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TMI Blog2008 (9) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... Shailesh Sheth or the nature of services rendered by him to prove the genuineness of the payment. The various papers filed in the Paper Book are only self serving documents without proving the genuineness of the payments - In this view of the matter, we do not find any infirmity in the order of the CIT(A) in confirming the disallowance of sub-brokerage made by the AO. The ground raised by the assessee is dismissed. Addition on account of loan taken from Shri Hitesh Joshi and Smt. Hansa Jhaveri - assessee failed to prove the identity and creditworthiness of the loan creditors and the genuineness of the transactions - HELD THAT:- Assessee has also not brought any other evidence before us so as to prove the identity and creditworthiness of the two persons and the genuineness of the transactions. Mere submissions by the ld counsel for the assessee that the matter may be sent back to the file of the AO so as to enable the assessee to produce the parties, in our opinion, has got no merit and do not find much force, especially in the absence of any fresh material - Therefore, we do not find any infirmity in the order of the ld CIT(A) sustaining the addition in the case of Shri Hit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, in brief, are that the assessee is a member of Bombay Stock Exchange and its business comprises of share and stock broking. The Assessing Officer, during the course of assessment proceedings, observed that the assessee has shown brokerage income of Rs. 80,26,582 and after sub-brokerage charges of Rs. 11,62,897 had declared net brokerage of Rs. 68,63,685. The Assessing Officer asked the assessee to furnish the details on the basis of which such brokerage was paid along with particulars of the sub-brokers along with their clientele, copy of their account duly confirmed, SEBI registration certificate, etc. However, the assessee furnished only the name and address of the sub-brokers and no other details were furnished. On being asked to furnish the requisite details to examine the sub-brokerage, the assessee vide its letter dated 21-11-2003 made the following submission : "We never paid any sub-brokerage to sub-broker as brokerage charged to sub-broker in their transactions same as like a normal client. Hence the quantum of sub-brokerage paid or payable is not applicable." 3. In the absence of furnishing of such details/confirmation, the Assessing Officer observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kerage had been paid nor filed any evidence with regard to introduction of various clients to the assessee for which sub-brokerage is paid. He observed that the genuineness of the sub-brokerage paid, services rendered by such parties and the basis of such sub-brokerage is not proved. According to the CIT(A), mere filing of sub-brokerage confirmation letter with PAN of the parties does not prove the genuineness of sub-brokerage and services rendered specifically when the party is not traceable at the given address. The assessee also failed to file any death certificate. The application to Stock Exchange for cancellation of leased land telephone line does not prove that Mr. Shailesh Sheth is a sub-broker. He also observed that the application does not bear any receipt No. or signature of recipient. Relying on the decision of the Tribunal in the case of ITO v. Maddi Laxmaiah Co. (P.) Ltd. [1988] 31 TTJ (Hyd.) 71, the CIT(A) confirmed the action of the Assessing Officer in disallowing the sub-brokerage of Rs. 11,67,897. Aggrieved with such order of the CIT(A), the assessee is in appeal before us. 6. The learned counsel for the assessee reiterated the same submissions as made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. We find the Assessing Officer in the body of the assessment order has given a finding that the assessee has earned brokerage income, the details of which are as under : Brokerage - Rs. 8,026,582 Less: Sub-brokerage - Rs. 1,162,897 Net brokerage - Rs. 6,863,685 We find the assessee vide its letter dated 21-11-2003 addressed to the Assessing Officer has submitted as under : "We never paid any sub-brokerage to sub-broker as brokerage charged to sub-broker in their transactions same as like a normal client. Hence the quantum of sub-brokerage paid or payable is not applicable." We further find at no point of time the assessee has given the details of clients which were introduced by late Shailesh Sheth or the nature of services rendered by him to prove the genuineness of the payment. The various papers filed in the Paper Book are only self serving documents without proving the genuineness of the payments. 8. In this view of the matter, we do not find any infirmity in the order of the CIT(A) in confirming the disallowance of sub-brokerage of Rs. 11,67,897, made by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Hitesh Joshi and Smt. Hansa Jhaveri are found to be bogus as the parties did not exist at the given address for which the summons could not be served. The Assessing Officer issued a letter dated 16-2-2005 to the assessee to produce the above two loan creditors for his examination. However, in spite of opportunities given, the assessee neither attended nor produced the above two loan creditors before the Assessing Officer for examination. Accordingly, the Assessing Officer in his remand report stated that the loans from the two parties are bogus. On the basis of the remand report from the Assessing Officer, the CIT(A) deleted the addition made by the Assessing Officer on account of unexplained cash credit in the case of other parties but sustained the addition on account of Mr. Hitesh Joshi (Rs. 5 lakhs) and Hansa V. Jhaveri (Rs. 50,000). Aggrieved with such order of the CIT(A), the assessee is in appeal before us. 13. After hearing both the sides, we find the CIT(A) sustained the addition relating to the above two parties as the assessee failed to prove the identity and creditworthiness of the loan creditors and the genuineness of the transactions. From the various argumen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the issue and upheld the order of the CIT(A) treating the loans as bogus, therefore, the disallowance of interest amounting to Rs. 40,663 by the CIT(A), in our opinion, does not call for any interference and the same is accordingly upheld. 16. In grounds of appeal No. 5, the assessee challenged the order of the CIT(A) in confirming the disallowance of bad debts amounting to Rs. 1,11,910. 17. Facts of the case, in brief, are that the assessee claimed bad debts of Rs. 1,11,910 in the Profit Loss Account. The Assessing Officer during the course of assessment proceedings, asked the assessee to furnish the details of such bad debts and explain as to how such bad debts are admissible under section 36(1)( vii ) read with section 36(2) of the Act. The assessee only submitted the name and address and the amount of debt written off along with copies of the ledger account. Not being satisfied with the explanation given by the assessee the Assessing Officer disallowed the bad debt of Rs. 1,11,910. 18. Before the CIT(A), it was submitted that certain business debts were written off as bad debts during the year as these were found irrecoverable in spite of continuous follow up a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he stock exchange. He performed various transactions of sales and purchases on behalf of its clients. On account of bad delivery or non-recovery of brokerage and cost of the scrip, an amount of Rs. 1,11,910 became due from different parties. The assessee claims this debt to be bad and claimed it deduction under section 36(1)( vii ) on its writing off in the year under account. The revenue has raised the dispute whether the entire amount which includes the brokerage and the cost of the scrip etc., can be called to be a bad debt for the purpose of section 36(1)( vii ) of the Act. The revenue s contention is that, only brokerage which were taken into account while preparing the profit and loss account and in computing the income of the assessee, can only be considered as a bad debt for the purpose of deduction under section 36(1)( vii ) of the Act and not the remainder. The revenue has also differentiated the share broker from a share trader. 21. Before adjudicating the issue, we prefer to examine the relevant provisions of the Act and the nature of the activities performed by the share trader and share broker. For the sake of reference, we extract the relevant provisions of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a share broker ensures the parties or stands as a guarantor for the seller and the buyer for the delivery of the scrips to the buyer and the payment of the cost of the scrips to the seller. But, this liability to make the payment to the cost of the scrip to the seller or to compensate the buyer on account of non-delivery or bad delivery, does not accrue to it on the date of original transaction of sales and purchases arranged by the share broker. This liability accrues on non-payment of the cost of the scrip by the buyer or on the date of non-delivery or the bad delivery of the scrip. In order to discharge the liability, if the assessee makes the payment of the cost of the scrip to the seller, then the right to recover the same from the buyer accrues to it. Similar is the position when the broker compensates the buyer on account of non-delivery or the bad delivery. But, this right to recover the said debt on account of discharge of liability does not accrue to the share broker on the day when the transactions for sale and purchase were arranged, because, as per the SEBI Guidelines, a settlement period is fixed and within the settlement period, the share broker is required to get th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ader takes the entire amount of the cost of the scrips and the sale proceeds in its account. If he fails to recover the sale proceeds, it can be considered to be the bad debt of the assessee, but, in a case of a share broker, the brokerage and the right to recover the cost of the scrip or compensation accrues on different dates as discussed in foregoing paras. We, therefore, of the view that the impugned issue was not examined in the spirit in which it was argued before us, as such, it cannot be followed in the instant case. 26. Keeping in view of the facts and circumstances of the case, we are of the considered opinion that assessee is entitled to claim for deduction of the bad debt on its writing off in the books of account from its total income under section 36(1)( vii ) of the Act only with regard to the brokerage which has been taken into account while computing the total income of the assessee. Since the cost of the scrips were never taken into account, while computing the income of the assessee, it cannot be called to be the bad debt for the purpose of section 36(1)( vii ) of the Act. It can, at the most to be termed as the trading loss which can be allowed subject to fu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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