M/s. Malnad Investor's Association Ltd.,, Shimoga v. ITO, Shimoga

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI K.P.T. THANGAL VICE PRESIDENT AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NO.741/BANG/08 ASSESSMENT YEAR : 2000-01 MALNAD INVESTORS ASSOCIATION LTD. SHIMOGA DISTRICT CHAMBER OF COMMERCE BUILDING PARK EXTENSION SHIMOGA. : APPELLANT VS. THE INCOME TAX OFFICER WARD-1 SHIMOGA. : RESPONDENT APPELLANT BY : SHRI S.R. KIRON RESPONDENT BY : SMT. JACINTA ZIMIK VASHAI O R D E R PER A. MOHAN ALANKAMONY ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF CIT(APPEALS) HUBLI DATED 25.10.2006 FOR THE ASSESS MENT YEAR 2000-01. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER: 2. THE HONBLE CIT(A) HAS FAILED TO TAKE COGNIZANC E OF FIRST WRITTEN SUBMISSION FILED ON 22-02-2006 PLACING THE ARGUMENTS AS UNDER ITA NO.741/BANG/08 PAGE 2 OF 5 (A) THAT ONLY TRUE PROFIT OR GAINS OF BUSINESS ASCE RTAINED ACCORDING TO COMMERCIAL PRINCIPLES IS CONTEMPLATED TO BE TAXED U/S 28 OF THE IT ACT. (B) THAT ANY EXPENDITURE OR LOSS THOUGH NOT ADMISSI BLE UNDER ANY SPECIFIC PROVISION OF THE STATUTE YET SU CH EXPENDITURE OR LOSS HAS TO BE ALLOWED IN ORDER TO D ETERMINE THE TRUE PROFITS OF A BUSINESS AS PER THE PRINCIPLE S OF COMMERCIAL EXPEDIENCY. (C) THE 5 PRINCIPLES LEGISLATED U/S 37 THAT HAVE TO BE COMPLIED WITH IN ORDER THAT AN ITEM OF LOSS CAN BE TAKEN INTO ACCOUNT IN COMPUTING THE TRUE PROFITS OF A BUS INESS. (D) THE RATIO LAID DOWN IN I) SREE MANAKSHI MILLS LTD. V. CIT (63 ITR 207(SC) II) CIT V. BIRLA COTTON SPINNING & WEAVING MILLS LTD. 82 ITR 166 (SC) III) CIT V. GANNON DUNKERLEY & CO. 119 ITR 595 (BOM) BOTH THE AUTHORITIES BELOW HAVE DEALT ONLY WITH THE 2 ND WRITTEN SUBMISSION OF THE APPELLANT DATED 24-04-200 6 CONTAINING A FEW CASE LAWS. COMING TO THE CONCLUSIO N THAT THE CASE LAWS QUOTED ARE NOT APPLICABLE IN THE INST ANT CASE THE ADDITION OF RS.33 72 100/- MADE BY THE ASSESSIN G OFFICER IS SUSTAINED BY THE HONBLE CIT(A). THUS T HE ADDITION OF RS.33 72 100/- DESERVES TO BE DELETED. 3. BOTH THE AUTHORITIES BELOW HOLDING THE OPINION O NLY LOSS ATTRIBUTABLE TO BROKERAGE ALONE SHOULD ALLOWED MISDIRECTED THEMSELVES IN ATTEMPTING TO SPLIT THE L OSS INCIDENTAL TO BUSINESS INTO TWO COMPONENTS AS A) BEING LOSS ATTRIBUTABLE ONLY TO BROKERAGE AND B) BEING LOSS ATTRIBUTABLE TO THE CLIENTS SHARE T RANSACTION. HAVING FAILED TO MAKE MUCH HEADWAY IN THAT DIRECTIO N THEY ABANDONED THE EXERCISE MIDWAY AND HELD THAT TH IS LOSS INCIDENTAL TO BUSINESS WILL NOT BE ENTERTAINED . 4. BOTH THE AUTHORITIES BELOW HELD THE VIEW THAT LO SS HAS TO BE PROVED BY PRODUCING DOCUMENTARY EVIDENCES LIKE AGREEMENT CONTRACT STATUTORY OBLIGATIONS OBLIGAT IONS BY AUTHORITIES LIKE SEBI ETC. . THEY FAILED TO APPREC IATE THAT ITA NO.741/BANG/08 PAGE 3 OF 5 IN BUSINESS ONE CANNOT ENVISAGE ALL THE VARIOUS WAY S THAT A LOSS COULD OCCUR AND THEN ENTER INTO AN AGREEMENT T O THAT EFFECT. THIS LOSS BEING INCIDENTAL TO BUSINESS AN D HAVING OCCURRED WHILE CONDUCTING BUSINESS HAS TO BE ALLOW ED AND NOT DENIED FOR WANT OF AN AGREEMENT TO THAT EFFECT. THUS THE ADDITION OF RS.33 72 100/- MADE BY THE ASSESSIN G OFFICER AND SUSTAINED BY THE HONBLE CIT(A) SHOULD BE NEGATED AND THE SAME BE ALLOWED AS LOSS INCIDENTAL TO BUSINESS U/S 28 OF THE IT ACT. 4. WITHOUT PREJUDICE TO THE OTHER GROUNDS URGED HER EIN THE APPELLANT SUBMITS THAT AS HELD BY THE COURTS THE A MOUNT OF RS.33 72 100 IS A TRADING LOSS WHICH IS SUBSUMED I N SECTION 28. THE SUPREME COURT HAS REPEATEDLY HELD THAT DEDUCTIONS PERMISSIBLE UNDER