ACK CAPITAL MANAGEMENT P. LTD, MUMBAI v. DCIT 4(1), MUMBAI

ITA 7075/MUM/2008 | 2005-2006
Pronouncement Date: 19-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 707519914 RSA 2008
Bench Mumbai
Appeal Number ITA 7075/MUM/2008
Duration Of Justice 1 year(s) 1 month(s) 7 day(s)
Appellant ACK CAPITAL MANAGEMENT P. LTD, MUMBAI
Respondent DCIT 4(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 19-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 19-01-2010
Assessment Year 2005-2006
Appeal Filed On 12-12-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI BEFORE SHRI R.S.SYAL AM AND SMT.ASHA VIJAYARAGHAVAN JM ITA NO.7075/MUM/2008 : ASST.YEAR 2005-2006 M/S.ACK CAPITAL MANAGEMENT PVT. LTD. 106 VIKAS BUILDING 11 BANK STREET FORT MUMBAI 400 001. PA NO.AACCA9047L. VS. THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 4(1) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.V.JHAVERI RESPONDENT BY : SHRI VIKRAM GAUR O R D E R PER R.S.SYAL AM : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 1.8.2008 IN RELATION TO THE ASSESSMENT YEAR 2005-2006. 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE CONFIRMATION OF ADDITION OF RS.14 41 572 CLAIMED BY THE ASSESSEE AS BAD DEBT. B RIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSIN ESS OF SHARE BROKING AND SHARE TRADING. IT CLAIMED DEDUCTION OF RS.14.41 LAKHS ON ACCOUNT OF BAD DEBTS. ON BEING CALLED UPON TO JUSTIFY THE DEDUCTION THE ASSESSEE VIDE ITS LETTER DATED 28.5.2007 SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE SAI D AMOUNT WAS RECEIVABLE FROM SHRI PARESH PAREKH AS ON 31.3.2005 WHO WAS THE CL IENT OF THE ASSESSEE SINCE 1999. IT WAS EXPLAINED THAT DUE TO BURSTING OF KETAN PARE KH SCAM IN THE FIRST WEEK OF MARCH 2001 THE SHARES HELD BY SHRI PARESH PAREKH IN BADLA POSITION REDUCED SHARPLY IN VALUE AND HE THEREFORE INCURRED A SUBSTA NTIAL LOSS. THE AMOUNT RECEIVABLE BY THE ASSESSEE FROM SHRI PARESH PAREKH BECAME BAD AND WAS THEREFORE CLAIMED AS NOT RECOVERABLE AS BAD DEBT. IT WAS ALSO STATED THA T THE ASSESSEE HAD EARNED BROKERAGE OF RS.19.00 LAKHS FROM SHRI PARESH PAREKH WHICH WAS OFFERED FOR ITA NO.7075/MUM/2008 M/S.ACK CAPITAL MANAGEMENT PVT.LTD. 2 TAXATION IN THE RETURN OF INCOME FOR ASSESSMENT YEA R 2001-2002. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES CONTENTION AN D MADE THE ADDITION. HE FURTHER DID NOT FIND ANY FORCE IN THE ASSESSEES ALTERNATIV E CONTENTION THAT THE AMOUNT MAY BE CONSIDERED AS BUSINESS LOSS. THE ASSESSEE WENT I N APPEAL BEFORE THE LEARNED CIT(A) BUT WITHOUT ANY SUCCESS. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE DID N OT PRESS GROUND NO.5 CLAIMING THE AMOUNT OF RS.14.41 LAKHS AS BUSINESS LOSS INCUR RED IN THE COURSE OF BUSINESS AS SHARE BROKER. HE CONFINED HIS SUBMISSIONS ONLY TO T HE CLAIM OF DEDUCTION FOR BAD DEBTS U/S.36(1)(VII) . WE HAVE PERUSED THE COPY OF ACCOUNT OF SHRI PARESH PAREKH FROM ASSESSMENT YEAR 2001-2002 ONWARDS WHICH IS AVA ILABLE IN THE PAPER BOOK. IT IS NOTICED THAT IN THE YEAR ENDING 31.3.2001 SHRI P ARESH PAREKH HAD CONTINUOUS TRANSACTIONS OF PURCHASE AND SALES OF SHARES THROU GH THE ASSESSEE. AT THE END OF THE YEAR THE BALANCE RECEIVABLE BY THE ASSESSEE WAS AT RS.26.90 LAKHS. IN THE YEAR ENDING 31.3.2002 THERE WERE ONLY SOME HANDFUL TRANS ACTIONS AND THE ASSESSEE MANAGED TO REDUCE THE BALANCE RECEIVABLE FROM RS.26 .90 LAKHS TO RS.18.79 LAKHS ON THIS YEAR ENDING . IN THE YEAR ENDING 31.3.2003 NO TRANSACTIONS WERE ALLOWED ON BUSINESS ACCOUNT BUT THE ASSESSEE RECOVERED A SUM OF RS.1 50 000 IN THE YEAR ENDING 31.3.2003 WHICH REDUCED THE AMOUNT RECEIVABL E TO RS.17.29 LAKHS. IN THE YEAR ENDING 31.3.2004 AGAIN THERE WERE NO BUSINESS TRANSACTIONS BUT THE ASSESSEE RECOVERED A SUM OF RS.1.56 LAKHS FROM SHRI PARESH P AREKH WHICH REDUCED THE BALANCE RECEIVABLE TO RS.15.72 LAKHS. THEN IN THE Y EAR IN QUESTION AGAIN THERE WERE NO BUSINESS TRANSACTIONS EXCEPT FOR THE RECOVERY OF A SUM MORE THAN RS.1 LAKH REDUCING THE BALANCE RECEIVABLE TO RS.14.41 LAKHS. THAT IS HOW THE AMOUNT RECEIVABLE FROM SHRI PARESH PAREKH WAS FOUND TO BE NOT RECOVERABLE IN THIS YEAR AND IT WAS CLAIMED AS BAD DEBT. ITA NO.7075/MUM/2008 M/S.ACK CAPITAL MANAGEMENT PVT.LTD. 3 4. IT IS SEEN THAT CLAUSE (VII) OF SECTIO N 36(1) IS SUBJECT TO THE PROVISIONS OF SECTION 36(2) WHICH IN TURN PROVIDES THAT NO DE DUCTION SHALL BE ALLOWED FOR BAD DEBT UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAK EN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHIC H SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR. THE SUB STANCE OF THIS PROVISION IS THAT THE ASSESSEE SHOULD HAVE EARNED AND INCLUDED IN ITS TOT AL INCOME OF THE SAME OR AN EARLIER YEAR WHICH IS SUBSEQUENTLY WRITTEN OFF AS BAD DEBT. THE ASSESSEE LODGED THIS SPECIFIC CLAIM BEFORE THE ASSESSING OFFICER THAT IT HAD EARNED BROKERAGE FROM SHRI PARESH PAREKH TO THE TUNE OF RS.19.00 LAKHS IN THE PERIOD RELEVANT TO ASSESSMENT YEAR 2001-2002. THE COPY OF SUCH DETAILS IS PLACED AT PAGES 5 ONWARDS OF THE PAPER BOOK. THE ASSESSING OFFICER HAS NOT CONTROVERTED T HIS FACTUAL PROPOSITION PLACED BEFORE HIM. IT THEREFORE TRANSPIRES THAT THE ASSE SSEE DID EARN AND DECLARE BROKERAGE OF RS.19.00 LAKHS FROM SHRI PARESH PAREKH AND SUBSEQUENTLY A SUM OF RS.14.41 LAKHS BEING THE AMOUNT LESS THAN THE BRO KERAGE INCOME WAS WRITTEN OFF AS BAD DEBT IN THE PREVIOUS YEAR RELEVANT TO ASSESS MENT YEAR UNDER CONSIDERATION. ACCORDINGLY THE CONDITION OF SECTION 36(2) STANDS SATISFIED. 5. INSOFAR AS THE ALLOWABILITY OF DEDUCTION U/S.361 )(VII) IS CONCERNED WE FIND THAT ISSUE NOW STANDS SETTLED IN FAVOUR OF THE ASSE SSEE BY VARIOUS JUDGMENTS. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. OMAN INTERNATIONAL BANK SAOG [(2006) 100 ITD 285 (MUM.) (SB)] HAS HELD THAT AFTER 1.4.1989 THE ASSESSEE IS NOT REQUIRED TO ESTABLISH THAT THE DEBT HAS BEC OME BAD OR NOT IN THE YEAR OF CLAIM AND THE DEDUCTION IS AVAILABLE ON SIMPLE WRITE OFF. THIS VIEW HAS BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF DIT VS. OMAN INTERNATIONAL BANK SAOG [(2009) 313 ITR 128 (BOM.)]. SIMILAR VIEW HAS BEEN TAKEN IN CIT VS. STAR CHEMICALS PVT. LTD. [(2009) 313 ITR 126 (BOM.). IN THE ABSENCE OF ANY FINDING GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT OR DER THAT THE DEBT HAD NOT BECOME BAD IN OUR CONSIDERED OPINION THE LEARNED CIT(A) WAS NOT JUSTIFIED IN REFUSING DEDUCTION. ITA NO.7075/MUM/2008 M/S.ACK CAPITAL MANAGEMENT PVT.LTD. 4 6. ANOTHER FACTOR TAKEN INTO CONSIDERATION BY THE L EARNED CIT(A) FOR NOT ALLOWING DEDUCTION IS THAT THE ASSESSEE HAD RECOVER ED A SUM OF RS.1.60 LAKHS FROM SHRI PARESH PAREKH IN THE YEAR ENDING 31.3.2006 AND A FURTHER SUM OF RS.2.72 LAKHS IN THE YEAR ENDING 31.3.2007. WE HAVE PERUSED THE COPY OF ACCOUNT OF SHRI PARESH PAREKH IN THE BOOKS OF ACCOUNT OF THE ASSESS EE FOR THE YEAR ENDING 31.3.2006 AND 31.3.2007. IT IS SEEN THAT NO BUSINES S TRANSACTIONS WERE ALLOWED TO BE CARRIED ON BY SHRI PARESH PAREKH. THE ASSESSEE MANA GED TO RECOVER THE SAID AMOUNTS IN THE SUCCEEDING YEARS AND PROMPTLY OFFERE D FOR TAXATION U/S.41(4). IN VIEW OF THE FACT THAT THE AMOUNT CEASED TO BE RECOV ERABLE IN THE YEAR IN QUESTION AND THE ASSESSEE ACCORDINGLY WROTE OFF THE SAID AMO UNT IN THE BOOKS OF ACCOUNT DEDUCTION U/S.36(1)(VII) CANNOT BE DENIED ONLY FOR THE REASON THAT SOME PART OF THE DEBT WAS RECOVERED IN SUBSEQUENT YEARS. THE RELEVAN T CONSIDERATION IS TO CONSIDER THE SITUATION IN THE YEAR WHEN THE AMOUNT WAS WRITT EN OFF AS BAD DEBT. IF SUCH AMOUNT IS WRITTEN OFF IN THE BOOKS OF ACCOUNT AS IR RECOVERABLE AND THE CONDITION OF SECTION 36(2) ARE SATISFIED THE DEDUCTION HAS TO B E ALLOWED ON ACCOUNT OF BAD DEBT. THE PROVISIONS OF SECTION 41(4) ARE THERE TO ENVELO PE THE AMOUNT FOR TAXATION IF RECOVERED OUT OF THE AMOUNT OF BAD DEBT EARLIER WR ITTEN OFF AS INCOME IN THE YEAR OF SUCH RECOVERY. WE THEREFORE HOLD THAT THE LEAR NED CIT(A) WAS NOT JUSTIFIED IN REFUSING THE DEDUCTION OF RS.14.41 LAKHS TOWARDS BA D DEBT. THIS GROUND IS ALLOWED. 7. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 19 TH DAY OF JANUARY 2010. SD/- SD/- (ASHA VIJAYARAGHAVAN) ( R.S.SYAL ) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI : 19 TH JANUARY 2010. DEVDAS* ITA NO.7075/MUM/2008 M/S.ACK CAPITAL MANAGEMENT PVT.LTD. 5 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A)-IV MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI. ITA NO.7075/MUM/2008 M/S.ACK CAPITAL MANAGEMENT PVT.LTD. 6 DATE INITIAL 1. DRAFT DICTATED ON 18.01.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 18.01.2010 SR.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 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 9. DATE OF DISPATCH OF ORDER. &