M/S. ASIT C. MEHTA INVESTMENT INTERMEDIATES LTD., MUMBAI v. DCIT-4(1), MUMBAI

ITA 6193/MUM/2008 | 2005-2006
Pronouncement Date: 24-02-2010 | Result: Allowed

Appeal Details

RSA Number 619319914 RSA 2008
Assessee PAN AAACA5009N
Bench Mumbai
Appeal Number ITA 6193/MUM/2008
Duration Of Justice 1 year(s) 4 month(s) 8 day(s)
Appellant M/S. ASIT C. MEHTA INVESTMENT INTERMEDIATES LTD., MUMBAI
Respondent DCIT-4(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 24-02-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 24-02-2010
Date Of Final Hearing 15-02-2010
Next Hearing Date 15-02-2010
Assessment Year 2005-2006
Appeal Filed On 16-10-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI. BEFORE SHRI R.K. GUPTA J.M. AND SHRI J. SUDHAKAR REDDY A.M. I.T.A. NO. 61 93/MUM/2008 ASSESSMENT YEAR : 2005-06. M/S ASIT C. MEHTA INVESTMENT D Y. COMMISSIONER OF INTERNATIONAL LTD. 5 TH FLOOR VS. INCOME-TAX-4(1) NUCLEUS HOUSE SAKI VIHAR ROAD MUM BAI. MUMBAI 400072. PAN AAACA5009N APPELLANT RESPONDENT APPELLANT BY : SHRI SATISH MODY. RESPONDENT BY : SHRI VIKRAM GAUR. O R D E R PER J. SUDHAKAR REDDY A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS)-IV MUMBAI DATED 24-09-20 08 FOR ASSESSMENT YEAR 2005-06. 2. FACTS IN BRIEF : THE ASSESSEE IS A SHARE AND STOCK BROKER AND FILE D ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR 2005-06 ON 26-10-2005. THE GROUNDS OF APPEAL ARE AS FOLLOWS : 1. THE LD. ASSESSING OFFICER HAS ERRED IN DISALLOWING THE BAD DEBTS OF RS.4 00 000/- INCURRED BY YOUR PETITIONER. THE LD. ASSESSING OFFICER HAS FURTHER ERRED IN STATING THAT THE PAYMENT MADE BY THE BROKER ON BEHALF OF CLIENT IS NOT AN EXPENDITURE INCURRED IN THE COURSE OF THE BUSINESS. 2 THE LD. ASSESSING OFFICER HAS ERRED IN IGNORING THE FACTS THAT THE BROKER ASSESSEE NORMALLY MAKES PAYMENT ON BEHALF OF THE CLIENT TO ADHERE TO THE GUIDELINES OF SEBI AND STOCK EXCHANGE AS IT IS OBLIGATORY FOR THEM TO COMPLY WITH THE MANDATORY GU IDELINES REGARDING PAYMENTS ETC. LAID DOWN BY SEBI AND STOC K EXCHANGES. THE LD. A.O. HAS FURTHER ERRED IN STATING THAT THE PAYMENTS SO MADE BY THE BROKER ASSESSEE WERE NOT FOR THE PURPOSE OF BUSINESS. 2. THE LD. A.O. HAS ERRED IN HOLDING AN AMOUNT OF RS.3 3 40 055/- BEING THE TRANSACTION CHARGES PAID BY THE ASSESSEE TO THE NATIONAL STOCK EXCHANGE. THE LD. A.O. HAS FURTHER ERRED IN H OLDING THAT SUCH TRANSACTION CHARGES REPRESENT THE FEE FOR TECHNICAL SERVICES RENDERED BY THE EXCHANGE AND AS SUCH ATTRACTED THE TAX DEDU CTED AT SOURCE. THE LD. A.O. HAS ERRED IN OVERLOOKING AND IGNORING THE DECISION OF MADRAS HIGH COURT IN THE CASE OF SKY CELL COMMUNICA TION LTD. 251 ITR 53. 3. WE HAVE HEARD MR. SATISH MODY LEARNED COUNSEL FOR THE ASSESSEE AND MR. VIKRAM GAUR LEARNED DR. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE CASE LAWS CITED WE HOLD AS FOLLOWS. 5. THE ASSESSEE CLAIMED AN AMOUNT OF RS.4 00 000/- AS BAD DEBTS. ALTERNATIVELY HE CLAIMED THE SAME AS A BUSIN ESS LOSS. IT IS THE CASE OF THE ASSESSEE THAT IT HAD INCURRED THE LOSS IN TH E ORDINARY COURSE OF BUSINESS. THE FIRST APPELLATE AUTHORITY DENIED THIS CLAIM BY HOLDING THAT LOSS U/S 28 IS ALLOWABLE IN EXCEPTIONAL CIRCUMSTANC ES OF THEFT DACOITY AND EMBEZZLEMENT OR NATURAL CALAMITIES. THESE OBSERVATI ONS IN OUR HUMBLE OPINION ARE ERRONEOUS. FURTHER MORE THE CIT(APPEA LS) WAS WRONG IN HOLDING THAT ONCE A SPECIFIC PROVISION U/S 36(1)(VI I) HAS BEEN PROVIDED BY THE LEGISLATURE NO CLAIM CAN BE CONSIDERED U/S 28. ON THE ONE HAND THE CIT(APPEALS) HOLDS THAT BAD DEBT CANNOT BE ALLOWED AND ON THE OTHER HAND HE HOLDS THAT AS SECTION 36(1)(VII) READ WITH SECTION 36(2) APPLIES AND HENCE NO CLAIM U/S 28 CAN BE MADE. REASONS GIVE N BY THE FIRST 3 APPELLATE AUTHORITY IN PARA C OF PAGE 4 AND 5 OF HI S ORDER IN OUR CONSIDERED OPINION ARE NOT ONLY ERRONEOUS BUT AGAI NST THE WELL SETTLED PRINCIPLES OF LAW. AS THIS IS THE ONLY GROUND FOR U PHOLDING THE DISALLOWANCE WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE AS RIGHTLY POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE IS COVERED BY THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF KOTAK SECURITIES LTD. 25 SOT 440 (MUM.) WHERE ON THE ISS UE OF BUSINESS LOSS UNDER SIMILAR CIRCUMSTANCES IT WAS HELD AS FOLLOW S : WITH REGARD TO THE REMAINING SUM OF RS.31 96 935 THERE WAS NO DISPUTE THAT SAID AMOUNT WRITTEN OFF WAS LOSS IN CURRED IN COURSE OF BUSINESS OF THE ASSESSEE AS A SHARE BROKER. THE DETAILS OF INDIVIDUAL ITEMS OF DEBTS WRITTEN OFF WERE IN THE A SSESSEES PAPER BOOK. PERUSAL OF THOSE DETAILS REVEALED THAT DEBTS RELATED TO SEVERAL CLIENTS OF THE ASSESSEE AND THE AMOUNT WRITTEN-OFF IN EACH CASE RANGED FROM R.2 TO RS.10 000. IN THE CASES OF A FEW CUSTOMERS LARGE SUMS HAD BEEN WRITTEN-OFF. THE LOSS ARISING O N ACCOUNT OF SUCH WRITTEN-OFF WAS CLEARLY ALLOWABLE UNDER SECTIO N 28. THOSE LOSSES WERE INCIDENTAL TO THE BUSINESS OF THE ASSES SEE AND GOING BY THE QUANTUM OF LOSS WRITTEN-OFF IN INDIVIDUAL CASE THE WISDOM OF THE ASSESSEE IN WRITING THEM OFF AS BAD AND IRRECOV ERABLE CONSIDERING THE COST OF LITIGATION ETC. SHOULD HA VE BEEN CONSIDERED AS BONA FIDE AND PLEA OF IRRECOVERABILITY SHOULD HA VE BEEN ACCEPTED. THE CLAIM WAS THEREFORE CLEARLY ALLOWAB LE UNDER SECTION 28. THEREFORE THE DEDUCTION AS CLAIMED BY THE ASSE SSEE WAS ALLOWABLE. 