TMI Blog2009 (12) TMI 728X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of bad debts amounting to Rs. 40,99,831 was made in the profit and loss account. In reply to the Assessing Officer's query for disallowing the claim of bad debts written off, it was submitted by the assessee that all necessary steps to recover the debt had been taken but due to the financial crisis created by the cancellation of NSE operations in 1998, no recovery could be made so far in those cases. Since the assessee was carrying on the business of sale and purchase of securities, wherein transactions were entered into on behalf of the clients by debiting their account, but due to their non-payment, after taking all the necessary steps for recovery, the assessee has written off the amount in the profit and loss account and claimed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its clients. To recover the same the assessee has taken reasonable efforts and after a lapse of time the same was claimed as bad debts by writing off the same in the books of account. Since the amount of debt written off in the profit and loss account has not been accounted for as income in the earlier year, there is no reason to allow the said loss as bad debts under section 36(1)(vii) read with section 36(2) of the Act. However, at the very same time, the loss so incurred has arisen in the course of business in respect of the transactions entered into by the assessee on behalf of its clients and due to their non-payment of dues, the same was written off as bad debts. The genuineness of the transactions so entered into by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are broking business, the debt which could not be recovered amounts to business loss and is to be allowed while computing the profits and gains of business or profession under section 28 of the Income-tax Act. We found that the transactions with regard to the debt were genuinely entered into and after taking bona fide efforts for their recovery, the assessee has claimed the amount which could not be recovered as a loss in the profit and loss account. It is not a bad debt in the strict sense of the term which can be allowed under section 36(1)(vii), but at the very same time, it is a business loss which is to be allowed under section 28 of the Act. Merely because claim was filed by the assessee as a bad debt under section 36(1)(vii), the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X
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