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Income Tax Appellate Tribunal, “G” Bench, Mumbai
O R D E R Per B.R. Baskaran (AM) :-
These cross appeals related to assessment year 2003-04 and they are directed against the orders passed by Ld CIT(A)-36, Mumbai. Both the appeals were heard together and hence they are being disposed of by this common order, for the sake of convenience.
The assessee is engaged in the business of trading in shares and securities. We shall first take up the appeal filed by the assessee. The first issue relates to the disallowance of claim of bad debts of Rs.456.62 lakhs. The AO disallowed the same by holding that the amount claimed as bad debts was 2 Triumph International Finance India Limited not offered as income in the earlier years as stipulated in sec. 36(2) of the Act. The Ld CIT(A) noticed that the bad debts claim pertained to the amount due to the assessee on account of purchase transactions of shares of customers, which was held to be allowable as deduction by Mumbai Special bench in the case of Shreyas Morarkhia (ITA No.3374/M/2004 dated 10-01-2010). The Ld CIT(A) noticed that the bad debts claim of the assessee included amount due from sister concerns amounting to Rs.71.38 lakhs. Accordingly he confirmed the disallowance of bad debts of claim of 7.38 lakhs relating to sister concerns and deleted the balance addition. Both the parties are aggrieved by the decision rendered by Ld CIT(A).
We heard the parties on the decision of Ld CIT(A) in partially confirming the addition. The Ld A.R submitted that the sister concerns are franchisees of the assessee and they have, in turn, done share broking business only in various places and the bad debts related to the business activities carried on with them. The Ld A.R invited our attention to the ledger account copies of the sister concerns, in order to show that the assessee has debited/credited their account with the purchase/sale of share transactions by raising proper bills against their name. He submitted that the sister concerns have defaulted in making payment to the assessee, since they incurred heavy losses. Accordingly he submitted that the claim of the assessee should be allowed, as it has been incurred in the normal course of business. On the contrary, the Ld D.R placed heavy reliance on the order passed by Ld CIT(A).
We notice that the Ld CIT(A) has confirmed the disallowance to the extent of Rs.71.38 lakhs only on the reason that said bad debts claim related to the amount due from sister concerns of the assessee. However, a perusal of the ledger accounts of the sister concerns would show that they are franchisees of the assessee carrying on share broking business. The ledger account shows that the bills raised by the assessee against them for purchase and sale of shares. Accordingly we notice the transactions with the sister concerns were regular business transactions. The Ld A.R submitted that the sister concerns,
3 Triumph International Finance India Limited being franchisees of the assessee’s share broking business, could not repay the debts due to heavy losses incurred by them. The contention of the Ld A.R could not be controverted by the Ld D.R. In this view of the matter, we are of the view that there is no reason to doubt the genuineness of claim. Accordingly we modify the order passed by Ld CIT(A) and direct the AO to allow the claim of Rs.71.38 lakhs, referred above.
The next issue relates to the disallowance of claim of Rs.11,469/-. The Ld A.R did not press the same in view of the smallness of the amount. Accordingly we dismiss the ground relating to the same.
The next issue relates to the claim of depreciation @ 25% on Electrical fittings, whereas the AO has allowed the claim @ 15%. This issue has been decided in favour of the assessee by the co-ordinate bench in AY 2004-05 (ITA No.6879/M/08 dated 19-04-2013), wherein the Tribunal has followed the decision rendered in assessee’s own case in relating to AY 2005-06. The Tribunal has noticed that the electrical fittings have already entered into the block of Plant and Machinery prior to AY 2003-04 and accordingly held that the AO cannot segregate electrical fittings out of the block. Accordingly it was held that the depreciation should be allowed at the rate applicable to Plant & Machinery. Accordingly, following the decision rendered by the co-ordinate benches, we direct the AO to allow depreciation on Electrical fittings @ 25%.
The next issue relates to the disallowance of claim for carry forward of business losses and unabsorbed depreciation of earlier years. The Ld CIT(A) disallowed the above said claim on the ground that the assessee has not carried on any business activity during the year under consideration. This issue has already been decided in favour of the assessee by the co-ordinate bench in AY 2004-05 (ITA No.6879/Mum/2008 dated 19-04-2013), wherein the Tribunal has followed the decision rendered on this issue in AY 2005-06 (ITA No.76/Mum/2009 dated 25-04-2012). The Tribunal has come to the 4 Triumph International Finance India Limited conclusion that the assessee could not do the business for the reasons beyond its control, i.e., because of the ban imposed on its trading by SEBI and the order so passed by SEBI has been challenged by the assessee. Following the order passed by the Tribunal in AY 2005-06 (which is an order pertaining to the year subsequent to AY 2003-04), we direct the AO to allow carry forward of business loss and unabsorbed depreciation.
The next issue relates to the disallowance made u/s 14A of the Act. The assessee had received dividend income of Rs.83,314/-. The Assessee did not make any disallowance and the AO also did not examine the same. The Ld CIT(A) directed the AO to compute the disallowance by following Rule 8D of the IT Rules.
Since the year under consideration falls prior to AY 2008-09, the assessee contended that Rule 8D will not apply to this year as per the decision rendered by the jurisdictional Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg Co. Ltd (328 ITR 81). Accordingly the disallowance has to be made on reasonable basis. Accordingly we modify the order passed by Ld CIT(A) on this issue and direct the AO to compute disallowance u/s 14A of the Act on reasonable basis.
The Last issue relates to charging of interest u/s 234D of the Act. The assessment has been completed in the present case on 12-12-2005, i.e. after 01-06-2003. As per the Explanation 2 to sec.234D, the provisions of sec. 234D shall also apply to an assessment year commencing before the 1st day of June, 2003 if the proceedings in respect of such assessment year is completed after the said date. Hence the provisions of sec. 234D shall apply to the year under consideration, since the assessment order was passed after 01-06-2003. In this regard, the Ld D.R placed reliance on the decision rendered by Hon’ble Supreme Court in the case of CIT vs. M/s Reliance Energy Ltd (Civil No.14013/2013 dated 30-09-2013). Accordingly we dismiss this ground of the assessee.
5 Triumph International Finance India Limited 11. We shall now take up the appeal filed by the revenue for AY 2003-04. The only issue contested by the revenue relates to the relief granted by the Ld CIT(A) on the bad debts claim of the assessee. We have noticed that the first appellate authority has allowed the claim by following the decision rendered by the Special bench of Tribunal in the case of Shri Shreyas Morarkhia (ITA No.3374/M/2004 dated 10-01-2010). The decision rendered by the Special bench has since been approved by Hon’ble jurisdictional Bombay High Court in its decision reported in 342 ITR 285 in the very same case. Hence we do not find any infirmity in the order passed by Ld CIT(A) on this issue.
In the result, the appeal filed by the assessee is partly allowed and the appeal of the revenue is dismissed. Order has been pronounced in the Court on 6.7.2018.