TMI Blog2010 (10) TMI 208X X X X Extracts X X X X X X X X Extracts X X X X ..... hare broker is reflected in the credit side of the P&L account makes no difference because the ultimate effect is the same. Claim of bad debts allowed - decided in favor of assessee. - 5786 (Mum.) of 2007 - - - Dated:- 22-10-2010 - R.V. EASWAR, A.L. GEHLOT, JJ. Sanjeev Dutt for the Appellant. Nitesh S. Joshi for the Respondent. ORDER A.L. Gehlot, Accountant Member. This appeal filed by the revenue is directed against the order of CIT(A) - IV, Mumbai, dated 31-8-2006 for the assessment year 2003-04 wherein the revenue has raised the following grounds of appeal : 1. On the facts and circumstances of the case and in law the ld. CIT(A) has erred in deleting additions on account of bad debts of Rs. 2,82,50,400 claimed by the assessee under section 36(1)(vii) of the Act following the decision of the ITAT D Bench, Mumbai, in the case of DCIT v. Vrajlal Lallubhai Sons. 2. Further placed in the above factual and legal scenario, the impugned order of the Ld. CIT(A) is, the appellant prays, patently perverse and contrary to law and consequently merits to be set aside and that of the Assessing Officer be restored. 2. The assessee had claimed the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the assessee chose to do so, the same is voluntary act of loss and business loss. The said debt became the liability of the assessee only because the assessee failed to carry on the business as laid down in the regulations and notifications issued. He held that the burden of proving that bad debt is allowable as business loss rests with the assessee which the assessee failed to do so. Hence, the claim of the assessee of allowing the bad debt as business loss is also rejected as the said loss is on account of violation the notifications and regulations issued by SEBI for carrying on the business of brokerage in stocks and shares. 5. Before the CIT(A), the learned AR of the assessee, submitted that the assessee has been carrying on the activity of share broking and carries on transactions on behalf of its clients on the stock exchange. During the year consideration and in preceding years, it carried out various such transactions on behalf of its clients Mr. Lalit Kabra, Mr. Krishna Kabra, Mr. Lokesh Kabra, Mr. Mukesh Samdani and Amir Investments. Since a part of outstanding debt had not been paid by them, the assessee filed proceedings for arbitration, in which they agreed to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed by Hon ble Mumbai Bench(es) of ITAT. The judgment of Hon ble ITAT D Bench of Mumbai in the case of DCIT v. V. Vrijlal Lallubhai Sons (supra) squarely applies to the case of the appellant. That is a case of stock broker trading in shares on behalf of its clients. The payments made to the BSE by the assessee could not be recovered and were therefore written off as bad debts. The Assessing Officer disallowed the same as those amounts did not satisfy the conditions laid down in section 36(2)(i). The Hon ble Tribunal held that since bad debts sprang directly from assessee s business, in ordinary course of its business, the claim was allowable as business loss under section 28(i). Applying the ratio of the same judgment, I hold that the appellant s claim of business loss was allowable to it. The Assessing Officer is, accordingly, directed to allow the same. Consequently, the addition of Rs. 2,82,50,400 is deleted. 6. The ld. D.R. relied upon the order of the Assessing Officer and file written submissions which have been placed on record, where in stated that that the assessee had debited the amount of Rs. 2,82,50,000 in the P L a/c. under the head Bad Debs . The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as bad debts. The ld. A.R. submitted that the issue of allowability of bad debts is squarely covered by the decision of the Special Bench, Mumbai in the case of Dy. CIT v. Shreyas S. Morakhia [2010] 40 SOT 432. It is also the submission of the ld. A.R. that the decision relied upon by the revenue in the ground of appeal have been considered by the Special Bench. He further submitted that the loss is also allowable. He relied upon following decisions : 1. In the case of Dy. CIT v. V. Vrijlal Lalloobhai Sons [1998] 99 Taxman 322 (Mum.) (Mag.). 2. IT Appeal No. 138/Mum./2000 in the case of D.S. Purbhoodas Co. v. Dy. CIT, Cent. Cir. III (38) dated 23-7-2004. 3. IT Appeal No. 3710/Mum./1997 in the case of Dy. CIT v. Mahesh H. Patel dated 26-2-2003. 4. IT Appeal No. 4053/M/2002 in the case of ACIT v. Olympia Securities Ltd. dated 21-12-2006. 5. IT Appeal No. 2144/Mum/2002 in the case of Keki D.B. Mehta v. Dy. CIT, Cent.Cir.34, dated 14-8-2008. 8. We have heard the ld. representatives and the records perused. We are in agreement with the plea of the learned counsel for the assessee that he can support the ultimate decision of the CIT(A) on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit side of the P L A/c or only the net amount is finally reflected as profit after deducting the corresponding expenses or only the net amount of brokerage received by the share broker is reflected in the credit side of the P L account makes no difference because the ultimate effect is the same. The ITAT while dealing the argument that the loss was suffered owing to breach of SEBI Guidelines framed to safeguard the interest of brokers in respect of amount receivable from the clients against purchase of shares is irrelevant. It was held that 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 [1963] 49 ITR 931 (Bom.) followed where bad debts on account of forbidden vayada transactions were held allowable]. Since the issue is squarely covered by the decision of ITAT Special Bench in the case of Shreyas S. Morakhia (supra), we respectfully follow the above decision of ITAT, Spl. Bench, Mumbai, and in the light of that we a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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