Ita/88/2012 Of Stockpoint Share Services Private Ltd v. The Assistant Commissioner Of Income Tax, Palakkad

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU THURSDAY, THE 24TH DAY OF AUGUST 2017/2ND BHADRA, 1939 ITA.No. 88 of 2012 ---------------------- AGAINST THE ORDER IN ITA 104/2010 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 16-12-2011 --------- APPELLANT/APPELLANT/ASSESSEE: ---------------------------------------- STOCKPOINT SHARE SERVICES PRIVATE LTD 75/550(3), CVM TOWERS, PALAKKAD REPRESENTED BY ITS MANAGING DIRECTOR, SMT.J.SANGEETHA. BY ADVS.SRI.T.M.SREEDHARAN (SR.) SMT.NISHA JOHN SRI.V.P.NARAYANAN SMT.BOBY M.SEKHAR RESPONDENT/RESPONDENT/REVENUE: ------------------------------------------- THE ASSISTANT COMMISSIONER OF INCOME TAX, PALAKKAD CIRCLE - 1, BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 24-08-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ANTONY DOMINIC, & DAMA SESHADRI NAIDU, JJ. ------------------------------------------------ I. T. Appeal No.88 of 2012 ------------------------------------------------ Dated this the 24[th ]day of August, 2017 JUDGMENT Antony Dominic, J. 1. aThis appeal is filed by the assessee impugning theorder passed by the Income Tax Appellate Tribunal, CochinBench in I.T.A. No.104/2010 concerning the AssessmentYear 2006-07. In the Assessment Order for the AssessmentYear 2006-07, a copy of which is produced as Annexure-A,the assessee has claimed an amount of `1,16,521/- as priorperiod expenses in the Profit and Loss Account. Onverification, the Assessing Officer found that the amountrepresented expenses pertaining to the previous year whichwas written off in the Assessment Year in question. On theground that the assessee could not explain when theamount of expenses crystallized, the Assessing Officer held I. T. Appeal No.88 of 2012 that the expense was not incurred during the previous year relevant to the Assessment Year and hence, cannot beallowed as business expense. Accordingly, the claim of theassessee was disallowed and assessment was completed. 2. In the appeal filed before the first appellateauthority, the assessee submitted that it is a sub-broker tothe principal broker based at Mumbai, and that as per thedirections of the SEBI, the share broker has remitted DPcharges for the transaction carried out by the customersserved by the sub-broker. It was stated that the principalbroker had debited in the account of the appellant with`31,457.59/- during the previous year 2002-03 and`85,064.02/- during the previous year 2003-04. Accordingto the assessee, the principal broker has not given thebreak-up of the above debts of the customers on whosebehalf these charges were debited. According to theassessee, the fact that the individual customer-wise break-up could not be obtained, was known to them only during I. T. Appeal No.88 of 2012 the Financial Year 2005-06 and therefore, the amountacquired the character of the expenditure in that year.Therefore, the assessee claim that the amount is to beallowed as an expenditure of the Assessment Year 2006-07. acquired the character of the expenditure in that year.Therefore, the assessee claim that the amount is to beallowed as an expenditure of the Assessment Year 2006-07. 3. The alternative contention raised was that since theassessee could not recover the amount from individualcustomers from whom it was to be recovered, the amountshould be written as bad debt and allowed as anexpenditure in the assessment in which it was written off. assessee could not recover the amount from individualcustomers from whom it was to be recovered, the amountshould be written as bad debt and allowed as anexpenditure in the assessment in which it was written off. 3. The alternative contention raised was that since theassessee could not recover the amount from individualcustomers from whom it was to be recovered, the amountshould be written as bad debt and allowed as anexpenditure in the assessment in which it was written off. assessee could not recover the amount from individualcustomers from whom it was to be recovered, the amountshould be written as bad debt and allowed as anexpenditure in the assessment in which it was written off. 4. Both the claims were negatived by the firstappellate authority holding that the expenditure claimed waspertaining to the earlier year and so, it cannot be allowed asa revenue expenditure. The alternative claim of theappellant that it was a bad debt was also not acceptedbecause details of the debt were not produced. The Tribunalalso upheld the order passed by the lower authorities. It isin this background, this appeal is filed and the questions oflaw framed are the following:appellate authority holding that the expenditure claimed waspertaining to the earlier year and so, it cannot be allowed asa revenue expenditure. The alternative claim of theappellant that it was a bad debt was also not acceptedbecause details of the debt were not produced. The Tribunalalso upheld the order passed by the lower authorities. It isin this background, this appeal is filed and the questions oflaw framed are the following: “a)Whether on the facts and in the circumstancesof the case the Appellate Tribunal was right inlaw in rejecting the claim for deduction ofRs.1,16,521/- as a revenue expenditure/baddebt which has been written off from thebooks of accounts for financial year 2005-06,relevant to the assessment year 2006-07?of the case the Appellate Tribunal was right inlaw in rejecting the claim for deduction ofRs.1,16,521/- as a revenue expenditure/baddebt which has been written off from thebooks of accounts for financial year 2005-06,relevant to the assessment year 2006-07? b)The Appellant having already been assessedon the brokerage income from the shares andthe amount written off as bad debt beingamount receivable from customers, is not theclaim for bad debts legal and valid undersection 36(1)(vii)? On that basis is thecontrary decision taken by the AppellateTribunal legal, valid and sustainable?on the brokerage income from the shares andthe amount written off as bad debt beingamount receivable from customers, is not theclaim for bad debts legal and valid undersection 36(1)(vii)? On that basis is thecontrary decision taken by the AppellateTribunal legal, valid and sustainable? c)Is the Appellate Tribunal justified in failing toconsider the principles of law laid down by theApex Court in the decision reported in 155 ITR152 (SC), where the facts are identical, inwhich the Apex Court held that if the assesseehad taken into account the income fromtransactions with customers in computing theincome of the assessee for previous year or ofan earlier previous year, the appellant wasentitled to claim deduction of the amount asbad debt, when such debts are written offfrom the books of accounts?consider the principles of law laid down by theApex Court in the decision reported in 155 ITR152 (SC), where the facts are identical, inwhich the Apex Court held that if the assesseehad taken into account the income fromtransactions with customers in computing theincome of the assessee for previous year or ofan earlier previous year, the appellant wasentitled to claim deduction of the amount asbad debt, when such debts are written offfrom the books of accounts? d)Is the decision of the Appellate Tribunal legal,valid and sustainable?”valid and sustainable?” 5. We heard the learned Senior Counsel appearing for I. T. Appeal No.88 of 2012 the assessee and the learned Senior Counsel appearing forthe Revenue. d)Is the decision of the Appellate Tribunal legal,valid and sustainable?”valid and sustainable?” 5. We heard the learned Senior Counsel appearing for I. T. Appeal No.88 of 2012 the assessee and the learned Senior Counsel appearing forthe Revenue. 6. The claim of the assessee that the amount has tobe treated as a bad debt and has to be allowed as anexpenditure in the year in which it was written off has to beappreciated in the light of the provisions contained inSection 36 of the Income Tax Act. Section 36 provides otherdeductions and in terms of this provision, deductionsprovided for in the Section shall be allowed in respect of thematters dealt with therein in computing the income referredto in Section 28, and Clause-(vii) of Section 36(1) providesthat, subject to the provisions of sub-section (2), theamount of any bad debt or part thereof which is written offas irrecoverable in the accounts of the assessee for theprevious year shall be allowed as a deduction in computingthe income referred to in Section 28. However, Clause-(i) ofsub-section-(2) provides that, in making any deduction forbad debt or part thereof, no such deduction shall be allowed I. T. Appeal No.88 of 2012 unless such debt or part thereof has been taken into account in computing the income of the assessee of the previousyear in which the amount of such debt or part thereof iswritten off or of an earlier previous year. 7. This therefore, means that the assessee has toprove satisfaction of both Section 36(1)(vii) and Section 36(2)(i), viz. that the bad debt has been written off and thatthe bad debt has been taken into account in computing theincome of the assessee in any one of the years mentioned inClause-(i) of sub-section (2) of Section 36. 8. A reading of the order passed by the Tribunal doesnot show that an enquiry in that regard has not beenundertaken and therefore, we are of the view that thematter requires reconsideration by the Tribunal and theTribunal should decide the matter afresh giving the assesseean opportunity to substantiate his case, if necessary, byproduction of additional materials. 9. With that in view, we set aside the order of the I. T. Appeal No.88 of 2012 -7- Tribunal in ITA No.104/2010 and remit the matter to the Tribunal for fresh consideration in accordance with law andin the light of the observations hereinabove made. Sd/- ANTONY DOMINIC JUDGE Sd/- DAMA SESHADRI NAIDU JUDGE kns/- //TRUE COPY// P.S. TO JUDGE