The ACIT, Ahmedabad Circle-3,, Ahmedabad v. M/s. Madhur Shares & Stock Pvt. Ltd.,, Ahmedabad

ITA 704/AHD/2005 | 2001-2002
Pronouncement Date: 31-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 70420514 RSA 2005
Assessee PAN AABCM5449D
Bench Ahmedabad
Appeal Number ITA 704/AHD/2005
Duration Of Justice 5 year(s) 2 month(s) 26 day(s)
Appellant The ACIT, Ahmedabad Circle-3,, Ahmedabad
Respondent M/s. Madhur Shares & Stock Pvt. Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 31-05-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 31-05-2010
Date Of Final Hearing 29-04-2010
Next Hearing Date 29-04-2010
Assessment Year 2001-2002
Appeal Filed On 04-03-2005
Judgment Text
ITA.615-704-05 A.Y.01-02 1 IN THE INCOME_TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD BEFORE SHRI T.K. SHARMA AND SHRI D.C. AGRAWAL. ITA. NO. 615 /AHD/2005 (ASSESSMENT YEAR: 2001-02) MADHUR SHARES & STOCK PRIVATE LTD. MADHUR COMPLEX STADIUM CIRCLE NAVRANGPURA AHMEDABAD. VS ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-3 5 TH FLOOR INSURANCE BLDG. ASHRAM ROAD AHMEDABAD. (APPELLANT) (RESPONDENT) AND ITA. NO. 704 /AHD/2005 (ASSESSMENT YEAR: 2001-02) ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-3 5 TH FLOOR INSURANCE BLDG. ASHRAM ROAD AHMEDABAD. VS MADHUR SHARES & STOCK PRIVATE LTD. MADHUR COMPLEX STADIUM CIRCLE NAVRANGPURA AHMEDABAD. (APPELLANT) (RESPONDENT) PAN: AABCM 5449D BY ASSESSEE : SMT. URVASHI SHODHAN. BY REVENUE : SHRI B.S. GAHLOT CIT(DR) WIT H SMT. NEETA SHAH SR. D.R. ( (( ( )/ )/)/ )/ ORDER PER SHRI D.C. AGRAWAL. THESE ARE THE TWO APPEALS FOR THE ASSESSMENT YEAR 2 001-02 ARISING FROM THE ORDER OF LD. C.I.T.(A) DATED 24-12 -2004 ONE FILED BY THE ASSESSEE AND THE OTHER FILED BY THE REVENUE. ITA.615-704-05 A.Y.01-02 2 2. SINCE COMMON ISSUES AND ARGUMENTS ARE INVOLVED T HEY ARE TAKEN UP TOGETHER FOR THE SAKE OF CONVENIENCE. 3. IN THE DEPARTMENTAL APPEAL FOLLOWING GROUNDS ARE RAISED :- 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN THE CASE IN DELETING THE FOLLOWING ADDITIONS MADE BY THE A.O. I) DEPRECIATION ON MEMBERSHIP CARD OF RS.1 89 844/- II) RS. 4 46 18 417/-ALLOWING AS TRADING LOSS OUT O F BAD DEBTS DISALLOWANCE OF RS.5 77 44 844/-. III) SUNDRY CREDITORS TREATED AS UNEXPLAINED CASH C REDITS U/S.63 RS.14 07 751/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF T HE ASSESSING OFFICER. 4. WHEREAS IN ASSESSEES APPEAL FOLLOWING GROUNDS A RE RAISED :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE ASSESSMENT COMPLETED IS NOT IN ACCORDANCE WITH LAW IN SO FAR AS NEITHER THE ASSESSMENT ORDER NOR THE DEMAND NOTICE CONTAINS THE BREAK-UP OF TOTAL SUM DEMANDED RS.98 68 345/-. IT DESERVES TO BE ANNULLED. 2. WITHOUT PREJUDICE ON FACTS AND IN THE CIRCUMSTA NCES OF THE CASE THE CIT (A) HAS ERRED IN HOLDING THAT THO UGH THE ASSESSEE IS A STOCK BROKER DEDUCTION FOR BAD DEBTS OF ITS CLIENTS IS NOT ALLOWABLE U/S. 36(1)(VII) R.W.S. 36( 2). 3. WITHOUT PREJUDICE ON FACTS AND IN THE CIRCUMSTA NCES OF THE CASE THE CIT (A) SHOULD HAVE HELD THAT FOR A S TOCK BROKER AMOUNTS NOT RECOVERED FROM ITS CLIENTS SATIS FY THE CONDITION LAID DOWN IN SECTION 36(2)(I) AND HENCE T HEY ARE ALLOWABLE U/S. 36(1)(VII) OF THE ACT. ITA.615-704-05 A.Y.01-02 3 4. WITHOUT PREJUDICE ON FACTS AND IN THE CIRCUMSTA NCES OF THE CASE THE CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF RS.1 31 36 427/- OUT OF TOTAL CLAIM OF RS.5 77 84 844/- BY PURPORTEDLY APPLYING SECTION 28 . 5. WITHOUT PREJUDICE ON FACTS AND IN THE CIRCUMSTA NCES OF THE CASE THE CIT (A) HAS ERRED IN RESTRICTING THE DEDUCTION TO RS.4 46 18 417 WHILE HE SHOULD HAVE HELD THAT TH E WHOLE SUM OF RS. 5 77 44 844 WAS ALLOWABLE AS DEDUC TION EVEN UNDER SECTION 28. 6. WITHOUT PREJUDICE ON FACTS AND IN THE CIRCUMSTA NCES OF THE CASE THE CIT (A) SHOULD HAVE HELD THAT IT WAS NOT A FIT CASE FOR LEVY OF INTEREST U/S. 234A OR 234B OR U/S. C OR U/S. 234D. 5. THE FACTS INVOLVED ARE THAT ASSESSEE IS A COMPAN Y REGISTERED AS SHARE BROKER WITH AHMEDABAD STOCK EXCHANGE. THE ASSESSEE IS CARRYING ON BUSINESS OF SHARE BROKING AND THEREFOR E DECLARED INCOME FROM EARNING BROKERAGE. THE ASSESSEE-COMPANY DURING THE YEAR IN QUESTION DECLARED A LOSS OF RS.47 51 790/- ITA. NO.704/AHD/05. (REVENUES APPEAL) 6. THE FIRST ISSUE IS ABOUT ALLOWING DEPRECIATION ON MEMBERSHIP CARD OF STOCK EXCHANGE. THE A.O. MENTION ED IN HIS ORDER THAT THE ASSESSEE ACQUIRED MEMBERSHIP CARD RI GHT IN AHMEDABAD STOCK EXCHANGE ON 26-2-1997 LONG BEFORE 1 -4-1998 WHEN AMENDMENT IN SECTION-32 HAD TAKEN PLACE TO THE EFFECT THAT DEPRECIATION WILL BE ALLOWED ON KNOW-HOW PATENTS COPY-RIGHTS TRADE MARKS LICENSES FRANCHISES OR ANY OTHER BUSINESS O R COMMERCIAL RIGHTS OF SIMILAR NATURE ACQUIRED ON OR AFTER 1 ST DAY OF APRIL 1998. ITA.615-704-05 A.Y.01-02 4 ACCORDING TO THE A.O. SINCE THIS RIGHT IN THE FORM OF MEMBERSHIP CARD WAS ACQUIRED PRIOR TO 1-4-1998 ASSESSEE WILL NOT BE ENTITLED TO DEPRECIATION ON IT. FURTHER ACCORDING TO THE A.O. STOCK EXCHANGE CARD IS NOT AN ASSET U/S. 2(E) OF WEALTH TAX ACT. IT IS NOT FRANCHISES OR LICENSE BUT IT IS ONLY AN IDENTITY PROOF OF ASSESS EES MEMBERSHIP INTO THE STOCK EXCHANGE. 