TaxTMI 
TaxTMI 
2026 (7) TMI 1689
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.... company entered into transaction with many of the same parties even after the claims had been written off in the books of accounts, which contradicts the principle of recoverability required under section 36(1)(vii) of the Income Tax Act, 1961. 3. Whether the ld. CIT (A) failed to appreciate the AO's findings that certain amounts had later on been recovered from parties in respect of whom bad debts were previously considered irrecoverable, making them unfit for write off." 2. Brief facts of the case are, assessee filed its return of income on 02.02.2022 disclosing income of Rs. 7,20,83,800/ -. The case was selected for complete scrutiny and accordingly notices under section 143(2) and 142 (1) of the Income-tax Act, 1961 (for short 'the Act') were issued and served on the assessee. The AO observed that a separate show-cause notice was issued on the basis of large refund claimed out of self-assessment tax. In response, ld. AR of the assessee vide letter dated 13.07.2011 submitted as under :- "The assessee furnished her reply dated 13.07.2011. In the submissions, the assessee explained that "the assessee company is engaged in the business of share bro....
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....amount written off, it clear enough that payment amount is much higher than the debt written off amount. Therefore, this is the case not suitable for Written off 2 PVR IMPEX PVT LTD, AACCP2088C Rs. 3,44,18,190/- 2010-11 0 96117966 65030817 31087149 2011-12 31087149 55393520 50958484 35522185 2012-13 35522185 75938306 74443701 37016790 2013-14 37016790 69710322 71894719 34832393 2014-15 34832393 69910166 69890283 34852276 2015-16 34852276 52407619 52392707 34867188 2016-17 34867188 0 0 34867188 2017-18 34867188 104812343 104786247 34893284 2018-19 34893284 148721401 148678784 34935901 2019-20 - 34935901 290062510 289997446 35000965 2020-21 35000965 0 524878 34476086 On minute perusal of the above chart it is clear enough the client is making payment every year on regular basis accept in F.Y.- 2016-17. After F.Y.- 2016-17 the assessee again start to pay bigger amount than the previous years. In F.Y. 2019-20 total payment made by the client is Rs. 28,99,97,446/-, which is much higher than the Written Off amount of....
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.... 542864 5542863 17917151 2019-20 17917151 0 1500000 16417150 2020-21 16417150 0 1450000 14967150 The client paying his liability proportionately every year regular basis, in F.Y. 2020-21 the client paid Rs. 14,50,000/ -. Though the amount is much lower than the actual debt, but conclusion could not be drawn that the amount is to be considered as Bad Debt written off amount. it is better to create a percentage of amount as provision for the debt. Therefore, the total amount written off as Bad Debt is not acceptable. 6 VIMLA DEVI MITTAL, AADPM9002F Rs. 1,16,48,658/- 2017-18 11495560 23401068 24067306 10829322 2018-19 10829322 20853178 20846989 10835511 2019-20 10835511 22300033 21737753 11397791 2020-21 11397791 647456 396589 11648658 The client is paying its debt regular basis. In F.Y. 2019-20 he has paid Rs. 2,17,37,753, in 2020-21 though the client has paid less amount comparing to the debt amount, but it is not firm that the assessee should not paid the debt amount at all. it is better to create a percentage of amount as provision for the debt, but it is not fair to be de....
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.... off. 4. After considering the above details, the AO observed that some of the cases listed above where only name and amount of bad debt written off is mentioned but no further details like PAN, address, mail id or contact number was furnished against the amount written off. When the assessee was asked vide notice dated 11.11.2022 to furnish the above details which were not given in the above submissions and he noticed that the assessee has furnished details in few cases and rest of the cases remain unexplained. After perusing all the bad debts written off and ledger extract submitted by the assessee, he noticed that the assessee had claimed that no such instances found where the clients had credited money in the year 2021-22 and same was written off. It was claimed that this is clear enough that in the year 2021-22 the assessee had rightly written off the bad debts. Further assessee referred to the provisions of section 36(1)(vii) of the Act and submitted that bad debts could be written off when the amount is irrecoverable in the previous year. However, the AO rejected the same and observed that when the debtor is paying on regular basis and even if paid the debt amount on the ....
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....ingly, the AO disallowed sum of Rs. 25,20,43,708/- stating that these are not suitable for being written off. Party wise claim of bad debts disallowed by the AO are as under: S. No. Party PAN Bad debt (Rs.) Reason for disallowance by AO 1 GEETA CHETAN SHAH APUPS9557F 13,26,24,725 Not suitable for write off 2 PVR IMPEX PVT LTD AACCP2088C 3,44,18,190 Not suitable for write off 3 AVR OVERSEAS PVT LTD AADCA7267M 1,94,69,128 Not suitable for write off 4 NARESH DWARKADAS HUF AABHN4945G 1,94,11,320 Not suitable for write off 5 RAMESH SARAOGI ASMPS2392F 1,49,67,151 Not suitable for write off 6 VIMLA DEVI MITTAL AADPM9002F 1,16,48,658 Not suitable for write off 7 GIRISH HARIBHAI DOSHI AADPD1631P 86,29,600 Not suitable for write off 8 UMR TRADING AAFFU6442B 83,35,989 Not suitable for write off 9 FALGUNI JAGDISHCHANDRA JHAVERI ADNPJ1581H 19,34,789 Not suitable for write off 10 SAMEER JAGDISHCHANDRA ZAVERI AADPZ2244G 5,08,947 Not suitable for write off 11 OTHERS VARIOUS PARTIES 95,211 Not suitable for write off ....
