TMI Blog2010 (8) TMI 1140X X X X Extracts X X X X X X X X Extracts X X X X ..... 62,787/-. 3.1 The Ld. CIT(A) has failed to appreciate that by virtue of agreement dated 10-11-1994 with M/s Tulsi Investments, the loss of ₹ 2,83,134/- on account of non-recovery of dues from the customers was to be borne by the appellant and not the said concern. 3.2 The Ld. CIT(A) has erred in upholding that the appellant had failed to produce any evidence relating to the efforts made by it for recovery of dues from the said 20 customers. 3.3 The Ld. CIT(A) has failed to appreciate that the appellant was not furnished with the material collected by AO relating to the 20 customers before relying upon the same. 4.1 Without prejudice to the above, the claim of ₹ 7,62,787/- ought to have been allowed in the year in which it was considered by AO as irrecoverable. 2 Facts, in brief, as per relevant orders are that the return declaring nil income filed on 25-10-2004 by the assessee, a share broker, after being processed on 9.11.2004 u/s 143(1) of the Income-tax Act, 1961 [hereinafter referred to as the Act ], was selected for scrutiny with the issue of notice u/s 143(2) of the Act on 11.7.2005. During the course of assessment proceedings, the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e account has to be squared up with the stock exchange to continue to remain in the business. In the light of these facts, relying upon decisions in the case of Badridas Daga Vs. CIT 34 ITR 10(SC), CIT Vs. Nainital Bank Ltd. 55 ITR 707(SC) ,and CIT Vs. Abdul Razak Co. 136 ITR 825(Guj) as also ITO Vs. Ashokumar Lalitkumar 54 ITD 326, the assessee contended that the amount has to be allowed either u/s 28 or section 36(1)(vii) of the Act, debt having been written off. However, the AO rejected the contentions of the assessee on the ground that the assessee did not discharge the burden to prove that the amount was allowable as a trading loss or as an expenditure u/s 28 and/or under section 37 while in the instant case, the assessee did not submit complete details in respect of bad debts . Even in the copy of accounts of debtors, exceeding ₹ 20,000/- each submitted by the assessee, the AO noticed that in some of the cases of debtors, last transactions with them were prior to 1996-97 and thus loss could not be allowed in the year under consideration. On enquiries, M/s Indra Consultancy admitted in writing that he had not paid an amount of ₹ 1,25,000/- being final payment to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the ld. CIT(A). 5. We have heard both the parties and gone through the facts of the case as also the aforesaid decision of the ITAT. There is no dispute on the facts that the assessee was engaged in a share broking business and has bought and sold the shares during the course of business on behalf of its clients and earned brokerage thereon. Undisputedly, the amount has been written off by the assessee in the year under consideration. We find that the AO disallowed the claim on the ground that the debts of ₹ 2,84,134 were accounted for in the books of M/s Tulsi Investment and were not the debts of the assessee and that the assessee did not discharge onus laid down upon them nor submitted complete details as to when these debts became irrecoverable or resulted in to loss, since last transactions with some of them like Indra Consultancy Pusti Investment were prior to or in the FY 1996-97 and thus loss could not be allowed in the year under consideration. As is evident from the facts of the case, the assessee wrote off the amount in the year under consideration and contended that the ultimate liability for the transactions entered in to by M/s Tulsi Investments, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the earlier year. The balance amount of ₹ 41 lacs remained unpaid even in the next year also apparently because of the reason that the price of shares fell from ₹ 55 to ₹ 5 per share. In the return of income filed for the said year, the assessee claimed deduction of ₹ 41 lacs as bad debts u/s 36(1)(vii). The A.O. disallowed the claim of the assessee for the said deduction ,which was confirmed by the ld. CIT(A). On further appeal , the Tribunal allowed the said deduction . Hon ble Delhi High Court in these circumstances observed that there was a valid transaction between the assessee and his client and since the assessee had to make payment on behalf of his client which he could not recover to the extent of ₹ 41 lacs, the said sum has to be treated as his debt . It was also held that the brokerage which was received for the said transaction was shown as income by the assessee in the earlier years and the same was taxed as such by the assessing authority. Accordingly, Hon ble High Court concluded that the assessee was entitled for deduction on account of bad debt u/s 36(1)(vii) r.w.s. 36(2) of the Act. An SLP filed against the said decision has been d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of Companies, the provision is deducted from Sundry Debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the above-mentioned aspect only and that too only to the extent of the write off. 5.6 In the light of view taken in the aforesaid decision by the Hon ble Apex Court and in their two decisions by the Hon ble Delhi High Court, followed by the Special Bench, Mumbai, since the amount of ₹ 7,62,787/- ,being the money receivable by the assessee as share broker from his clients against purchase of shares made on their behalf has to be treated as debt while undisputedly the brokerage payable by the clients was a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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