Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: articles on VAT and GST in India :: VAT Audit :: form 3cd :: TDS :: TAX RATES - GOODS TAXABLE @ 4% :: empanelment :: Central Excise rule to resale the machines to a new company :: cpt :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ACCOUNTING STANDARDS :: ACCOUNTING STANDARD :: due date for vat payment :: VAT RATES :: list of goods taxed at 4%
 
 
From the Courts »
  Micro Spacematrix Solution P Ltd vs. ITO (ITAT Delhi)
 Micro Spacematrix Solution P Ltd vs. ITO (ITAT Delhi)
 CIT vs. Greenfield Hotels & Estates Pvt. Ltd (Bombay High Court)
 IndiaBulls Financial Services Ltd vs. DCIT (Delhi High Court)
 Maharao Bhim Singh of Kota vs. CIT (Supreme Court)
 Ravneet Takhar Vs. Commissioner Of Income Tax Ix And Ors.
 Jaiprakash Associates Ltd. Vs. Commissioner Of Income Tax
 Formula One World Championship Limited Vs. Commissioner Of Income Tax, International Taxation-3 And Anr.
 Commissioner Of Income Tax International Taxation-3 Delhi Vs. Formula One World Championship Ltd. And Anr.
 Reliance Communications Ltd vs. DDIT (ITAT Mumbai)
  Sushila Devi vs. CIT (Delhi High Court)

Krishnavtar J Kabra 3, Rajesh Apartment, Behind Nav Gujarat College, Ashram Road Ahmadabad-380014. V/s. ITO, Central Ward 1(1), Ahmedabad.
December, 12th 2013
            IN THE INCOME TAX APPELLATE TRIBUNAL
              AHMEDABAD "A" BENCH AHMADABAD
              ,  Û `'
              ,

            Before Shri D.K.Tyagi, Judicial Member and
                   ^ . .×, Û  
                  Shri T.R. Meena, Accountant Member
                  ^ ..,    ¢ 

                           ITA No. 2400/Ahd/2010
                          Assessm ent Year :2004-05
 Krishnavtar J Kabra            V/s . ITO,
 3, Rajesh Apartm ent,                Central W ard 1(1),
 Behind Nav Gujarat College,          Ahmedabad.
 Ashram Road
 Ahm adabad-380014.
                       PAN No. AGDPK5563D
           (Appellant)          ..            (Respondent)

                                          Shri Sakar Sharma, A.R.
     By Appellant
     ×   /By Respondent                   Shri O. P. Bhateja, Sr. D.R.
       /Date of Hearing
                                            08.10.2013
       /Date of Pronouncement               05.12.2013

                                 ORDER

PER : Shri T.R.Meena, Accountant Member

      This is an appeal at the behest of the assessee which has emanated

from the order of CIT(A)-I, Ahmedabad, dated 17.05.2010 for assessment

year 2004-05. The effective grounds of appeal are as under:

      "1.   Ld. CIT(A) erred on facts an din law in confirming disallowance of
            bad debts of Rs.267745/-.
      2.    Ld. CIT(A) erred on facts and in law in confirming disallowance of
            Rs.280629/- being interest paid to Kotak Mahindra Investments
            Ltd. on loan granted for subscribing shares of Patni Computers.
      3.    Ld. CIT(A) erred on facts in law in confirming disallowance of
            Rs.8000/- related to Daxaben Sunilbhai Patel."
I T A No . 2 40 0 /A h d/ 1 0 A. Y. 04- 0 5                           Page 2



