2011 (4) TMI 872 - AT - Income Tax

Bad debts claim - Held that - The issue in appeal is squarely covered in favour of the assessee relying on TRF Ltd. vs CIT 2010 (2) TMI 211 - SUPREME COURT that after the assessment of section 36(1)(vii) w.e.f. 01.04.1989 in order to obtain a deduction in relation to bad debts it is not necessary for the assessee to establish that the debt in fact has become irrecoverable. It is enough of the bad debt is written off as irrecoverable in the accounts of the assessee - as in the present case CIT(A) directed the AO to allow deduction for bad debts only after he is satisfied that conditions of section 36(2) are satisfied The directions are quite justified & needs no interference. Disallowance of interest - interest bearing funds were used for non business purposes - Held that - As assessee rightly contends what has been termed as diversion of funds by the AO is not correct inasmuch as a plain look at the ledger account shows the sister concern s dues are commercial dues on account of sales and purchases and not on account of diversion funds - assessee had sufficient non interest bearing funds for in excess of monies recoverable form sister concerns and following the principles laid down by Hon ble Jurisdictional High Court in CIT vs. Reliance Utilities and Power Ltd. (2009 (1) TMI 4 - HIGH COURT BOMBAY) the interest disallowance could not have been made - Decided in favor of the assessee Business loss - set off of loss on sale of mutual funds against delivery based share trading income - Held that - The profit arising on sale and purchase of shares even if these are delivery based transaction will be treated as belonging to speculation business within the meaning of Explanation to Section 73. Thus once the assessee is carrying on a speculation business and the profits and gains have arisen from that business during the course of the assessment year the assessee is entitled to set off the losses carried forward from a speculation business arising out of a previous assessment year - in favour of assessee. Deemed dividend - transaction with GSP Securities as loan transaction on the ground that it was so treated by the auditors in their remark - Held that - Persuing the ledger account of GSB Securities there are no payments by way of loans and advances to the assessee. Not only that there is no payment in the present case as transactions are in respect of purchase of shares and securities and amounts due to the assessee are reflected by net of such debits the transactions are not in the nature of payments for loans and advances - in favour of assessee.

Issues Involved:
1. Allowance of bad debts under Section 36(1)(vii) and Section 36(2).
2. Disallowance of depreciation on Bombay Stock Exchange Card.
3. Disallowance of interest expenditure under Section 40A(2)(a).
4. Disallowance of interest payable to SEBI under Section 43B.
5. Deletion of sundry balances written off.
6. Set-off of loss on account of purchase and sale of mutual funds.
7. Disallowance of D-mat charges for non-deduction of TDS.
8. Treatment of advances as deemed dividend under Section 2(22)(e).

Issue-wise Analysis:

1. Allowance of Bad Debts:
The Revenue's appeal challenged the CIT(A)'s decision to allow bad debts written off by the assessee for three debtors. The Assessing Officer (AO) had disallowed the claim, arguing that the debts had not been proven to be bad and that the conditions under Section 36(2) were not met. The CIT(A) upheld the assessee's claim, noting that the amounts had become non-recoverable and had been written off in the books. The Tribunal agreed with the CIT(A), citing the Supreme Court's judgment in TRF Ltd. vs CIT, which supports the allowance of bad debts if written off in the books, and dismissed the Revenue's appeal on this ground.

2. Disallowance of Depreciation on Bombay Stock Exchange Card:
The assessee's appeal included a ground challenging the disallowance of depreciation on the Bombay Stock Exchange Card. However, this ground was not pressed by the learned counsel and was dismissed for want of prosecution.

3. Disallowance of Interest Expenditure:
The AO disallowed Rs. 4,90,072/- of interest expenditure, arguing that interest-bearing funds were used for non-business purposes. The CIT(A) confirmed this disallowance. The Tribunal, however, upheld the assessee's plea, noting that the funds were used for business purposes and that the assessee had sufficient non-interest-bearing funds. The Tribunal directed the AO to delete the disallowance.

4. Disallowance of Interest Payable to SEBI:
The assessee's appeal included a ground challenging the disallowance of interest payable to SEBI under Section 43B. The Tribunal found no substance in the plea, noting that the CIT(A) had issued appropriate directions, which were not challenged on merits. The ground was dismissed.

5. Deletion of Sundry Balances Written Off:
The AO disallowed Rs. 8,707/- debited as sundry balances written off, arguing that conditions under Section 36(1)(vii) and 36(2) were not met. The CIT(A) allowed the claim, noting that the amount was incidental to the business. The Tribunal upheld the CIT(A)'s decision, considering the small amount involved and its incidental nature.

6. Set-off of Loss on Purchase and Sale of Mutual Funds:
The AO denied the set-off of a loss of Rs. 19,03,935/- from mutual fund transactions against delivery-based share trading income, arguing that mutual fund transactions were not business transactions. The CIT(A) granted relief, noting that the Explanation to Section 73 applies to both profit and loss from share trading. The Tribunal upheld the CIT(A)'s decision, citing the Bombay High Court's ruling in CIT vs Lokmat Newspapers Pvt Ltd, which supports the set-off of losses from non-delivery based transactions against profits from delivery-based transactions.

7. Disallowance of D-mat Charges:
The AO disallowed Rs. 1.81 lakhs in D-mat charges for non-deduction of TDS. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, citing the Mumbai Tribunal's ruling in DCIT vs. Angel Broking Ltd.

8. Treatment of Advances as Deemed Dividend:
The AO treated advances from GSB Securities Pvt Ltd as deemed dividend under Section 2(22)(e), noting that the assessee held more than 25% shareholding. The CIT(A) confirmed this treatment. The Tribunal, however, found that the transactions were business-related and not loans or advances, and directed the AO to delete the addition.

Conclusion:
The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeals, providing detailed reasoning for each issue based on the facts and applicable legal provisions. The decisions were aligned with precedents and statutory interpretations, ensuring that the claims were adjudicated fairly and in accordance with the law.

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