ITO - 4(2)(1), MUMBAI v. Sri. PRASHANT J. PATEL, MUMBAI

ITA 5659/MUM/2006 | 2003-2004
Pronouncement Date: 22-12-2010 | Result: Dismissed

Appeal Details

RSA Number 565919914 RSA 2006
Assessee PAN AABPP2156M
Bench Mumbai
Appeal Number ITA 5659/MUM/2006
Duration Of Justice 4 year(s) 1 month(s) 23 day(s)
Appellant ITO - 4(2)(1), MUMBAI
Respondent Sri. PRASHANT J. PATEL, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 22-12-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 22-12-2010
Date Of Final Hearing 06-12-2010
Next Hearing Date 06-12-2010
Assessment Year 2003-2004
Appeal Filed On 30-10-2006
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. 5659/MUM/2006 (ASSESSMENT YEAR: 2003-04) INCOME TAX OFFICER - 4(2)(1) SHRI PRASHANT J. PATEL ROOM NO. 644 6TH FLOOR 21/28 GOKUL ARCADE S.M. R OAD AAYAKAR BHAVAN M.K. ROAD VS. VILE PARLE (E) MUMBAI 400057 MUMBAI 400020 PAN - AABPP 2156 M APPELLANT RESPONDENT APPELLANT BY: SHRI SUMEET KUMAR RESPONDENT BY: SHRI V.G. GINDE O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) IV MUMBAI 30.08.2006. 2. REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING THE DISALLOWANCE OF RS .5 48 136/- MADE U/S. 43B OF THE I T ACT 1961 WITHOUT APPRECIA TING THE ALTERNATE STAND THAT SINCE THE AMOUNT WAS RECOVERE D IT WOULD DEEM TO FORM A ASSESSEES INCOME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN HOLDING THE BAD DEBTS OF RS.1 7 0 26 706/- CLAIMED AND DISALLOWED AS A BUSINESS LOSS HOLDING THAT THE AMOUNT HAD CRYSTALLIZED IN THE RELEVANT PREVIOUS YE AR WHEN THE FACTS AVAILABLE ON RECORD CLEARLY INDICATE THAT THE AMOUNT HAD CRYSTALLIZED IN EARLIER PREVIOUS YEARS WITH WAS CLE ARLY IN THE ASSESSMENT ORDER. THIRD AND FOURTH GROUNDS ARE GENERAL IN NATURE. 3. GROUND NO. 1 PERTAINS TO THE ISSUE OF ADDITION ON A CCOUNT OF TURNOVER CHARGES. ASSESSEE IS A REGISTERED MEMBER OF THE NAT IONAL STOCK EXCHANGE LTD. AND CARRY ON THE BUSINESS OF SHARING BROKING A S WELL AS TRADING IN SHARES AND DERIVATIVES. THE A.O. NOTICED THAT THE A SSESSEE CLAIMED TURNOVER TAX OF ` 1 84 856/- FOR THE DERIVATIVE SEGMENT AND ` 3 63 280/- FOR CASH ITA NO. 5659/MUM/2006 SHRI PRASHANT J. PATEL 2 PAYMENTS WHICH WERE OUTSTANDING. IT WAS ASSESSEES EXPLANATION THAT THIS TURNOVER CHARGES REPRESENTED EXCESS CHARGES RECOVER ED FROM THE CLIENTS WHICH WAS PAID BACK IN THE LATER YEAR AND FURTHER S UBMITTED THAT THIS TURNOVER CHARGES ARE IN THE NATURE OF SERVICE CHARG ES PAYABLE TO NATIONAL STOCK EXCHANGE AND NOT TURNOVER TAX. HOWEVER THE A .O. REJECTED THE CONTENTIONS AND RELYING ON THE PROVISIONS OF SECTIO N 43B WHERE THE WORDS BY WHATEVER NAME CALLED CONSIDERED THE AMOUNT AS DISALLOWABLE UNDER SECTION 43B. IN ADDITION IT IS ALSO OPINED THAT THE AMOUNT IS REVENUE RECEIPT WHICH SHOULD HAVE BEEN BROUGHT TO TAX. ACCORDINGLY HE MADE AN ADDITION OF ` 5 48 136/- TO THE INCOME OF THE ASSESSEE. 4. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THIS AMOUNT WAS WRONGLY ALLOCATED IN THE BALANCE SHEET AS TURNOVER TAX WHER EAS THIS IS TRANSACTION CHARGES PAYABLE ON TURNOVER BASIS TO THE NATIONAL S TOCK EXCHANGE FOR UTILIZATION OF THE INFRASTRUCTURE AND THUS AN AMOUN T OF ` 10 28 947/- OUTSTANDING AS ON 31.03.2003 WERE RECOVERED BY NSE SUBSEQUENTLY BUT BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME AND THE AMOUNT WHICH WAS SHOWN AS OUTSTANDING IN THE BALANCE SHEET UNDER THE HEAD OTHER LIABILITIES IS AN AMOUNT REPAYABLE TO THE CLIENTS WHICH WAS PAID IN EXCESS AND ACCORDINGLY THE AMOUNT IS NOT COVERED BY PROVIS IONS OF SECTION 43B. IT IS ALSO FURTHER CONTENDED THAT EVENTHOUGH THE NSE WOR KS WITHIN THE REGULATORY FRAMEWORK OF THE SECURITIES CONTRACTS (R EGULATION) ACT 1956 AND SEBI ACT THAT BY ITSELF CANNOT MAKE NSE A STATUTOR Y BODY OR PART OF GOVERNMENT. EVEN ACCOUNTING PRINCIPAL 9 WERE INVOKE D TO SUBMIT THAT NO REVENUE CAN BE RECOGNISED IF THERE IS ANY SIGNIFICA NT UNCERTAINTY ATTACHED TO ITS ULTIMATE COLLECTIBILITY. CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE THE LEARNED CIT(A) DELETED THE AMOUNT STATING AS UNDER: - 3.5 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE AND GONE THROUGH THE ASSESSMENT ORDER. I HAVE ALSO PERUSED T HE DOCUMENTS FILED BY THE APPELLANT. I FIND MERIT IN THE CONTENTION O F THE APPELLANT THAT THE AMOUNT OUTSTANDING IS NOT COVERED UNDER THE PROVISI ONS OF SECTION 43B. TURNOVER TAX IS A GOVT. OR SEMI-GOVT. DUE PAYABLE S TATUTORILY WHEREAS THE TURNOVER CHARGES RELATE TO A TRANSACTION AND ARE DU ES TO BE RECOVERED BY THE NSE AS PER ITS REGULATIONS. ALTHOUGH THE TURNOV ER TAX AND THE TURN OVER CHARGES ARE COLLECTED BY THE STOCK BROKER ONLY BUT THE SAME ARE CREDITED UNDER DIFFERENT HEADS AND ARE SHOWN AS SUC H IN THE BILLS RAISED AGAINST THE CLIENTS. IN THIS KIND OF BUSINESS THER E IS ALWAYS A POSSIBILITY ITA NO. 5659/MUM/2006 SHRI PRASHANT J. PATEL 3 THAT THE TURNOVER TAX OR TURNOVER CHARGES ARE WRONG LY CALCULATED AND SOMETIMES RECOVER FROM THE CLIENTS IN EXCESS OF THE ACTUAL LIABILITY BUT THE SAME ARE LIABLE TO BE REPAID TO THE CLIENTS OR ADJU STED IN FUTURE BILLS. WHERE SUCH AN AMOUNT IS DISPUTED BY THE CLIENT THE SAME IS KEPT AS PAYABLE OR DISPUTED LIABILITY TILL THE RESOLUTION O F THE DISPUTE. THE AO APPEARS TO HAVE WRONGLY APPRECIATED THE WORDS BY W HATEVER NAME CALLED AS USED IN SECTION 43B. THE WORDS ACTUALLY REFER TO AN AMOUNT PAYABLE BY THE ASSESSEE TOWARDS A STATUTORY LIABILI TY AND NOT TRADING CHARGES. THE DOES NOT APPEAR TO HAVE REACHED THE CO NCLUSION AFTER PROPERTY EXAMINING THE BILLS AND OTHER DOCUMENTS. I N VIEW OF THE APPELLANTS SUBMISSIONS AND THE LEGAL POSITION IT IS CLEAR THAT THE AO HAS MISAPPLIED THE PROVISIONS OF SECTION 43B AND THEREF ORE THE ADDITION OF RS.5 48 136/- MADE ON THIS ACCOUNT IS DELETED . THE REVENUE IS AGGRIEVED. 5. WE HAVE HEARD THE LEARNED D.R. WHO SUBMITTED THAT THE AMOUNT IS DISALLOWABLE UNDER SECTION 43B OR IN THE ALTERNATIV E SHOULD BE TREATED AS INCOME AS THE ASSESSEE HAS RECEIVED AS PART OF ITS TRANSACTION WITH THE CLIENTS. THIS CANNOT BE EXCLUDED FROM THE COMPUTATI ON OF INCOME. 6. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A) AND SUBMITTED THAT THE AMOUNT IS SERVICE CHARGES AND NOT TAX AND THIS AMOUNT IS EXCESS COLLECTED WHICH IS AL SO REFUNDED AND THE CIT(A) HAS EXAMINED THIS ASPECT AS THE SAME WAS PLA CED BEFORE THE A.O. ALSO AND THE AMOUNT ARE NOT COVERED BY SECTION 43B AND F URTHER SUBMITTED THAT THE REVENUES GROUND IS NOT WITH REFERENCE TO DISAL LOWANCE UNDER SECTION 43B BUT TAXABLE AS INCOME. IT WAS SUBMITTED FURTHER THAT THIS EXCESS AMOUNT EVEN IF TREATED AS INCOME SHOULD BE ALLOWED AS LIABILITY AS THE AMOUNT WAS DUE TO THE CUSTOMERS WHICH WAS IN FACT P AID IN THE LATER YEAR. CONSIDERING THE FACTS OF THE CASE IT WAS SUBMITTED THAT THE ORDER OF THE CIT(A) IS CORRECT IN ALL RESPECT. 7. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE FACT S OF THE CASE THE AMOUNT COLLECTED BY THE ASSESSEE WAS TURNOVER CHARG ES WHICH ARE NOT A STATUTORY LEVY BUT PAID TO THE NSE AS PER THE BYLAW S OF THE NSE ON THE BASIS OF THE TURNOVER FOR UTILIZATION OF THE INFRASTRUCTU RE OF THE STOCK EXCHANGE SO AS RIGHTLY CONSIDERED BY THE CIT(A) PROVISIONS OF SECTION 43B ARE NOT APPLICABLE. IT WAS REVENUES CONTENTION THAT THE AM OUNT IS TAXABLE AS INCOME IN THE YEAR OF RECEIPT. AS RIGHTLY SUBMITTED BY THE ASSESSEE THIS ITA NO. 5659/MUM/2006 SHRI PRASHANT J. PATEL 4 AMOUNT IS AN EXCESS CHARGE FROM THE CLIENTS WHICH W AS DUE FOR REFUND AND WHICH IN FACT WAS ALSO REFUNDED TO THE CLIENTS IN T HE NEXT YEAR AS PER THE STATEMENT MADE BEFORE THE A.O. ITSELF. EVEN IF ONE WERE TO CONSIDER THE AMOUNT OF RECEIPT AS INCOME OF THE YEAR THE SAME IS ALSO ALLOWABLE AS A LIABILITY AND NO INCOME CAN BE BROUGHT TO TAX ON TH IS ACCOUNT. SINCE THERE IS NO MERIT IN REVENUES CONTENTIONS THERE IS NO NEED TO INTERFERE WITH THE ORDER OF THE CIT(A). GROUND IS ACCORDINGLY REJECTED . 8. GROUND NO. 2 PERTAINS TO THE ISSUE OF CLAIM OF BAD DEBTS. THE ASSESSEE CLAIMED AN AMOUNT OF ` 1 70 26 706/- AS BAD DEBTS ARISING OUT OF TRANSACTIONS PERTAINING TO ONE CLIENT SHRI DEEPAK BHEDDA WHO BEGAN HIS TRADING OPERATIONS FROM JANUARY 18 2000. THIS AMOU NT WAS WRITTEN OFF AS BAD DEBTS IN THE YEAR UNDER CONSIDERATION WHICH TH E A.O. DISALLOWED STATING THAT ASSESSEE HAS NOT PROVED THAT THE DEBT HAS BECO ME BAD. FURTHER HE ALSO ANALYSED THE PROVISIONS OF SECTION 36(2) AND SUBMIT TED THAT THE AMOUNTS NOT RECOVERABLE FROM CLIENTS IN THE CASE OF SHARE BROKE RS CANNOT BE ALLOWED UNDER SECTION 36(1)(VII) AS BAD DEBTS UNLESS THE DE BT IS ONLY IN RESPECT OF UNRECOVERED BROKERAGE. ON THE GROUND THE CLAIM OF B AD DEBT WAS DISALLOWED BY THE A.O. THE CIT(A) CONSIDERED ASSESSEES TRANSA CTIONS WITH THE CLIENT ANALYSED THEM IN PARA 4.1 OF THE ORDER AND DISCUSSE D THE PROVISIONS OF SECTION 36(1)(VII) AND THE DECISION OF THE HON'BLE SPECIAL BENCH OF THE ITAT IN THE CASE OF DCIT VS. OMAN INTERNATIONAL BANK SAOG 1 00 ITD 285 (SB) (MUM) AND OTHER CASES AND ARRIVED AT A CONCLUSION T HAT THE BAD DEBTS CANNOT BE ALLOWED BUT THE SAME CAN BE ALLOWED AS BUSINESS LOSS HOLDING THAT THE ASSESSEES CLAIM OF BUSINESS LOSS BEING INEXTRICABL Y LINKED TO ITS BUSINESS OPERATIONS WAS ALLOWABLE TO IT. THEREFORE HE DIRECT ED THE A.O. TO ALLOW THE SAME. REVENUE IS AGGRIEVED. 9. THE LEARNED D.R. SUBMITTED THAT THE TRANSACTIONS HA VE OCCURRED IN THE MONTH OF JANUARY 2000 AND ACCORDINGLY THE LOSS CRYS TALLISED IN EARLIER PREVIOUS YEARS AND THESE WERE THE FINDINGS OF THE A .O. THE CIT(A) WAS WRONG IN ALLOWING THE AMOUNT IN THE YEAR UNDER CONSIDERAT ION. 10. THE LEARNED COUNSEL FOR THE ASSESSEE IN REPLY SUBMI TTED THAT THE ASSESSEE CLAIMED IT AS A BAD DEBT AND ON THE BASIS OF THE SPECIAL BENCH ITA NO. 5659/MUM/2006 SHRI PRASHANT J. PATEL 5 DECISION IN THE CASE OF DCIT VS. SHREYAS S. MORAKHI A (MUM) (SB) 5 ITR TRIB.1 THE AMOUNT IS ALLOWABLE AS BAD DEBT IF NOT A S LOSS. FURTHER HE SUBMITTED THAT THE REVENUES GROUND STATING THAT TH E AMOUNT HAS CRYSTALLISED IN THE EARLIER PREVIOUS YEAR WAS NOT CORRECT AS THE A.O. HIMSELF HAS GIVEN A FINDING VIDE PARA 4.3 THAT ON THE BASIS OF THE LETT ER DATED 09.11.2001 THE SAID SHRI DEEPAK BHEDDA CATEGORICALLY STATED THAT HE WIL L DEFINITELY MAKE THE PAYMENT THEREFORE THE DEBT HAS NOT BECOME BAD. IN VIEW OF THE ASSESSING OFFICERS FINDING THAT AS ON 09.11.2001 THE AMOUNT WAS NOT BECOME BAD ON THE BASIS OF WHICH HE DISALLOWED THE ADDITION IT I S NOT CORRECT ON THE PART OF THE REVENUE TO CONTEST THAT THE LOSS ARISES WHEN TH E TRANSACTION OCCURRED IN JANUARY TO APRIL 2000. EVEN ON THIS FACT THE GROUND IS NOT MAINTAINABLE. WITH REFERENCE TO THE YEAR OF ALLOWABILITY THE LEA RNED COUNSEL RELIED UPON THE JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT IN T HE CASE OF JETHABHAI HIRJI AND JETHABHAI RAMDAS VS. CIT 120 ITR 792 TO S UBMIT THAT THE CIT(A) WAS CORRECT IN ALLOWING THE AMOUNT AS BUSINESS LOSS . UNDER RULE 27 IT WAS SUBMITTED THAT HE CAN SUPPORT THE ORDER OF THE CIT( A) WHICH WAS HELD AGAINST THE ASSESSEE ON THE ISSUE OF ALLOWANCE OF B AD DEBTS. HE SUBMITTED THAT THE ORDER OF THE CIT(A) IS TO BE UPHELD WHETH R IT WAS ALLOWED AS BAD DEBT OR BUSINESS LOSS. 11. WE HAVE CONSIDERED THE ISSUE. THERE IS NO DISPUTE W ITH REFERENCE TO THE AMOUNT OF ` 1 70 26 706/- DUE BUT NOT RECEIVED AND THE ASSESSEE HAS WRITTEN OFF THE AMOUNT IN THE BOOKS OF ACCOUNT. IT WAS CLAIMED AS BAD DEBT BY THE ASSESSEE WHICH WAS ALLOWED AS A BUSINESS LOS S BY THE CIT(A). IN THE CASE OF SHREYAS S. MORAKHIA (MUM) (SB) 5 ITR TRIB.1 THE HON'BLE SPECIAL BENCH HAS CONSIDERED THE TRANSACTIONS OF A STOCK BR OKER VIS--VIS CLIENT AND RELYING ON THE PRINCIPLES ESTABLISHED BY THE HON'BL E SUPREME COURT IN THE CASE OF CIT VS. T. VEERABHADRA RAO K. KOTESWARA RA O AND CO. 155 ITR 152 HELD THAT THE CONDITIONS UNDER SECTION 36(2) ARE SA TISFIED AS THE AMOUNTS ARE SPENT AS PART OF COMMERCIAL ACTIVITY OF THE ASSESSE E. IN VIEW OF THIS THE CIT(A)S ORDER TO THE EXTENT IT WAS ALLOWED AS BUSI NESS LOSS IS NOT CORRECT IN VIEW OF THE INTERPRETATION GIVEN BY THE SPECIAL BEN CH OF THE ITAT. THE AMOUNTS ARE ALLOWABLE AS BAD DEBTS ON THE FACTS OF THE CASE. HOWEVER THERE IS NO MERIT IN REVENUE CONTENTIONS THAT THE AMOUNTS ARE NOT CRYSTALLISED IN ITA NO. 5659/MUM/2006 SHRI PRASHANT J. PATEL 6 THE RELEVANT PREVIOUS YEAR. THE A.O. HIMSELF HAS GI VEN THE FOLLOWING FINDING IN THE ASSESSMENT ORDER THAT THE BAD DEBT HAS NOT B ECOME BAD EVEN AS LATER AS 09.11.2001 ON THE BASIS OF THE LETTER SUBMITTED BY THE CLIENT. THE OBSERVATION OF THE A.O. IN PARA 4.3 IS AS UNDER: - 4.3 .. THE ASSESSEE HAS SUBMITTED THAT SHRI DEE PAK BHEDDAS LETTER 09/11/2001 WHEREIN SHRI BHEDDA HAS CATEGORICALLY HE WILL DEFINITELY MAKE THE PAYMENT THEREFORE IT VERY CLEAR THAT THE DEBT HAS NOT BECOME BAD. 12. ONCE THE A.O. DISALLOWED THE AMOUNT WHILE EXAMINING THE BAD DEBT ITSELF STATING THAT THE AMOUNT HAS NOT BECOME BAD I N VIEW OF THE LETTER SUBMITTED BY SHRI DEEPAK BHEDDA THE CLIENT IT IS NOT SURE ON WHAT BASIS THE REVENUE IS NOW CONTESTING THAT THE AMOUNT HAS N OT CRYSTALLISED DURING THE RELEVANT PREVIOUS YEAR BUT IN AN EARLIER PREVIO US YEAR. EVEN ON THE FACTS RECORDED BY THE A.O. THE CLAIM OF LOSS COULD NOT AR ISE IN EARLIER PREVIOUS YEARS AS CONTESTED BY THE REVENUE IN THE GROUND. WI TH REFERENCE TO THE YEAR OF ALLOWABILITY THE CIT(A) HAS ALSO EXAMINED THE F ACTS IN DETAIL IN HIS ORDER AND GAVE A FINDING THAT EVEN THE AMOUNT IN DISPUTE IS NOT ALLOWED UNDER SECTION 36(1)(VII) OF THE ACT THE SAME DESERVES TO BE ALLOWED UNDER SECTION 28 OF THE ACT. IN VIEW OF THIS WHETHER THE AMOUNT IS ALLOWABLE UNDER SECTION 36(1)(VII) (ON THE BASIS OF THE SPECIAL BENCH DECIS ION IN THE CASE OF SHREYAS S. MORAKHIA(SHREYAS S. MORAKHIA ) OR AS BUSINESS LO SS AS HELD BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. PRAYASHVI N B. PATEL 240 ITR 931 RELIED UPON BY THE CIT(A) THE AMOUNT IS ALLOWABLE TO THE ASSESSEE. SINCE THERE IS NO MERIT IN REVENUES CONTENTION ON FACTS THERE IS NO NEED TO INTERFERE WITH THE ORDER OF THE CIT(A) EVENTHOUGH T HE SAID AMOUNT IS ALLOWABLE AS BAD DEBT. REVENUES GROUND IS REJECTED . 13. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND DECEMBER 2010. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 22 ND DECEMBER 2010 ITA NO. 5659/MUM/2006 SHRI PRASHANT J. PATEL 7 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) IV MUMBAI 4. THE CIT IV MUMBAI CITY 5. THE DR C BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.