Commissioner of Income Tax Central-IV vs Triumph International Finance India Ltd.

This Appeal under Section 260-A of the Income Tax Act, 1961 (the Act) challenges the order dated 19th April, 2013 passed by the Income Tax Appellate Tribunal (the Tribunal). The Assessment Year involved is A.Y. 2004-2005.

The Appellant has urged the following questions of law, for our consideration:--

"(1): Whether on the facts and in the circumstances of the case and in law, the Tribunal after having noted that the SEBI had cancelled the registration of the Company and SEBI''s order was confirmed by the Supreme Court ought to have held that as no legal business activity could be undertaken the loss on account of trading in shares could not be construed as business loss?

(2): Whether on the facts and in the circumstances of the case, the Tribunal was justified in allowing deduction of bad debts under section 36of the Income Tax Act, in respect of amounts that could not be recovered from its clients with regard to transactions effected by the Company on behalf of its clients?

(3) Whether on the facts and in circumstances of the case, the Tribunal was justified in allowing partly deduction of bad debts without analysis of the transaction taken place between the assessee and its group concerns with those parties?

(4) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in setting aside to the file of the AO overriding the direction of the CIT(A) treating interest from fixed deposits, interest and miscellaneous income under the head income from other sources, since with the debarment of the company from business this income could not be considered as business income?

(5) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding the interest on fixed deposits be considered as business income ignoring the crucial fact that there could not be any business income since the company was debarred from doing business by SEBI? (6) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing delayed payment in respect of employees'' contribution of ESIC as this payment was not allowable in terms of provisions of Section 2(24)(x) r/w S.36(1)(va) of the Income Tax Act?"

Regarding Questions 2 & 3:--

"(a) The Respondent Assessee in its return of income had claimed bad debts in respect of eight parties aggregating to Rs. 38.68 Crores. This was on account of amounts not recoverable pertaining to its stock broking business. The Respondent-assessee had offered the brokerage due from the eight parties as part of its income in an earlier assessment year. During the subject assessment year, the Respondent-assessee claimed bad debts not only in respect of the brokerage amount but also the principal amount which was not forthcoming from their constituents. The Assessing Officer disallowed the entire claim for bad debts on the ground that the Respondent-assessee was not a dealer in purchase and sale of shares. Therefore, bad debts on account of not receiving the value of shares could not be allowed as it was not on account of sale of some shares. In the above view, the Assessing Officer disallowed the entire claim of bad debts of Rs. 38.68 Crores as not satisfying the conditions of Section 36(1)(vii) read with Section 36(2) of the Act. Thus, adding the entire amount of Rs. 38.68 Crores to the income of the Respondent-assessee.

(b) In Appeal, the CIT(A) confirmed the findings of the Assessing Officer holding that the amount returned as bad debts had not been offered as income in the past. In the circumstance, it held that the claim for bad debts was justly disallowed.

(c) On further appeal, the Tribunal by the impugned order noted that out of the eight parties in respect of whom the bad debts is claimed, seven are independent third parties and only one of them, namely, M/s. Triumph Securities Ltd. is an associated/related party. So far as the seven independent parties are concerned, the Tribunal by the impugned order holds that the Respondent-assessee being share broker, the bad debts claimed are eligible for deduction as much as the amount of brokerage had been offered as income in an earlier year. It thus satisfies the conditions stipulated in Section 36(1)(vii) read with Section 36(2)(i) of the Act. Further, reliance was placed upon the decision of this Court in Commissioner of Income Tax v. Shreyas S. Morakhia reported in , 342 ITR 285 in allowing the relief of bad debts in respect of the seven independent parties who are its constituents in the share brokerage business. So far as the associated party is concerned, the issue has been restored to the Assessing Officer for fresh consideration. Thus, allowing the appeal of the Respondent-Assessee.

(d) Mr. Pinto, learned counsel for the Revenue does not dispute that the issue arising herein is covered by the decision of this Court in Shreyas S. Morakhia(supra) in respect of the seven independent parties and offering of a brokerage as income would satisfy the conditions of Section 36(i)(vii) of the Act read with Section 36(2)(i) of the Act so as to claim as bad debts the entire amount not received. Similarly, so far as the issue of writing of bad debts of associated person is concerned, the impugned order has without any observation merely restored the issue to the Assessing Officer for fresh examination.

(e) In view of the above agreed position, questions 2 and 3 do not give rise to any substantial question of law. Hence, not entertained."

Regarding Questions 4 and 5:--

"(a) Mr. Pinto very fairly conceded that the issue arising in Questions 5 and 6 has been restored to the Assessing Officer for fresh consideration. Therefore, it would not give rise to any substantial question of law. However, it is made clear that the contention of the Revenue raised in the aforesaid two questions viz: that as the company was barred from doing business by SEBI, there is no question of any business income arising in the hands of the Respondent-assessee. This contention is left open to be considered by the Assessing Officer. Needless to state that the Assessing Officer would independently apply his mind to the contentions of the parties and take a view thereon in accordance with law, being uninfluenced by any observations made by us.

(b) In view of the above, we see no reason to entertain questions 5 and 6. Accordingly, not entertained."

Regarding Question 6:--

"(a) Mr. Pinto very fairly states that the issue arising herein stands concluded against the Revenue by the decision of this Court in Commissioner of Income Tax v. Hindustan Organics Chemicals Ltd. reported in , 366 ITR 1 and Commissioner of Income Tax v. Ghatge Patil Transports Ltd. reported in , 368 ITR 749.

(b) In the above view, Question 6 does not give rise to any substantial question of law. Accordingly, not entertained."

The Appeal is admitted on substantial Question No. (1).

The Registry is directed to communicate a copy of this order to the Tribunal. This would enable the Tribunal to keep the papers and proceedings relating to this Appeal available so as to be produced when sought for by this Court.