TaxTMI 
TaxTMI 
2010 (9) TMI 538
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Rs. 3,24,148/- on account of bad debts written off irrevocably. 2. In any even, the Ld. AO and Ld. CIT(A) erred in not holding the business loss incurred by the appellant is allowable under the Income Tax Act, 1961." 2. The assessee is a partnership firm. The assessee carries on business as broker of Bombay Stock Exchange. In the course of business the assessee purchases and sell shares on behalf of the client and earns brokerage on such transactions. In respect of transactions done on behalf of the clients the assessee had to pay a sum of Rs. 3,24,147.12 on behalf of the clients. The assessee in turn could not recover the amounts from its clients. The aforesaid sum was claimed as bad debt in the P&L Acc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Sec.36(2) was not satisfied and therefore the claim was rejected by the Assessing Officer. 5. Before the Assessing Officer the assessee alternatively claimed that the loss in question had to be allowed as business loss being incidental to the business of the assessee. The Assessing Officer on this aspect was of the view that the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Pre- 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) xxxx xxxx xxxx (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, 198 9: 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 section28(i) to (vi) xxxx xxxx xxxx (vii) subject to the provisions of sub-section(2), the amount of any bad deb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rgued that as the assessee had offered only the brokerage income to tax but not the value of shares purchased on behalf of clients, the latter could not be allowed as a bad debt u/s 36(1)(vii). The Special Bench, held rejecting the claim of the department that: (i) In Veerabhadra Rao 155 ITR 152 the Supreme Court held in the context of a loan that if the interest is offered to tax, the loan has been "taken into account in computing the income of the assessee" and qualifies for deduction u/s 36(1)(vii). The effect of the judgement is that in order to satisfy the condition stipulated in s. 36(2)(i), it is not necessary that the entire amount of debt has to be taken into account in computing the income of the assessee and it will be suffici....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng with the assessee should be adjusted against the amount receivable from the client so as to arrive at the actual amount of bad debt should be raised, if permissible, before the Division Bench. The decision of the Hon'ble Delhi High Court in the case of DB (India) Securities 318 ITR 26 (Del) & Bonanza Portfolio 320 ITR 178 (Del) was followed. 12. It is however to be seen as to whether the commission income accruing to the assessee as a result of the transactions done on behalf of the client which has resulted in the debt which is written off as bad, was offered to tax. It is also to be seen as to whether the Assessee has taken any margin money from the customers and whether the margin money has been adjusted and only the net a....