2011 (4) TMI 934 - AT - Income Tax

Bad debts - share broker - Held that - When the assessee has earned the brokerage on the transactions of purchase and sale of shares on behalf of the clients then if the amount becomes bad on account of not recoverable then it is allowable in view of the decision of the Special Bench of this tribunal in the case of DCIT V/s Shreyas S Morakhia. (2010 - TMI - 203106 - ITAT Mumbai). Decided in favor of the assessee. Dis-allowance of rent paid to group concern and addition of society charges and brokerage paid on the ground that the same pertains to the period when the premises were not occupied by the appellant Held that - As per leave and license agreement the sharing of the premises with group concern is allowed and it is undisputed fact that the assessee has incurred an expenditure towards the service charges of the shared premises to its group concern. Even otherwise when the expenditure is claimed by one of the either parties there is no double deduction then it has no revenue effect if the expenditure is allowed in the hands of the assessee instead of other group concern. When the CIT (A) has accepted the contentions of the assessee and allowed the expenditure from the date of the occupation of the premises there are no reason for disallowance of the claim of the assessee for intervening period from taking the premises on leave and license till shifting of the assessee from the existing office to the new premises. Therby rent and other service charges are allowed. Decided in favor of assessee.

Summary

Issues:
1. Disallowance of bad debts written off.
2. Disallowance of rent paid and enhancement of assessment for society charges and brokerage.
3. Disallowance of shared service cost.

Issue 1: Disallowance of Bad Debts Written Off:
The ITAT Mumbai heard cross-appeals regarding the disallowance of bad debts written off. The AO disallowed the claim as the debts were not recorded in the profit and loss account under the name of the share broker. The CIT (A) confirmed the disallowance. However, the ITAT referred to a Special Bench decision and a Supreme Court ruling stating that bad debts need not be proven as irrecoverable, but only need to be written off in the accounts. Consequently, the ITAT allowed the appeal regarding bad debts written off.

Issue 2: Disallowance of Rent Paid and Enhancement of Assessment:
The dispute involved rent paid by the appellant to Dresdner Bank AG, disallowed by the AO for lack of evidence. The CIT (A) restricted the disallowance to a specific period and enhanced the assessment for society charges and brokerage. The ITAT considered the agreement between the parties and concluded that the expenditure was justified and allowable, as the premises were meant to be shared by the group concern. Therefore, the ITAT allowed the appeal regarding the disallowance of rent paid and enhancement of assessment for society charges and brokerage.

Issue 3: Disallowance of Shared Service Cost:
The revenue raised a concern about the relief given to the assessee for shared service cost. However, since the ITAT had already allowed the claim of the assessee in a previous appeal, the revenue's grievance was found to be without merit and dismissed. Additionally, a similar issue raised by the revenue for another assessment year was also dismissed based on the previous decision. Consequently, the ITAT dismissed the appeal filed by the revenue.

In conclusion, the ITAT Mumbai decided in favor of the assessee regarding the disallowance of bad debts written off, rent paid, and enhancement of assessment for society charges and brokerage. The ITAT dismissed the revenue's appeal concerning shared service cost, as it had already been addressed in a previous decision.