As per section amount written back out of the bad debts and miscellanious income are to be considered as business income

IN THE INCOME TAX APPELLATE TRIBUNAL

"F" Bench, Mumbai

Before Shri B. Ramakotaiah, Accountant Member and

Shri Vivek Varma, Judicial Member

ITA No.5243/Mum/2011

(Assessment year: 2007-08)

ACIT Central Circle-40

Room No.653, 6th Floor,

Aayakar Bhavan, MK Road

Mumbai 400020

(Appellant)

Vs

VN Parekh Securities Ltd

Bhupen Chamber, Gr. Floor

9 Dalal Street, Fort Mumbai

PAN No. AAACV 5664 J

 (Respondent)

Department by: Dr. P. Dianel

Assessee by: Ms. Jinal Sarvaiya

Date of Hearing: 18/06/2012

Date of Pronouncement: 27/06/2012

O R D E R

Per B. Ramakotaiah, A.M.

It is a Revenue appeal against the order of the CIT (A)-36 Mumbai date 29.04.2011. The Revenue has raised the following grounds:

1. On the facts and circumstances of the case and in law, the learned CIT (A) has erred in allowing business expenses of `.28,33,628/- even though there was no business in existence during the year as assessee was debarred by SEBI to carry out business activities vide order dated 11.04.2011.

2. On the facts and circumstances of the case and in law, the learned CIT (A) erred in holding income from bad debts written back and miscellaneous income as business income instead of “income from other sources” without considering the fact there was no business in existence during the year and assessee had himself shown them as “other income”.

3. On the facts and circumstances of the case and in law, the learned CIT (A) erred in deleting the addition on account of gratuity write back at `.2,29,929/- as “income from other sources” without actually verifying whether this was allowed as expenditure in earlier year”.

2. Briefly stated assessee is a Member of Stock Exchange, Mumbai. Vide order dated 4.4.2001 assessee was debarred from undertaking any fresh business as a stock broker or merchant banker till further orders. This order was confirmed by SEBI vide order dated 21-06-2001. AO was of the opinion that assessee was not carrying any business as it was prohibited from undertaking any fresh business, therefore, the expenditure claimed toward business expenditure cannot be allowed. The other income shown by assessee was brought to tax under the head “income from other sources” without assigning any reason by AO.

3. Before the CIT (A) it was the contention of assessee that assessee was only suspended from carrying on business and there is no closure or discontinuation of business. Assessee relied on the order of the Tribunal in the case of M/s K.N.P. Securities Ltd in ITA No.5008 & 5009/Mum/2007, wherein similar issue has been decided in favour of assessee by relying upon the decision in the case of CIT vs. Vellore Electric Corporation Ltd 243 ITR 529 (Mad.). Further assessee also placed the copy of the order in the same case in ITA Nos.1053 and 2111/Mum/2008 on the similar issue. The learned CIT (A) observed that facts in the above case are similar to assessee’s case and as there is no fresh evidence brought on record to show that the business has actually been discontinued or closed down, he allowed the ground of assessee thereby allowing the expenditure. With reference to the income treated as’income from other sources’, the CIT (A) analyzed the position of the income and noticed that it comprises of bad debts, miscellaneous receipts written back which were to be taxed under section 41(1) of the I.T. Act. With reference to the gratuity written back, he observed that assessee made provision for gratuity in earlier years which was not allowed as expenditure. Hence the write back of the same cannot be considered as income. For these reasons, the CIT(A) allowed the grounds of assessee.

4. The Revenue is aggrieved on the orders of the CIT(A). On perusal of the facts of the case and after hearing the learned Counsels, we are of the opinion that there is no need to disturb the findings of the CIT(A). Even though the learned Counsel for Revenue vehemently argued that assessee is not in the business so as to allow the expenditure, we are of the opinion that there is no closure of the business and it is only temporary suspension in the assessment year under consideration. We were also informed that the business was ultimately closed after SEBI orders were upheld by the judicial authorities. As far as impugned assessment year is concerned, it is to be considered that there is only a suspension of the business. This issue is upheld by the Coordinate Bench in the orders referred (Supra). Respectfully following the same, we dismiss the Revenue Ground No.1 and uphold the order of the CIT (A). With reference to the Ground Nos.2 & 3 raised, we did not find any reason to interfere with the orders of the CIT (A) as the amount written back out of the bad debts and miscellaneous income are to be considered as business income under section 41(1). Just because they are shown as “other income” in the companies account these cannot become ‘income from other sources’, which is altogether a different head under the Income Tax Act. There is no justification in the grounds raised by the Revenue. Since Ground No.1 is dismissed,the Ground No.2 has no merit. With reference to the gratuity also, there is no merit in the Revenue ground as there is a clear finding by the CIT (A) that the gratuity amount was not allowed as expenditure in the earlier years, the question of taxing the amount when the amount was written back in the books of account does not arise, as provisions of section 41(1) are not applicable to the facts of the case. In view of this Ground Nos. 2 & 3 are also dismissed.

5. In the result, appeal filed by the Revenue is dismissed.

Order pronounced in the open court on 27th June, 2012.

                                                       Sd/-                   Sd/-

                                             (Vivek Varna) (B. Ramakotaiah)

                                           Judicial Member Accountant Member

Mumbai, dated June, 2012.

Vnodan/sps

Copy to:

1. The Appellant

2. The Respondent

3. The concerned CIT(A)

4. The concerned CIT

5. The DR, “F“ Bench, ITAT, Mumbai

By Order

Assistant Registrar

Income Tax Appellate Tribunal,

Mumbai Benches, MUMBAI