2014 (1) TMI 840

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....acts and in the circumstances of the case, the impugned order of the Ld. CIT(A) is contrary to law to be set aside and that of the Assessing Officer be restored." 2. The only issue is with regard to disallowance of bad debts of Rs. 21,11,238/-. 3. The brief facts are that the assessee is share broker and a member of BSE. In the instant assessment year, the assessee claimed bad debts to the extent of Rs. 21,11,238/- in its books. After considering the submissions of the assessee, the AO concluded, "In the case of mercantile system of accounting, a sale is taxed as and when it is effected whereas the money against sale will be realised in future. However, the debt against credit sale may or may not be realised in the future. Therefor....

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....s as under: 6.6 Amendments to section 36(1) (vii) and 36(2) to rationalise provisions regarding allowability of bad debts. The old provisions of clause (vii) of subsection (1) read with sub-section (2) of the section laid down conditions necessary for allowability of bad debts. It was provided that the debt must be established to have become bad in the previous year. This led to enormous litigation on the question of allowability of bad debt in a particular year, because the bad debt was not necessarily allowed by the Assessing Officer in the year in which the same had been written off on the ground that the debt was not established to have become bad in that year. In order to eliminate the disputes in the matter of determining the year ....

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....ient does not pay, in the future, this debt can not partake the nature of 'bad debt' allowable u/s. 36(1)(vii) as this amount of debt has not been included in the computation of income as required u/s.36(2). Since the debt not collectible from the client, does not fall under the ambit of sec. 36(2). it remain outside the purview of sec.36( 1) (vii). It is, thus, amply clear that amounts not recovered or treated as not recoverable from clients in the cases of share brokers can not be allowed u/s.36(1)(vii) as bad debt unless the debt is only in respect of un recovered brokerage, which is what is credited by the assessee in the P & L A/c." 4. Aggrieved, the assessee approached the CIT(A), before whom, the assessee made the following sub....

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....axman 49 (Mum) (SB) CIT vs D B (India) Securities Ltd (2009) 226 CTI (Del) 466 CIT vs Bonanza Portfolio Ltd. (2009) 226 CTR 468 TRF Ltd. vs. CIT (2010) 323 ITR 397 (SC) CIT vs. F M Chinoy & Company Pvt Ltd. 74 ITR 780 (Bom)". 5. The CIT(A), after considering the detailed reply as reproduced hereinabove, concluded, "Regarding disallowance of bad debts, the same is covered in favour of the appellant by the decision of the Hon'ble Bombay High Court in the case of Oman International Bank. This ISSUE is also in favour of the appellant by the decisions in the case of Shreyas J Morakhia (2OlOXsupra) and b B (India) Securities Ltd (2009)(supra) and T R F Ltd vs CIT(2010) 323 ITR 397(SC). Respectfully following the decision of H....