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Issues Involved:
1. Allowability of the claim for bad debts or alternatively as business loss. 2. Whether the conditions of section 36(2) of the Income Tax Act, 1961 are fulfilled. Summary: Issue 1: Allowability of the claim for bad debts or alternatively as business loss The assessee, engaged in share trading, claimed a business loss of Rs. 50,29,896 due to an outstanding balance from M/s. Dhauladhar Investments P. Ltd. The amount was settled for Rs. 20,00,000, and the remaining Rs. 50,29,896 was written off as business loss. The Assessing Officer disallowed the claim, stating that the share broking business had been discontinued in A.Y. 1997-98 and thus, the loss could not be allowed. The first appellate authority upheld this view, emphasizing that the debt pertained to a discontinued business. The Tribunal, however, examined the facts and relevant case laws, concluding that the assessee's business of trading in shares was a composite business with two limbs: trading on own account and trading on behalf of third parties. The Tribunal held that discontinuing trading on behalf of third parties did not constitute discontinuance of the entire business. The test of unity of control and common management was fulfilled, and thus, the claim of bad debts from the brokering business was allowed. Issue 2: Whether the conditions of section 36(2) of the Income Tax Act, 1961 are fulfilledThe first appellate authority alternatively held that the conditions of section 36(2) were not fulfilled. However, the Tribunal noted that this issue was already decided in favor of the assessee by the Special Bench of the Tribunal in the assessee's own case for an earlier assessment year. Respectfully following the same, the Tribunal set aside the order of the Commissioner (Appeals) and allowed the ground of appeal. Conclusion:The Tribunal allowed the assessee's appeal, recognizing the business loss claim and confirming that the conditions of section 36(2) were met. Order pronounced in the open Court on 27.5.2011
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