2013 (4) TMI 292 - AT - Income Tax

Disallowance of bad debts - assessee is a member of Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) dealing in shares & securities and earning brokerage income - The assessee has claimed that the brokerage earned on these transactions have been included in the computation of income therefore, the conditions as prescribed u/s 36(2) has been complied with - Held that - The claim of the assessee, in principle is covered by the decision of in the case of Shreyas S Morkhia (2010 (7) TMI 455 - ITAT MUMBAI). Thus if the brokerage has been included in the income as credited to the P&L Account of the assessee, then the conditions as prescribed u/s 36(2)(i) has been fulfilled as the part of the amount has been taken into account in computing the income of the assessee. In view of these facts AO is directed to allow the claim of the assessee subject to verification of the facts that this amount of bad debt claimed by the assessee is after reducing the amount received from sale of shares, if any held by the assessee on behalf of the clients against whom this amount has been claimed as bad debt as well as whether the brokerage amount was considered in computation of income.

Summary

Issues:
1. Disallowance of bad debts
2. Disallowance under section 14A

Issue 1: Disallowance of bad debts:
The assessee, a member of stock exchanges, claimed bad debts of Rs. 11,55,496, which was disallowed by the Assessing Officer. The Commissioner of Income Tax(Appeals) also disallowed the claim, stating that the amount had not been determined after reducing the amount received from the sale of shares of the clients. The assessee argued that the debts were related to bills issued in the normal course of broking business, and relied on relevant court decisions to support the claim. The Assessing Officer and the Commissioner of Income Tax(Appeals) raised concerns about the inclusion of brokerage income in the computation of income. The Tribunal held that if the brokerage income was included in the computation, the conditions under section 36(2)(i) were satisfied. The Tribunal directed the Assessing Officer to verify if the bad debt claimed was after reducing the amount received from the sale of shares and if brokerage income was considered in the income computation.

Issue 2: Disallowance under section 14A:
The second ground of disallowance under section 14A was not pressed by the assessee during the hearing, and it was dismissed accordingly. The appeal was partly allowed based on the decision on the first issue of disallowance of bad debts.