TMI Blog2010 (9) TMI 424X X X X Extracts X X X X X X X X Extracts X X X X ..... actions of purchase of shares on their behalf constitutes debt which is a trading debt. The brokerage/commission income arising from such transactions very much forms part of the said debt and when the amount of such brokerage/commission has been taken into account in computation of income of the assessee of the relevant previous year or any earlier year, it satisfies the condition stipulated in section 36(2)(i) and the assessee is entitled to deduction u/s 36(1)(vii) by way of bad debts after having written of the said debts from his books of account as irrecoverable. - Claim of bad debts allowed. It is to be seen as to whether the commission income accruing to the assessee as a result of the transactions done on behalf of the client which has resulted in the debt which is written off as bad, was offered to tax. It is also to be seen as to whether the Assessee has taken any margin money from the customers and whether the margin money has been adjusted and only the net amount is written off as bad debts. Similarly, in cases where there was no delivery taken by the client, whether the Assessee has sold those shares and adjusted the sale proceeds against the amounts due by his clien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. 138 has been filed against this client for cheque bouncing atMulund Court. The client has obtained a stay from Bombay High Court and the amount is not recoverable. 7. Mukesh Doshi 4,73,087 This client is absconding and not traceable. All effort to find this client have failed. 8. Manish Talreja 72,066 This client is absconding and not traceable. All effort to find this client have failed. 9. MilanThakkar 8,88,797 This client has run away toUSAleaving behind amny creditors like the asseesee. His where abouts inUSAis not known. Correspondence withUSAconsulate has not resulted in any progress. 10. Manoj Mulchandani 2,64,818 This client is absconding and not traceable. All effort to find this client have failed. 11. Millenium Invvestments 1,42,946 He was an employee of HPCL. After suffering losses in stock market he left the job and is not traceable. 12. Prakash Mulchandani 24,197 This client is absconding and not traceable. All effort to find this client have failed. 13. Vijay Bhatia 1,31,398 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken into account while computing income of the assessee. According to the Assessing Officer, this condition was not satisfied in the case of the assessee because the Assessee accounts only for income from brokerage and not the value of shares sold or purchased on behalf of a client and therefore, the condition mentioned in section 36(2) was not satisfied and therefore the claim was rejected by the Assessing Officer. 5. Before the Assessing Officer the assessee alternatively claimed that the loss in question had to be allowed as business loss being incidental to the business of the assessee. The Assessing Officer on this aspect was of the view that the assessee did not establish that the loss in question had crystallized during the previous year. For all the above reasons the Assessing Officer disallowed the claim of the assessee for deduction on account of bad debts. 6. On appeal by the assessee the CIT(A) was of the view that in respect of debts listed at Sl. Nos.1, 2 6, there was enough evidence to show that the claim of bad debt was allowable. In respect of the remaining debts the CIT(A) held that the assessee did not file confirmation of balances from the debtors and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is established to have become a bad debt in the previous year. Post- 1 s t April, 1989: Other deductions. 36.(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28(i) to (vi) ** ** ** (vii) subject to the provisions of sub-section(2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year. In TRF Limited v. CIT 230 CTR 14 (SC), the Hon ble Supreme hold has held that after 1st April, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. In view of the above, the stand of the revenue that the Assessee failed to establish that the debt have in fact become bad and therefore deduction u/s. 36(1)(vii)cannot be allowed, cannot be sustained. 11. With regard to the stand of the revenue that in the case of the share broker the conditions laid down in section 36(2) are not satisfied and, therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from the clients against purchase of shares is irrelevant. If the broker chooses not to follow the guidelines, it is a decision taken by him as a businessman having regard to his business relations with the client. The loss cannot be equated to expenditure incurred by the assessee for any purpose which is an offence or which is prohibited by law. (CIT v. Pranlal Kesurdas 49 ITR 931 (Bom.) followed where bad debts on account of forbidden vayada transactions were held allowable); (iii) The contention of the Revenue that the sale value of the shares remaining with the assessee should be adjusted against the amount receivable from the client so as to arrive at the actual amount of bad debt should be raised, if permissible, before the Division Bench. The decision of the Hon ble Delhi High Court in the case of DB (India) Securities 318 ITR 26 (Delhi) Bonanza Portfolio 320 ITR 178 (Delhi) was followed. 12. It is however to be seen as to whether the commission income accruing to the assessee as a result of the transactions done on behalf of the client which has resulted in the debt which is written off as bad, was offered to tax. It is also to be seen as to whether ..... X X X X Extracts X X X X X X X X Extracts X X X X
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