SOMAYAJULU & CO. LTD.,CHENNAI vs. ACIT, CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) – 15, Chennai, dated 20.02.2015 and pertains to assessment year 2010-11.

Sh. T. Banusekar, the Ld. representative for the assessee, submitted that the assessee has claimed bad debts to the extent of `1,35,77,266/-. The Assessing Officer, however, disallowed the claim of the assessee. On appeal by the assessee, the CIT(Appeals) found that to the extent of `32,68,147/-, the assessee could not produce the ledger extract to substantiate the existence of debt. Even before the CIT(Appeals), the assessee could not produce any evidence to establish the existence of debt. Since the existence of debt is not established, the CIT(Appeals) found that the debt written off is not genuine, therefore, he confirmed the order of the Assessing Officer. According to the Ld. representative, the commitment made by the assessee to the Stock Exchange needs to be fulfilled irrespective of the fulfillment of commitment by the respective customers of the assessee. The assessee, in fact, produced the ledger to the extent of bad debt of `1,03,09,119/-.

The Ld. representative for the assessee further submitted that there was difference between the share trader and share broker. According to the Ld. representative, a trader trades in shares by purchasing and selling the shares on his own behalf. If a trader fails to recover the share proceeds of the shares, it becomes debt and the trader can claim the same as bad debt on writing it off the same as bad debt in the books of account. In the case of share broker, he is concerned only with brokerage accrued. Transaction of sale or purchase of shares is arranged by him on behalf of his clients. Since the transaction of sale or purchase is arranged, the right to receive the brokerage accrues to the assessee. The liability to make the payment does not accrue to the assessee at all. Both the authorities below have mixed up both the transactions.

Shri V. Nanda Kumar, the Ld. Departmental Representative, submitted that the CIT(Appeals), appreciating the facts and relevant material available on record, found that the bad debts were not really written off in the books maintained by the assessee. On verification of the ledger, the CIT(Appeals) found that the amounts were still outstanding and it was not written off as claimed by the assessee. Moreover, the assessee could not produce any material including the ledger to substantiate the existence of debt to the extent of `32,68,147/-. In the Profit & Loss account produced before the CIT(Appeals), the total bad debts were said to be `1,35,77,266/-. The 18 parties ledger account, which was produced before the CIT(Appeals), shows that the amount was not written off.

We have considered the rival submissions on either side and perused the relevant material available on record. The assessee claimed bad debts of `1,35,77,266/-. The assessee could not produce any ledger extract to substantiate the existence of bad debts to the extent of `32,68,147/-. Therefore, the Assessing Officer disallowed the claim of the assessee. For the remaining `1,03,09,119/-, the assessee produced ledger account before the Assessing Officer. The Assessing Officer in the assessment order observed that the assessee-company has written off to the extent of `1,03,09,119/-. The Assessing Officer has also observed that the bad debts arose to the assessee due to non-payment of dues by the clients. This Tribunal is of the considered opinion that when the assessee was in the business of share trading, either as trader or as broker, the bad debt claimed by the assessee has to be examined in the light of the provisions of law. In view of the voluminous transaction entered into by the assessee, there may be a little difficulty in producing necessary material before the Assessing Officer. However, when the assessee claims that there was debt, and bad debt was written off due to difficulty in recovering the same, the same has to be allowed especially when the Assessing Officer himself admits that the assessee has written off the debt to the extent of `1,03,09,119/-. This Tribunal is of the considered opinion that the existence of debt and its written off in the books was established to the extent of `1,03,09,119/-.

The next ground of appeal is with regard to allowance of staff advances to the extent of `4,06,844/-.

Sh. T. Banusekar, the Ld. representative for the assessee, submitted that the unabsorbed loss and depreciation pertaining to assessment year 2009-10 were not set off against the income of the assessee during the year under consideration. The Ld. representative submitted that this was not pressed before the CIT(Appeals). According to the Ld. representative, even though it was not pressed before the CIT(Appeals), the same has to be set off against the income of the assessee.

We have heard Shri V. Nanda Kumar, the Ld. Departmental Representative also. The CIT(Appeals) disallowed the claim of the assessee on the ground that the assessee has not furnished any details with regard to unabsorbed business loss and unabsorbed depreciation. For the purpose of setting off of brought forward business loss and unabsorbed depreciation, it is for the assessee to furnish necessary details before the authorities below. Even before this Tribunal, the assessee has not furnished any details. In the absence of any details, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly disallowed the claim of the assessee. Moreover, the assessee itself has not pressed the issue before the CIT(Appeals). Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes.