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2010 (9) TMI 424 - ITAT, MUMBAIDisallowance of loss - Assessee had in the P&L Account debited a sum of Rs. 35,58,980 as bad debts and sundry balance written off and claimed the same as deduction while computing income - According to AO even after the amendment to the provisions of section 36(1)(vii) of the Act it was necessary for the assessee to establish that the debts in fact have became bad, to claim deduction on account of bad debts - Further according to AO, Assessee accounts only for income from brokerage and not the value of shares sold or purchased on behalf of a client and therefore - CIT(A) allowed the claim in part - CIT(A) disallowed the claim of bad debts on the ground that assessee did not file confirmation of balances from the debtors and that there was no other evidence to establish that the debts were really outstanding - The decision of the Hon’ble Delhi High Court in the case of DB (India) Securities (2009 -TMI - 35509 - DELHI HIGH COURT) & Bonanza Portfolio (2009 -TMI - 77117 - DELHI HIGH COURT). Held that: - The amount receivable by the assessee, who is a share broker, from his clients against the transactions of purchase of shares on their behalf constitutes debt which is a trading debt. The brokerage/commission income arising from such transactions very much forms part of the said debt and when the amount of such brokerage/commission has been taken into account in computation of income of the assessee of the relevant previous year or any earlier year, it satisfies the condition stipulated in section 36(2)(i) and the assessee is entitled to deduction u/s 36(1)(vii) by way of bad debts after having written of the said debts from his books of account as irrecoverable. - Claim of bad debts allowed. It is 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 amount is written off as bad debts. Similarly, in cases where there was no delivery taken by the client, whether the Assessee has sold those shares and adjusted the sale proceeds against the amounts due by his clients, has to be verified - matter remanded back.
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