TaxTMI 
TaxTMI 
2011 (4) TMI 872
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.... On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing the bad debts in respect of Shri Rajendra Mishra without reciting the reasons of non recovery of the amount inspite the arbitration award being favour of the assessee. 3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing the bad debts amount of Rs. 346035/- in respect of M/s. M.M. Finvestrade (P) Ltd. without even examining the consent decree and ascertaining the reasons for non-recovery. 4. On the facts and in the circumstances of the case and in law, the learned CIT(A) failed to appreciate that the assessee company has not established that the bad debts have become bad and has also not established that the loss has crystallized during the Assessment Year 2004-05. 5. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing the bad debts u/s.36(1)(vii), inspite of the fact that the assessee did not fulfil the conditions laid down u/s.36(2) of the I.T. Act, 1961 as noted by the Assessing Officer." 3. In an interconnected ground of appeal, the assessee has raised t....
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....36(2) of the I.T. Act, 1961 and added to the total income." 5. The Assessing Officer also rejected the claim of business loss. Though, for the reasons we will set out in a short while, it is not really necessary to go any further into that aspect of the matter. 6. Aggrieved, assessee carried the matter in appeal before the CIT(A). Learned CIT(A) upheld the contentions of the assessee and, after analysing facts of assessee's case, concluded as follows: "5.9 In view of the above, it is held that:- a) Explanation to section 37 is not applicable; b) The amounts due from the 3 parties have become not recoverable and have become bad; c) The deduction u/s.36(1)(vii) is to be allowed subject to fulfil the conditions of section 36(2). d) On being demonstrated by the appellant that the amounts claimed as bad debt has been taken for computation for total income of any previous year, the Assessing Officer shall allow the amounts of bad debts accordingly." 7. Aggrieved by the stand so taken by the CIT(A), both the parties are in appeal before us. The Assessing Officer is aggrieved that the CIT(A) held the bad debts to be allowable ....
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....anation of the Assessee that no element of borrowed fund utilized for financing the trade concerning to specified persons and appellant company have sufficient fund where no interest cost is incurred and from such available fund amount are standing to debt of such persons and amount have been recovered subsequently, therefore no part of the interest expenditure is to be disallowed." 16. To adjudicate on these grievances, only a few material facts need to be taken note of. During the course of assessment proceedings, the Assessing Officer disallowed Rs. 4,90,072/- on account of interest paid by observing as follows: "4.10 Analysis of the Over Draft Account: The assessee is having an overdraft account No.CD7163 with Bank of India Stock Exchange Branch, Mumbai. The assessee submitted a copy of the said Bank statement for the relevant previous year. The closing balance as per bank statement is Rs. 14,84,555.80 Dr. The balance sheet shows a credit balance of Rs. 51,29,938/- and assessee has filed a bank reconciliation statement. The balances fluctuate from debit balance to credit balance an vice versa through out the year. The peak debit balance is Rs. 4,53,50,151/- on 1....
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....terest which is excessive and unreasonable, is computed taking into consideration the ratio of debit balance in the account of said persons and peak debit balance in the overdraft account as detailed below: Peak debit balance in the a/c of Ramakant Biyani = and GSB Share Cstodian Services Ltd. Peak debit balance in the overdraft account X Interest = Rs. 42,28,514 + Rs 1,58,48,651 X Rs. 11,06,971 Rs. 4,53,50,151 = Rs. 2,00,77,165 X Rs. 11,06,971 Rs. 4,53,50,151 = Rs. 4,90,072/- The assessee has incurred interest liability of Rs. 11,06,971/- on account of OD facility and interest bearing unsecured loans. As seen above, an amount of Rs. 4,90,072/- is attributable o transactions carried on by the Director and associate concern. Hence, the amount of Rs. 4,90,072/- is considered as not incurred for business purposes and disallowed u/s.36(1)(iii). Since, it has already been discussed that the funds have been utilised for he benefit of persons specified u/s.40A(2)(b) of the I.T. Act, 1961, the amount of Rs. 4,90,072/- is also considered as interest borne by the assessee and corresponds to the unreasonable and excessive benefits allo....
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....r 2005-06 that the deduction be allowed on permanent basis. It is pointed out that despite direction of the CIT(A), the Assessing Officer has not yet allowed the deductions in Assessment Year 2005-06 as well. It is submitted that we should give direction while disposing of 2005-06 for allowing deduction. 22. We see no substance in the plea. Once the CIT(A) has issued appropriate directions, which are not challenged on merits and unless we are in seisn of appeal effect proceedings, it is not for us to interfere in the matter. 23. Ground No.3 is thus dismissed. 24. Ground No.4 is already dealt above while dealing with interconnected grievances of Assessing Officer. The same is, for the reasons set out earlier in the order, dismissed 25. In the result, assessee's appeal is partly allowed. To sum up, while the appeal of the assessee is partly allowed in the terms indicated above, the appeal filed by the Assessing Officer is dismissed. Assessment Year: 2005-06 26. Ground No.1 of revenue's appeal relates to deletion of sundry balances written off. 27. The Assessing Officer noticed that the assessee has debited an amount of Rs.8,707 ....
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....ation to Section 73 and that in any event Explanation to Section 73 is applicable to both the situations i.e. in which the assessee incurs loss or profit. He, thus, concluded that the profits from nondelivery based share trading is a speculation profit and the loss from delivery based share trading, which is a speculation loss in view of Explanation to Section 73 and, accordingly, such loss is required to be set off against the profit. Aggrieved, the revenue is in appeal before us. 32. We have heard the rival contentions, perused the material on record and duly considered the factual matrix of the case as also the applicable legal position. 33. We find that there is no discussion by the Assessing Officer at any stage regarding application of Explanation to Section 73 to the facts of this case. In any event, whether there is a loss or profit in the business in shares and securities, as per provisions of Explanation to Section 73, these are to be treated as belonging to speculation business. In other words, the profit arising on sale and purchase of shares, even if these are delivery based transaction will be treated as belonging to speculation business within the mea....
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.... loss computed in respect of that speculation business, can be set off only against the profits and gains of an other speculation business. Similarly, for the purposes of subsection (2), the loss in respect of a speculation business which has not been set off either in whole or in part, can be carried forward and can be set off against profits and gains "of any speculation business". The expression "any speculation business" means a speculation business of the assessee in respect of which profits and gains for the assessment year in question have arisen and there is no justification to restrict the content of that speculation business where profits have arisen by excluding a business involving actual delivery of shares. No such restriction is found in the Explanation. To impose one is a legislative function. In other words, once the assessee is carrying on a speculation business and the profits and gains have arisen from that business during the course of the assessment year, the assessee is entitled to set off the losses carried forward from a speculation business arising out of a previous assessment year. 34. In view of above discussion and bearing in mind the entirety of....
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....ismissed. 39. Ground No.1 of the assessee's appeal relates to depreciation on Bombay Stock Exchange Card of Rs.24,60,938. This ground was not pressed, therefore, same is dismissed as not pressed. 40. In Second Ground of appeal, the assessee has raised the following grievance: "The ld CIT(A) grossly erred in law as well as on the facts and circumstances in holding and confirming the action of AO in holding a sum of Rs.48,87,150 as loan and advances for debts due under regular business activity of shares transaction from a company where assessee is having shareholding exceeding 25% as deemed dividend income by invoking the provisions of section 2(22) (e) of the I.T.Act, 1961 which is not justified hence it is required to be deleted.' 41. The relevant material facts are as follows. During the course of assessment proceedings, it was noted by the AO that following remark was given in the audit report: "Advances in the nature of loan(interest free) taken from company under the same management is as under: GSB Securities Pvt.Ltd., Rs.Nil(P.Y Rs. Nil) and Maximum amount due at a time during the year Rs.92,80,861.74 (P.F.Rs.16,00,000.00)" &nb....