SECTIONS 30 TO 43C ARE NOT EXHAUSTIVE. THERE MAY BE EXPENDITURE WHICH THOUGH NOT COVERED BY ANY OF THE ITEMIZED CATEGORIES MENTIONED IN SECTIONS 30 TO 43C MAY HAVE TO BE CONSIDERED IN FI NDING OUT THE TRUE ASSESSABLE PROFITS AND GAINS. THE BONA FIDE SATISFACTION OF THE COMPANY THAT THE AMOUNTS AGGREG ATING TO RS.33 72 100 SHOWN IN THE ACCOUNTS AS DUE FROM T HE CLIENTS/DEBTORS COULD NOT BE REALIZED AND IT WAS BU SINESS EXPEDIENCY TO TREAT THEM AS LOSS INCIDENTAL TO BUSI NESS. HENCE THE AMOUNT OF RS.33 72 100 IS DEDUCTIBLE AS T RADING LOSS IN COMPUTING THE INCOME OF THE APPELLANT UNDER THE HEAD BUSINESS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A SUB BROKER REGISTERED UNDER NATIONAL STOCK EXCHANGE AND DERIVE S ITS INCOME FROM BROKERAGE ON TRADING IN SHARES DONE BY ITS CLIENTS. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY CLAI MED A DEDUCTION OF RS.33 72 100 AS BAD DEBTS WHICH WAS REJECTED BY TH E ASSESSING OFFICER. ON FIRST APPEAL THE LD. CIT(APPEALS) AGREED WITH T HE FINDING OF THE ASSESSING OFFICER AND THE DISALLOWANCE MADE BY THE AO WAS UPHELD. ON FURTHER APPEAL THE TRIBUNAL AFTER DEALING WITH THE ISSUE ELABORATELY HELD THAT THE DEBT HAD NOT BECOME BAD DURING THE YEAR UN DER REFERENCE AND ON THIS GROUND THE ASSESSEE IS NOT ENTITLED TO DEDUCTI ON. ACCORDINGLY IT ITA NO.741/BANG/08 PAGE 4 OF 5 CONFIRMED THE DECISION OF THE CIT(APPEALS) IN UPHOL DING THE DISALLOWANCE OF RS.33 72 100. HOWEVER THE TRIBUNAL ADMITTED AN AD DITIONAL GROUND RAISED BY THE ASSESSEE THAT THE CLAIM OF RS.33 72 000 CAN BE ALLOWED AS A BUSINESS LOSS U/S. 28 OF THE INCOME-TAX ACT. SINCE THIS ISSUE WAS NOT CONSIDERED BY THE LD. CIT(APPEALS) THIS ISSUE WAS RESTORED TO THE FILE OF THE CIT(APPEALS) FOR CONSIDERATION BY ORDER DATED 30.12 .05. ACCORDINGLY THE IMPUGNED ORDER PASSED BY THE CIT(APPEALS) IS UNDER APPEAL BEFORE THE TRIBUNAL. 4. THE LD. AR SUBMITTED THAT BOTH THE LD. CIT(A) AN D THE LD. AO HAVE DEALT WITH ONLY THE SECOND WRITTEN SUBMISSION OF TH E ASSESSEE DATED 24.4.2006 CONTAINING A FEW CASE LAWS AND HAVE COME TO THE CONCLUSION THAT THE CASE LAWS QUOTED ARE NOT APPLICABLE IN THE INSTANT CASE WITHOUT CONSIDERING THE WRITTEN SUBMISSIONS FILED ON 22.2.2 006 AND THUS THE CONTENTIONS TAKEN THEREIN AND CASE LAWS RELIED UPON HAVE NOT BEEN TAKEN COGNIZANCE OF BY THE LD. CIT(APPEALS). HE THEREFOR E PRAYED THAT IN THE INTEREST OF NATURAL JUSTICE THE MATTER BE REMITTED BACK TO THE LD. CIT(APPEALS) FOR CONSIDERATION OF THE SAME. 5. THE LD. DR VEHEMENTLY OPPOSED TO THE PLEA OF THE LD. AR BY STATING THAT THE LETTER DATED 22.2.2006 FILED BY THE ASSESS EE WAS BEFORE THE CONCERNED AUTHORITIES AND HAVE BEEN CONSIDERED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ON PERUSING THE ORDER PASSED BY THE LD. CI T(APPEALS) WE OBSERVE THAT THE SUBMISSION OF THE ASSESSEE SEEMS TO BE JUS TIFIED. THEREFORE IN THE INTEREST OF JUSTICE WE ARE OF THE OPINION THAT THE MATTER MUST BE REMITTED BACK TO THE LD. CIT(APPEALS) FOR CONSIDERA TION OF THE WRITTEN ITA NO.741/BANG/08 PAGE 5 OF 5 SUBMISSIONS DATED 22.2.06 AND THE CASE LAWS SUBMITT ED BY THE ASSESSEE. ACCORDINGLY THE ISSUE IS RESTORED TO THE FILE OF LD . CIT(APPEALS) FOR FRESH CONSIDERATION AFTER PROVIDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. IN THE RESULT THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 29TH DAY OF JANUARY 2010. SD/- SD/- ( K.P.T THANGAL ) (A. MOHAN ALANKAMONY ) VICE PRESIDENT ACCOUNTANT MEMBER BANGALORE DATED THE 29 TH JANUARY 2010. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE.