Income Tax Appellate Tribunal - Ahmedabad
Parklight Securities Ltd.,, Ahmedabad vs Assessee on 28 January, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " A "
Before Shri BHAVNESH SAINI, JUDICIAL MEMBER and
Shri D.C.AGRAWAL, ACCOUNTANT MEMBER
Date of hearing : 28/01/2010 Drafted on: 28/01/2010
ITA No.2949/AHD/2006
Assessment Year : 2003-04
Parlight Securities Ltd. Vs. The ACIT
Room No.14 Circle-3
Kamadhenu Complex Ahmedabad
Nr.Panjra Pole
Ambawadi, Ahmedabad
PAN/GIR No. : AABCP 6609 A
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri V.R. Chokshi, C.A.
Respondent by: Shri Govind Singhal, Sr. A.R.
ORDER
PER BHAVNESH SAINI, JUDICIAL MEMBER:
This appeal by the assessee is directed against the order of the Ld.CIT(Appeals)-VII, Ahmedabad dated 20/11/2006 passed for Assessment Year 2003-04, challenging the disallowance of Rs.10,68,000/- written off as irrecoverable from the deposits made with Calcutta Stock Exchange.
2. We have heard Learned Representatives of both the parties, perused the findings of lower authorities and gone through the material available on record.
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3. The facts of the case on the above issue are that on perusal of assessee's Profit & Loss account, the Assessing Officer noticed that assessee-company has claimed an amount of Rs.10,68,000/- as a debit entry with description "CSE deposit write off". As per the details filed by the assessee, it was found that the assessee has given this deposit to Calcutta Stock Exchange (CSE) at the time of becoming a corporate member of Calcutta Stock Exchange (CSE). In the notes to the accounts it has been stated as under:-
"Fixed assets of the company include Rs.10,00,000/- invested in Calcutta Stock Exchange Card. Further investment of the company includes deposits (with interest) with CSE amounting to Rs.8,29,957/-. Looking to the situation of the Calcutta Stock Exchange, we are of the opinion that this amount is not recoverable and hence needs to be written off in the books".
3.1. The Assessing Officer asked the assessee to explain the reason for claiming the above deduction and the provisions under which section this deduction is allowable. The assessee filed a copy of letter written to the Administrator of Calcutta Stock Exchange asking them to pay the assessee interest on interest bearing deposit and to refund the capital adequacy deposit as the assessee has not done any trading business in the floor of the concerned Exchange. It was also submitted that on account of weak financial and listing position of CSE, the assessee has started recovery ITA No.2949/Ajd2006 Parlight Securities Ltd. Vs. ACIT Asst.Year - 2003-04 -3- process but no amount was received by them form CSE. The amount was accordingly written off. The Assessing Officer, however, rejected the claim of the assessee on the following reasons:-
(a) The deposit with CSE is not an amount which contribute to the profit of the assessee. Therefore, it cannot be allowed as a bad debit.
(b) The appellant has made no effort even to ask CSE to return to it let doing make effort to recover it for a long time.
(c) The only letter written by the appellant to CSE was on 23.11.2005 i.e. after the a has received the show cause notice from the office of the AO and not during the financial year under assessment during which the amount has been written off.
(d) Even in the said letter dated 23.11.2005 the appellant has not made any specific request seeking refund of this amount.
(e) According to the AO, CSE is an entity which is big enough not to attract write off and CSE, at no time, has negated the payment of this amount. Hence assessee's action of writing off this amount even as a trading loss is not correct as it is not supported by any material.
4. Addition was challenged before the Learned CIT(Appeals) and same submissions were reiterated. It was explained that assessee has been engaged in the business of share and stock broking and pursuant to such activity it has acquired the Calcutta Stock Exchange Card during the year 1999-2000. Further, it has made payment to deposit as required for ITA No.2949/Ajd2006 Parlight Securities Ltd. Vs. ACIT Asst.Year - 2003-04 -4- acquiring CSE Card. These deposits are connected with the business of the assessee and, therefore, the said deposits were made for the purpose of business of the assessee. It was submitted that during March-2001, the CSE has a payment crisis in settlement and huge amount was made by the Stock Exchange. With a view to settle and overcome such payment crisis, the committee of the Exchange had utilized deposits made by each of its Member towards Settlement Guarantee Fund and other interest-free deposits. In view of such position, deposit made by the assessee-company for Rs.7,50,000/- comprising of Rs.5,00,000/- towards interest-free deposit and Rs.2.5 lacs towards settlement guarantee funds was utilized towards such crisis. Even the letter dated 02/05/2006 by CSE confirmed such facts (Paper-book 27). It was, therefore, submitted that the security deposit was not recovered and, accordingly, it was written off and was treated as business loss in the assessment year in question. It was further submitted that since there was a final crisis with CSE, therefore, assessee was not able to carry any business activities. The Annual Audit Account of CSE was produced in support of the contention that financial position of CSE has deteriorated. It was, therefore, submitted before the Learned CIT(Appeals) that the Assessing Officer was not justified in disallowing the business loss suffered by the assessee.
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5. The Learned CIT(Appeals) considering the submission of the assessee and material on record confirmed the findings and dismissed the appeal of the assessee. His findings contained in paragraph 9, 9.1. & 10 read as under:-
"9. I have considered the above submissions. The appellant has 'written off' the amount during the accounting year ending on 31.3.2003. To this effect a note has been made in the annual accounts where it is stated that in the opinion of the appellant the amount from CSE is not recoverable, hence needs to be written off. In course of hearing before the AO it is submitted that the Calcutta Stock Exchange was facing financial crisis and it has defaulted on payment relating to a number of settlements. Beyond this two statements, no other details justifying the write off of the deposit during the accounting year 2002-03 has been filed either before the AO or before me.
9.1.The appellant has referred to the letter it had written to CSE on 2.5.2006 and 16.3.2006 and the letter of CSE dated 22.6.2006. From the above, it is clear that the appellant has not written any formal letter to the Exchange requesting it to refund amount before the query was raised by the AO in course of assessment proceedings during the 2004-05 and certainly no effort has been made on the part of the appellant to recover the amount during the accounting year ended 31.3.2003. On going through the letters of CSE dated 22.6.2006 and 2.5.2006, the copies of which were filed before me, it is seen that nowhere the Exchange has stated that it is not willing to refund the money. For write off the amount during the Financial Year 2002-03, the appellant has not relied on any material which shows weak, the assessee cannot hold the debt as irrecoverable without making an attempt to recover the dues. No evidence asking the CSE to return the deposit has been filed before the AO or before me. The AO has rightly pointed out CSE is a very big organization having huge property, and there is no reason to hold that amount ITA No.2949/Ajd2006 Parlight Securities Ltd. Vs. ACIT Asst.Year - 2003-04 -6- cannot be recovered from this organization. The appellant has also not made any serious effort like sending lawyer's notice or making a strong case for refund of the amount. In addition to this, the time of writing off is also important tot eh extent that during the financial year 2002-03, no material has been brought on record to suggest that the amount is not recoverable from CSE. In course of hearing before me the appellant has filed a copy of annual accounts of CSE for the period ending 31.3.2005 where it is mentioned that the stock exchange is passing through a difficult times. This noitce is for the period ending 31.3.2005.
10. In view of the above it is clear that the appellant has failed to justify its claim on two counts, (a) that reason for holding the dues as irrecoverable and (b) the reason for writing off the amount during the accounting period 02-03 relevant to A.Y. 2003-04. Therefore, I hold that the AO is justified in rejecting the claim of the assessment proceedings and disallowing the same. The disallowance made by the AO is hereby confirmed."
6. The ld. counsel for the assessee reiterated the submissions as were made before the lower authorities and referred to paper-book 27 which is letter of CSE dated 02/05/2006. Paper-book 56 note on accounts of CSE to show the financial position of CSE. He referred to paper-book 25 that amount in question was deposited for obtaining Corporate Membership. He has submitted that assessee was in a business of stock broker, therefore, non-refund of security amount was a business loss and should be allowed as a business deduction. He has referred to written submission and paper-book 1 to 15 in which the same facts are reiterated. He has relied upon the order of ITAT Ahmedabad Bench "A" in the group cases ITA No.2949/Ajd2006 Parlight Securities Ltd. Vs. ACIT Asst.Year - 2003-04 -7- of ACIT vs. H. Nyalchand Financial Services Ltd. & others (ITA No.2631/Ahd/2004 & Others) copy filed in which on the identical facts, the Departmental appeal has been dismissed by following earlier order of the Tribunal in the case of Paarker Securities Ltd. (ITA No.752/Ahd/2004 and ITA No.340/Ahd/2006).
7. On the other hand, Learned Departmental Representative relied upon the orders of the authorities below and submitted that the amount in question was on account of capital investment and that no income is taxed in the earlier year, therefore, bad debt cannot be allowed. The Learned Departmental Representative submitted that assessee only asked the CSE to return the amount and no efforts are made for recovery of the same. Therefore, it could not be treated as a bad debt. The CSE stated that the amount is adjusted in the accounts of the assessee as per paper-book 27 against the liability of the assessee, therefore, CSE never disputed the liability of the assessee. Therefore, it cannot be allowed as business loss. The Learned Departmental Representative relied upon the decision of Hon'ble Madras High Court in the case of Palani Andavar Mills Ltd. vs. CIT (1977)110 ITR 742 (Mad.).
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8. We have considered the rival submissions and perused the material available on record. It is not in dispute that the nature of business of the assessee was stock brokers and trading in shares. Even the Assessing Officer has mentioned this fact on the top of the assessment order. It is also not in dispute that amount in question had been deposited by the assessee for the purpose of the business with CSE at the time of becoming a corporate member of CSE. For carrying on the aforesaid normal business activity, the assessee had to acquire membership card from CSE in order to do the business at CSE. It is, therefore, clear that the assessee- company has made these deposits being part of the business. The assessee explained that there was a payment crisis, therefore, assessee requested for re-fund of the security amount. The material on record also supported the version of the assessee that there was a financial crisis with CSE for making the payment. It is also established on record that CSE has not re-funded any amount of the security to the assessee but adjusted under different head. It is, therefore, proved on record that the security deposits which were connected with the business of the assessee, ultimately the same were not returned to the assessee. Merely because it was exhausted in other account by itself would not prove that assessee did get back the security deposit amount from CSE. The amount in question ITA No.2949/Ajd2006 Parlight Securities Ltd. Vs. ACIT Asst.Year - 2003-04 -9- which were deposited with the CSE and written off in the books of account are in the nature of CSE deposit without interest, CSE deposit for Settlement Guarantee Fund and CSE deposit for UPS.
9. The Hon'ble Punjab & Haryana High Court in the case of CIT vs. Amrik Singh Surinder Singh (2008) 296 ITR 350 (P&H) held as under:-
"that there being a valid agreement between the parties, the assessee having agreed to share the responsibility of bad debts on account of non-recovery of the amount of liquor supplied through its agency as one of the obligations in lieu of commission and bad debts having been incurred on account of non-recovery of such dues from the subsequent buyers, it was related to the business of the assessee. It was deductible as business loss."
9.1. The Hon'ble Supreme Court in the case of T.A. Quereshi vs. CIT (2006) 287 ITR 547 (SC) held as under:-
"reversing the decision of the High Court, (i) that the Explanation to section 37 had no relevance as this was not a case of business expenditure but was one of business loss. Business loss was allowable on ordinary commercial principles in computing the profits. Once it was found that the heroin seized formed part of the stock-in-trade of the assessee, it followed that the seizure and confiscation of such stock-in-trade had to be allowed as a business loss."
9.2. The ITAT Ahmedabad Bench "A" in the case of ACIT vs. H. Nyalchand Financial Services Ltd. & Others (ITA No.2631/Ahd/2004-by Revenue and CO No.268/Ahd/2004-By Assessee for Assessment Year ITA No.2949/Ajd2006 Parlight Securities Ltd. Vs. ACIT Asst.Year - 2003-04
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2001-02 & Others) considered the identical issue of the trading loss and dismissed the Departmental appeal. Copy of the order is placed on record. In this case, the Learned CIT(Appeals) allowed the loss claimed by the assessee as trading loss and the assessee relied upon another decision of the ITAT Ahmedabad Bench in the case of Paarker Securities Ltd. (ITA No.752/Ahd/20904 and ITA No.340/Ahd/2006). The Tribunal considering the undisputed fact noted that the assessee initially claimed the amount in question as bad debt and subsequently claimed it as a loss incidental to business. The assessee claimed deduction of the same. The Tribunal noted that there is a loss arisen during the assessment year in question and considering its earlier decision of the Tribunal decided the issue in favour of the assessee by holding that the Learned CIT(Appeals) has rightly allowed the deduction on account of business loss u/s.28(1) of the I.T. Act, 1961. The Departmental appeal was accordingly dismissed.
10. The Learned Departmental Representative, however, relied upon the decision of Hon'ble Madras High Court in the case of Palani Andavar Mills Ltd. vs. CIT (supra) in which nature of the payment was loan and advances to the employees and the assessee did not incur any expenditure. The claim for "write off" was not allowed as it was not ITA No.2949/Ajd2006 Parlight Securities Ltd. Vs. ACIT Asst.Year - 2003-04
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allowed in trading transaction. The above decision thus would not support the contention of the ld.DR. Considering the facts and circumstances noted above, it is clear that assessee suffered a business loss on account of non-refund of security amount. Assessee is entitled for deduction on account business loss. We accordingly set aside the orders of authorities below and delete the addition.
11. In the result, the appeal of the assessee is allowed.
Order signed, dated and pronounced in the Court on 05 /02 /2010
Sd/- Sd/-
( D.C. AGRAWAL ) ( BHAVNESH SAINI )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 05/ 02 /2010
T.C. NAIR
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT Concerned
4. The ld. CIT(Appeals)-VII, Ahmedabad
5. The DR, Ahmedabad Bench
6. The Guard File.
BY ORDER,
स×याǒपत ूित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad