Income Tax Appellate Tribunal - Mumbai
Sovereign Global Finance P.Ltd., ... 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.6200/Mum/2008
Assessment Year-2004-05
M/s. Soverign Global Finance Pvt. Ltd., The ITO-4(2)(2),
5A, Khatau Bldg., Mumbai
Alkeshg Dinesh Mody Marg,
Fort,Mumbai-400 023 Vs.
PAN-AACCS 2152C
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: 13.1.2012
ORDER
PER B.R. MITTAL, JM :
The assessee has filed this appeal for assessment year 2004-05 against order of Ld. CIT(A) dt. 1st September, 2008 on following ground:
"On the facts, in the circumstances of the case and in law the Ld. CIT(A) erred in confirming the disallowance of business loss/bad debts of Rs. 30,27,742/-."
2. The relevant facts giving rise to this appeal are that assessee claimed Sundry Debit Balance written off in respect of following parties:
Name of party Rs.
Soverign Nariman Finvest Pvt. Ltd. 25,18,300.00
(Wrongly written Soverign Global
Finance Pvt. Ltd. by AO)
Mukesh Brokerage & Fin. (I) Ltd. 15,127.30
Harishbhai Vaishnav 1,770.30
Maradia Nilesh C 2,344.61
2 Soverign Securities Pvt. Ltd.
Makrand 7,084.12
K. Mathew 1,888.56
Dipti Shah 2.58
Mehul Vindo Mehta 22,493.53
Riyaz N. Marfatia 288.80
Nandkumar Dnyanoba Bhute 2,088.74
Naresh S.Parwani 35,886.38
D.R Arulanandan 59,112.41
Jitesh Shah 20,099.29
Manish C Madadia 21,615,55
Chandrika Pandya 14,562.15
Sandeep Parikh 3,66,748.22
Sujata Thatte 9,304.88
S.K. Nadeem 21,024.37
3. During the course of assessment proceedings, assessee gave submissions, which are stated by Assessing Officer at page 2 & 3 of assessment order as under:
"In all the cases as shown in our letter dt. 26th Sept. 2006 loss is business loss which were due to dispute for excess brokerage charged by us to the clients.
Except in one case of Soverign Nariman Finvest Pvt. Ltd., where we have applied for share in Soverign Finvest Pvt. Ltd. Rs. 10,00,000/- and also we were having outstanding of Rs. 15,18,300/-. We have applied in the shares of Soverign Nariman Finvest Pvt. Ltd. to tab the opportunity of business with M/s. Soverign Nariman Finvest Pvt. Ltd. But in F.Y. 2003-
04 the net worth of Soverign Nariman was nearly eroded and ultimately we have to book the loss for both for Share application as well as outstanding. Share application was also in the nature of business loss as it was start the joint venture with Soverign Nariman Finvest Pvt. Ltd., Justification for write off of Soverign Nariman Broking Pvt. Ltd.
Outstanding shown in Soverign Nariman Broking Pvt. Ltd. Rs. 15,18,300 was on account of investment made for starting the 3 Soverign Securities Pvt. Ltd.
branch network. Soverign Global Finance Pvt. Ltd. was investment made for starting the branch network. Soverign Global Finance Pvt. Ltd. was having the sub-brokerage registration of BSE and Soverign Nariman Broking Pvt. Ltd. was having the sub-broker registration of NSE . The amount was invested to have access to both NSE as well as BSE. The branch were to set up before 2001-02. But there was continuous delay and in the meantime soverign Nariman Broking Pvt. Ltd. went into loss and its capital was eroded.
The company's broking business was also not performing. It was necessary to arrive at true position of the company. It was in company's interest to put full stop for the possibility of any business with Soverign Nariman Broking Pvt. Ltd.. The outstanding Rs. 15,18,300/- and the share application money Rs. 10,00,000 were not recoverable at all as there were no assets with the Soverign Nariman Broking Pvt. Ltd. The auditors also insisted to write off the amount which is not recoverable. The legal action would not have yielded anything. Therefore to clean up the balance sheet it was essential that company must write off the irrecoverable amount and keep only performing asst. hence outstanding were written off as bad as a matter of prudence and better accounting policies."