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....the issue of bad debts on the identical issue on similar facts has already been settled in the appellant's own case for A.Y. 2001-02 by the Jurisdictional Hon'ble Delhi High Court in CIT vs Bonanza Portfolio 320 ITR 178(2010) Delhi. It was stated by the appellant that bad debts on similar facts and identical issues have also been allowed by the department itself in earlier and succeeding years, details of which are as under : ASSESSMENT YEAR BAD DEBTS CLAIMED AND ALLOWED (Rs.) DATE OF ASSESSMENT ORDER U/S. 143(3) / 143(1) of IT Act ANNEXURES 2013-14 2,72,66,493 27-Jan-16 (143(3) 10(a) and 10(b) 2014-15 2,75,72,383 16-Dec-16 (143(3) 11(a) and 11(b) 2015-16 5,81,28,901 2-Aug-17 (143(3) 12(a) and 12(b) 2016-17 2,63,25,980 14-Aug-17 (143(1) 13(a) and 13(b) 2017-18 12,58,92,892 4-Dec-19 (143(3) 14(a) and 14(b) 2018-19 3,68,48,324 16-Mar-21 (143(3) 15(a) and 15(b) 2019-20 61,76,996 17-Mar-20 (143(1) 16(a) and 16(b) 2020-21 1,43,19,759 08-Aug-22 (143(1) 17(a) and 17(b) 2022-23 16,73,88,716 29-Jul-23 (143(1) 18(a) and 18(b) 5.3.3 In this regard, before de....
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....hat the money receivable from the client had to be treated as 'debt' and since it became bad, it was rightly considered as 'bad debt' and claimed as such by the assessee in the books of account. Since this bad debt occurred in the year in question, it was shown by the assessee in that manner. Since the brokerage payable by the client was a part of the debt and that debt had been taken into account in the computation of the income, the conditions stipulated in sub-section (2) of section 36, read with section 36(1)(vii), stood satisfied. Hence, the assessee was entitled to the deduction of the bad debt claimed. The relevant paras of the order of Hon'ble Delhi High Court is as under : "2.3 We have perused the records and considered the rival contentions carefully. The dispute raised is regarding claim of bad debt, which had been disallowed on the ground that the assessee had failed to establish that the debt had become bad during the year and also on the ground that the debt had not been taken into account in the computation of income of the earlier year. The issue whether the assessee is required to establish that the debt had become irrecoverable du....
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....lowing these decisions and the judgment of Hon'ble jurisdictional High Court in case of Morgan Securities & Credits (P) Ltd. (supra), we set aside the order of CIT(A) and allow the claim of the assessee." 10. Insofar as question of burden is concerned, learned counsel for Revenue did not dispute that the aforesaid aspect stands settled by the judgment of this case in CIT v. Morgan Securities & Credits (P.) Ltd. [2007] 210 CTR (Delhi) 336 : [2007] 292 ITR 339 (Delhi), note whereof has been taken of by the Tribunal. We are, thus, left with only this aspect as to whether payment made by the assessee on behalf of his client was the payment for purchase to sale of shares and therefore, non- realization is to be treated as bad debt or it was to be treated as investment. As mentioned above, the assessee is carrying on business of shares and stock broking. He is member of National Stock Exchange. The shares were purchased by him on behalf of his clients. Merely because he made payments against those shares would not make it an investment by the assessee on his own behalf. We are of the opinion that the very basis of this argument is misconceived, namely, that the particular pu....
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.... (1) The aforesaid amount could not be treated as 'debt' at all under the provisions of s. 36(2) of the Act and, therefore, the question of treating it as 'bad debt' does not arise. (2) The assessee had not sold the shares to anybody else in the market and in the absence of such a sale, the assessee could not claim the aforesaid amount as 'bad debt'. Insofar as the first submission of learned counsel for the Revenue is concerned, we do not find any force therein. As pointed out in the aforesaid admitted facts, the assessee had purchased the aforesaid shares on behalf of the sub-broker and, in fact, paid the amount of Rs. 1,06,10,247. As against this amount, he received only a sum of Rs. 64 lacs. The brokerage which was received in the aforesaid transaction was shown as income by the assessee in the previous year, which was taxed as such as well by the assessing authority. Under these circumstances, only because shares were not delivered for want of full payment, which was to be made by the sub-broker to the assessee, it cannot be said that there was no transaction between the parties. Once we proceed on the basis that there was a valid ....
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....unt of disallowance of bad debts is unwarranted in this case. Accordingly, addition of Rs. 25,20,43,708/- is deleted. Ground No. 5 of the appeal is allowed. 6. Aggrieved with the above order, Revenue is in appeal before us. 7. At the time of hearing, ld. DR submitted that the issue under consideration is bad debts claimed by the assessee. He brought to our notice page 13 of the assessment order and submitted that assessee has extended the credits to its clients to purchase shares. In this regard, he brought to our notice client, Geeta Chetan Shah wherein the assessee has dealt with the client from year 2017-18 to 2020-21 and he brought to our notice table of total debt and total credits. He also brought to our notice findings of the AO that total payment made by the client in the year is more than the amount written off. Therefore, it is clear enough that payment is much higher than the debt written off amount. Therefore, the same is not suitable for writing off. He brought to our notice other clients financial data also, the information were similar. He finally brought to our notice detailed findings of the AO at page 25 of the assessment order. By drawing the conclusion of ....