Magnum Equity Service Limited v. The Dy.commissioner Of Income Tax Circle -4(2) Mumbai )........ Respondant

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 508 OF 2005 Magnum Equity Service Limited).......Appellantversus The Dy.Commissioner of Income TaxCircle -4(2) Mumbai )........ Respondant. Mr. Vipul Joshi i/b S.G. Dalal for the Appellant.Mr. Vimal Gupta for the respondent. CORAM: SWATANTER KUMAR, C.J., & A.P. DESHPANDE, J. DATED: 02nd SEPTEMBER, 2008. P.C.: 1.We have heard the learned counsel appearing for theparties. The challenge in the present appeal is to the order of theIncome Tax Appellate Tribunal dated 31-12-2004 mainly on theground that the Tribunal erred in reversing the findings recordedby the CIT(A). Further the Tribunal erred in not appreciatingthe fact, that neither on facts nor in law the action of respondentallowing the claim of bad debt to the extent of brokerage incomewas permissible. According to the learned counsel for theappellant, the bad debt has to be fully allowable as the business loss under the Act. 2.The Assessing Officer while dealing with the return forthe assessment year 1996-97 noticed that the claim of thepetitioner in relation to bad debt of two persons namely M/s. RajInvestment and the other of Mr. N.V. Soni is not tenable. Afterrecording various facts leading to this situation, it also noticedthat during the course of assessment proceeding, the assessee hadfurnished copies of the legal notice issued to the other partiesdemanding the amount. As the relations between the parties aresaid to have deteriorated they were not able to produce the passbook. However, after issuing notice under section 132 and byexamining Mr. Raj Mamania, it came to the conclusion that it wasnot clear as to why the payments were made to him when therewas a debit balance. The following findings recorded by theassessing officer are useful at this stage. “It is also evident that while Shri Raj Mamaniaconducted his business from the premises of the assesseecompany and carried on transaction to the extent of Rs. 47crores even though his financial standing is notcommensurate with the volume of transaction carried byhim. It is therefore clear that this transaction does not appearto be that which any prudent business man would enter into.The fact that Shri Narendra Ganatra functioned from theoffice of the assessee and that his financial standing was not commensurate with the extent of transaction carried on byhim was known to the assessee. These point to the fact thattransaction do not appear genuine. Further it appearsincredible that a person who is carrying on transaction worthRs. 41 crores has not paid even one rupee on account oftransaction. Therefore, it appears that these transaction donot deny ordinary business produence. The extent ofbrokerage shown from this a/c. Is Rs. 7,39,449/- while thebad debts written off is Rs. 18,69,772/-. In the circumstancesthe amount of bad debts is restricted to the amount ofbrokerage. The balance of Rs. 11,30,323/- is added back tothe income of the assessee. Penalty proceedings u/s. 271(1)(c) are initiated. “ 3.The above finding of facts were neither interfered withby the Commissioner income Tax, Appeals, or the Tribunal. TheTribunal in fact under the impugned order, not only affirmed thefinding but also concurred with the arguments taken up that 7.40lacs the assessee company had earned as brokerage and the samewas treated as bad debt. While coming to this conclusion theTribunal had relied upon various decisions including the decisionof this court and we see no reason to interfere with the questionof law, more so substantial question of law. Appeal is thusdismissed. CHIEF JUSTICE A.P. DESHPANDE, J.