9911796707
TMI Blog2012 (10) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf we have executed the saudas and the STT pertaining to those saudas is borne by the assessee – AO disallow the same that expenditure which is specifically prohibited cannot be allowed as an expenditure even if it pertains to someone else – Held that:- In so far as the question of revenue is concerned, there is no revenue loss to the exchequer, because the assessee is making that payment, which in any case, also it would have been the assessee only to make the payment, it is only a simple case of book entry, because neither the STT nor the service tax, though collected under the gross amount has been paid off. It is just a case of alternate book entries, which does not call for any addition on this account. Therefore appeal decides in favour of assessee - I.T.As. NO. 5735/Mum/2008 & 2749/Mum/2009 - - - Dated:- 4-7-2012 - SHRI R.S. SYAL SHRI VIVEK VARMA, JJ. Appellant by : Shri Deepak Tralshawala. Respondent by : Shri P. C. Maurya. ORDER Per VIVEK VARMA, JM: The appeals are filed by the assessee for assessment years 2005-06 and 2006-07 against the orders of CIT(A) IV, Mumbai, dated 01-08-2008 and 31-03-2009. As some grounds involved in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in 328 ITR 81, wherein the Hon'ble Bombay High Court has held that application of Rule 8D is prospective and shall apply from assessment year 2008-09, The Hon ble High Court, however says, a reasonable disallowance may be made against the income claimed to be exempt. 8. The A.R., therefore, pleaded that the issue is now settled, the computation of disallowance has to be made at a reasonable basis, considering the fact that the assessee has not incurred any expenditure, specifically for the earning of exempt income. 9. The DR relied upon the decisions of the revenue authorities. 10. We have heard the arguments and perused the orders of the revenue authorities and have also gone through the order of the Hon'ble jurisdictional High Court. As per the decision of the Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co.Ltd. vs. DCIT (supra) some reasonable disallowance has to be made, in this case, we would, respectfully following the decision of the Hon'ble Bombay High Court, set aside the order of the CIT(A) on this issue and direct the AO to recompute the disallowance at a reasonable figure. The ground is allowed for statistical purposes. 11. Ground No. (ii) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim u/s.36(1)(vii) is further governed by the Sec.36(2) of the I.T. Act. Section 36(2) provides that unless such debt or part thereof have been included in the computation of income of previous year or earlier previous years it can not be allowed as bad debt u/s 36(i)(vii). This has significant implications in the cases of shares and stockbrokers. The broker act as agents and facilitate transactions between principals. In the case of share stock brokers, what is credited to profit loss account is the from the purchase or sale on behalf of the clients. Thus, in case the client does not pay, in the future, this debt can not partake the nature of bad debt allowable u/s 36(1)(vii) as this amount of debt has not been included in the computation of income as required u/s 36(2). Accordingly, this being a case of stockbroker and the debt being related to his client, the debt cannot be allowed as bad debt, as this amount has not been included in the computation of (7 income as required u/s 36(2) . The AO further observed Thus, if the assessee has not collected sufficient margins and also chosen not to close out the transactions when dues are not received from clients, it woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the decision of ITAT Bombay Bench in the case of Harshad J. Choksi, 52 lTD 511 wherein it has been held that loss on account of BAD DEBTS can only be allowed with reference to the fulfillment of conditions contained u/s 36(2). The applicability of the specific provision cannot be ignored. Further, in a recent decision reported in 291 ITR 228 (Raj) in Kashmir Trading Co. Vs. DCIT , the Hon ble Rajasthan High Court has held that the requirement of sub sec. 2 of sec. 36 is to be established even in a case where the sum is written off in the books of account. The enquiry is to be made only when debt is written off in the books of account. It is a condition precedent before any claim for deduction on account of debt becoming bad is inquired into. Thus the assessee is bound to explain the measures he has taken before arriving at the conclusion that the debt has become bad. Accordingly, in view of above discussion, claim of bad debts of Rs. 5,78,183/- is disallowed and added to the net result declared by the assessee . 13. Aggrieved, the assessee approached the CIT(A), who set aside the issue to the file of the AO with the direction, to allow the debt of the expenditure of brokerag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the specific provision of section 40(a)(ib) clearly states that the deduction of STT is not be allowed, notwithstanding anything contrary in section 30 to 38 of the l.T.Act. (b) Further, the legislative intentions are absolutely clear that the payment of STT be not allowed as deduction as is clear from section 40(a)(ib) it tax rebate u/s 88E is allowable in case of trader of share and not at all allowable in case of investor in shares as provided in 5th Proviso to section 48. Although a trader get compensated for STT paid but no such tax rebate is available to an investor. The investors, who are not entitled to any rebate/benefit of STT have however passed the STT amount to brokers in the form of higher brokerage by the STT amounts. The broker has accepted the liability to bear the STT on behalf of the clients but the broker is not allow to claim tax rebate u/s.88E as the sum is available only to actual buyers and sellers and not to brokers. It is a kind of tax planning wherein the investor clients of the assessee are trying to claim the deduction of STT amount by way of higher brokerage and the assessee is trying to claim deduction, sec. 37. Such tax planning or colourable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the CIT(A) and direct the AO to delete the addition of Rs. 3,25,483/- in assessment year 2005-06 and Rs. 75,025/- made in assessment year 2006-07. Ground No. (v) in assessment year 2005-06 and grounds No. 1 2 in assessment year 2006-07 are allowed. 23. Ground no. vi in assessment year 2005-06 and grounds no. 3 4 for assessment year 2006-07 are against the order of revenue authorities for treating STGG as business income. 24. The issue, coming out of the order of the CIT(A) wherein the CIT(A) has made the following observations : a) The assessee has made substantial investments out of the borrowed funds. b) The intention and conduct of the assessee has been that of a trader and not that of an investor. c) Resjudicata cannot apply, because there is a material change in the transaction trends, as compared to the earlier year. d) The decisions referred to by the assessee are distinguishable on facts. 25. The A.R., appearing on behalf of the assessee pointed out that in so far as the question of investments made by the assessee from borrowed funds is concerned, the revenue has taken a wrong foot forward because they have not referred to the balance sheet because in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tains to STCG be accepted. 29. We have heard the arguments of either sides and have perused the orders of the revenue authorities. We find that there are varied differences in the arguments, which at our level cannot be sorted out, i.e. the claim of the revenue authorities and DR, that there are short term loans which are squared up during the year cannot just be brushed aside nor it can be accepted just looking into the figures, neither, on these contrary submissions made by the DR, we can accept the arguments of the A.R. that the loan amount, shown in the balance sheet is just Rs. 10 lacs loan and odd. We, therefore, in our considered opinion feel that this aspect needs a detailed factual interpretation by the AO. 30. We, therefore, set aside the order of the CIT(A) and restore the issue of STCG to the AO with the direction to the AO to re-examine the entire issue afresh and to give a comprehensive finding on facts, after giving reasonable and adequate opportunity to the assessee. These grounds in assessment year 2005-06 and 2006-07 are, therefore, treated as allowed for statistical purposes. 31. Grounds No. 5 6 in assessment year 2006-07 get consequently covered by our ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
