IN INCOME TAX APPELLATE TRIBUNAL I , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM SHRI AMARJIT SINGH, JM ITA No.1595/Mum/2014 (Assessment Year :2010-2011) M/s ISE Securities & Services Vs. DCIT, Range-4(1), Ltd., International Infotech Park, Mumbai Tower 7, 5th Floor, Sector-30, Vashi Rly Station Complex, Vashi, Navi Mumbai-400703 PAN/GIR No. : AAACI 6011 L (Appellant) (Respondent) Assessee by : Shri Ajay R. Singh Revenue by : Mr. Santosh Mankoskar Date of Hearing : 04/02/2016 Date of Pronouncement 27/04/2016 ORDER PER R.C.SHARMA (A.M): This is appeal filed by assessee against order of CIT(A), Mumbai, dated 2-1-2014, for assessment year 2010-2011, in matter of order passed u/s.143(3) of I.T.Act, on following grounds:- 1) On facts and circumstances of case and in law, CIT(A) erred in adding Dividend amount of Rs.33,500/- disallowed u/s.14A of income tax Act. 2) On facts and circumstances of case and in law, CIT(A) erred in adding amount of Rs.92,27,364/- on account of bad debts written off. 3) On facts and circumstances of case and in law, CIT(A) erred in adding 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 assessee is registered by SEBI as Trading-cum-Clearing 2 ITA No.1595/14 Member in Capital Market segment and Future & Options segment of NSE and Capital Market segment of BSE and engaged in business of equity share broking, trading and dealing in shares and securities and also depository participant under CDSL. During course of scrutiny assessment, AO made addition of Rs.33,500/- u/s.14A, which was confirmed by CIT(A). 3. We have considered rival contentions and found that during year assessee company received dividend income of Rs.5,20,000/- which was claimed as exempt u/s.10(34). dividend income receipt was out of shares allotted to assessee by BSE under corporatization and demutualization of BSE approved by SEBI. Thus, dividend income was earned out of shares which have been allotted by BSE in lieu of ownership, membership right under corporatization and demutualization scheme of BSE approved by SEBI. assessee has not incurred any expenditure for this dividend income earned, insofar as it was in nature of strategic investment. As per decision of Hon ble Delhi High Court in case of Cheminvest Ltd. and decision of Mumbai Tribunal in 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 disallowance of Rs.33,500/- made by AO. 4. AO has also disallowed assessee s claim of bad debts of Rs.92,27,364/-. In this regard AO observed as under :- 6.1 It is seen from computation of total income for year under consideration that assessee has reduced amount of 3 ITA No.1595/14 Rs.92,27,364/- on a/c of Bad debts from net profit of year in its computation of income and assessee has not claimed Bad Debts in P&L A/c. Further, it is seen that assessee has not filed any supporting details in respect of claim. Vide order sheet dated 4-12-2012, assessee was asked to justify its claim which was replied by assessee on 19-12-2012. Not being satisfied with assessee s reply AO disallowed assessee s claim of bad debts. By impugned order CIT(A) confirmed above addition. 5. It was contended by ld. AR that issue is covered by decision of Hon ble Bombay High Court in case of Shreyas S. Morakhia 342 ITR 285 and 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 submission filed before 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 Tribunal allowed 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 same was followed). 6. On other hand, ld. DR relied on order of AO and contended that assessee has not written off bad debts in its books of accounts, 4 ITA No.1595/14 therefore, same is not allowable merely because it was claimed in computation of income filed along with return. 7. We have considered rival contentions and gone through orders of authorities below as well as order passed by Tribunal in assessee s own case for assessment year 2005-06. There is no dispute to proposition that in case of share broker only brokerage is required to be offered in earlier year, therefore, claim of bad debts cannot be declined in case of broker merely on 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 deduction where assessee has written off debts in its books of account and deducted same in its profit and loss account. Even mere claim of provision for bad debts in profit and loss account will not be sufficient for allowing claim of bad debts u/s.36(1)(vii). In instant case, AO has observed that assessee has not claimed bad debts in its profit and loss account and merely in computation of income assessee has reduced this amount. However, nothing was brought on record by ld. AR to persuade us to hold that this finding of AO was incorrect. In interest of justice, we restore this matter back to file of AO for deciding afresh after finding out as to whether assessee has actually debited amount of bad debts in its profit and loss account. We further direct AO that mere offering of income on account of brokerage will be sufficient claim of 5 ITA No.1595/14 principal amount of debt and it is not necessary that amount written off as bad debts should have been shown as income in earlier years. We direct accordingly. 8. assessee is also aggrieved for disallowance of Rs.9,87,820/- on account of sundry balances write off. 9. From record we found that during year under consideration assessee company has written off sundry debit balances of various accounts and debited to P&L account. We also found that similar issue was restored by Tribunal in assessee s own case for assessment year 2009-2010 to file of CIT(A) to readjudicate. Respectfully following order of Tribunal in assessee s own case, we restore this issue also back to file of AO for adjudicating afresh in terms of directions given by Tribunal in its order for assessment year 2009-2010. 10. In result, appeal of assessee is allowed in part. Order pronounced in open court on this 27/04/2016. Sd/- Sd/- (AMARJIT SINGH) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 27/04/2016 .pkm, PS Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai BY 6. Guard file. ORDER, //True Copy// (Asstt. Registrar) ITAT, Mumbai M/s ISE Securities & Services Ltd. v. DCIT, Range-4(1), Mumbai