2016 (6) TMI 338 - HC - Income Tax

High Court affirms CIT(Appeals) decision on bad debt claim

The High Court upheld the CIT(Appeals) decision, dismissing the Revenue's appeal regarding the deletion of an addition under Section 40(a)(ix) claimed by ... Short deduction of tax at sources - disallowance of bad debts - ITAT deleted the addition as done by CIT(A) - Held that:- As pointed out the assessee had purchased the aforesaid shares on behalf of the sub-broker and, in fact, paid the amount of ₹ 1,06,10,247/-. As against this amount, he received only a sum of ₹ 64 lakhs. The brokerage which was received in the aforesaid transaction was shown as income by the assessee in the previous year, which was taxed as such as well by the assessing authority. Under the circumstances, only because shares were not delivered for want of full payment, which was to be made by the subbroker to the assessee, it cannot be said that there was no transaction between the assessee and the sub-broker and the assessee had to make payment on behalf of the sub-broker, which he could not recover to the extent of ₹ 41,37,881, that sum has to be treated as “debt”. We notice from the decision of the CIT (Appeals) that the judgment of the Delhi High Court in Commissioner of Income-Tax vs. D.B.(India) Securities [2009 (7) TMI 894 - DELHI HIGH COURT] wherein held that as the assessee had not sold the shares to anybody else in the market and in the absence of such a sale, the assessee could not claim the aforesaid amount as “bad debt”. - Decided against revenue Issues:1. Whether the Appellate Tribunal erred in deleting the addition under Section 40(a)(ix) without considering default under Section 201 and invoking Section 40(a)(ia)Rs.Analysis:The case involved an appeal by the Revenue against the Income Tax Appellate Tribunal's judgment regarding the deletion of an addition made under Section 40(a)(ix). The assessee, a share broker, claimed bad debt due to a downfall in the share market. The Assessing Officer disallowed the claim, but the CIT(Appeals) reversed this decision citing precedents from ITAT special bench Mumbai and Delhi High Court. The Tribunal also ruled in favor of the assessee based on the previous year's decision. The High Court referred to the Delhi High Court's decision in a similar case involving bad debts claimed by a share and stock broker. The High Court upheld the view in favor of the assessee, emphasizing the transaction between the assessee and sub-broker as the basis for treating the unpaid amount as a debt. The High Court dismissed the Tax Appeal, stating that no question of law arose as the judgment of the Delhi High Court was already upheld in appeal and SLP was dismissed.In conclusion, the High Court upheld the CIT(Appeals) decision based on precedents and the transactional nature of the debt, dismissing the Revenue's appeal. The judgment emphasized the legal basis for treating the unpaid amount as a debt and highlighted the lack of a legal question due to the dismissal of the Delhi High Court's judgment in appeal.