SHIVKUMAR BISSA, MUMBAI v. INCOME TAX OFFICER-4(2)(2), MUMBAI

ITA 6359/MUM/2008 | 2005-2006
Pronouncement Date: 07-01-2010 | Result: Allowed

Appeal Details

RSA Number 635919914 RSA 2008
Bench Mumbai
Appeal Number ITA 6359/MUM/2008
Duration Of Justice 1 year(s) 2 month(s) 9 day(s)
Appellant SHIVKUMAR BISSA, MUMBAI
Respondent INCOME TAX OFFICER-4(2)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 07-01-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted E
Tribunal Order Date 07-01-2010
Date Of Final Hearing 30-11-2010
Next Hearing Date 30-11-2010
Assessment Year 2005-2006
Appeal Filed On 29-10-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI P.M. JAGTAP A.M. AND SHRI V. DURGA RAO J.M. ITA NO. 6359/M/2008 ASSESSMENT YEAR: 2005-06 SHIVKUMAR BISSA APPELLANT R-638 ROTUNDA BUILDING BOMBAY SAMACHAR MARG MUMBAI 400 023 VS. INCOME TAX OFFICER RESPONDENT 4(2)(2) MUMBAI. APPELLANT BY : NONE RESPONDENT BY : MR. D. SONGATE . ORDER PER V. DURGA RAO J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)- IV MUMBAI PASSED ON 01/08/2008 FOR THE AS SESSMENT YEAR 2005=06. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE AT THE T IME OF HEARING BEFORE US. HOWEVER WE PROCEED TO DISPOSE OF THIS A PPEAL AFTER HEARING THE LEARNED DR AS THE ISSUES RAISED IN THIS APPEAL ARE COVERED BY THE PRECEDENTS. 3. GROUND NO. 1 IS IN RESPECT OF RESTRICTING THE AL LOWANCE OF BAD DEBTS OF ` . 5 18 548/-. 4. THE ASSESSEE HAD CLAIMED BAD DEBTS OF HIS SEVERA L CLIENTS AMOUNTING TO ` . 6 09 820/- ON ACCOUNT OF SHARE BROKING BUSINESS AND WERE IRRECOVERABLE ACCORDING THE ASSESSEE THEREFOR E THE SAME WERE WRITTEN OFF IN THE BOOKS OF ACCOUNT. THE AO DISALLO WED OUT OF THE SAID ITA NO. 6359/MUM/09 2 CLAIM A SUM OF ` . 5 18 548/- ON THE GROUND THAT THE SAME IS NOT COVERED UNDER SECTION 36((1)(VII) 36(2) AND 37(1) OF THE ACT. THE CIT(A) AFTER DISCUSSING THE ISSUE ELABORATELY AND C ONSIDERING THE SUBMISSIONS OF THE ASSESSEE DIRECTED THE AO TO RES TRICT THE ALLOWANCE OF BAD DEBTS CLAIM ONLY TO THE EXTENT OF BROKERAGE INCOME EARNED THEREBY CONFIRMING THE BALANCE AMOUNT OF DISALLOWAN CE. 5. WE HAVE HEARD THE LEARNED D.R. AND PERUSED THE R ECORDS. WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF THE SPECIAL BENCH OF ITAT IN THE CASE OF SHREYAS S. MORAKHIA 5 ITR(TRIB UNAL) 1 [ITA NO.3374/MUM./2004 VIDE ORDER DATED 16 TH JULY 2010] WHEREIN THE TRIBUNAL 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) SECURI TIES LTD.(SUPRA) AND IN THE CASE OF CIT VS. BONANZA PORT FOLIO LTD. (SUPRA) STATING THAT THE SAME ARE DIRECTLY ON THE P OINT IN ISSUE AND THERE BEING NO CONTRARY DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT OR ANY OTHER HIGH COURTS THIS SPECIAL BENCH HAS TO FOLLOW THE SAME. WE HAVE CAREFULLY PER USED THE SAID DECISIONS OF THE HONBLE DELHI HIGH COURT. IN THE CASE OF DB (INDIA) SECURITIES LTD.(SUPRA) THE ASSESSEE WAS A MEMBER OF DELHI STOCK EXCHANGE AND WAS CARRYING ON THE BUS INESS OF SHARES AND STOCK BROKING. THE ASSESSEE HAD PURCHAS ED SHARES ON BEHALF OF HIS CLIENT FOR THE TOTAL VALUE OF RS. 1.06 CRORES AT AN AVERAGE PRICE OF RS. 55 PER SHARE. TH E SAID CLIENT MADE A PAYMENT TO THE EXTENT OF RS. 65 LACS ONLY TO THE ASSESSEE AND THE REMAINING AMOUNT OF RS. 41 LACS HA D REMAINED UNPAID. THE BROKERAGE INCOME EARNED BY TH E ASSESSEE IN RESPECT OF THE SAID TRANSACTION OF PURC HASE OF SHARES WAS DULY DECLARED IN ITS RETURN OF INCOME AN D WAS ASSESSED AS WELL IN THE EARLIER YEAR. THE BALANCE AMOUNT OF RS. 41 LACS REMAINED UNPAID EVEN IN THE NEXT YEAR A LSO 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 T HE CLAIM OF THE ASSESSEE FOR THE SAID DEDUCTION WHICH WAS CONFI RMED BY THE LD. CIT(A). ON FURTHER APPEAL BY THE ASSESSEE THE TRIBUNAL HOWEVER ALLOWED THE SAID DEDUCTION AN D WHEN THE ITA NO. 6359/MUM/09 3 MATTER REACHED TO THE HONBLE DELHI HIGH COURT IT WAS SOUGHT TO BE CANVASSED ON BEHALF OF THE REVENUE THAT THE A MOUNT RECEIVABLE BY THE ASSESSEE FROM ITS CLIENT AGAINST PURCHASE OF SHARES COULD NOT BE TREATED AS DEBT UNDER THE PRO VISIONS 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 F IND MERIT IN THIS CONTENTION RAISED ON BEHALF OF THE REVENUE HOL DING THAT THERE WAS A VALID TRANSACTION BETWEEN THE ASSESSEE AND HIS CLIENT AND SINCE THE ASSESSEE HAD TO MAKE PAYMENT O N BEHALF OF HIS CLIENT WHICH HE COULD NOT RECOVER TO THE EXT ENT OF RS. 41 LACS THE SAID SUM HAS TO BE TREATED 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 AUTHORITY. IT WAS HELD THAT THE ASSESSEE THEREFORE WAS ENTITLED FOR DEDUCTION ON ACCOUNT OF BAD DEBT U /S 36(1)(VII) R.W.S. 36(2). A SIMILAR ISSUE AGAIN CAM E UP FOR CONSIDERATION BEFORE THE HONBLE DELHI HIGH COURT I N THE CASE OF CIT VS. BONANZA PORTFOLIO LTD. (SUPRA) WHEREIN T HE QUESTION OF LAW WHICH AROSE FOR CONSIDERATION WAS WHETHER IN VIEW OF THE PROVISIONS OF SECTION 36(1)(VII) THE TOTAL DEB IT BALANCE INCLUDING THE CONSIDERATION COLLECTIBLE BY THE ASSE SSEE COMPANY FOR THE SALE/PURCHASE OF SHARES COULD BE CL AIMED BY THE ASSESSEE AS BAD DEBTS WHEN IT HAD ONLY CREDITED BROKERAGE IN THE P&L ACCOUNT AND IT WAS HELD BY THE HONBLE DELHI HIGH COURT FOLLOWING INTER ALIA THE DECISI ON IN THE CASE OF CIT VS. DB (INDIA) SECURITIES LTD. THAT THE MONE Y RECEIVABLE BY THE ASSESSEE AS SHARE BROKER FROM HIS CLIENTS AG AINST PURCHASE OF SHARES MADE ON THEIR BEHALF HAS TO BE TREATED AS DEBT AND SINCE THE BROKERAGE PAYABLE BY THE CLIEN T WAS A PART OF THAT DEBT AND THAT PART HAD BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF HIS INCOME THE CONDITIONS STIPULATE D IN SECTION 36(1)(VII) AND 36(2) STOOD SATISFIED AND THE ASSESS EE WAS ENTITLED FOR DEDUCTION IN RESPECT OF THE SAID AMOUN T 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 TH E ISSUE WHICH IS UNDER CONSIDERATION IN THE PRESENT CASE BEFORE T HIS SPECIAL BENCH. 30. THE LEARNED D.R. HAS CONTENDED BEFORE US THAT T HE RULES AND REGULATIONS OF STOCK EXCHANGE GOVERNING RELATIO NS BETWEEN BROKER AND HIS CLIENTS AS WELL AS THE GUIDELINES IS SUED BY THE SEBI FROM TIME TO TIME PROTECTING THE INTEREST OF S HARE BROKER WERE NOT BROUGHT TO THE NOTICE OF THE HONBLE DELHI HIGH COURT IN THE CASES OF CIT VS. DB (INDIA) SECURITIES LTD.( SUPRA) AND CIT VS. BONANZA PORTFOLIO LTD. (SUPRA) AND THEIR LO RDSHIPS THUS HAD NO OCCASION TO CONSIDER THE ISSUE IN THE L IGHT OF THE ITA NO. 6359/MUM/09 4 SAME. HOWEVER AS ALREADY HELD BY US THE SAID RUL ES 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 TH AT THE FACT WHICH IS NOT IN DISPUTE IS THAT THE ASSESSEE HAS AC TUALLY SUFFERED THE LOSS AS A RESULT OF THE AMOUNT IN QUES TION REPRESENTING DEBT BECOMING IRRECOVERABLE. IT IS TH EREFORE NOT RELEVANT WHETHER SUCH LOSS HAS BEEN 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 O F QUANTIFICATION OF SUCH LOSS. AS A MATTER OF FACT ONE OF THE ARGUMENTS RAISED ON BEHALF OF THE REVENUE IN THE CA SE OF DB (INDIA) SECURITIES LTD. (SUPRA) WAS THAT THE ASSESS EE 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 DELHI HIGH COURT THAT THE SALE CONSIDERATION WHICH SUCH SHARES COULD FETCH IN THE MARKET NEEDS TO BE ADJUST ED 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 THE SALE CONSIDERATION THEREOF AGAINST THE A MOUNT RECEIVABLE FROM THE CLIENT SO AS TO ARRIVE AT THE A CTUAL AMOUNT OF BAD DEBT THUS IS RELEVANT FOR QUANTIFYING THE AC TUAL AMOUNT OF BAD DEBT AND IT IS AT LIBERTY TO RAISE THE SAME IF PERMISSIBLE BEFORE THE DIVISION BENCH DURING THE C OURSE OF HEARING OF THE APPEAL. THE LD. D.R. HAS ALSO RAISE D CERTAIN OTHER DOUBTS OR DISPUTES IN THE WRITTEN SUBMISSIONS FILED BEFORE THIS SPECIAL BENCH RELATING TO CERTAIN FACTU AL ASPECTS OF THE CASE. ALTHOUGH NO SUCH DOUBTS OR DISPUTES APPE AR TO HAVE BEEN RAISED EVEN BY THE A.O. IN THE ASSESSMENT ORDE R THE LD. COUNSEL FOR THE ASSESSEE HAS FAIRLY AGREED THAT IF IT IS SO FELT BY THE DIVISION BENCH AFTER CONSIDERING THE ARGUMEN TS OF BOTH THE SIDES WHILE HEARING THE APPEAL OF THE ASSESSEE THAT THESE ASPECTS NEED VERIFICATION THE ASSESSEE WILL HAVE N O OBJECTION FOR GETTING SUCH VERIFICATION DONE FROM THE A.O. 32. KEEPING IN VIEW ALL THE FACTS OF THE CASE AND T HE LEGAL POSITION EMANATING FROM THE VARIOUS JUDICIAL PRONOU NCEMENTS AS DISCUSSED ABOVE WE ARE OF THE VIEW THAT THE AMO UNT RECEIVABLE BY THE ASSESSEE WHO IS A SHARE BROKER FROM HIS CLIENTS AGAINST THE TRANSACTIONS OF PURCHASE OF SHA RES ON THEIR BEHALF CONSTITUTES DEBT WHICH IS A TRADING DEBT. T HE 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 ACCOU NT IN ITA NO. 6359/MUM/09 5 COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVA NT PREVIOUS YEAR OR ANY EARLIER YEAR IT SATISFIES THE CONDITIO N STIPULATED IN SECTION 36(2)(I) AND THE ASSESSEE IS ENTITLED TO DE DUCTION U/S 36(1)(VII) BY WAY OF BAD DEBTS AFTER HAVING WRITTEN OF THE SAID DEBTS FROM HIS BOOKS OF ACCOUNT AS IRRECOVERABLE. WE THEREFORE ANSWER THE QUESTION REFERRED TO THIS SPE CIAL BENCH IN THE AFFIRMATIVE THAT IS IN FAVOUR OF THE ASSESSE E. WE RESPECTFULLY FOLLOWING THE ABOVE SPECIAL BENCH D ECISION OF ITAT WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND DIREC T THE ASSESSING OFFICER TO DECIDE THE ISSUE AS PER THE ABOVE SPECIA L BENCH DECISION AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING H EARD TO THE ASSESSEE. THIS GROUND OF APPEAL RAISED BY THE ASSE SSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO. 2 IS IN RESPECT OF DISALLOWANCE U/S 40(A)(IA) OF THE ACT FOR TRANSACTION CHARGES PAID TO BOMBAY STOCK EXCHANGE O F ` . 9 65 379/-. 7. THE ASSESSEE HAD PAID RS. 9 65 379/- TO BSE TOWA RDS TRANSACTION CHARGES. THE AO TOOK THE VIEW THAT THE CHARGES LEVI ED BY BSE WERE FALLING UNDER SECTION 194J AND DISALLOWED SAID EXPENSES U/S 40(A )(IA) OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS NOT DEDUCTED TAX ON TH E SAID AMOUNT U/S 194J OF THE ACT. THE CIT(A) CONFIRMED THE ACTION OF THE ASS ESSING OFFICER. 8. AFTER HEARING THE LEARNED DR WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY VARIOUS DECISIONS OF I TAT INCLUDING THE DECISION OF KOTAK SECURITIES LTD. VS. ADDL. CIT [2 009] 124 TTJ (MUMBAI) 241 WHEREIN THE ITAT HELD THAT TRANSACTION FEE PAID TO STOCK EXCHANGE ON THE BASIS OF VOLUME OF TRANSACTIO N IS PAYMENT FOR USE OF FACILITIES PROVIDED BY STOCK EXCHANGE AND NOT FO R ANY SERVICES EITHER TECHNICAL OR MANAGERIAL HENCE PROVISIONS OF SECTI ON 194J ARE NOT ATTRACTED AND NO DISALLOWANCE CAN BE MADE BY INVOKI NG S. 40(A)(IA). WE RESPECTFULLY FOLLOW THE AFORESAID DECISION OF IT AT AND IN THE LIGHT OF THAT WE SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION MADE ON ACCOUNT TRANSACTION CHARGES PAID B Y THE ASSESSEE. ACCORDINGLY THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 6359/MUM/09 6 9. GROUND NO. 3 READS AS UNDER:- A) THE LEARNED CIT(A) ALSO FAILED TO APPRECIATE THAT T HERE WERE NO EXPENSES INCURRED FOR EARNING DIVIDEND INCOME AND F URTHER THERE WAS ALSO NO DIRECT NEXUS BETWEEN EARNING OF DIVIDEND INCOME AND OTHER BUSINESS EXPENSES INCURRED DURING THE YEAR. THE ADHOC ADDITI ON THEREFORE WAS BAD IN LAW. B) THE LEARNED CIT(A) SHOULD HAVE CONSIDERED THAT W HEN THERE WERE NO DIRECT EXPENSES FOR EARNING DIVIDEND INCOME THE QUE STION OF APPLICABILITY OF RULE 8D DOES NOT ARISE. 10. THE FACTS IN BRIEF RELATING TO THIS GROUND OF A PPEAL ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND IS A MEMBER OF BOMBAY STOCK EX CHANGE IN THE BUSINESS OF SHARE BROKING. THE ASSESSEE HAS EARNED DIVIDEND IN COME OF RS.1 91 586 AND THE ASSESSEE HAS NOT CLAIMED ANY EXPENSES TO INCUR THE ABOVE INCOME. THE ASSESSING OFFICER AFTER CALLING THE EXPLANATION FRO M THE ASSESSEE MADE AN ADHOC DISALLOWANCE OF RS.2 000 UNDER SECTION 14A OF THE ACT. ON APPEAL THE CIT(A) DIRECTED THE ASSESSING OFFICER TO RECOMPUTE THE DIS ALLOWANCE UNDER SECTION 14A READ WITH RULE D OF THE INCOME TAX ACT 1961. 11. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESEN TATIVE AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ISSUE INVOLVED IN THIS APPEAL IS COVERED BY THE RECENT JUDGEMENT OF THE JURISDICTIONAL HIGH COURT I N THE CASE OF GODREJ & BOYCE LTD. VS. ACIT (2010) (328 ITR 81) (BOM). WE THEREF ORE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER TO THE FILE OF ASSESS ING OFFICER FOR DECIDING THE ISSUE OF DISALLOWANCE IF ANY AS PER THE AFORENOTED JUDGEMENT AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF JAN. 2011. SD/- SD/- (P.M. JAGTAP) (V. D URGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI DATED:7TH JAN. 2011. *GPR ITA NO. 6359/MUM/09 7 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE E BENCH I.T .A.T. MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR I.T.A.T. MUMBAI. ITA NO. 6359/MUM/09 8 S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 13/12/10 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 14/12/10 SR.P.S/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.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10. DATE OF DISPATCH OF ORDER