Income Tax Appellate Tribunal - Mumbai
Sovereign Securities P. Ltd., Mumbai vs Assessee on 27 December, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'E' MUMBAI
BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND
SHRI J. SUDHAKAR REDDY (ACCOUNTANT MEMBER)
ITA No.6048/Mum/2006
Assessment Year-2003-04
M/s. Soverign Securities Pvt. Ltd., The ITO-4(2)(2),
5A, Khatau Bldg., Mumbai
Alkeshg Dinesh Mody Marg,
Fort, Vs.
Mumbai-400 023
PAN-AAECS 5874P
ITA No.5639/Mum/2006
Assessment Year-2003-04
The ITO-4(2)(2), M/s. Soverign Securities Pvt. Ltd.,
Mumbai 5A, Khatau Bldg.,
Alkeshg Dinesh Mody Marg,
Vs. Fort,
Mumbai-400 023
(Appellant) (Respondent)
Appellant by: Shri V.V. Shastri
Respondent by: Shri Vipul B. Joshi
Shri Sameer G. Dalal
Date of Hearing :27.12.2011
Date of pronouncement: 30.12.2011
ORDER
PER B.R. MITTAL, JM :
These cross appeals are filed by assessee as well as Department against orders of Ld. CIT(A) dt. 10.8.2006 on following grounds:
ITA No. 6048/Mum/06 - Assessee's appeal2 Soverign Securities Pvt. Ltd.
1. The Ld. CIT(A) erred in confirming disallowance of share trading loss more so by invoking Explanation to Sec. 73 and treating the same as speculation loss.
2. The Ld. CIT(A) erred in estimating a sum of Rs. 3,62,121/-
being expenses incurred on business of purchase and sale of shares and treating the same as part of Speculation loss.
3. The Ld. CIT(A) erred in confirming disallowance pf Software expenses as capital expenditure amount to Rs. 1,32,884/-."
ITA No. 5639/M/09 -Departmental Appeal1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the bad debt written off of Rs. 7,15,459/- treating the same as business loss u/s. 28(1) of the Act without appreciating that the same had not been shown to have crystallized during the current year in question.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the bad debt written off of Rs.7,15,459/- as Business Loss without appreciating that for writing off of debts, there being specific provision of 36(2) the same cannot be considered under other provisions as held by ITAT Bombay Bench in the case of Harshad J.
Choksi, 52 ITD 511 wherein it has been held that loss on account of bad debts can only be allowed with reference to the fulfillment of conditions contained u/s. 36(2). The applicability of the specific provision cannot be ignore."
3. In respect of ground No. 1 of appeal, relevant facts are that assessee is in the business of share trading. On account of trading in shares and securities, assessee declared loss of Rs. 28,06,630/- as business loss. The said loss was disallowed considering it as speculation loss.
4. The assessee filed appeal before First Appellate Authority. However, Ld. CIT(A) confirmed action of Assessing Officer. Hence assessee is in further appeal before Tribunal.
5. At the time of hearing, Ld. AR submitted that said loss was arising on account of valuation of closing stock of shares as on 31.3.2003 and as such 3 Soverign Securities Pvt. Ltd.
it is outside the purview of Explanation to Sec. 73 of the Act. He further referred to page-1 of his compilation which gives break-up of said amount of Rs. 28,06,630/- and submitted that in the said amount assessee also considered loss of Rs. 6,68,533.85 which WAS again added by AO while computing income at page-9 of assessment order. Thus there is a double addition as far as Rs. 6,68,534/- is concerned. He submitted that it is mistake which has not been considered by Ld. CIT(A).
6. Ld. Departmental Representative submitted that above issue is covered against assessee by the decision of Hon'ble Jurisdictional High Court in the case of M/s. Prasad Agents Pvt. Ltd. Vs ITO in ITA No. 19 of 2009 vide order dt. 20th March, 2009. However in respect of factual mistake pointed out by Ld. AR, Ld. DR submitted that same could be restored to AO to do the needful after verification of facts.
7. On consideration of submissions of Ld. Representatives of parties and the fact that issue is covered against assessee by the decision of Hon'ble Jurisdictional High Court (supra) which Ld. AR could not controvert, we uphold the order of Ld. CIT(A) by rejecting ground No. 1 of appeal taken by assessee. However, in respect of factual mistake pointed out by Ld. AR that there is double disallowance of Rs. 6,68,534/-, as the said amount assessee included while aggregating the share loss of Rs. 28,06,630/- which was disallowed by AO and also made separate disallowance of Rs. 6,68,534/-, we agree with representatives of parties that AO will examine the facts and do the needful while giving effect to our order. Hence ground No. 1 taken by assessee is rejected subject to above observation.
8. Ground No. 2 of appeal is consequential to ground No. 1 of appeal of assessee. In view of our above decision, ground No. 2 is rejected.
9. In respect of ground No. 3 of appeal, we have heard the Ld. Representatives and perused the orders of authorities below. We observe from the details as given by AO at page-4 of assessment order that said 4 Soverign Securities Pvt. Ltd.
expenditure aggregating to Rs. 1,32,884/- was incurred by assessee for upgradation of software for its computer. Considering the decision of ITAT, Special Bench in the case of Amway India Enterprises Vs DCIT 111 ITD 112 (SB), we hold that said expenditure is Revenue in nature. Therefore ground No. 3 of appeal taken by assessee is allowed by reversing the orders of authorities below. We may state that depreciation if any, allowed to assessee by considering the said expenses as capital in nature, same shall be reversed. Hence ground No. 3 of appeal is allowed.
10. Now we take up the appeal filed by department being ITA No. 5639/M/06.
11. We have heard Ld. Representatives of parties and have perused the orders of authorities below. We observe that assessee had written of bad debts of Rs. 7,15,459/-.32 under the head sundry balances written off. The assessee stated that these debts related to leaseline charges debited to parties and other normal business outstandings. The assessee claimed that it could not recover the said sum, hence written off from its books of account. The AO did not allow the claim on the ground that (i) assessee did not exhaust all remedies available under law to recover the outstanding dues and did not establish that debts had become bad, (ii) the amount was not shown as income of assessee and as such it was not covered u/s. 36(2) of the Act. However, Ld. CIT(A) accepted the fact that it was a business loss and same is allowable u/s. 28(i) of the Act.
12. During the course of hearing, Ld. DR could not dispute the above finding of Ld. CIT(A) save and accept relying on the order of AO. On the other hand Ld. AR submitted that leaseline charges were not paid by some of the clients; hence they were outstanding and written off by assessee by taking a business decision. Considering the facts of the case and the reasonings as given by Ld. CIT(A), we hold that there is no infirmity in the order of Ld. CIT(A). Thus, we uphold the order of Ld. CIT(A) by rejecting ground of appeal taken by department.
5 Soverign Securities Pvt. Ltd.
13. In the result, appeal of the assessee is allowed in part, whereas appeal of department is dismissed.
Order pronounced on this 30th day of December, 2011 Sd/- Sd/-
( J.SUDHAKAR REDDY) (B.R. MITTAL )
Accountant Member Judicial Member
Mumbai, Dated 30th December, 2011
Rj
Copy to :
1. The Appellant
2. The Respondent
3. The CIT-concerned
4. The CIT(A)-concerned
5. The DR 'E' Bench
True Copy
By Order
Asstt. Registrar, I.T.A.T, Mumbai
Date Initials
1. Draft dictated on: 28.12.2011 Sr.
PS/PS
2. Draft placed before author: 28.12.2011 Sr.
PS/PS
3. Draft proposed & placed before JM/AM
the second member:
4. Draft discussed/approved by JM/AM
Second Member:
5. Approved Draft comes to the Sr. Sr.
PS/PS: PS/PS
6. Order pronounced on: Sr.
PS/PS
7. File sent to the Bench Clerk:
8. Date on which file goes to the Sr.
Head Clerk: PS/PS
9. Date on which file goes to AR
10. Date of dispatch of Order:
6 Soverign Securities Pvt. Ltd.