M/S. GLOBAL CAPITAL LTD.,NEW DELHI vs. DCIT, NEW DELHI

Brief facts of the case are as under: Assessee filed its return of income declaring loss of Rs.69,54,114/- on 4/10/2010. The case was selected for scrutiny, and notice under section 143 (2) was issued. In response to statutory notices, representatives of assessee appeared before Ld. AO, filed requisite details and case was discussed.

Ld. A.O. observed that assessee is engaged in the business of engineering and supply of grinding machinery for cement plant. On perusal of profit and loss account, Ld.AO observed that assessee had made provision for doubtful advances written off amounting to Rs. 20 Lacs. It was observed that assessee had not added back said amount in computation of income. Ld. A.O. accordingly vide show cause notice dated 07/03/13, called upon assessee, as to why provision for doubtful advances should not be added back to total income of assessee. 4. Assessee in response to show cause, submitted that, it is registered NBFC with RBI, it had made payment of Rs. 20 lakhs for membership of OTC (Delhi stock exchange). It was submitted that assessee was not allowed membership of OTC, and amount was not refunded. Assessee thus held it to be doubtful advances in books of account of assessee, which was claimed as business expenditure.

Ld.AO also made addition in the hands of assessee under section 14 A read with Rule 8D to the extent of Rs.21,31,832/-.

Aggrieved with additions made by Ld. AO, assessee preferred appeal before Ld. CIT (A).

Ld.CIT (A) upheld addition made by Ld.AO, in respect of addition of Rs.20 Lacs, but deleted addition made by Ld. AO under section 14 A read with Rule 8D of Income Tax Rules.

Aggrieved by order of Ld.CIT (A), assessee is in appeal before us now.

The only issue raised by assessee is regarding alleged payment of Rs.20 Lacs, towards membership of OTC (Delhi stock exchange). Ld. AR submitted that membership of OTC enables assessee to use its facilities and do not result in creation of asset of enduring nature so as to held expenditure as capital in nature. It was submitted that these are merely an entry fees and is required to be paid annually. Ld. AR placed reliance upon the following decisions: • decision of Hon’ble Delhi High Court in case of NESET Holdings private limited versus CIT (2006) 282 ITR 601; • decision of coordinate bench of this tribunal in case of M/s Krishna commodities versus ACIT in wide order dated 31/10/12.

On the contrary Ld. DR submitted that decisions relied upon by Ld. AR are distinguishable on facts. It was submitted that in (Global Capital Ltd.) both the decisions, activity carried on by assessee’s therein were dealing in commodity exchange. He submitted that in the present facts of case, assessee has not brought on record anything to establish that assessee was dealing in shares or any commodity. Further Ld. DR submitted that Delhi stock exchange rejected membership application of assessee and did not refund the amount. It was under these circumstances that assessee had written off Rs. 20 Lacs as bad debts.

Ld. DR, at this juncture, submitted that had the amount to be actually bad, assessee would have initiated some legal proceedings against Delhi stock exchange for refund of such huge money. He submitted that assessee does not fulfil requirements of law, under section 36 (1) (vii), in order to claim said amount as bad debts. He relied upon observations of Ld.CIT (A) in support of its argument.

We have perused submissions advanced by both sides and in the light of records placed before us. Assessee in present facts of case has written off a sum of Rs. 20 Lacs, which is alleged to have been given to Delhi Stock Exchange, towards its membership, which was denied. As these were non-refundable in nature, Delhi stock exchange did not refund the said amount to assessee.

Assessee before us has not established by way of documentary evidences regarding its dealing in commodities exchange/shares etc., for which it could have benefited from membership of Delhi stock exchange. Further reason for rejection of its membership by Delhi stock exchange is also not known. It is further observed that assessee has not taken any steps to recover the money from Delhi (Global Capital Ltd.) stock exchange and therefore under such circumstances we do not see necessary fulfilment of section 36(1)(vii) of the Act, in any manner whatsoever. We therefore do not find any reason to interfere with observations of Ld. CIT (A) and the same is upheld. Accordingly ground raised