The AO did not accept the claim of assessee.
Being aggrieved, assessee filed appeal before First Appellate Authority.
4. Ld. CIT(A) confirmed the action of AO by observing as under:
a) That out of claim of Rs. 25,18,300/- pertaining to Soverign Nariman Broking Pvt. Ltd. relates to amount given as share application money. The assessee and said Soverign Nariman Broking Pvt. Ltd.
are extremely closely linked. The decision to pay or not to pay is a matter between two concerns in which major decision makers are common. Further assessee has shown recovery of Rs. 5,00,000/- from Soverign Nariman Broking Pvt. Ltd. as on 31st March, 2005.
b) In respect of Bad debt pertaining to various other 17 parties aggregating to Rs. 5,09,441/- is concerned assessee made a claim of bad debt by merely writing off the amount but not produced an 4 Soverign Securities Pvt. Ltd.
iota of evidence regarding efforts made to recover the amounts due.
Hence, assessee is in further appeal before Tribunal.
5. During the course of hearing, Ld. AR submitted that assessee applied for shares of Soverign Nariman Finvest Pvt. Ltd. to tab the opportunity of business with that company. However, its financial net worth nearly eroded and ultimately share application money as well as outstanding amount became business loss as assessee was to start joint venture with Soverign Nariman Finvest Pvt. Ltd. He further submitted that sum of Rs. 15,18,300/- was on account of investment made for starting the branch network because assessee was having sub-brokerage registration of BSE and whereas Soverign Nariman Broking Pvt. Ltd., was having sub-brokerage registration of NSE. The assessee invested the amount to have access to both NSE as well as BSE. Ld. AR submitted that above facts were stated before AO and referred to pages 1 to 4 of Paper Book to substantiate his submission. He further submitted that balance amount aggregating to Rs. 5,09,441/- was due from various parties which assessee could not recovered and hence claimed as bad debt as said amount was written off by assessee in the assessment under consideration.
Ld. AR submitted that said amount had become bad debt in the regular course of business of assessee and same could be allowed as business loss. He further submitted that out of Rs. 25,18,300/-, assessee received Rs. 5,00,000/- in assessment year 2005-06 and same were offered for taxation and substantiate his above submission refer page 34 of Paper book which is a copy of ledger account from 1.4.2004 to 31.3.2005. On the other hand, Ld. Departmental Representative relied on the orders of authorities below.
6. We have carefully considered the submissions of Ld. Representatives of parties. We observe that in the case of Soverign Nariman Finvest Pvt. Ltd (party's name wrongly mentioned by AO) assessee applied for share of Rs.10 5 Soverign Securities Pvt. Ltd.
lakhs for the purpose of entering into a joint venture but networth of that company eroded and assessee could not recover any amount as there was no asset available with that company. We observe that assessee entered into said joint venture for broking business and therefore it was a business loss to assessee. Further we observe that the amount of Rs. 15,18,300/- was the outstanding from Soverign Nariman Broking Pvt. Ltd., on account of investment made for starting branch network and same also could not be recovered by assessee. The above facts are not in dispute. We are of the considered view that entire amount which were due to assessee was on account of normal business activity of assessee. Hence same is to be allowed as business loss for assessment year under consideration. We observe that assessee recovered in assessment year 2005-06 a sum of Rs. 5,00,000/- as is evident from page-34 of Paper book. The assessee offered the same for taxation and said fact was not disputed by Ld. DR.
7. Further in respect of balance amount of Rs. 5,09,441/-, on perusal of details mentioned hereinabove, we observe that said amount was due from the parties in the normal course of business of assessee. Since assessee had written off the amount in the assessment year under consideration, we are of the considered view that same is to be allowed also as business loss because said amount was due relating to disputed brokerage which was not recovered.
8. In view of above, we allow ground of appeal taken by assessee by reversing the orders of authorities below.
9. In the result, appeal filed by the assessee is allowed.
Order pronounced on this 13th day of January, 2012.
Sd/- Sd/-
( J.SUDHAKAR REDDY) (B.R. MITTAL )
Accountant Member Judicial Member
Mumbai, Dated 13th January, 2012
Rj
6 Soverign Securities Pvt. Ltd.
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