2010 (11) TMI 653 - AT - Income Tax

Disallowance - bad debts - The Assessing Officer was of the view that the debt has not really become bad. Moreover in the case of a stock broker payment outstanding from a customer would not meet the requirement of section 36(2) and therefore this debt was not allowed - Held that - Claim of bad debts allowed following the decision of the Special Bench of the Tribunal in the case of Deputy CIT v. Shreyas S. Morakhia (2010 -TMI - 203106 - ITAT MUMBAI) held that the assessee s claim for bad debt is allowable and accordingly we decide this issue in favour of the assessee. Levy of interest u/s 234B - As per the hon ble Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. v. CIT 1986 -TMI - 5932 - SUPREME Court thus the issue regarding levy of interest under section 234B is of consequential nature and Assessing Officer is directed to levy the interest in accordance with law.

Issues involved:
1. Disallowance of bad debts amounting to Rs.2,55,85,260
2. Levy of interest under section 234B
3. Levy of interest under section 220(2)
4. Allowance of claim for carry forward of loss

Detailed Analysis:
1. Disallowance of bad debts amounting to Rs.2,55,85,260:
The appeal involved a dispute over the disallowance of bad debts amounting to Rs.2,55,85,260 for the assessment year 2004-05. The Assessing Officer initially disallowed the claim for bad debts, stating that the debt had not genuinely become bad and did not meet the requirements of section 36(2) for a stockbroker. The Commissioner of Income-tax (Appeals) partially allowed the claim, considering only the brokerage income received from clients. The Special Bench of the Tribunal had previously held that debts from clients against share transactions constituted trading debts, allowing deduction under section 36(1)(vii) for bad debts. The Tribunal, following this precedent, allowed the assessee's claim for bad debt, as the debts were found to be irrecoverable. Thus, the issue was decided in favor of the assessee.

2. Levy of interest under section 234B:
The issue of levy of interest under section 234B was deemed consequential in nature, and the Assessing Officer was directed to levy the interest according to the law. The Tribunal upheld the necessity for the interest to be levied in accordance with the relevant provisions.

3. Levy of interest under section 220(2):
The issue of levy of interest under section 220(2) was also considered. The Departmental representative argued that the assessee had no right to appeal against the levy of interest under this section, citing a decision of the Madhya Pradesh High Court. However, the assessee contended that the situation was different as there was a denial of the tax liability due to the absence of a raised demand. Referring to a Supreme Court decision, the Tribunal concluded that the levy of interest is part of the assessment process, allowing the assessee to dispute the levy in appeal if contesting liability. The matter was remitted back to the Commissioner of Income-tax (Appeals) for further consideration on the merits.

4. Allowance of claim for carry forward of loss:
In the appeal for the assessment year 2005-06, the issue involved the allowance of the claim for carry forward of loss. The Tribunal decided that if any loss was determined based on the order for the previous assessment year, it should be allowed in the subsequent year. Accordingly, the order of the Commissioner of Income-tax (Appeals) was set aside, and the matter was remitted back to the Assessing Officer for the appropriate allowance of any determined loss. The issue was considered consequential in nature, and the Assessing Officer was directed to levy interest under section 234B in accordance with the law.

In conclusion, the Tribunal partially allowed both appeals, addressing the various disputes raised by the parties and providing detailed reasoning for each issue involved in the judgments delivered.

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