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TMI Blog2010 (10) TMI 208X X X X Extracts X X X X X X X X Extracts X X X X ..... debts :- 1. Mr. Lalit Kabra 58,28,033.77 2. Mr. Krishna Kabra 48,05,725.07 3. Mr. Lokesh Kabra 43,57,228.36 4. Mr. Mukesh Samdhani 2,79,023.23 5. Amir Investments 1,31,80,389.12 Total 2,82,50,399.55 3. The assessee made his submission before the Assessing Officer vide its letter dated 24-10-2005 that the assessee accepted the arbitration award of BSE and NSE and written off the difference of outstanding less amount agreed to pay, detailed at page 4 of CIT(A) order. It is further stated that as per arbitration award, the statement is prepared for each of the above clients and the same is supported with arbitration award. The said submission was not found acceptable by the Assessing Officer as according to him the claim of the assessee was not in accordance with section 36(1)(vii) read with section 36(2) of the Act. The Assessing Officer elaborately discussed the issue at length in his order and disallowed the bad debts claim of assessee of Rs. 2,82,50,400 relying on the decision of ITAT, Ahmedabad in the case of ITO v. Ashokkumar Lalitkumar [1995] 53 ITD 326 and the decision in the case of ITO v. Anil H. Rastogi [2003] 86 ITD 193 (Mum.) (TM). 4. The altern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed as bad debt by the assessee in its accounts. After considering the submissions of the assessee, the CIT(A) deleted the disallowance made by the Assessing Officer by observing as under: "3.3 In the case under consideration, the appellant is a stock broker who purchases and sells shares for the clients at the Bombay Stock Exchange (BSE). The nature of its business is that it has to discharge the client's liability to the BSE. The modus operandi has been elaborately explained by the Assessing Officer in the assessment order. Whereas, the brokerage charged by it on share transactions is shown as income, the client's liability towards purchase consideration of shares is directly taken to the balance sheet. It is this liability which is not discharged by the client and the same has to be written off as bad debt. The accounts are voluminous and there are a number of transactions and payments for the brokerage as well as the principal amount. If the appellant does not own up the liability of the client towards the stock exchange, it will hamper the progress of business. In a way, it is almost impossible to run the business smoothly without shouldering the immediate burden of purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance unrecovered amount of debt as bad debt. In the assessment proceedings, the entire submission made by the assessee was on the footing that the claim is on account bad debts under section 36(1)(vii), whereas it was only before the CIT(A) that the assessee has made an alternative claim that the said loss be allowed as business loss. The ld. CIT(A) allowed the loss as business loss on the ground that it has been incurred during the course of business activities. The learned DR submitted that bad debts claim of the assessee is in respect of share broker and relevant amount neither shown in computation of total income nor in profit and loss account. Under these circumstances the assessee did not satisfied the conditions of section 36(1)(vii) read with section 36(2) of the Act. The learned DR submitted that on similar circumstances the bad debts claim of the assessee has not been allowed by the ITAT in following cases. : 1. Addl. CIT v. B.N. Khandelwal [2006] 101 TTJ (Mum.) 711 2. Rosy Blue Securities in IT Appeal No. 2125/M/2006 (Mum.). 6.1 Regarding the alternate claim of the assessee of bad debts as business loss, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate decision of the CIT(A) on a ground decided against the assessee i.e., on the question of allowance of deduction as bad debt. Rule 27 of the ITAT Rules permits the assessee to raise the issue of allowability of the claim of bad debt before the Tribunal though he did not succeed on this issue before the CIT(A) and no appeal was filed before the Tribunal against the decision of the CIT(A). We accordingly proceed to consider the question of bad debt. We find that the issue is squarely covered by the order of Special Bench, Mumbai in the case of Shreyas S. Morakhia (supra) in that case the assessee, a broker, claimed deduction for bad debts in respect of shares purchased by him for his clients. The Assessing Officer rejected the claim though the CIT(A) upheld it. On appeal by the Revenue, the matter was referred to the Special Bench. Before the Special Bench, the department argued that under section 36(2), no deduction on account of bad debt can be allowed unless "such debt or part thereof has been taken into account in computing the income of the assessee". It was argued that as the assessee had offered only the brokerage income to tax but not the value of shares purchased on behal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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