7. HOWEVER THE LD. CIT(A) ALLOWED THE CLAIM RELYIN G ON THE DECISION OF TRIBUNAL IN THE CASE OF V.G. GAJJAR & O THERS IN W.T.A.NO.07/A/2001 DATED 30-9-2004 WHEREIN THE TRIB UNAL HAS HELD THAT STOCK EXCHANGE CARD IS A PROPERTY AND AN ASSET U/S. 2(E) OF WEALTH TAX ACT. FURTHER DEPRECIATION HAS BEEN PERMI TTED ON INTANGIBLE ASSET AFTER 1-4-1998. THE LD. C.I.T.(A) MENTIONED THAT ASSESSEE ACQUIRED THIS CARD AFTER 1-4-98 AND NOT ON 26-2-97. THE LD. C.I.T.(A) HAS VERIFIED THIS FACT FROM THE RECORD O F THAT YEAR AND OTHER YEARS FROM THE AUDITED ACCOUNTS SUBMITTED BY THE AS SESSEE. ACCORDING TO THE LD. C.I.T.(A) MEMBERSHIP CARD OF A HMEDABAD STOCK EXCHANGE IS GRANTED BY STOCK EXCHANGE TO CARRY ON S HARE TRANSACTIONS AT ITS OWN IN THE EXCHANGE. 8. WE HAVE HEARD LEARNED D.R. AND LD.A.R. ACCORDIN G TO LD. D.R. AS PER THE DECISION IN CIT VS. TECHNO SHARES & STOCK LTD. & OTHERS(2009) 32 DTR 201(MUMBAI)/ (2009) 225 CTR-337 (MUM.) DEPRECIATION WILL NOT BE ADMISSIBLE ON MEMBERSHIP C ARD OF STOCK EXCHANGE. ON THE OTHER HAND LD. A.R. SUBMITTED THAT ONCE MEMBERSHIP CARD IS ACQUIRED AFTER 1-4-98 THEN AS PE R LATEST DECISION OF ITAT BOMBAY BENCH IN KOTAK SECURITIES LTD. VS. A DDL. CIT (2009) ITA.615-704-05 A.Y.01-02 5 318 ITR-80; 268 ITD (ITAT) MUMBAI DEPRECIATION ON THE MEMBERSHIP CARD WOULD BE AVAILABLE. 9. AFTER HEARING THE RIVAL SUBMISSIONS WE ARE OF TH E CONSIDERED VIEW THAT DEPRECIATION CANNOT BE ALLOWED ON THE MEM BERSHIP CARD OF STOCK EXCHANGE. HOWEVER THE ITAT MUMBAI BENCH IN TH E CASE OF KOTAK SECURITIES LTD. (SUPRA) HAS ALLOWED THE CLAI M HOLDING IT AS INTANGIBLE ASSET AND THAT THE CARD WOULD FALL WITH IN THE PARAMETER OF SECTION 32(1)(II) OF THE I.T. ACT 1961 IT IS ALSO HELD TO BE A CAPITAL ASSET WHICH CONFERS THE RIGHT TO TRADE ON THE FLOOR OF THE STOCK EXCHANGE WHEN ACQUIRED BY THE ASSESSEE SUCH RIGHT BECOMES AN INTANGIBLE ASSET. IT HAS ALSO BEEN SO HELD IN DY. C IT VS. KHANDWALA PVT. LTD. (2009) 309 ITR-80 (08 ITAT MUM.) AND ALS O IN R.M. VALLIPPAN VS. ACIT (2006) 287 ITR-80 (203) ITAT CHE NNAI SPECIAL BENCH THAT MEMBERSHIP CARD/STOCK EXCHANGE IS A CAPI TAL ASSET. 10. BUT THE LATEST DECISION OF HONBLE BOMBAY HIGH COURT IN CIT VS. TECHNO SHARES & STOCK LTD. AND OTHERS (SUPRA) HAS H ELD THAT STOCK EXCHANGE CARD IS NEITHER BUSINESS OR COMMERCIAL RIG HT NOR ANY INTELLECTUAL PROPERTY AND ALSO NOT A LICENSE THEREF ORE DEPRECIATION WOULD NOT BE AVAILABLE ON IT. HONBLE BOMBAY HIGH COURT REJECTED THE ARGUMENT THAT STOCK EXCHANGE CARD BEING CAPITAL ASS ET IS ENTITLED TO DEPRECIATION BY HOLDING THAT U/S.32 NOT ALL CAPITAL ASSETS ARE ENTITLED TO DEPRECIATION. AS STOCK EXCHANGE CARD DOES NOT FALL IN ANY OF THE CATEGORIES FIXED U/S.32(1)(II) DEPRECIATION THEREON WOULD NOT BE ADMISSIBLE. IN THIS REGARD WE REFER TO THE OBSERVAT IONS IN PARAGRAPHS 26 31 TO 33 OF THAT JUDGEMENT AS UNDER:- ITA.615-704-05 A.Y.01-02 6 DEPRECIATION UNDER S. 32 IS RESTRICTED TO A CLASS OF TANGIBLE/INTANGIBLE ASSETS SPECIFICALLY ENUMERATED THEREIN. ALL THE INTANGIBLE ASSETS SPECIFICALLY ENUMERATED IN S. /32(1)(II) IN S. 32(1)(II) (EXCEPT THE EXPRESSION LICENCES) BELONG TO THE CLASS OF INTELLECTUAL PROPERTIES. THE EXPRESSION LICENCES INS. 32(1)(II) HAS TO BE CONSTRUED RESTRICTIVELY SO AS TO APPLY TO LICENCES RELATING TO ACQUISITION/USER OF INTELLECTUAL PROPER TY RIGHTS BECAUSE FIRSTLY PLAIN READING OF S. 32 MAKES IT C LEAR THAT THE DEPRECIATION IS RESTRICTED TO THE CATEGORIES OF INT ANGIBLE ASSETS SPECIFICALLY ENUMERATED THEREIN AND NOT TO ALL INTA NGIBLE ASSETS. IN SUCH A CASE CONSTRUING THE EXPRESSION LICENCES WIDELY SO AS TO COVER ALL TYPES OF INTANGIBLE ASSETS ACQUIRED UNDER A LICENCE WOULD AMOUNT TO ENLARGING THE SCOPE OF DEPR ECIATION. SECONDLY THE CATEGORIES OF INTANGIBLE ASSETS SPECI FICALLY ENUMERATED IN S. 32(1)(II) (BARRING THE EXPRESSION LICENCES) ARE ALL RELATABLE TO INTELLECTUAL PROPERTIES. SINCE THE COMMON THREAD IN ALMOST ALL THE EXPRESSIONS USED IN S. 32(1)(II) RELATE TO THE CLASS OF INTELLECTUAL PROPERTY RIGHTS IT IS REASONA BLE TO CONSTRUE THAT THE EXPRESSION LICENCES IN S. 32(1)(II) RELA TES TO THE CLASS OF INTELLECTUAL PROPERTY RIGHTS. THIRDLY THE RULE OF NOSCITUR A SOCIIS WOULD APPLY TO THE FACTS OF THE PRESENT CASE BECAUSE THE EXPRESSION LICENCES IN S. 32(1)(II) IS PRECED ED AND SUCCEEDED BY THE EXPRESSIONS WHICH ARE ALL RELATABL E TO INTELLECTUAL PROPERTIES AND THEREFORE THE EXPRESSI ON LICENCES IN S. 32(1)(II) WOULD TAKE COLOUR FROM THOSE EXPRESSIO NS AND ACCORDINGLY APPLY ONLY TO LICENCES RELATING TO INTE LLECTUAL PROPERTIES. CONSTRUING THE EXPRESSION LICENCES IN S. 32(1)(II) WIDELY SO AS TO APPLY TO ALL TYPES OF LICENCES RELA TING TO INTANGIBLE ASSETS WOULD DEFEAT THE OBJECT OF THE AC T BECAUSE DEPRECIATION UNDER S. 32 IS INTENDED TO A LIMITED C ATEGORY OF INTANGIBLE ASSETS AND NOT TO A WIDER CATEGORY OF IN TANGIBLE ASSETS. THEREFORE IT IS REASONABLE TO CONSTRUE TH AT THE EXPRESSION LICENCES IS USED IN S. 32(1)(II) TO AP PLY TO LICENCES RELATABLE TO INTELLECTUAL PROPERTIES ONLY AND NOT T O ALL LICENCES. THE ABOVE REASONING IS FURTHER FORTIFIED BY THE EXP RESSION ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATU RE USED IN S. 32(1)(II). THE SAID EXPRESSION CLEARLY POSTULATES T HAT THE ITA.615-704-05 A.Y.01-02 7 BUSINESS OR COMMERCIAL RIGHTS WHICH ARE NOT SIMILAR TO THE CATEGORIES SPECIFIED IN S. 32(1)(II) ARE NOT ENTITL ED TO DEPRECIATION. IN OTHER WORDS THE EXPRESSION BUSIN ESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE CLEARLY SHOWS THAT ALL BUSINESS OR COMMERCIAL RIGHTS ARE NOT ENTITLED TO D EPRECIATION. THEREFORE CONSTRUING THE EXPRESSION LICENCES WID ELY SO AS TO APPLY TO ALL LICENCES/PERMISSIONS AND ALL BUSINESS OR COMMERCIAL RIGHTS WOULD BE EX FACIE CONTRARY TO EXP RESS INTENTION OF THE LEGISLATURE. ACCORDINGLY THE ALTE RNATIVE ARGUMENT OF THE ASSESSES THAT THE BSE CARD IS A BUS INESS OR COMMERCIAL RIGHT AND THEREFORE ENTITLED TO DEPRECIA TION IS LIABLE TO BE REJECTED BECAUSE WHAT S. 32(1)(II) CONTEMPL ATES IS THE BUSINESS OR COMMERCIAL RIGHTS RELATING TO INTELLECT UAL PROPERTIES AND NOT ALL CATEGORIES OF BUSINESS OR COMMERCIAL RI GHTS. SINCE THE BSE CARD IS NOT A BUSINESS OR COMMERCIAL RIGHT RELATING TO INTELLECTUAL PROPERTY RIGHTS DEPRECIATION CANNOT BE ALLOWED ON THE BSE CARD. RESPECTFULLY FOLLOWING ABOVE DECISION WE DISALLOW T HE CLAIM OF THE ASSESSEE REVERSE THE ORDER OF THE LD. C.I.T.(A) AN D RESTORE THE ORDER OF A.O. ACCORDINGLY THIS GROUND OF APPEAL IS ALLO WED. 11. NEXT GROUND OF APPEAL IS THAT LD. CIT(A) HAS PA RTLY ALLOWED THE TRADING LOSS OUT OF BAD DEBT CLAIM OF RS.5 77 44 84 4/-. THE FACTS OF THE CASE ARE THAT ASSESSEE HAS CLAIMED BAD DEBT OR IN THE ALTERNATIVE TRADING LOSS U/S. 28 IN RESPECT OF THE FOLLOWING AM OUNTS :- SR.NO. NAME OF THE PARTIES. AMOUNT. 1. PADMAVATI CONSULTANCY 34 46 220 2. SUNITA SANGHVI 1 38 35 092 3. SAIKRUPA CONSULTANCY 1 30 24 176 4. VIJAY PATEL 83 65 513 ITA.615-704-05 A.Y.01-02 8 5. ARCHER SHARE CONSULTANCY 13 00 000 6. ASHIT R. SHAH 29 60 691 7. OTHERS 1 48 13 152 TOTAL 5 77 44 844 12. THE LD. A.O. DID NOT ALLOW THE CLAIM OF BAD DEB T HOLDING THAT ASSESSEE IS A SHARE BROKER AND CONDITIONS LAID DOWN U/S. 36(2) ARE NOT SATISFIED. FURTHER ACCORDING TO A.O. ASSESSEE F AILED TO PROVE THAT IT IS A TRADING LOSS. THE ASSESSEE CLAIMED THAT IT HAD FILED COPIES OF CRIMINAL COMPLAINTS LAUNCHED BY IT FOR RECOVERY OF THE DUES THOUGH IN RESPECT OF FEW PARTIES. THE DETAILS IN RESPECT OF O THERS WERE NOT SUBMITTED. THE A.O. ISSUED SUMMONS U/S.131 AGAINST THE PARTIES WHOSE DETAILS WERE SUBMITTED BY THE ASSESSEE BUT TH E REPLIES RECEIVED WERE STEREOTYPE AND IN GUJARATI BUT WITHOU T SIGNATURE. THEREFORE AUTHENTICITY OF THE LETTERS SO RECEIVED FROM THE DEBTORS WAS NOT ESTABLISHED. HE ACCORDINGLY REJECTED THE CLAIM BOTH U/S.36(1)(VII) AND SECTION 28. 13. THE LD. C.I.T.(A) HELD THAT CONDITIONS LAID DOW N U/S.36(2) ARE NOT SATISFIED AS THESE DEBTS WERE NEVER INCORPORATE D FOR WORKING OUT THE PROFITS OF THE ASSESSEE. HE RELIED ON THE DECIS ION OF ITAT AHMEDABAD BENCH IN THE CASE OF ITO VS. ASHOKKUMAR L ALITKUMAR REPORTED IN 53 ITD PAGE-326. REGARDING TRADING LOSS THE LD. C.I.T.(A) HELD THAT IT WAS ON ACCOUNT OF FAILURE OF THE PARTI ES TO SETTLE THE DUES ETC. WITH THE STOCK EXCHANGE. THE ASSESSEE HAD TO MAKE THE PAYMENT TO STOCK EXCHANGE FOR AVOIDING HIMSELF BEIN G DECLARED AS A ITA.615-704-05 A.Y.01-02 9 DEFAULTER. IF THE CLIENTS ON WHOSE BEHALF THE ASSES SEE MAKES THE TRANSACTION THROUGH STOCK EXCHANGE FAIL TO MAKE THE PAYMENT THEN IT IS THE RESPONSIBILITY OF THE BROKER TO CLEAR THE DU ES WITHIN THE STIPULATED TIME. WITH THIS OBJECT IN MIND THE ASSES SEE MADE THE PAYMENT AND CLAIMED IT AS TRADING LOSS. IN ORDER TO SUPPORT THE CLAIM ASSESSEE FILED LETTERS INDICATING UNDER WHAT CIRCUM STANCES THESE AMOUNTS WERE WRITTEN OFF. IN MANY CASES ASSESSEE H AS TAKEN LEGAL ACTIONS. AS THE ASSESSEE HAS FILED COMPLETE DETAILS WITH REGARD TO LOSS SUFFERED IN RESPECT OF FOLLOWING PARTIES THE LD. C.I.T.(A) ALLOWED PART OF THE CLAIM AS UNDER: SR.NO. NAME OF THE PARTY. AMOUNT. 1. PADMAVATI CONSULTANCY 34 46 220 2. SUNITA SANGHVI 1 38 35 092 3. SAIKRUPA CONSULTANCY. 1 30 24 176 4. VIJAY PATEL 83 65 513 5. ASHIT R. SHAH. 4 16 31 692 14. THE LD. C.I.T.(A) ALLOWED THE CLAIM IN RESPECT OF SOME MORE PARTIES AS DETAILS WERE FURNISHED TO THE CIRCUMSTAN CES UNDER WHICH MONEY COULD NOT BE RECOVERED. THE CONFIRMATION FROM ANKUL PATEL INDICATED THAT HE PAID THE SUM OF RS.10 LACS AS FUL L AND FINAL SETTLEMENT OF OUTSTANDING DUE AND THEREFORE HIS BA LANCE DEBT WAS WAIVED. IN CASE OF SHRI SUHAGBHAI SHETH WHO WAS DO ING THE BUSINESS IN THE NAME OF HIS HUF EXPIRED AND HIS LI ABILITIES WERE NOT ACCEPTED BY HIS FAMILY MEMBERS. THE ASSESSEE WAS TH EREFORE NOT IN ITA.615-704-05 A.Y.01-02 10 A POSITION TO RECOVER A SUM OF RS.14 86 725/- FROM THEM. IT WAS CLAIMED AS A TRADING LOSS. THE LD. C.I.T.(A) ACCORD INGLY CONSIDERED A SUM OF RS.4 16 31 692/- RS.15 LACS IN RESPECT OF A NKUL PATEL AND RS.14 86 725/- IN RESPECT OF SHRI SUHAGBHAI SHETH A S TRADING LOSS. THUS HE ALLOWED THE CLAIM OF RS. 4 46 18 417/- WH EREAS REMAINING CLAIM OF RS.1 31 36 427/- WAS DISALLOWED. 15. BEFORE US THE LD. D. R SUBMITTED THAT CLAIM CAN NOT BE ALLOWED U/S. 36(2) AS THE AMOUNTS IN QUESTION HAVE NOT BEEN TAKEN INTO ACCOUNT WHILE COMPUTING THE PROFITS OF THE BUSINESS . THE CLAIM COULD NOT BE ALLOWED AS TRADING LOSS BECAUSE ASSESSEE HAS NOT EFFECTIVELY PROVED THAT IT WAS A LOSS AND THAT TOO DURING THE C OURSE OF BUSINESS. 16. AGAINST THIS LD. A.R. SUBMITTED THAT AMOUNTS IN QUESTION WERE BUSINESS DEBTS AND WERE WRITTEN OFF BY THE ASSESSEE . THE BROKERAGE WHICH WAS CHARGED BY THE ASSESSEE FROM THESE CLIENT S WAS DECLARED IN THE PROFIT AND LOSS ACCOUNT. THE DEBTS HAD ARISE N ON ACCOUNT OF BUSINESS ACTIVITY OF THE ASSESSEE-COMPANY AND INCOM E HAS BEEN EARNED BY THE ASSESSEE FROM SUCH ACTIVITIES WHICH A RE FULLY REFLECTED IN THE P & L ACCOUNT. IT IS UNDISPUTED THAT LD. A.R . SUBMITTED DEBTS PERTAINED TO CLIENTS FROM WHOM COMMISSION HAS BEEN EARNED. THE LD. A .R. SUBMITTED THAT EVEN IF A PART OF THE DEBT IS TAKEN INTO ACCOUNT WHILE COMPUTING INCOME THEN ENTIRE DEBT IS TO BE ALLOWED. IN THE CASE OF THE PRESENT ASSESSEE BROKERAGE HAS BEEN TAKEN INTO ACCOUNT IN THE P & L ACCOUNT AS INCOME AND THEREFOR E RELATED DEBT SHOULD BE CONSIDERED AS DEBT WITHIN THE MEANING OF SEC. 36(2). THE LD. A.R. REFERRED TO THE DECISION OF HONBLE GUJARA T HIGH COURT IN ITA.615-704-05 A.Y.01-02 11 C.I.T. VS. ABDUL RAZAK & CO. (1982) 136 ITR-825 (G UJ.) WHERE COMMISSION INCOME EARNED WAS DECLARED AS INCOME BUT DEBTS OUTSTANDING AGAINST THEM COULD NOT BE RECOVERED TH EN SUCH NON- RECOVERED DEBTS WERE ALLOWED AS BUSINESS LOSS. THE LD.A.R. THEN REFERRED TO THE DECISION OF HONBLE PUNJAB & HARYAN A HIGH COURT IN C.I.T. VS. DAYALCHAND HARDAYAL (1989) 177 ITR-461(P &H) WHERE ASSESSEE ACTING AS SELLING AGENT SOLD GOODS ON CRE DIT ON BEHALF OF CLIENTS ON CREDIT BUT COULD NOT REALIZE DEBT FROM THEM THE AMOUNT NOT SO REALIZED WAS TREATED AS BUSINESS LOSS AND AS ADM ISSIBLE DEDUCTION. HE THEN REFERRED TO THE DECISION OF HON BLE DELHI HIGH COURT IN C.I .T. VS. D.S. BIST & SONS (2000) 243 IT R- 179 (DEL.) WHERE LOSS ON ACCOUNT OF NON RECOVERY OF BUSINESS DEBT WA S ALLOWED AS A TRADING LOSS. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. FOR CLAIMING DEDUCTION U/S. 36( 1)(VII) AS BAD DEBT ONE CONDITION TO BE SATISFIED IS THAT AMOUNT SHOULD BE WRITTEN OFF IN THE BOOKS OF THE ASSESSEE BY DEBITING P & L ACCOUNT AND SECONDLY SUCH AMOUNT OR PART THEREOF SHOULD BE TAKEN INTO AC COUNT FOR COMPUTING INCOME OF THE PREVIOUS YEAR OR ANY EARLI ER YEAR. THERE ARE DIVERGENT VIEWS AS TO WHETHER DEBT RECOVERABLE FROM CLIENTS WOULD BE CONSIDERED AS TAKEN INTO ACCOUNT IN P & L ACCOUNT F OR COMPUTING INCOME OF THE ASSESSEE IF ONLY BROKERAGE RECEIVED FROM SUCH CLIENT IS ONLY CREDITED IN THE P & L ACCOUNT. ONE VIEW IS THA T ONLY TO THE EXTENT DEBT IS TAKEN INTO ACCOUNT AS INCOME IN THE P & L A CCOUNT AND IS NOT FOUND RECOVERABLE SUBSEQUENTLY OR HAS BECOME BAD D EBT AND IS WRITTEN OFF COULD BE CLAIMED AS DEDUCTION U/S. 36(1 )(VII). IN OTHER ITA.615-704-05 A.Y.01-02 12 WORDS AS PER THIS VIEW WHAT IS OFFERED FOR TAX IN A PREVIOUS YEAR AND SUBSEQUENTLY BECOMES BAD ONLY TO THAT EXTENT ASSES SEE CAN GET DEDUCTION IF WRITTEN OFF IN THE BOOKS. FROM THIS P OINT OF VIEW OTHER PART OF THE DEBT WHICH IS NOT TAKEN INTO ACCOUNT IN THE P & L ACCOUNT IN AN EARLIER YEAR COULD NOT BE ALLOWED AS DEDUCTION EVEN IF WRITTEN OFF. THE INTERPRETATION OF THE WORD PART OF OCCURRING IN S.36(2) MEANS THAT DEDUCTION SHALL BE ALLOWED ONLY TO THAT EXTENT AND ONLY OF THAT PART WHICH IS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. IN NUTSHELL WHAT IS OFFERED FOR TAX ALONE CAN BE A LLOWED AS DEDUCTION IF WRITTEN OFF AND NOT MORE. 18. THE LATEST VIEW IS THAT IF PART OF THE DEBT IS TAKEN INTO ACCOUNT AS INCOME THEN WHOLE OF THE AMOUNT OF DEBT CAN BE SUBS EQUENTLY ALLOWED AS DEDUCTION IF WRITTEN OFF. IN OTHER WORDS IF A SUM OF RS.100 IS TAKEN INTO ACCOUNT AS INCOME IN AN EARLIER YEAR OUT OF BAD DEBT OF RS.1 CRORE AND SUBSEQUENTLY ONE CRORE IS WRITTEN OF F IN A LATER YEAR THEN DEDUCTION OF RS.1 CRORE CAN BE ALLOWED AS DEDU CTION. HOWSOEVER STRANGE IT MAY APPEAR BUT THIS LATER VIE W IS FOLLOWED BY HONBLE DELHI HIGH COURT IN C.I.T. VS. BONANZA PORT FOLIO LTD. (2010) 320 ITR-178 (DEL) AND IN CIT V/S. D. B. INDIA SECUR ITIES (2009) 318 ITR-26 DEL.) HONBLE DELHI HIGH COURT IN BONANZA P ORTFOLIO LTD. HELD AS UNDER :- COMMISSIONER OF INCOME-TAX V. BONANZA PORTFOLIO LTD . [2010] 320 ITR 0178- [DELHI HIGH COURT] THE ASSESSEE WAS IN THE BUSINESS OF SHARE BROKING. IT PURCHASED THE SHARES IN QUESTION ON BEHALF OF ONE OF ITS CLIENTS AND AGAINS T THE PURCHASE OF THE SHARES IT PAID THE MONEY. THE BROKERAGE RECEIVED B Y THE ASSESSEE WAS ITA.615-704-05 A.Y.01-02 13 SHOWN AS INCOME IN HIS BOOKS OF ACCOUNT OF THE IMME DIATE PREVIOUS YEAR. SINCE THE BALANCE AMOUNT TO THE EXTENT OF RS. 50 30 491 COULD NOT BE RECEIVED FROM THE CLIENT ON WHOSE BEHALF THE SHARES WERE PURCHASED THE ASSESSEE DURING THE YEAR WROTE OFF THE SUM AS BAD D EBT. ADMITTEDLY THE AMOUNT COULD NOT BE RECOVERED AND BECAME BAD. THE A SSESSING OFFICER DISALLOWED THE CLAIM OF BAD DEBT ON THE GROUND THAT THE CONDITIONS FOR ALLOWABILITY OF THE AMOUNT AS BAD DEBT AS STIPULATE D IN SECTION 36(1)(VII) READ WITH (2) WERE NOT SATISFIED. THIS WAS CONFIRMED BY THE COMMISSIONER (APPEALS). THE TRIBUNAL HELD THAT THE CLAIM OF BAD DEBT SHOULD HAVE BEEN ALLOWED BY THE ASSESSING OFFICER AS CONDITIONS STIP ULATED IN SECTION 36(1)(VII) AND (2) HAD BEEN SATISFIED. ON APPEAL : HELD DISMISSING THE APPEAL THAT THE MONEY RECEIVA BLE FROM THE CLIENT HAD TO BE TREATED AS BAD AND SINCE IT BECAME BAD IT WAS RI GHTLY CONSIDERED AS BAD DEBT AND CLAIMED AS SUCH BY THE ASSESSEE IN THE BOO KS OF ACCOUNT. SINCE THE BROKERAGE PAYABLE BY THE CLIENT WAS A PART OF THE D EBT AND THAT DEBT HAD BEEN TAKEN INTO ACCOUNT IN THE COMPUTATION OF THE INCOME THE CONDITIONS STIPULATED IN SECTION 36(1)(VII) AND (2) STOOD SATI SFIED. 19. IN THE CASE OF SHARE BROKER THE LOSS HAS BEEN H ELD ALLOWABLE AS BAD DEBT EVEN THOUGH ONLY BROKERAGE HAS BEEN CREDIT ED TO P & L ACCOUNT. IT HAS BEEN SO HELD BY AHMEDABAD BENCH IN CANNON CAPITAL & FINANCE LTD. VS. ACIT IN ITA.NO.1119A/05 FOR A.. Y. 2001-02 / ITA.1447/AHD/05 D-BENCH DATED 7-11-2008. 20. IN THE LATEST JUDGEMENT GIVEN BY ITAT BOMBAY BE NCH IN KOTAK SECURITIES LTD. VS. ADDL. CIT (2009) 318 ITR (A.T.) 0268. IT HAS BEEN HELD THAT LOSS OCCURRED TO A SHARE BROKER ON ACCOUN T OF NON RECOVERY OF DUES FROM THE CLIENTS WOULD BE AN ALLOWABLE AS A BUSINESS LOSS U/S. 28. IN THIS REGARD WE REFER TO THE HEAD-NOTES FROM THAT JUDGEMENT AS UNDER :- ITA.615-704-05 A.Y.01-02 14 KOTAK SECURITIES LTD. V. ADDITIONAL COMMISSIONER OF INCOME-TAX [2009] 318 ITR (A.T.) 0268- [INCOME-TAX APPELLATE TRIBUNAL --MUMBAI] THE ASSESSEE WAS A BROKER WHO WAS ENGAGED IN BUYING AND SELLING SECURITIES ON BEHALF OF ITS CLIENTS. THE ASSESSING OFFICER REF USED TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF BAD DEBT W RITTEN OFF AMOUNTING TO RS. 45 31 150 FOR THE REASON THAT THE SUM WRITTEN O FF AS BAD DEBT WAS NOT TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE A SSESSEE IN THE PREVIOUS YEAR OR EARLIER PREVIOUS YEAR. THE ASSESSEE MADE AN ALTERNATIVE CLAIM UNDER SECTION 28 ON THE BASIS THAT THIS LOSS WAS INCIDENT AL TO ITS BUSINESS AND SHOULD BE ALLOWED AS REVENUE EXPENDITURE. THIS CLAIM WAS A LSO REJECTED BY THE ASSESSING OFFICER. THE COMMISSIONER (APPEALS) CONFI RMED THE DISALLOWANCE. ON APPEAL : HELD ALLOWING THE APPEAL THAT THE AMOUNT WHICH W AS WRITTEN OFF AS BAD DEBT HAD BEEN SHOWN AS INCOME OF THE EARLIER PREVIO US YEAR AND THEREFORE THE CLAIM FOR DEDUCTION OF BAD DEBT SHOULD BE ALLOW ED UNDER SECTION 36(1)(VII) AS A BAD DEBT. THE REQUIREMENT OF ESTABL ISHING THAT THE DEBTS HAD BECOME BAD WAS NOT NECESSARY. THUS THE ASSESSING O FFICER WAS DIRECTED TO ALLOW THE DEDUCTION OF THE SUM OF RS. 13 34 216 AS BAD DEBT WRITTEN OFF. THERE WAS NO DISPUTE THAT THE REMAINING SUM OF RS. 31 96 935 WRITTEN OFF WAS LOSSES INCURRED IN THE COURSE OF THE BUSINESS O F THE ASSESSEE. THE DETAILS OF INDIVIDUAL ITEMS OF DEBTS WRITTEN OFF SHOWED THA T THEY RELATED TO SEVERAL CLIENTS OF THE- ASSESSEE AND THE AMOUNT WRITTEN OFF IN EACH CASE RANGED FROM RS. 2 TO RS.10 000. IN THE CASE OF A VERY FEW CUSTO MERS LARGER SUMS WERE WRITTEN OFF. THE LOSS THAT AROSE ON ACCOUNT OF SUCH WRITE OFF WAS ALLOWABLE UNDER SECTION 28. THESE WERE INCIDENTAL TO THE BUSI NESS OF THE ASSESSEE AND GOING BY THE QUANTUM OF LOSS WRITTEN OFF IN INDIVID UAL CASES THE WISDOM OF THE ASSESSEE IN WRITING THEM OFF AS BAD AND IRRECOV ERABLE CONSIDERING THE COST OF LITIGATION ETC. WAS BONA FIDE AND THE PLE A OF IRRECOVERABILITY SHOULD BE ACCEPTED. THEREFORE THE CLAIM WAS ALLOWABLE UND ER SECTION 28 . 21. IN VIEW OF THE ABOVE A LOSS OCCURRED TO THE SHA RE BROKER ON ACCOUNT OF NON RECOVERY OF DUES FROM THE CLIENTS WO ULD BE ALLOWABLE AS DEDUCTION U/S. 28 IF SUCH DEBT HAS OCCURRED DURI NG THE COURSE OF THE BUSINESS. IT IS UNDISPUTED FACT THAT IN THE PRE SENT CASE THE AMOUNTS WRITTEN OFF BY THE ASSESSEE WERE THE DUES O F THE CLIENTS WITH ITA.615-704-05 A.Y.01-02 15 WHOM ASSESSEE HAD CARRIED OUT BUSINESS TRANSACTION OF SALE AND PURCHASE OF SHARES. 22. A SHARE BROKER AS SUCH NEVER TRADES ANY SHARES ON HIS OWN BEHALF. HE IS CONCERNED ONLY WITH THE BROKERAGE ACC RUED ON THE TRANSACTIONS OF SALE AND PURCHASE CARRIED OUT BY HI M ON BEHALF OF HIS CLIENTS. WHEN THE TRANSACTION IS COMPLETED THE SHA RE BROKER IS ENTITLED TO THE BROKERAGE WHICH IS CREDITED IN THE P & L ACCOUNT AND DEBITED TO THE CLIENTS ACCOUNT. A SHARE BROKER ALS O STANDS GUARANTOR TO THE STOCK EXCHANGE ABOUT THE PAYMENT OF THE DUES BY HIS CLIENTS ON PURCHASE OF SHARES THROUGH HIM. HE ALSO ENSURES DELIVERY OF SCRIPT TO THE PURCHASER. THE LIABILITY ARISE TO THE SHARE BROKER FOR PAYMENT OF THE DUES ON BEHALF OF THE CLIENT ON THE DATE WHEN TRANSACTION OF SALE OR PURCHASE OF SHARES IS FINALI ZED. THE LIABILITY ON ACCOUNT OF NON DELIVERY OF THE SHARES OR BAD DELIVE RY WOULD ARISE ON THE DATE OF THE SETTLEMENT OF THE DUES. IN CASE THE CLIENT DOES NOT MAKE THE PAYMENT OF THE DUES OR DELAYS THE PAYMENT THE BROKER MAKES PAYMENTS FROM HIS OWN COFFERS. IT RESERVES TH E RIGHT TO RECOVER THE SAME FROM THE CLIENT. SIMILARLY WHEN THERE IS A BAD DELIVERY OR NON DELIVERY HE COMPENSATES THE CLIENT FROM HIS OWN ACCOUNT AND DEBITS THE OTHER PARTY WHO IS A DEFAULTER DUE TO NO N DELIVERY OR BAD DELIVERY. IN OTHER WORDS A BROKER HAS TO FACE TWO DEFAULTS OF LIABILITY; ONE THAT ACCRUES TO HIM ON THE DATE WHEN SALE AND P URCHASE TAKES PLACE. HE IS LIABLE TO MAKE THE PAYMENT TO THE SELL ER THROUGH STOCK EXCHANGE. HE MAY RECOVER THE DUES FROM THE PURCHASE R I.E. HIS CLIENT ON WHOSE BEHALF HE MADE PURCHASES AT THE SAME TIME OR SUBSEQUENTLY DEPENDING UPON HIS BUSINESS TERMS. ANO THER LIABILITY ITA.615-704-05 A.Y.01-02 16 ACCRUES IS ON ACCOUNT OF BAD DELIVERY OR NON DELIVE RY THAT ACCRUES TO HIM ON THE DATE OF SETTLEMENT. WHEN ASSESSEE BROKER ARRANGES PURCHASE FOR HIS CLIENTS HIS RIGHT TO RECEIVE BROK ERAGE ACCRUES ON THAT VERY DAY AND THE SAME IS TAKEN INTO ACCOUNT IN THE P & L ACCOUNT. FROM THIS POINT OF VIEW OF THE CONDITION UNDER SUB- SECTION (2) OF SEC.36 WOULD BE SATISFIED. THE CLIENT IS DEBITED B Y TWO AMOUNTS ONE IS AMOUNT OF BROKERAGE AND OTHER IS THE AMOUNT FOR WHICH SHARES ARE PURCHASED. THE TWO ARE MERGED TOGETHER AND WOULD AP PARENTLY FORM PART OF THE SAME TRANSACTION. THUS WHEN BROKERAGE IS CREDITED IN THE P & L ACCOUNT BY THE ASSESSEE-BROKER THEN IT COULD BE SAID THAT ENTIRE AMOUNT IS DEBITED TO THE ACCOUNT OF THE CLIENT THAT IS PURCHASE PRICE OF THE SHARES AND BROKERAGE TOGETHER IS TAKEN INTO ACC OUNT WHILE COMPUTING THE INCOME OF THE ASSESSEE. THE WORDS USE D IN SECTION 36(2) NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SU CH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING IN COME OF THE ASSESSEE OF THE PREVIOUS YEAR OR OF AN EARLIER PREV IOUS YEAR. WOULD BE DEEMED TO BE FULFILLED IF PART OF THE DEBT I.E. BROKERAGE IS TAKEN INTO ACCOUNT WHILE COMPUTING INCOME OF THE ASSESSEE. TH US THE WORDS DEBT OR PART THEREOF COULD BE INTERPRETED TO ME AN THAT BROKERAGE CREDITED IN P & L ACCOUNT WOULD REPRESENT THE WHOLE OF THE DEBT I.E. THE SALE PRICE AND BROKERAGE TOGETHER DEBITED IN CL IENTS ACCOUNT AND FOR WHICH DEDUCTION IS CLAIMED. THUS WHERE TOTAL D EBT DEBITED IN THE ACCOUNT OF THE CLIENT IS INCLUSIVE OF BROKERAGE THE N BROKERAGE BEING PART OF THE TOTAL DEBT HAVING BEEN TAKEN INTO ACCOU NT IN COMPUTING THE INCOME WOULD SATISFY THE PROVISIONS OF SEC. 36(2) AND THEREFORE WHEN ASSESSEE WRITES OFF SUCH DEBT THEN HE WOULD BE ENTITLED FOR DEDUCTION U/S. 36(1)(VII). SIMILAR VIEW HAS BEEN TA KEN BY THE TRIBUNAL ITA.615-704-05 A.Y.01-02 17 IN G.R.PANDYA SHARE BROKER LTD. VS. ITO (2008) 26 SOT 431 (MUM.). HONBLE DELHI HIGH COURT IN CIT VS. D.B. IN DIA SECURITIES (2009) 318 ITR-26 (DEL) HAS ALSO TAKEN SIMILAR VIEW . 23 FURTHER THE TRANSACTION ENTERED INTO BY A SHARE BROKER I.E. CLIENTS CAN BE FIND A PARALLEL IN THE TRANSACTIONS CARRIED OUT BY COMMISSION AGENT. A COMMISSION AGENT EITHER BUYS GO ODS OR SALES THE GOODS ON BEHALF OF THE PRINCIPALS. WHEN HE ACTS AS COMMISSION AGENT FOR SALE OF GOODS HE ADVANCES THE AMOUNT TO HIS PRINCIPAL AND ADJUST THE SALE PROCEEDS AGAINST SUCH ADVANCES. WHE N HE ACTS AS A COMMISSION AGENT FOR BUYING THE GOODS HE PURCHASES THE GOODS FOR SUPPLY TO HIS PRINCIPAL FROM HIS FUNDS. THE PRINCIP AL IS DEBITED AND WHEN HE IS REIMBURSED BY HIS PRINCIPAL OF SUPPLY OF HIS GOODS THEN THE PRINCIPALS ARE CREDITED WITH THE AMOUNT OF REIM BURSEMENT. THE COMMISSION AGENT DEBITS THE PRINCIPAL BY THE AMOUNT OF COMMISSION CHARGED BY HIM. THEN THE AMOUNT OF COMMISSION ALONE IS CREDITED IN THE P & L ACCOUNT IN THE BOOKS OF THE COMMISSION AG ENT. THUS WHERE AMOUNT RECOVERABLE FROM ANY PRINCIPAL COULD NOT BE RECOVERED AND ASSESSEE CLAIM SUCH IRRECOVERABLE DEBT AS BUSINESS LOSS HONBLE GUJARAT HIGH COURT IN CIT VS. ABDUL RAZAK & CO. (SU PRA) HELD IT TO BE ALLOWABLE TRADING LOSS U/S. 28(1). SIMILARLY WHERE AN ASSESSEE SOLD GOODS OF D (A CLIENT OF THE ASSESSEE) ON CREDIT TO H (ANOTHER CLIENT) AND THEREBY DEBIT BALANCES IN THE ACCOUNT OF H IN T HE BOOKS OF THE ASSESSEE WHICH COULD NOT BE RECOVERED AND WERE CLA IMED AS BAD DEBT THEN SAME WERE HELD AS ALLOWABLE AS BUSINESS L OSS BECAUSE LOSS HAD OCCURRED DURING THE COURSE OF BUSINESS TRA NSACTIONS. IT WAS SO HELD IN CIT VS. DAYALCHAND HARDAYAL (1989) 177 I TR-461(P&H). ITA.615-704-05 A.Y.01-02 18 THUS WHEREVER THERE ARE BUSINESS RELATIONSHIP BETW EEN ASSESSEE AND HIS CLIENTS AND MONEY ADVANCED TO THE CLIENT ON ACCOUNT OF COMMERCIAL RELATIONSHIP COULD NOT BE RECOVERED THEN IT WAS HELD AS AN ALLOWABLE BUSINESS LOSS. IT WAS CONSIDERED INCID ENTAL TO CARRYING ON OF BUSINESS. THIS VIEW WAS TAKEN BY HONBLE MUMB AI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. INVESTA INDUSTRIAL CORPORATION LTD. [1979] 119 ITR 0380- [BOMBAY HIGH COURT]. 24. IN VIEW OF THE ABOVE WE HOLD THAT ONCE COMMISS ION/BROKERAGE IS CREDITED IN THE P & L ACCOUNT OF THE ASSESSEE AN D ENTIRE DEBIT BALANCE INCLUDING PRINCIPAL AND BROKERAGE IS FOUND IRRECOVERABLE AND IS WRITTEN OFF IN THE BOOKS BY THE ASSESSEE THE SAM E CAN BE ALLOWED AS BAD DEBT. IN VIEW OF THIS CLAIM OF THE ASSESSEE IS ALLOWABLE U/S. 36(1)(VII). 25. NOTWITHSTANDING THE AMOUNT CLAIMED AS BAD DEBT WOULD BE ALLOWABLE AS A TRADING LOSS U/S. 28 BECAUSE ANY LOS S IF OCCURRED TO THE ASSESSEE DURING THE COURSE OF BUSINESS WOULD BE ALL OWED AS DEDUCTION. IT IS NOT DISPUTED THAT ASSESSEE IS A SH ARE BROKER IT HAD ENTERED INTO TRANSACTION WITH THE CLIENTS FOR SALE AND PURCHASE OF SHARES CHARGED BROKERAGE FROM THEM AND DEBITED THE IR ACCOUNTS WITH THE AMOUNT OF BROKERAGE AS WELL AS SUM FOR WHICH TH EY HAD PLACED ORDERS FOR PURCHASE OF SHARES. 26. THE LD. A.O. IN FULL AND LD. CIT(A) IN PART HAS DISALLOWED THE CLAIM OF TRADING LOSS ON THE GROUND THAT SOME OF TH E PARTIES HAVE NOT CONFIRMED THE TRANSACTION WITH THE ASSESSEE OR WHER E-ABOUTS OF SOME ITA.615-704-05 A.Y.01-02 19 PARTIES WAS NOT GIVEN BY THE ASSESSEE. IN OUR VIEW DISALLOWANCE OF THE CLAIM OF TRADING LOSS ON THIS ACCOUNT WILL NOT BE PROPER UNLESS THE FINDING ABOUT THE NON-GENUINENESS OF THE TRANSACTIO N IS GIVEN. ONCE THE TRANSACTIONS ARE APPARENTLY CARRIED OUT IN THE NORMAL COURSE OF THE BUSINESS AND THEY ARE NOT HELD AS NON-GENUINE THEN NON RECOVERABILITY OF SUCH DEBTS WOULD SQUARELY BE A TR ADING LOSS. WHEN AFTER LAPSE OF TIME CERTAIN CLIENTS ARE NOT TRACEAB LE OR THAT SOME OF THE CLIENTS HAVE EXPIRED AND THEIR LEGAL HEIRS REFUSED TO ACCEPT THE LIABILITY THEN AMOUNT IS CLEARLY NOT RECOVERABLE. IT WOULD BE COME A TRADING LOSS AND THEREFORE AN ALLOWABLE DEDUCTION. IT IS O NLY IN CASES WHERE DEBTS HAVE NOT OCCURRED IN NORMAL COURSE OF BUSINES S OR TRANSACTIONS ARE FOUND TO BE NOT GENUINE THEN CLAIM CAN BE DISA LLOWED. THEREFORE IN ABSENCE OF ANY MATERIAL TO THIS EFFECT TRANSACTI ONS DONE IN THE PAST IN THE NORMAL COURSE OF BUSINESS LIKE ANY OTHER BUS INESS TRANSACTIONS SHOULD BE TREATED AS GENUINE AND THEREFORE ON ACCOU NT OF THEIR NON RECOVERABILITY THE CLAIM OF TRADING LOSS SHOULD BE ALLOWED AS DEDUCTION. IN VIEW OF THIS ENTIRE LOSS OF RS.5 77 4 4 844/- IS ALLOWABLE DEDUCTION U/S. 28 AS BUSINESS LOSS. AS A RESULT TH E GROUND RAISED BY THE REVENUE IS DISMISSED. WHEREAS THE GROUND RAISED BY THE ASSESSEE IN THIS REGARD IS ALLOWED. 27. THE THIRD GROUND IN DEPARTMENTAL APPEAL IS ABOU T DELETING THE ADDITION MADE BY THE A.O. U/S. 68 IN RESPECT OF UNE XPLAINED CASH CREDITS OF RS.14 07 751/-.THE A.O. DURING THE COURS E OF ASSESSMENT PROCEEDINGS THE A.O. FOUND CREDITS IN THE NAME OF M S BHARTI D. VAKIL FOR RS.12 12 751/- UNDER THE NAME OF D.C. VAKIL FOR RS.1 95 000/- ITA.615-704-05 A.Y.01-02 20 .WHEN SUMMONS WERE ISSUED TO THESE PARTIES THEY DEC LINED TO HAVE ANY TRANSACTION WITH THE ASSESSEE BROKER IN FOLLOWI NG TERMS :- PLEASE NOTE THAT I HAVE NOT ENTERED INTO ANY TRAN SACTION WITH MADHUR SHARES & STOCKS (P) LTD. IF ANY SUCH TRANSAC TIONS ARE MADE IT SHOULD HAVE BEEN MADE IN MY NAME BY MR. RA MESH N. PARIKH FROM THE BANK ACCOUNT OF MMCB THE CHEQUE BOOK OF WHICH WAS GIVEN UNDER BONAFIDE TO HIM BY ME. I DO NOT HAVE ANY INFORMATION OF SUCH TRANSACTIONS. 28. THE A.O. CONFRONTED THIS REPLY TO THE ASSESSEE. IN RESPONSE THERETO THE ASSESSEE PRODUCED CONFIRMATION LETTERS WRITTEN BY D.C. VAKIL CONFIRMING THE CREDIT BALANCE. BUT THE A.O. NOTED THAT IT PERTAINS TO F.Y. 1999-00. THE A.O. DID NOT RELY ON THE XEROX COPY OF THESE CONFIRMATIONS AND MADE THE ADDITION U/S. 68. 29. THE LD. C.I.T.(A) NOTICED THAT SIMILAR TYPE OF ADDITIONS WERE MADE IN THE A.Y. 2000-01 WHICH WAS DELETED BY THE L D. C.I.T.(A). IN FACT ACCORDING TO LD. C.I.T.(A) THESE TWO PERSONS N AMELY B.D. VAKIL AND D.C. VAKIL HAD GIVEN SIGNED CHEQUE BOOK TO ONE SHRI RAMESH N. PARIKH WHO ISSUED THESE CHEQUES TO THE ASSESSEE AND ASSESSEE HAD CREDITED MONEY IN THE ACCOUNT OF B.D.VAKIL & D. C. VAKIL AS MONEY HAD COME FROM THEIR BANK ACCOUNTS. ONCE THE SOURCE OF FUNDS ARE EXPLAINED AS COMING OUT FROM THIRD PARTY THEN ADDITION COULD NOT BE MADE U/S.68 IN THE HANDS OF THE ASSESS EE. 30. BEFORE US THE LD. D.R. SUBMITTED THAT WHEN CHEQ UES ARE ISSUED BY SHRI R.N. PARIKH OR BY THE ASSESSEE HIMSELF IS N OT MATERIAL. IF THE CREDITORS ARE NOT KNOWING THAT THEIR ACCOUNTS ARE U SED FOR LAUNDERING THE MONEY AND THEY DENY TO HAVE ANY CREDIT BALANCE WITH THE ITA.615-704-05 A.Y.01-02 21 ASSESSEE THEN IT CANNOT BE SAID THAT NATURE AND SO URCE OF CREDITS APPEARING THE BOOKS OF THE ASSESSEE IN THE NAMES OF THE CREDITORS ARE EXPLAINED. 31. AGAINST THIS LD. A.R. SUBMITTED THAT WHETHER MO NEY IS PAID BY B.D.VAKIL AND D.C. VAKIL OR BY SHRI RAMESH N. PARIK H SO FAR AS THE ASSESSEE IS CONCERNED MONEY IS FOUND EXPLAINED AS COMING OUT OF THE ACCOUNTS OF THESE TWO PERSONS. MAY BE THAT SHRI R.N. PARIKH IS USING THE ACCOUNT OF THESE TWO PERSONS AS BENAMI AC COUNT BUT FOR THAT MATTER ASSESSEE CANNOT BE PENALIZED. 32. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE LOGI C GIVEN BY LD. C.I.T.(A) AND BY LD. A.R. IN RESPECT OF THIS ADDITI ON IS NOT SOUND. THE ONUS LYING ON THE ASSESSEE TO PROVE THE NATURE AND SOURCE OF THE CREDIT IS NOT DISCHARGED IF THE CREDITORS IN WHOSE NAMES AMOUNT IS STANDING IN THE BOOKS OF THE ASSESSEE DENIED TO HAV E ANY KNOWLEDGE OF SUCH CREDITS. IT IS FOR THE ASSESSEE TO BRING TO THE A.O. SHRI R.N. PARIKH AND FURNISH NECESSARY EVIDENCE THAT IN FACT IT WAS HE WHO WAS USING THE ACCOUNTS OF THE TWO PERSONS AND PAYING TH E MONEY TO THE ASSESSEE ON THEIR BEHALF. IT IS NOT KNOWN WHETHER S HRI R.N. PARIKH IS A DUMMY FOR ASSESSEE OR A DUMMY FOR B.D.VAKIL OR D. C. VAKIL. ONUS LYING ON THE ASSESSEE IS NOT DISCHARGED WITHOUT PRO VING THAT SHRI R.N. PARIKH WAS A BENAMI OR DUMMY FOR THE TWO CREDITORS. HE COULD VERY WELL BE A BENAMI FOR THE ASSESSEE. UNLESS MATERIAL TO DISCHARGE THIS ONUS IS SUBMITTED IT CANNOT BE SAID THAT NATURE AN D SOURCE OF CREDITS ITA.615-704-05 A.Y.01-02 22 IS PROVED. IN VIEW OF THIS WE HOLD THAT LD. C.I.T. (A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. THIS ADDITION IS ACCORDINGLY RESTORED. 33. AS A RESULT APPEAL FILED BY THE REVENUE IS PAR TLY ALLOWED. ITA.NO.704/AHD/05 (ASSESSEES APPEAL) 34. GROUND NO.1 IS NOT PRESSED AND IS THEREFORE RE JECTED. 35. GROUND NO.2 3 4 & 5 RELATES TO THE CLAIM U/S. 36(1)(VII) 36(2) AND IN THE ALTERNATIVE U/S. 28. AS PER THE DISCUSSI ON IN DEPARTMENTAL APPEAL ENTIRE CLAIM OF RS.5 77 44 844/- IS ALLOWED. THEREFORE THESE THREE GROUNDS ARE ALLOWED IN FAVOUR OF THE ASSESSEE E. 36. GROUND NO.6 RELATES TO CHARGING OF INTEREST U/S . 234A 234B 234C AND 234D. CHARGING OF INTEREST IS CONSEQUENTIA L AND THEREFORE REJECTED. 37. GROUND NO.7 IS GENERAL IN NATURE IS THEREFORE R EJECTED. 38. AS A RESULT APPEAL FILED BY THE ASSESSEE IS PAR TLY ALLOWED. 39. AS A RESULT APPEAL OF THE ASSESSEE AS WELL AS O F REVENUE BOTH ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 31-05-2010. SD/- SD/- (T. K. SHARMA ) ( D.C. AGRAWAL) JUDICIALMEMBER ACCOUNT ANT MEMBER. ITA.615-704-05 A.Y.01-02 23 AHMEDABAD. DATED:31/05/2010. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNED. 5. THE DR. ITAT AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT AHMEDABAD.