Gujarat High Court
Principal Commissioner Of Income Tax vs Khandwala Integrated Financial ... on 6 June, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, A.J. Shastri
O/TAXAP/378/2016 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 378 of 2016
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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PRINCIPAL COMMISSIONER OF INCOME TAX-1....Appellant(s)
Versus
KHANDWALA INTEGRATED FINANCIAL SERVICES PVT. LTD....Opponent(s)
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Appearance:
MRS MAUNA M BHATT, ADVOCATE for the Appellant.
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
Date : 06/06/2016
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) The Revenue is in Appeal against the judgment of the Income Tax Appellate Tribunal raising following question for our consideration.
"Whether the Appellate Tribunal has substantially erred in deleting the addition Rs. 50,05,202/- made under Section 40(a)(ix) made by the AO without appreciating the fact that the assessee is in default under Section 201 of the I.T.Act and Section 40(a)(ia) rightly invoked by the AO for short deduction of tax at sources ?"
2. Brief facts are that the assessee who is a share broker had claimed bad debt for a sum of Rs. 2.57 crores (rounded of) arising from downfall under Section 143(2) of the Income Tax Act, 1961 (t "the Act" for short). The case of the assessee was that he suffered such loss due to heavy down fall in the share market in January, 2008, as a result of which, the wealth of share investors had vanished. They were not in a position to pay any amount as the value of their investments was reduced to negligible sums. After adjusting the same, there were huge unpaid liabilities which resulted into bad debt for the assessee which was claimed as such. The Assessing Officer disallowed the claim upon which the assessee approached CIT(Appeals) which reversed the order of AO making following observations:
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"3.3. I have considered the facts of the case, assessment order and appellant's submission. Appellant submitted that this issue is covered in its favour by the decision of ITAT special bench Mumbai in the case of Shreyas s Morakhia, 40 SOT 432 and also Delhi High Court decision in the case of DB Securities Ltd. 318 ITR 46. The decision of Delhi High Court is final on the issue since SLP filed by the Department is dismissed by the Supreme Court. I have gone through the decisions in which such debts are held as allowable. In the immediate preceding year, CIT(A) has allowed the appellant's claim of bad debts in identical facts by order dated 29.12.2010. Respectfully following the decisions in the identical facts of the appellant, the disallowance made by the AO is deleted."
3. The Revenue carried the matter in appeal before Tribunal. The Tribunal rejected the Revenue's appeal inter alia on the ground that in the earlier year also, the same issue had arisen which was decided in favour of the assessee.
4. Having heard learned counsel for the Revenue and having perused the documents on record, we are in agreement with the view of the CIT(Appeals) when it refers to the case of the Delhi High Court in the case of Commissioner of Income-Tax vs. D.B.(India) Securities reported in 318 ITR 26 and places reliance on it. In the said decision, the Division Bench of the High Court considered a situation where the assessee was a member of the Delhi Stock Exchange and was engaged in the business of share and stock broking. The assessee had purchased shares of M/s. Mannu Finlease Ltd. in January and February, 1996 on behalf of and on instructions of a sub-broker. A total values of the shares so purchased came to Rs. 1.06 crores (rounded of). The sub-
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broker however, could make payment only to the extent of Rs. 64 lakhs. Remaining sum of Rs. 41.37 lakhs remained unpaid due to which the assessee had not delivered shares to the sub-broker. Due to market melt down, the price of the shares fell from Rs. 55/- per share to Rs. 5/- per share upon which the assessee claimed the said sum of Rs. 41.37 lakhs as bad debt under Section 36(1)(vii) of the Act. The High Court upheld the view of the Tribunal in favour of the assessee making following observations:
"Learned counsel for the Revenue, in this appeal filed against the aforesaid order, has canvassed two submissions:
(1) The aforesaid amount could not be treated as "debt" at all under the provisions of section 36(2) of the Act and, therefore, the question of treating it as "bad debt" does not arise.
(2) The assessee had not sold the shares to anybody else in the market and in the absence of such a sale, the assessee could not claim the aforesaid amount as "bad debt".
In so far as the first submission of learned counsel for the Revenue is concerned, we do not find any force therein. As pointed out in the aforesaid facts, the assessee had purchased the aforesaid shares on behalf of the sub-broker and, in fact, paid the amount of Rs. 1,06,10,247/-. As against this amount, he received only a sum of Rs. 64 lakhs. The brokerage which was received in the aforesaid transaction was shown as income by the assessee in the previous year, which was taxed as such as well by the assessing authority. Under the circumstances, only because shares were not delivered for want of full payment, which was to be made by the sub- broker to the assessee, it cannot be said that there was no transaction between the assessee and the sub-broker and the assessee had to make payment on behalf of the sub-broker, which he could not recover Page 4 of 5 HC-NIC Page 4 of 5 Created On Wed Jun 08 00:33:15 IST 2016 O/TAXAP/378/2016 JUDGMENT to the extent of Rs. 41,37,881, that sum has to be treated as "debt".
5. We notice from the decision of the CIT (Appeals) that the judgment of the Delhi High Court was carried in Appeal. SLP was however, dismissed. In view of the said facts, in our opinion, no question of law arises. The Tax Appeal is dismissed.
(AKIL KURESHI, J.) (A.J. SHASTRI, J.) VC DARJI Page 5 of 5 HC-NIC Page 5 of 5 Created On Wed Jun 08 00:33:15 IST 2016