TaxTMI 
TaxTMI 
2010 (9) TMI 424
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.... 1. Jagruti Securities Pvt. Ltd. 2,15,655 Jagruti Securities Ltd. have been declared defaulters by both BSE & NSE recently and their membership has been suspended. However, the assessee did not receive any amount from Jagruti Securities after October, 2001 as their financial position was bad and were unable to pay anything. The assessee as sub broker did not receive the brokerage amount due from them. 2. JIK Industries Ltd. 39,335 The assessee was a franchisee of Western Union Money Transfer under JIK Industries Ltd. who have been declared defaulters and the assessee did not realize amount due from them. 3. Nayana Nitin Gandhi 56,520 The client is absconding and not traceable. All efforts to find this client have failed. 4. Hasmukh Dedhia 4,86,267 This client is absconding and not traceable. All effort to find this client have failed. 5. Kalpana Shah 18,839 The client is not paying inspite of repeated reminder and even after sending collection person. The cost of filing legal suit would be more than the amount recoverable. 6. Manoj H. Shah 4,89,357 A case u/s. 138 has been filed against this client for cheque bouncing atMulund Court. The client has obtained ....
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....has sold shares. He has to collect the amount for the value of shares, where he effects purchase on behalf of the clients. Whenever, clients fails to give delivery for shares sold or payment for purchase of shares, the assessee has to make good the delivery of shares or payment to the stock exchange. The claim of the assessee for bad debt written off partly arises out of the assessee having to make good the delivery of shares for shares sold, payment for purchase made on behalf of the clients. The assessee accounts only for brokerage income in the books of account and does not account for value of the transaction of sale or purchase made on behalf of the client. U/s. 36(1)(vii) read with section 36(2) of the Act, it is a condition to claim deduction on account of bad debt that the amount written off as bad debt should have been 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 a....
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....aw. Prior to 1stApril, 1989, every assessee had to establish, as a matter of fact, that the debt advanced by the assessee had, in fact, become irrecoverable. That position got altered by deletion of the word "established", which earlier existed in section 36(1)(vii) of the Income-tax Act, 1961 ['Act', for short]. For the sake of clarity, we re-produce herein below provisions of Section 36(1)(vii) of the Act, both prior to 1st April, 1989 and post-1st April, 1989: "Pre- 1st 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 debt, or part thereof, which 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 ba....
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....eceivable on account of brokerage is a part of debt receivable by the share broker from his client against purchase of shares and once such brokerage is credited to the P&L account and taken into account in computing his income, the condition stipulated in section 36(2)(i) gets satisfied. Whether the gross amount is reflected in the 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; (ii) 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. 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.....