TMI Blog2015 (11) TMI 792X X X X Extracts X X X X X X X X Extracts X X X X ..... eivable and hence is allowable as business loss. The assessee is entitled to claim deduction towards write off of bad advances and we have no hesitation in directing the Learned AO to grant deduction towards the same. Accordingly, the grounds raised by the assessee in this regard are allowed. - Decided in favour of assessee. - I.T.A No. 338/Kol/1999 - - - Dated:- 28-10-2015 - Shri M. Balaganesh, Accountant Member, and Shri S.S. Viswanethra Ravi, Judicial Member For The Appellant/ Assessee: Shri J.P Khaitan, Sr. Advocate, ld.AR For The Respondent Department: Shri Sanjay Mukherjee,JCIT, ld.DR ORDER SHRI M.BALAGANESH, AM This appeal of the assessee arises out of the order of the Learned CITA in Appeal No. 355/A-XV/SR-16/98-99 dated 17-12-98 for the Asst Year 1995-96 passed against the order of assessment framed by the Learned AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. Shri.J.P.Khaitan, Senior Advocate, the Learned AR argued on behalf of the assessee and Shri.Sanjay Mukherjee, JCIT, the Learned DR argued on behalf of the revenue. 3. The brief background of this appeal is that the same has already been disposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in shares. The assessee had to recover trade debts amounting to ₹ 11,62,253/- and trade advances receivable from the Broker Shri.Pallav Sheth amounting to ₹ 1,99,08,500/-. The fact is that the assessee had duly offered the income in respect of trade debts of ₹ 11,62,253/- in the earlier years and treated the same as irrecoverable and wrote off the same by crediting the concerned debtor account in the books and claimed deduction for the same as bad debt in accordance with the provisions of section 36(1)(vii) read with section 36(2) of the Act. This claim was disallowed by the Learned AO which was upheld by the Learned CITA. Aggrieved, the revenue is in appeal before us on the following grounds:- a) Bad debts ₹ 11,62,253/- For that the learned CIT(Appeals) was not justified in ignoring the provisions of the Income Tax Act in disallowing the said Bad Debts although the claim was fully allowable as per the provisions of Sec.36 and he did not dispute the same. For that the learned CIT(Appeals) failed to appreciate that the appellant did not file any claim with the Special Court and therefore, irrespective of the outcome of its proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ober 1992 Equity shares and debentures of various Indian companies were seized by the CBI from the reisidential and office premises of Pallav Sheth October 30, 1992 Last transaction between the assessee and Pallav Sheth March 31, 1993 Pallav Seth acknowledgted having received ₹ 2 crores from the assessee under portfolio management scheme. October 15, 1993 Notice issued by the Bombay Stock Exchange advising members not to deal in shares attached by the Income Tax Department including those seized by CBI. February 24, 1994 Pallav Sheth submitted to a consent decree for a sum of ₹ 51.49 crores upon application by the Custodian appointed under the Special Court Act. The said amount was to be paid in instalments. Pallav Sheth paid only ₹ 2 crore and defaulted in the payment of further instalments [ para 3 of (2001) 7SCC 549 at page 555] August 24, 1994 The Special Court passed further interim order of attachment in respect of assets of Pallav She ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of the business. What was not paid by the subsidiary company was only the interest and there was no principal amount due at the time of advancing the amount thereafter. The advances made by the assessee were also utilized by the subsidiary company for the purpose for which they were obtained which was to run the foundry. This would also indicate that the amount had been given out of commercial expediency as well. Both the Commissioner(Appeals) as well as the Tribunal had considered the materials on record and came to the conclusion that the transactions involved were true and genuine. They had also held that the advances had been made during the course of the business and they had become irreovcoverable as bad debts and hence the assessee was entitled to the benefit under section 36(1)(vii). The question as to whether a debt had become bad or not was a pure question of fact and, therefore, it could not be construed as a question of law. 323 ITR 397(SC) TRF Ltd Vs. CIT BAD DEBT-LAW AFTER APRIL 1, 1989- ASSESSEE ONLY TO ESTABLISH THAT DEBT WAS WRITTEN OFF- NOT NECESSARY TO ESTABLISH THAT DEBT IN FACT HAD BECOME IRRECOVERABLE INCOME-TAX ACT, 1961, s. 36 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the previous year [para 30]. In pre-amended provision the assessee was required to establish that the debt in question has become bad in the previous year. In the postamended period it is sufficient if the bad debt or part thereof is written off as irrecoverably in the accounts of the assessee. The law has done away with the onerous obligation on the part of the assessee to establish that the debt has become bad in the previous year. Now the requirement is only the write off of such debt as irrecoverable in the accounts of the assessee. [para 31]. As explained by the CBDT Circular No.551 dt. 23-1-1990 the amendment has been brought to the do away with all the complications involved in determining the issue of deductibility of bad debts under section 36(1)(vii). The amendment decided the year in which the deduction has to be allowed, as the year in which the assessee has written off the debt as bad debt in the books of account. The amendment has also done away with the requirement of establishing that the debt has become bad. This is clear from the circular of the Board where it is stated that the amendment has been brought to eliminate the disputes in the matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the course of business of the assessee for the purpose of purchase and sale of shares under portfolio management scheme. Out of the said advance, a sum of ₹ 1,99,08,500/- became irrecoverable from the said broker and assessee chose to write off the same in its books of accounts by crediting the advance receivable vis a vis the concerned party account. The assessee claimed the same as deduction as bad advances written off as irrecoverable which was disallowed by the Learned AO and upheld by Learned CITA. Aggrieved, the assessee is in appeal before us on the following grounds :- a) Bad Advance ₹ 1,99,08,500/- For that the learned CIT(Appeals) was not justified in ignoring the provisions of the Income Tax Act in disallowing the said write off although there was no dispute that it had become bad. For that the learned CIT(Appeals) failed to appreciate that the appellant did not file any claim with the Special Court and therefore, irrespective of the outcome of its proceedings, the appellant would not be able to recover any amount. On the facts and in the circumstances of the case, the learned CIT(Appeals) was not justified in disallowing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he statement of the Learned AR that till date not even a single penny could be realized by the assessee from said broker. We also find that the said broker Shri.Pallav Sheth had committed an act of insolvency on 22.4.1996 vide Insolvency Petition No. 49 of 1996 and declared insolvent by the competent authority. Though this act of insolvency had happened subsequent to the write off the trade debt and trade advance by the assessee, we hold that the subsequent conduct and negative development in the hands of the broker Shri.Pallav Sheth only strengthens the earlier conscious and judicious decision of the assessee to write off the advances and debts as irrecoverable. 5.4. We are not in agreement with the arguments of the Learned DR that the contention of assessee paying advance to Shri.Pallav Sheth under portfolio management scheme is a fresh point raised before this tribunal in the second round of appellate proceedings, as, we find from Para 2 of old tribunal order, a clear finding has been given that the assessee had indeed advanced monies to the broker under portfolio management scheme. 5.5. We also find that the decision of Hon ble Calcutta High Court relied by the Learned AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Harshad J. Choksi vs CIT reported in (2012) 25 taxmann.com 567 (Bom) also supports the view of the assessee. The question raised before the Hon ble Bombay High Court and the decision rendered thereon is reproduced below:- Questions: Whether if an amount is held to be not deductible as a bad debt in view of non-compliance of the condition precedent as provided under section 36(2), could the same be considered as an allowable business loss? Whether, therefore, the amount of ₹ 44.98 lakhs could be considered as an allowable business loss? Held: Section 28 imposes a charge on the profits or gains of business or profession. The expression 'Profits and gains of business or profession' is to be understood in its ordinary commercial meaning and the same does not mean total receipts. What has to brought to tax is the net amount earned by carrying on a profession or a business which necessarily requires deducting expenses and losses incurred in carrying on business or profession. The Supreme Court in the case of Badridas Daga v. CIT [1958] 34 ITR 10 has held that in assessing the amount of profits and gains liable to tax, one must n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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