SRI SIBENDU BASU,KOLKATA vs. DCIT,CIR.-54, KOLKATA, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH (SMC), KOLKATA [Before Hon’ble Shri P.M. Jagtap] I.T.A. No. 315/Kol/2017 Assessment Year : 2006-07 Shri Sibendu Basu.............................………………………………………….............Appellant 39A, Townshend Road, Ground Floor, Kolkata – 700 025 [PAN : AECPB 9682 F] D.C.I.T. Cir-54 Kolkata...................……………………………………………….......Respondent 54/1, Rafi Ahmed Kidwai Road, Kolkata – 700 016 Appearances by: Shri Subash Agarwal, Advocate appearing on behalf of the Assessee. Shri Satyajit Mondal, Addl. CIT appearing on behalf of the Revenue. Date of concluding the hearing : October 31, 2017 Date of pronouncing the order : December 22, 2017 ORDER This appeal filed by the assessee is directed against the order of Ld. CIT (Appeals) – 21, Kolkata dated 03.01.2017. 2. The issue involved in ground no 1 relates to the addition of Rs. 5,34,700/- made by the A.O. and confirmed by the Ld. CIT(A) on account of disallowance of fund mobilisation expenses. 3. The assessee in the present case is an individual who derives income from legal profession, commission and brokerage from insurance and mutual funds companies, long term and short term capital gains etc. The return of income for the year under consideration was filed by him 30.10.2006 declaring a total income of Rs. 2,66,160/-. In the profit and loss account filed along with the said

2 I.T.A. No. 315/Kol/2017 Assessment Year: 2006-07 Sibendu Basu return, a sum of Rs. 5,96,550/- was debited by the assessee on account of fund mobilising expenses for mutual fund. From the details furnished by the assessee during the course of assessment proceedings, it was noticed by the A.O. that the said amount was paid by the assessee to 16 persons on various dates. From further details furnished by the assessee, it was noticed by the A.O. that all the receipts issued by the 16 persons were identical and only one and the same address was given in the said receipts. In this regard, it was explained by the assessee that one Shri Anupam Chakraborty, the then Manager of J.M. Morgan Stanley Financial Services Private Limited had persuaded him to develop a team for mobilisation of mutual funds. It was also submitted by the assessee that the said person volunteered his services to develop such team and also collected all the cheques on behalf of the team members from him for services rendered by them for fund mobilising. The assessee however expressed his inability to produce Shri Anupam Chakraborty for examination before the A.O. by stating that he had serious and severe differences with the said person who was no longer working for J.M. Morgan Stanley Financial Services Private Limited. The assessee, however, furnished to the A.O. the address of Shri Anupam Chakraborty who appeared before the A.O. in response to summons issued under section 131. In the statement recorded by the A.O., Shri Anupam Chakraborty denied of having any knowledge of any persons to whom the assessee might have paid the amount in question on account of fund mobilisation charges. He also denied of having personally collected cheques on behalf of said persons from the assessee. As noted by the A.O. in the assessment order the, assessee

3 I.T.A. No. 315/Kol/2017 Assessment Year: 2006-07 Sibendu Basu did not ask for the cross-examination of Shri Anupam Chakraborty when the depositions made by the said person were confronted by the A.O. The A.O. also learnt from the concerned bank that all the 48 cheques issued by the assessee in the name of 16 persons were bearer cheques and the same were encashed by persons who are not named as payees in the said cheques. The A.O. also found that the amount in question paid by the assessee was about 90% of the corresponding commission of Rs. 6,65,474/- earned by him from J.M. Morgan Stanley Financial Services Private Limited whereas no such expenditure was incurred by him for earning the balance commission of Rs. 12,85,081/-. Since two of the 16 persons namely Shri B. Pandey and Shri G.K. Poddar were properly identified at the address given by the assessee, the commission paid to them amounting to Rs. 30,900/- each was allowed by the A.O. while the remaining amount of Rs. 5,34,750/- claimed to be paid to the remaining 14 persons was disallowed by the A.O. 4. The disallowance of Rs. 5,34,750/- made by the A.O. out of fund mobilising expenses was disputed by the assessee in the appeal filed before the Ld. CIT(A) and the following submission was made on behalf of the assessee in support of his case on this issue: “The learned Assessing Officer, the Deputy Commissioner of Income Tax, Circle – 54, Kolkata in flagrant violation of law and by bending rules, disallowed the Fund Mobilisation Expenses to the tune of Rs. 5,34,750/- out of total claim for deduction of fund mobilisation expenses Rs. 5,96,550/- on the basis of enquiry without obtaining the required verifications of the application form in respect of the business introduced under sub-broker code of the appellant, from JM Morgan Stanley Financial Services Private Limited and without enforcing attendance of

4 I.T.A. No. 315/Kol/2017 Assessment Year: 2006-07 Sibendu Basu Mr. B. Pandey and G.K. Poddar, who conducted the entire operations in league with Mr. Anupam Chakraborty. The appellant would further humbly and most respectfully beg to impress upon your Honour, the imperatives to enforce the attendance of Mr. G.K. Poddar (9331047229) and Mr. Brajesh Pandey (9331047224), the accomplices of Mr. Anupam Chakraborty to whom Mr. Anupam Chakraborty stated to have delivered the cheques collected by him from the appellant and to initiate proceedings in terms of the provisions contained in section 272A of the Income Tax Act, 1961, as well as per Rule 12 of Order XVI of the Civil Procedure Code” 5. The Ld. CIT(A) did not find merit in the submissions made by the assessee and proceeded to confirm the disallowance of Rs. 5,34,700/- made by the A.O. out of fund mobilising expenses for the following reasons given in his impugned order: “I have considered the findings of the A.O. and the written submission filed by the assessee on this issue. From the assessment order it is clear that the A.O. has made efforts to make some enquiries regarding genuineness of payment for expenses from banks. But the A.O. could not find out the truth because all the cheques signed and issued by the assessee, were bearer cheques and in many cases they were presented to the bank for payment by third party. In this situation since the claim of expenses has been made by the assessee, the assessee is duty bound to prove the genuineness of the claim. But the assessee has failed to do it. In the remand report also the A.O. has brought it on record as under: ‘Disallowance of fund immobilization expenses amounting to Rs. 5,34,700/-. The assessee failed to prove the identity, genuineness and creditworthiness of the transactions and even failed to produce the parties to whom the alleged payments were shown. No fresh facts were produced during the remand stage. Hence, the addition made by the A.O. seems to be proper’ From the written submission filed, it is clear that instead of proving the genuineness of expenses claimed, the assessee has tried to put the onus on the department to disprove the so-called expenses, which cannot be permitted and accepted. Accordingly, assessee’s appeal is on ground no 1is dismissed.”

5 I.T.A. No. 315/Kol/2017 Assessment Year: 2006-07 Sibendu Basu 6. The learned counsel for the assessee mainly reiterated the submissions made by the assessee in support of his case on this issue before the Ld. CIT(A). He contended that the claim of the assessee for fund mobilising expenses was disallowed by the AO mainly by relying on the statement of Shri Anupam Chakraborty without giving any opportunity to the assessee to cross-examine the said deponent. He also contended that the fund mobilising expenses claimed by the assessee was in the nature of secret commission paid to the employees of the mutual fund company and since it is a common practice to pay such commission, the claim of the assessee may be allowed at least to some reasonable expenses. 7. The learned DR, on the other hand, strongly supported the orders of the authorities below on this issue. He contended that the assessee could not establish on evidence the services rendered by the concerned payees to justify the payment of fund mobilisation charges. He invited our attention to the relevant portion of the assessment order to point out the specific adverse findings recorded by him on the basis of verification carried out. He contended even the identity of the payees could not be established by the assessee and when the adverse findings were confronted to him by the A.O., the assessee did not even ask for cross-examination of Shri Anupam Chakraborty. 8. I have considered the rival submissions and also perused the relevant material available on record. As rightly contended by the learned DR, the claim of the assessee for fund mobilising expenses was verified by the A.O. during the course of assessment proceedings

6 I.T.A. No. 315/Kol/2017 Assessment Year: 2006-07 Sibendu Basu and on such verification, specific adverse findings were recorded by him while disallowing the claim of the assessee. The statement of the concerned person, Shri Aunpam Chakraborty through whom the amount in question was claimed to be paid by the assessee, was also recorded by the A.O. and the depositions made by him denying the claim of the assessee were also confronted by A.O. to the assessee. As specifically noted by the A.O. in the assessment order, the assessee however never asked for the cross-examination of Shri Anupam Chakraborty. The assessee also failed to establish the identity of 14 of the 16 persons to whom the amount in question was claimed to be paid and also failed to establish the services rendered by them to justify the payment of fund mobilisation charges. Even the contention raised by the learned counsel for the assessee for the first time before the Tribunal that the amount in question represented secret commission paid to the employees of the mutual fund is not supported by any evidence. There is also nothing brought on record to show that there is any such practice of paying secret commission to the employees of the mutual fund. Having regard to all these facts of the case, I find no infirmity in the impugned order of the Ld. CIT(A) confirming the disallowance made by the A.O. on account of fund mobilising expenses and upholding the same, I dismiss ground no 1of the assessee’s appeal. 9. Ground no 2 raised by the assessee in this appeal relating to the issue of disallowance of loss of Rs. 93,779/- from commodity trading by treating the same as speculative loss is not pressed by the learned

7 I.T.A. No. 315/Kol/2017 Assessment Year: 2006-07 Sibendu Basu counsel for the assessee. The same is accordingly dismissed as not pressed. 10. The common issue involved in ground no 3 & 4 of this appeal relates to the addition of Rs. 15,70,000/- made by the A.O. and confirmed by the Ld. CIT(A) on account of disallowance of bad debt. 11. In the profit and loss account filed along with the return of income, a sum of Rs. 15.70 lakh was debited by the assessee on account of non-recoverable deposits written off. As submitted by the assessee before the A.O., a sum of Rs. 17 lacs was deposited by him with one M/s. S.K. & Co. during the F.Y. 2000-01as margin money for spot commodity trading in terms of trade agreement. Due to certain difficulties, the assessee wanted to terminate the said trade agreement and could recover a sum of Rs. 1.30 lakh from M/s. S.K. & Co. during the F.Y. 2002-03. The balance amount of Rs. 15.70 lakh however could not be recovered and the assessee finally written off the same in his books of accounts for the year under consideration as irrecoverable. The claim of the assessee was examined by the A.O. in accordance with relevant provisions of section 36(1)(ii) read with section 36(2) of the Act dealing with allowability of deduction on account of bad debt. He found that there were two conditions which the assessee was required to satisfy in order to claim deduction on account of bad debts. First it should have been a debt incurred by the assessee on revenue account and second it must have been taken into account in computing the profits of the assessee in the earlier year. According to the A.O., the amount in question paid by the assessee to

8 I.T.A. No. 315/Kol/2017 Assessment Year: 2006-07 Sibendu Basu M/s. S.K. & Co. on account of margin money deposit was capital in nature and the same was not taken into account in computing the income of the assessee for the year under consideration or any earlier year. He, therefore, disallowed the claim of the assessee for deduction on account of bad debt written off. 12. The disallowance made by the A.O. on account of bad debt written off was disputed by the assessee in the appeal filed by the Ld. CIT(A) and a written submission was filed by the assessee before the Ld. CIT(A) in support of his case on this issue. The said submission was forwarded by the Ld. CIT(A) to the A.O. seeking his remand report and after considering the entire material available on record, the Ld. CIT(A) found no merit in the claim of the assessee on this issue and proceeded to confirm the addition of Rs. 15,70,000/- made by the A.O. for the following reasons given in his impugned order: “I have considered the finding of the A.O. on this issue and the written submission filed by the AR. On this issue the matter was referred to A.O. for remand report. During the remand proceedings the statement of one Mr. S. Ganguly was also recorded. The assessee, Mr. Sibendu Basu was given an opportunity to cross examine Mr. S. Ganguly that Mr. Basu did not further proceedings were recorded by the A.O. I have gone through this paper and I agree with the A.O. that the assessee had taken similar transactions as capital receipts but during the year claimed such loss as revenue loss in contravention to the method of accounting and hence it is not allowable. No new facts were submitted during remand stage. Keeping in view, such facts assessee’s contention cannot be accepted. Accordingly, assessee’s appeal on ground no 3 is dismissed. Appeal on ground no 4 is against to disallowance the assessee the amount of Rs. 15,70,000/- as business loss in case it is not allowed as capital one. The assessee has referred different case laws on this issue claiming that if his appeal for capital loss is not accepted then it should be accepted as revenue loss. I have gone through different case laws brought on record

9 I.T.A. No. 315/Kol/2017 Assessment Year: 2006-07 Sibendu Basu which clearly say “The Right of the Assessee to Relief is not restricted to the pleas raised by him before the Department Authority or before the Tribunal. If in respect of the contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the department authorities and the tribunal, and indeed they would be under a duty to grant that relief”. Hon’ble High Court of Delhi in IT No. 405 of 2007 recently reported in (2012) 348 ITR 109 (Del) in the case of Mohan Meakin Limited vs Commissioner of Income Tax. But the ratio decided in this case law is not applicable in assessee’s case. It is because the assessee has treated income from same source as capital receipt in earlier year and did not pay any tax on it. So, how can the assessee be allowed to claim it as revenue loss in another year and take advantage for the same. Therefore, assessee’s plea cannot be accepted. Hence, appeal on ground no 4 is dismissed”. 13. The learned counsel for the assessee submitted that M/s. S.K. & Co. was the main broker of commodity exchange and as per the trade agreement entered into with the said broker, the assessee became sub-broker by paying the margin money deposit of Rs. 17 lacs. He submitted that the said agreement was entered into in the F.Y. 2000- 01 but due to serious difficulties, the assessee decided to discontinue the trade relations with M/s. S.K. & Co. He submitted that the margin money paid to the said party was recovered by the assessee to the extent of Rs. 1.3 lacs and since the balance amount of Rs. 15.70 lacs was not recoverable, the same was written off by him in the books of accounts for the year under consideration as irrecoverable. He contended that even though the assessee is not entitled for deduction of the said amount strictly as per the provisions of section 36(1)(vii) read with section 36(2), the non recovery of margin money deposit which represents a trade debt has resulted in loss to the assessee and the same is allowable alternatively as deduction under section 28(i) being the business loss.

10 I.T.A. No. 315/Kol/2017 Assessment Year: 2006-07 Sibendu Basu 14. The learned DR, on the other hand, submitted that the amount in question was claimed as deduction by the assessee before the A.O. as bad debts written off and the alternative claim of the business loss was never made by him before the A.O. He contended that the Ld. CIT(A) however has considered this alternative claim of the assessee in the paragraph no 7 of his impugned order and disallowed the same on the ground that the same cannot be allowed as revenue loss in the year under consideration. 15. I have considered the rival submissions and also perused the relevant material available on record. It is observed that the amount in question was claimed by the assessee as deduction being bad debt written off and the same was disallowed by the A.O. since the conditions stipulated in the relevant provisions of section 36(1)(vii) and 36(2) were not satisfied by the assessee. At the time of hearing before the Tribunal, the learned counsel for the assessee has not raised any argument to dispute or challenge this position. He however has contended that the assessee is entitled to claim deduction on account of amount in question alternatively as a business loss under section 28(i) as the same represents the business loss incurred by the assessee during the course of his business. He has contended that this alternative claim of the assessee however is not considered or decided by the authorities below. As rightly pointed out by the learned DR, no such claim apparently was made by the assessee during the course of assessment proceedings. During the course of appellate proceedings before the Ld. CIT(A), the said alternative claim

11 I.T.A. No. 315/Kol/2017 Assessment Year: 2006-07 Sibendu Basu however was made by the assessee by raising specifically ground no 4 and the same was decided by the Ld. CIT(A) vide paragraph no 7 of his impugned order wherein he held that the assessee having treated the corresponding income from the same source as capital receipt in the earlier year, the alternative claim of the assessee for business loss could not be allowed in the year under consideration as it was loss on capital account and not revenue account. At the time of hearing before the Tribunal, nothing has been brought on record to rebut or controvert this finding or basis given by the Ld. CIT(A) for disallowing the claim of the assessee, I, therefore, find no justifiable reason to interfere with the impugned order of the Ld. CIT(A) on this issue and upholding the same, I dismiss ground no 3 & 4. 16. In the result, the appeal of the assessee is dismissed. Order Pronounced in the Open Court on 22nd December, 2017. Sd/- (P.M. Jagtap) ACCOUNTANT MEMBER Dated: 22/12/2017 Biswajit, Sr. PS Copy of order forwarded to: 1. Sri Sibendu Basu, 39A, Townshend Road, Ground Floor, Kolkata – 700 025. 2. DCIT (54), 54/1, Rafi Ahmed Kidwai Road, Kol-16. 3. The CIT(A) 4. The CIT

12 I.T.A. No. 315/Kol/2017 Assessment Year: 2006-07 Sibendu Basu 5. DR True Copy, By order, Sr. P.S. / H.O.O. ITAT, Kolkata