2013 (12) TMI 865 - AT - Income Tax

Deletion on account of bad debts AO restricted the brokerage passing through profit and loss account Held that - Following CIT Vs. D.B. (India) Securities 2009 (7) TMI 894 - DELHI HIGH COURT the unrecovered amount by the share broker on behalf of its sub-broker has to be treated as debt and deduction is allowable - the shares remaining in the possession of the assessee can be sold in the market for whatever consideration and adjusted against the balance outstanding payable by the debtors and the net figure which results thereafter has to be allowed as bad debt. Further in DCIT Vs. Shreyas S.Morakhia 2010 (7) TMI 455 - ITAT MUMBAI - the sum receivable by share broker from clients for transactions undertaken on their behalf is a trading debt - Unrecovered part has to be allowed as deduction Thus the assessee is entitled to deduction in respect of the amount becoming unrecoverable from its clients - the deduction has to be restricted to the amount determined after reducing the sum recoverable from sale proceeds of shares with assessee if any Order set aside and the matter remitted back to the AO for fresh adjudication decided against Revenue. Deletion of disallowance on account of Transaction charges Held that - Following CIT v. Kotak Securities Limited 2011 (10) TMI 24 - Bombay High Court The transaction charges paid by the assessee constitute fees for technical services covered under Section 194J of the Act Thus the assessee was liable to deduct tax at source while crediting the transaction charges order set aside and the matter remitted back to the AO Decided in favour of Revenue. Addition u/s 40(a)(ia) of Income Tax Act Assessee contended that no amount was outstanding at the end of the year Held that - Following CIT v. Crescent Export Syndicate 2013 (5) TMI 510 - CALCUTTA HIGH COURT - unless the amount is payable at the end of the year no disallowance can be made u/s 40(a)(i) of the Act - there is no merit in the ground raised by the assessee in its cross objection Decided against Assessee.

Summary

Issues involved:
1. Deletion of addition of bad debts in the hands of a stock broker.
2. Deletion of disallowance under section 40(a)(ia) on account of transaction charges.
3. Sustenance of disallowance under section 40(a)(ia) based on conflicting judgments.

Issue 1: Deletion of addition of bad debts in the hands of a stock broker:
The appeal involved a dispute over the deletion of an addition of Rs. 20,05,328 on account of bad debts claimed by a stock broker. The Commissioner of Income-tax (Appeals) had deleted the disallowance, citing judgments favoring the deduction of unrecovered amounts from clients as bad debts. The Tribunal referred to the judgment of the Hon'ble Delhi High Court and a Special Bench order in favor of the assessee, allowing the deduction but restricting it to the amount determined after considering recoverable sums from the sale of shares. The matter was remanded back to the Assessing Officer for a fresh decision, ensuring a fair opportunity for the assessee.

Issue 2: Deletion of disallowance under section 40(a)(ia) on account of transaction charges:
The second ground of the Revenue's appeal challenged the deletion of disallowance of Rs. 98,198 under section 40(a)(ia) related to transaction charges. The Tribunal acknowledged the judgment of the Hon'ble jurisdictional High Court and accepted the addition made by the Assessing Officer, based on the fair concession by the learned AR.

Issue 3: Sustenance of disallowance under section 40(a)(ia) based on conflicting judgments:
The cross objection by the assessee contested the sustenance of the addition under section 40(a)(ia) due to conflicting judgments. The Tribunal considered the recent judgment of the Hon'ble Allahabad High Court in favor of the assessee, but also noted contradictory decisions by the Hon'ble Calcutta High Court and the Hon'ble Gujarat High Court. The Tribunal emphasized that the amount being disallowable on merits and the conflicting views led to a detailed analysis. Ultimately, the Tribunal dismissed the cross objection, stating that there was no merit in the grounds raised by the assessee.

In conclusion, the Tribunal partially allowed the Revenue's appeal and dismissed the cross objection of the assessee, emphasizing the importance of following the ratio decidendi of judgments over obiter dicta. The decision was pronounced on August 2, 2013, resolving the issues raised in relation to bad debts, disallowance under section 40(a)(ia), and conflicting judgments regarding the disallowance.