS IDENTICAL TO GROUND NO .2 WHICH WAS DECIDED IN ITA NO.4515/MUM/08. THE DETAILS OF THE DEBTS WH ICH WERE WRITTEN OFF AS BAD AND DOUBTFUL DEBTS WERE AS FOLLOWS: THE AMOUNT CLAIMED AS DEDUCTION ON ACCOUNT OF BAD DEBTS RELATED TO DEBT MARKET DEA L OF 14% IDBI GROWING INTEREST BONDS 2005. THE ASSESSEE HAS TO RECEIVE S AID AMOUNT FROM THEIR CLIENTS NAMELY INDO GULF CORPORATION LTD. AND THE SAME WAS TO BE PAID TO THEIR OTHER CLIENTS NAMELY TATA TEA LTD. HOWEVER LOOKING AT THE CLIENT RELATIONS AND CONSIDERING BUSINESS PERSPECTIVE THE ASSESEE PAID DUE AMOUNT OF RS.1 11 720/- TO TATA TEA LTD. EVEN BEFORE RECEI VING THE SAME FROM INDO GULF CORPORATION. HOWEVER SUBSEQUENTLY THE AMOUNT DUE FROM THE INDO GULF CORPORATION LTD. WAS NOT RECEIVED. HENCE RS.1 11 7 20/- RECOVERABLE FROM INDO GULF CORPORATION LTD. HAD BEEN WRITTEN OFF AND IT IS SUBMITTED THAT SAME BE ALLOWED AS DEDUCTION U/S. 36(1)(VII) / 28 O F THE ACT. THE ASSESSING OFFICER INVOKING THE PROVISIONS OF SECTION 36(2) O F THE ACT DID NOT ALLOW THE CLAIM FOR DEDUCTION. THE CIT(A) CONFIRMED THE ORDE R OF THE ASSESSING OFFICER. 18. FOR THE REASONS GIVEN WHILE DECIDING GROUND NO. 2 IN ITA NO.4515/M/08 WE DIRECT THAT THE DEDUCTION CLAIMED B Y THE ASSESSEE BE ALLOWED. GROUND NO.1 IS THUS ALLOWED. ITA NO.4515/MUM/2008(A.Y.2004-2005) ITA NO.4516/MUM/2008(A.Y.2005-2006) 10 19. THE OTHER GROUNDS OF APPEAL WERE NOT PRESSED T HEREFORE THEY ARE DISMISSED AS NOT PRESSED. 20. IN THE RESULT BOTH THE APPEALS ARE PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 2 5 TH DAY OF FEBRUARY 2011. SD/- SD/- (J.SUDHAKAR REDDY) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED. 25 TH FEB.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RE BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR I TAT MUMBAI BENCHES MUMBAI. VM. ITA NO.4515/MUM/2008(A.Y.2004-2005) ITA NO.4516/MUM/2008(A.Y.2005-2006) 11 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 21/2/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 22/2/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER