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Income Tax Appellate Tribunal, “I”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A), Mumbai, dated 2-1-2014, for the assessment year 2010-2011, in the matter of order passed u/s.143(3) of the I.T.Act, on the following grounds:-
1) On the facts and circumstances of the case and in law, the CIT(A) erred in adding the Dividend amount of Rs.33,500/- disallowed u/s.14A of the income tax Act. 2) On the facts and circumstances of the case and in law, the CIT(A) erred in adding the amount of Rs.92,27,364/- on account of bad debts written off. 3) On the facts and circumstances of the case and in law, the CIT(A) erred in adding the amount of Rs.9,87,820/- on account of Sundry Balances written off.
2. Rival contentions have been heard and record perused. Facts in brief are that the assessee is registered by SEBI as Trading-cum-Clearing 2 Member
1. in the Capital Market segment and Future & Options segment of NSE and Capital Market segment of BSE and engaged in the business of equity share broking, trading and dealing in shares and securities and also depository participant under CDSL. During the course of scrutiny assessment, the AO made an addition of Rs.33,500/- u/s.14A, which was confirmed by the CIT(A). 3. We have considered rival contentions and found that during the year assessee company received dividend income of Rs.5,20,000/- which was claimed as exempt u/s.10(34). The dividend income receipt was out of shares allotted to the assessee by BSE under corporatization and demutualization of BSE approved by the SEBI. Thus, the dividend income was earned out of the shares which have been allotted by BSE in lieu of ownership, membership right under the corporatization and demutualization scheme of BSE approved by SEBI. The assessee has not incurred any expenditure for this dividend income earned, insofar as it was in the nature of strategic investment. As per decision of Hon’ble Delhi High Court in the case of Cheminvest Ltd. and the decision of the Mumbai Tribunal in the cases of Piem Hotels Ltd and Garware Wall Ropes Ltd., such strategic investment is to be taken out of average investment while computing disallowance u/s.14A read with rule 8D. Accordingly, we do not find any merit in the disallowance of Rs.33,500/- made by the AO. 4. The AO has also disallowed assessee’s claim of bad debts of Rs.92,27,364/-. In this regard the AO observed as under :- 6.1 It is seen from the computation of total income for the year under consideration that the assessee has reduced an amount of 3 ITA No.1595/14 Rs.92,27,364/- on a/c of Bad debts from net profit of the year in its computation of income and the assessee has not claimed Bad Debts in the P&L A/c. Further, it is seen that the assessee has not filed any supporting details in respect of the claim.
Vide order sheet dated 4-12-2012, assessee was asked to justify its claim which was replied by the assessee on 19-12-2012. Not being satisfied with the assessee’s reply the AO disallowed assessee’s claim of bad debts. By the impugned order the CIT(A) confirmed the above addition.
It was contended by ld. AR that issue is covered by the decision of Hon’ble Bombay High Court in the case of Shreyas S. Morakhia 342 ITR 285 and the Hon’ble Bombay High Court’s order in assessee’s own case for A.Y.2005-06 on very same issue. Ld. AR further submitted that assessee has filed complete details of each party along with supporting documents. Brokerage earning details with respect to each party was also submitted. Our attention was also invited to the submission filed before the CIT(A) on 15-10-2013 and 3-12-2013. It was further contended by ld. AR that there was recovery of amount in subsequent years of Rs.25,50,000/- and Rs.6,32,224.80/- which was offered to tax. He further contended that same issue had arisen in A.Y.2005-06 wherein the Tribunal allowed the claim relying on decision in case of Shreyas Morakhia Spl. Bench (the decision was approved by Hon’ble Bombay High Court and in assessee’s own case the same was followed).
On the other hand, ld. DR relied on the order of AO and contended that assessee has not written off bad debts in its books of accounts, 4 therefore, the same is not allowable merely because it was claimed in the computation of income filed along with the return.
We have considered rival contentions and gone through the orders of authorities below as well as order passed by the Tribunal in assessee’s own case for the assessment year 2005-06. There is no dispute to the proposition that in case of share broker the only brokerage is required to be offered in earlier year, therefore, claim of bad debts cannot be declined in the case of broker merely on the plea that principal amount of debt was not offered as income in earlier year. We also found that assessee has filed details regarding each party along with supporting evidence indicating their bad financial position. However, claim of bad debts u/s.36(1)(vii) read with section 36(2) can be allowed as a deduction where the assessee has written off debts in its books of account and deducted the same in its profit and loss account. Even mere claim of provision for bad debts in the profit and loss account will not be sufficient for allowing claim of bad debts u/s.36(1)(vii). In the instant case, the AO has observed that assessee has not claimed bad debts in its profit and loss account and merely in the computation of income the assessee has reduced this amount. However, nothing was brought on record by the ld. AR to persuade us to hold that this finding of AO was incorrect. In the interest of justice, we restore this matter back to the file of AO for deciding afresh after finding out as to whether assessee has actually debited the amount of bad debts in its profit and loss account. We further direct the AO that mere offering of income on account of brokerage will be sufficient claim of