6. RESPECTFULLY FOLLOWING THE SAME WE ALLOW THE C LAIM OF THE ASSESSEE AS BUSINESS LOSS. 7. IN THE RESULT GROUND NO. 1 IS ALLOWED. 8. COMING TO GROUND NO. 2 ADMITTEDLY THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE VIDE DECISION OF H-BENCH OF THE TRIBUNAL IN THE CASE OF KOTAK SECURITIES LTD . VS. CIT 25 SOT 440 (MUM.) WHEREIN IT IS HELD AS FOLLOWS: 4 THE STOCK EXCHANGE MERELY PROVIDE FACILITY TO IT S MEMBERS TO PURCHASE AND SELL SHARES SECURITIES ETC. WITHI N THE FRAME WORK OF ITS BYE LAWS. IN THE EVENT OF DISPUTE IT PROVIDE S FOR MECHANISM FOR SETTLEMENT OF DISPUTE. IT REGULATES CONDITIONS SUBJECT TO WHICH A PERSON CAN BE A MEMBER AND AS TO WHEN AND IN WHAT CIRCUMSTANCES MEMBERSHIP CAN BE TRANSFERRED CANCELLED SUSPENDED ETC. THE EXCHANGE PROVIDES FOR A PLACE WHERE THE MEMBERS CAN MEET AND TRANSACT BUSINESS. THE TRANSACTION FEE PAID IS ON T HE BASIS OF VOLUME OF TRANSACTION EFFECTED BY A MEMBER. THE STO CK EXCHANGE DO NOT RENDER ANY MANAGERIAL SERVICE NOR DO THEY RE NDER ANY TECHNICAL CONSULTANCY SERVICE. THE TRANSACTION FEE IS NOT PAID IN CONSIDERATION OF ANY SERVICE PROVIDED BY THE STOCK EXCHANGE. IT IS A PAYMENT FOR USE OF FACILITIES PROVIDED BY THE STOCK EXCHANGE AND SUCH FACILITIES ARE AVAILABLE FOR USE BY ANY MEMBER . THE PROVISIONS OF SECTION 194J WHICH CAST A BURDEN ON A PERSON TO DEDUCT TAX AT SOURCE AND TREAT HIM AS A DEFAULTER ON HIS FAILURE TO DEDUCT TAX AT SOURCE NEED TO BE INTERPRETED STRICTLY AND IN THE ABSENCE OF A CLEAR OBLIGATION ON THE PART OF A PERSON SPELT OUT IN U NAMBIGUOUS TERMS BY THE PROVISIONS OF SECTION 194J READ WITH EXPLAN ATION 2 TO SECTION 9(1)(VII) SUCH OBLIGATION CANNOT BE IMPLIE D OR LEFT TO THE IPSI DIXIT OF THE REVENUE AUTHORITIES. THEREFORE T RANSACTION FEE PAID COULD NOT BE SAID TO BE A FEE PAID IN CONSIDERATION OF THE STOCK EXCHANGE RENDERING ANY TECHNICAL SERVICES TO THE AS SESSEE. THE PROVISIONS OF SECTION 194J WERE THUS NOT ATTRACTE D. THEREFORE THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE. CONSEQUENTLY THE PROVISIONS OF SECTION 40( A)(IA) WERE ALSO NOT ATTRACTED AND THEREFORE THE DISALLOWANCE MADE WAS TO BE DELETED. 9. RESPECTFULLY FOLLOWING THE SAME WE ALLOW THIS GROUND OF THE ASSESSEE. 10. IN THE RESULT THE APPEAL IS ALLOWED. ORDER PRONOUNCED ON THIS 24 TH DAY OF FEBRUARY 2010. SD/- SD/- (R.K. GUPTA) (J. SUDHAKAR REDDY) JUDICIAL MEMBER. ACCOUNTANT MEMBER. MUMBAI DATED : 24 TH FEBRUARY 2010. WAKODE 5 COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR A-BENCH. (TRUE COPY) BY ORDER ASSTT.REGISTRAR ITAT MUMBAI BENCHES MUMBAI.