Income Tax Appellate Tribunal - Cochin
Stockpoint Share Services P.Ltd, ... vs Acit, Palakkad on 8 March, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN "SMC" BENCH, COCHIN
Before Shri George George K, Judicial Member
ITA No.104/Coch/2010 : Asst.Year 2006-2007
M/s.Stockpoint Share The Asst.Commissioner of
Services Private Limited Vs. Income-tax, Circle - 1
75/550 (3), CVM Towers Palakkad.
Palakkad.
PAN :AADCS2636J.
(Appellant) (Respondent)
Appellant by : Smt.Vandana Menon, Advocate.
Respondent by : Sri. A.Dhanaraj, Sr.DR.
Date of
Date of Hearing : 07.03.2018 Pronouncement : 08.03.2018
ORDER
This appeal was restored to the Tribunal by the judgment of the Hon'ble High Court dated 24.08.2017 in ITA No.88 of 2012.
2. Brief facts of the case are as follow:-
2.1 The assessee is a company engaged in trading of stocks and shares. For the assessment year 2006-2007 the assessee had claimed an amount of Rs.1,16,521 as prior period expenses in the profit and loss account. The Assessing Officer while completing the assessment u/s 143(3) of the Income-tax Act, held that the amount represents expenses pertaining to earlier assessment years which was written off this year.
According to the A.O. the assessee could not explain when the 2 ITA No.104/Coch/2010. M/s.Stockpoint Share Services Pvt.Ltd.
amount of expenses had crystallized. It was concluded by the Assessing Officer that the expenses was not incurred during the previous year relevant to the assessment year and hence cannot be allowed as a business expense for the assessment year 2006-2007.
3. Aggrieved by the order of the assessment, the assessee has preferred an appeal to the first appellate authority. Before the first appellate authority it was contended that the assessee is a sub-broker to a principal broker. The principal broker was based at Mumbai. It was submitted that as per the direction of the SEBI, the share broker had remitted DP charges for the transaction carried out by the customers served by the sub-broker. It was stated that the principal broker had debited in the account of the assessee with Rs.31,457.59 during the previous year 2002-2003 and Rs.85,064.02 during the previous year 2003-2004. It was further stated that the principal broker had not given the break-up of the above debits and also the customers on whose behalf these charges had been debited. During the previous year relevant to the assessment year it was submitted that the principal broker had informed the assessee that it is not possible for them to give customer-wise details of the DP charges since the depositories i.e. NSDL / CDSL had not given break-up to the principal broker. It was submitted before the first appellate authority that in the absence of the customer-wise break-up, the assessee could not recover the amount from the customers. Therefore, the 3 ITA No.104/Coch/2010. M/s.Stockpoint Share Services Pvt.Ltd.
amount was written off as an expenditure during the previous year 2005-2006. It was submitted before the first appellate authority that the expenditure has to be allowed as a revenue expenditure for the assessment year 2006-2007 on two grounds, viz. :-
(a) The assessee was under the honest belief that he could recover these DP charges from the customers. The fact that the individual customer wise break up cannot be obtained was known to them only during the financial year 2005-06 and the amount acquires the character of an expenditure in that year, i.e., the amounts debited by the principal broker crystalised into an expenditure only during A.Y. 2006-07. Therefore, it is to be allowed as an expenditure of assessment year 2006-2007.
(b) Alternatively, since the assessee could not recover the amount from the individual customers from whom it is to be recovered, it has to be treated as a "Bad Debt"
and has to be allowed as an expenditure in the year in which it is written off.
4. The CIT(A) rejected both the contentions of the assessee and dismissed the appeal of the assessee. Aggrieved by the order of the CIT(A), the assessee filed an appeal to the Tribunal. The Tribunal confirmed the order of the CIT(A). The assessee filed further appeal to the Hon'ble High Court u/s 260A of the I.T.Act. The Hon'ble High Court restored the case 4 ITA No.104/Coch/2010. M/s.Stockpoint Share Services Pvt.Ltd.
to the Tribunal. The Hon'ble High Court directed the Tribunal to consider whether there was actual write off, of the sum claimed as prior period expenses amounting to Rs.1,16,521 as bad debt in the current A.Y. The relevant finding of the Hon'ble High Court reads as follow:-
"6. The claim of the assessee that the amount has to be treated as a bad debt and has to be allowed as an expenditure in the year in which it was written off has to be appreciated in the light of the provisions contained in Section 36 of the Income Tax Act. Section 36 provides other deductions and in terms of this provision, deductions provided for in the Section shall be allowed in respect of the matters dealt with therein in computing the income referred to in Section 28, and Clause-(vii) of Section 36(1) provides that, subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year shall be allowed as a deduction in computing the income referred to in Section 28. However, Clause-(i) of sub-section (2) provides that, in making any deduction for bad debt or part thereof, no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year.
7. This therefore, means that the assessee has to prove satisfaction of both Section 36(1)(vii) and Section 36(2)(i), viz. that the bad debt has been written off and that the bad debt has been taken into account in computing the income of the assessee in any one of the years mentioned in Clause-(1) of sub- section (2) of Section 36.5 ITA No.104/Coch/2010.
M/s.Stockpoint Share Services Pvt.Ltd.
8. A reading of the order passed by the Tribunal does not show that an enquiry in that regard has not been undertaken and therefore, we are of the view that the matter requires reconsideration by the Tribunal and the Tribunal should decide the matter afresh giving the assessee an opportunity to substantiate his case, if necessary, by production of additional materials.
9. With that in view, we set aside the order of the Tribunal in ITA No.104/2010 and remit the matter to the Tribunal for fresh consideration in accordance with law and in the light of the observations hereinabove made."
5. The learned Counsel for the assessee-company sought for adjournment of the case stating that the Chartered Accountant concerned, who is supposed to provide the details of write off, was not available. Alternatively it was submitted that the matter may be restored to the A.O. so that assessee can prove the actual write off of Rs.1,61,521 during the relevant assessment year, viz., A.Y. 2006-2007.
6. The learned Departmental Representative present did not have any objection with regard to restoring of the case to the A.O.
7. I have heard the rival submissions and perused the relevant material on record. For an amount to be claimed as deduction u/s 36(1)(vii), the same should be written off as irrecoverable in the accounts of the assessee for the previous year. Further condition for allowance of the claim u/s 36(1)(vii) is mentioned in Section 36(2) of the I.T.Act. The 6 ITA No.104/Coch/2010. M/s.Stockpoint Share Services Pvt.Ltd.
Hon'ble High Court had restored to the issue for the reason that no inquiry was made by the Tribunal in this regard. Both the parties have agreed that it would suffice, if the matter is restored to the A.O. for examination whether there is actual write off of amount of Rs.1,16,521 during the relevant assessment year. In view of the submission of both AR and DR, I restore the issue to the A.O. The Assessing Officer shall afford a reasonable opportunity of hearing to the assessee. The A.O. shall consider the evidence / materials produced by the assessee in support of its claim and shall take a decision in accordance with law. It is ordered accordingly.
8. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on this 08th day of March, 2018.
Sd/-
(George George K.) JUDICIAL MEMBER Cochin ; Dated : 08th March, 2018.
Devdas* Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT Trichur.
4. The CIT(A) - V, Kochi.
5. DR, ITAT, Cochin
6. Guard file.
BY ORDER, (Asstt. Registrar) ITAT, Cochin