2.      The first ground of appeal is against confirming the disallowance of bad

debt of Rs.2,67,745/-. The A.O. observed that the assessee had debited bad

debts to the tune of Rs.2,67,748/- in p&l account under head `Administrative &

Selling Expenses. The details of bad debts were called for. The assessee

had filed the same vide letter dated 17.11.2006. On verification of details of

bad debts, which was found by the A.O. that the assessee had claimed bad

debts in case of eleven parties for total value of Rs.3,48,810/-. The assessee

had, thereafter, credited an amount of Rs.81,062/- received from debtors

during the year. The net amount of Rs.2,67,748/- had been debited to the p&l

account. On this issue, the A.O. gave reasonable opportunity of being heard,

which was replied by the assessee. After considering the assessee's reply,

the A.O. held that the assessee had to restrict the claim of bad debt to those

debts that had become a worthless debt. The facts were that the assessee

had received payments during the accounting year for the period 01.04.2003

to 31.03.2004 clearly showed that the debt was not worthless. The assessee

for his convenience may decide that the debt was bad and it was not

worthwhile to pursue the debtor. He did not accept the assessee's decision

on becoming debt as bad. The assessee's attitude in treating the debtors as

well as creditors were found casual. As per Section 36(1)(vii), the assessee

had to demonstrate honestly that bad debt had become bad. The assessee

was obtaining unsecured loan every year and divert the funds to the interest

free advances to his own group concerns or at his convenience. No income

from interest bearing fund was shown in the previous year. The proprietor's
I T A No . 2 40 0 /A h d/ 1 0 A. Y. 04- 0 5                            Page 3


capital was also in debit balance for A.Y. 2003-04. Above all, the bad debt

claimed pertained to a proprietary business which was closed by him in F.Y.

2001-02. The assessee was very much silent about the income part and

claim expenses at his convenience bringing the taxing amount to nil.

Alternatively, the assessee had written off debt, income which was not offered

for taxation in the previous year i.e. pre-condition for writing to bad debt.

Further, status of the following debtors/persons is as under:

1.      V. K. Moondra, C.A. is assessee's own present Tax Auditor

2.       Pushpaben Kabra is own family member

3.      Soni Saheb no identity of the person or account is given

4.      Debenture redemption account - no identity

As discussed above, it is very much clear and lead to the conclusion that the

judgment of the assessee is not an honest one and was taken for his

convenience. The department does not insist on demonstrative or infallible

proof for claiming bad debts. However, the assessee cannot claim bad debts

on loans and advances or for that matter as accounts shown as creditors as

per provisions of section 36(2)(i). Similarly, even the liberal interpretation of

bad debts claim would not permit the taxing authorities to allow the claim of

debts which are in the process of recovery as can be seen in chart shown in

para 4. As per the provision of section 36(1)(vii), since the said section refers

to bad debts and the onus to prove that the debts is bad still lies the

assessee. The amended provision of bad debts allows the assessee liberal

view to claim bad debts in a particular year. However, there has to be a debt

which is bad to claim such deduction. In this case, the assessee for his
I T A No . 2 40 0 /A h d/ 1 0 A. Y. 04- 0 5                                Page 4





convenience has decided that the debt is not worthwhile to pursue. Even after

the amendment with effect from 01/04/1989, it is necessary on the part of the

assessee to establish that the debt actually 'bad' as held by Honorable ITAT

in the case of India Thermit Corporation Ltd. (56 ITD 307) (Delhi). Therefore,

considering the entire facts and circumstances of the case, the claim of bad

debt by the assessee is not bonafide and hence the bad debt claim of Rs.

2,67,748/- is hereby disallowed. Penalty u/s. 271(1)(c) is initiated separately.

3.      Being aggrieved by the order of the A.O., the assessee carried the

matter before the CIT(A) who had confirmed the addition by observing as

under:

        "6.      I have considered the submissions of the appellant. At the
        outset, it is relevant to mentioned that these debts of Rs.2,67,745/-
        relates to business of sub-broking of share-business in the name
        and style of M/s. K.K, Investment, of which the appellant was
        proprietor. Thereafter, M/s. K.K. Investment was closed down. It is
        therefore, apparent that the bad debts claim of Rs.2,67,745/- relates
        to the sub-broking business of earlier years. In the year under
        consideration, such business activities have already been closed
        down. Besides, the amounts written off relates to the parties, who
        have transacted with the appellant in earlier years, when the sub-
        broking business in the name of M/s. K.K. Investment was
        operational. The debit balance written off relates to those
        transactions, wherein the appellant has claimed to have incurred the
        liabilities on behalf of its clients. It is, therefore, apparent that such
        liabilities mostly relates to capital expenditure. The appellant's
        earning of sub-brokerage commission from such transactions shall
        be very nominal. In other words, the debit balance claimed to be
        written off relates to capital expenditure. Such capital expenditure,
I T A No . 2 40 0 /A h d/ 1 0 A. Y. 04- 0 5                                Page 5


        which might have been written off in the accounts, could not be
        allowed as deduction u/s.36(1)(vii) r.w.s. 36(2) of the I.T. Act. In
        view of above, the addition of Rs.2,67,745/- is considered
        justified and the same is confirmed."

4.      Now the assessee is before us.             Ld. Counsel for the assessee

contended that ld. CIT(A) held that liability is for capital expenditure. The

appellant's earning of sub-brokerage commission from such transaction shall

be very nominal. In other words, the debit balance claimed to be written off

capital expenditure which are not allowable u/s.36(1)(vii) r.w.s. 36(2) of the IT

Act. The A.O. disallowed the bad debt on account of not establishing the debt

became bad. It is squarely covered by Hon'ble Supreme Court's decision in

case of TRF Ltd. vs. CIT 323 ITR 397 (SC), wherein controversy as to

whether assessee is required to prove that amount written off has become

bad or not has been settled in favour of the assessee.             The issue as to

whether amount written off from such activities being unrealizable is entitled

deduction has been settled in favour of the assessee by the decision of

Hon'ble ITAT, Mumbai Bench in case of Angel Capital & Debt Market Ltd. vs.

ACIT 118 TTJ (Mumbai) 35. Identical view is also taken by the Hon'ble ITAT,

Mumbai Bench in the case of India Infoline Securities P Ltd. vs. ACIT 25 SOT

123 (Mum).           Alternatively, he claimed business loss. At the outset, ld. Sr.

D.R. relied upon the order of the CIT(A).

5.      We have heard the rival submissions, perused the material on record

and gone through the case laws cited by the ld. A.R.              It is fact that the

assessee proprietary business had been closed down in A.Y. 01-02 and bad
I T A No . 2 40 0 /A h d/ 1 0 A. Y. 04- 0 5                              Page 6


debts were claimed in A.Y. 04-05. It is not clear from the order of the A.O.

whether the assessee wrote off these amounts in the accounts or not.

Further, the assessee has not proved that whatever bad debts claimed were

shown in the income of the assessee of the closed business. It is further not

examined by the A.O. that both the business are interlacing or inter connected

with present business as per paper book filed by the assessee, page no.1,

these are small amounts in the name of various names. The assessee also

had shown the recovery from the debtors in this account and net has been

debited in the p&l account. The assessee has debited these bad debts in the

administrative and selling expenses.            Accordingly, we direct the A.O. to

examine these entries from the books of account and also relation with

present business to closed business. Accordingly, we set aside this ground of

appeal.

6.      Ground nos.2 & 3 are against confirming the disallowance of

Rs.2,80,629/- being interest paid to Kotak Mahindra Investments Ltd. on loan

granted for subscribing shares of Patni Computers and confirming

disallowance of Rs.8000/- related to Daxaben Sunilbhai Patel.            The A.O.

observed that the assessee had debited in p&l account miscellaneous share

investment expense of Rs.2,88,525/-. The A.O. gave reasonable opportunity

of being heard on this issue. After considering assessee's reply, it was held

that the assessee had claimed Rs.8000/- in the name of Daxaben Sunilbhai

Patel who has no connection with the business of assessee. No proof of

expenses in this regard was filed.            The balance amount of Rs.2,80,525/-

related to the interest paid to Kotak Mahindra Investments Ltd. for a period
I T A No . 2 40 0 /A h d/ 1 0 A. Y. 04- 0 5                             Page 7





from 06.02.2004 to 23.02.2004 for a loan amount of Rs.3,10,50,000/-. On

verification of the account, it was further noticed by the A.O. that this loan was

not utilized by the assessee for the purpose of business except Rs.8,74,000/-

invested in purchase of 3800 shares of Patni Computers. Therefore, the A.O.

allowed interest on Rs.8,74,000/- which comes to Rs.7,896/- and remaining

amount of Rs.2,80,629/- was added back.

7.      Being aggrieved by the order of the A.O., the assessee carried the

matter before the CIT(A) who had confirmed the addition by observing as

under:

        9.       I have considered the submissions of the appellant. As per
        appellant's own submission, the amount of Rs.3,10,50,000/- were
        borrowed for making investments in shares of Patni Computers by
        way of share application for 1,50,000 shares but finally allotted 3,800
        shares only.             It is, therefore, apparent that the amount of
        Rs.3,10,50,000/- could not be termed as borrowed "for the purpose
        of business" and therefore, the interest claimed on such borrowings
        could not be allowed as deduction u/s.36(1)(iii) of the I.T. Act. The
        investment made in shares may also yield tax free dividend income.
        In such situations interest payment made for purchase of shares for
        earning dividend income would not be allowed deduction u/s.14A of
        the I.T. Act. Similarly, if the investment in shares have been made to
        earn long term / short term capital gain, then also, the interest would
        not quality for deduction u/s. 36(1)(iii) of the I.T. Act. In view of
        above, the Assessing Officer's action is considered justified
        and addition of Rs.2,80,629/- is confirmed."

8.      Now the assessee is before us.              Ld. Counsel for the assessee

contended that the appellant is engaged in the activities of trading in shares
I T A No . 2 40 0 /A h d/ 1 0 A. Y. 04- 0 5                                  Page 8


income of which is assessed as `business income'. During the year under

consideration, appellant borrowed funds from Kotak Mahindra Investments

Ltd. to the tune of Rs.3,10,50,000/- to subscribed 1,50,000 shares of Patni

Computers in the IPO.                Against the share application of 1,50,000 shares,

appellant was allotted 3,800 shares which were sold and loss arising there

from was offered under the head `busienss income' and was assessed as

such.       The appellant has also drawn our attention on page no.23 to

demonstrate that assessee had applied 1,50,000 shares of Patni Computers

through Kotak Mahindra Investments Ltd.               The Kotak Mahindra Investments

Ltd has charged interest from 06.02.2004 to 23.02.2004 at Rs.2,14,373/- and

service charges at Rs.77,625/- and demat Trf charges for Rs.437/-.                The

assessee was allotted only 3800 shares. The net of the interest earned on

margin given to the Kotak Mahindra Investments Ltd. and interest paid on the

loan amount was claimed as deduction in the p&l account against business

income from share trading activity at Rs.2,88,525/-.              Shares of the Patni

Computers were held as stock in trade is evident from the summary of the

opening stock, purchase, sale and closing stock. Therefore, it is allowable

expenses. The assessee has debited Rs.8000/- in the name of Daxaben

Sunilbhai Patel, which was included in account of the miscellaneous shares

and investments ltd. actually it was bad debt. As per assessee's argument, it

was possible settled and deducted against towards the dividend.                The ld.

CIT(A) had not given any finding on this issue.              But, there being a small

amount which is not pressed. At the outset, ld. Sr. D.R. supported the order

of the CIT(A).
I T A No . 2 40 0 /A h d/ 1 0 A. Y. 04- 0 5                           Page 9


9.      We have heard the rival submissions and perused the material on

record. As per audit report, the assessee is in investment and share trading.

The assessee has shown investment in Schedule-E of closing stock of

Rs.15,09,100/- and closing stock of trading Rs.58,69,811/-. The assessee

has included purchase and sale of Patni shares in trading and adjusted the

sale of loss in trading and debited in the p&l account at Rs.47,052/- in toto.

Therefore, it is an expenditure and allowable u/s. 36(1)(iii) of the IT Act.

Therefore, addition to the extent of Rs.8,000/- is confirmed and remaining

addition of Rs.2,72,629/- is deleted.

10.     In the result, the assessee's appeal is partly allowed.

 This Order pronounced in open Court on 05.12.2013

        Sd/-                                                      Sd/-
    (D.K.Tyagi)                                              (T.R. Meena)
  Judicial Member                                         Accountant Member
                                              True Copy
S.K.Sinha
     / Copy of Order Forwarded to:-
1.  / Appellant
2. × / Respondent
3.    / Concerned CIT
4.  -  / CIT (A)
5.  ,   ,  / DR, ITAT, Ahmedabad
6. [  / Guard file.
                                                                  By order/  ,




                                                                  / 
                                                              ,
                                                                       

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Software Outsourcing Company Offshore Software Outsourcing Software Outsourcing Company India Offshore Outsourcing Company India Software BPO Software Business Process Outsourcing Software Outsourcing India Offsho

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions