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TMI Blog2008 (9) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... the details on the basis of which such brokerage was paid along with particulars of the sub-brokers along with their clientele, copy of their account duly confirmed, SEBI registration certificate, etc. However, the assessee furnished only the name and address of the sub-brokers and no other details were furnished. On being asked to furnish the requisite details to examine the sub-brokerage, the assessee vide its letter dated 21-11-2003 made the following submission : "We never paid any sub-brokerage to sub-broker as brokerage charged to sub-broker in their transactions same as like a normal client. Hence the quantum of sub-brokerage paid or payable is not applicable." 3. In the absence of furnishing of such details/confirmation, the Assessing Officer observed that the assessee failed to discharge its onus in proving the genuineness of the expenses claimed. He, therefore, disallowed an amount of Rs. 11,62,897 claimed by the assessee as sub-brokerage. 4. Before CIT(A), the assessee explained that the said sub-brokerage was given to one Mr. Shailesh Sheth who had provided a very big group of clients to the assessee whereby the assessee has received huge brokerage. Mr. Shailesh Shet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erage and services rendered specifically when the party is not traceable at the given address. The assessee also failed to file any death certificate. The application to Stock Exchange for cancellation of leased land telephone line does not prove that Mr. Shailesh Sheth is a sub-broker. He also observed that the application does not bear any receipt No. or signature of recipient. Relying on the decision of the Tribunal in the case of ITO v. Maddi Laxmaiah & Co. (P.) Ltd. [1988] 31 TTJ (Hyd.) 71, the CIT(A) confirmed the action of the Assessing Officer in disallowing the sub-brokerage of Rs. 11,67,897. Aggrieved with such order of the CIT(A), the assessee is in appeal before us. 6. The learned counsel for the assessee reiterated the same submissions as made before the CIT(A). He submitted that one more opportunity may be given to the assessee to prove the genuineness of such sub-brokerage to the satisfaction of the Assessing Officer. Referring to various pages of the Paper Book, he submitted that the assessee filed the ledger account of Mr. Shailesh Sheth in the books of the assessee, the basic details of Mr. Shailesh Sheth consisting of copy of PAN, application for cancellation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -brokerage to sub-broker as brokerage charged to sub-broker in their transactions same as like a normal client. Hence the quantum of sub-brokerage paid or payable is not applicable." We further find at no point of time the assessee has given the details of clients which were introduced by late Shailesh Sheth or the nature of services rendered by him to prove the genuineness of the payment. The various papers filed in the Paper Book are only self serving documents without proving the genuineness of the payments. 8. In this view of the matter, we do not find any infirmity in the order of the CIT(A) in confirming the disallowance of sub-brokerage of Rs. 11,67,897, made by the Assessing Officer. The ground raised by the assessee is dismissed. 9. In grounds of appeal No. 2 the assessee challenged the order of the CIT(A) in confirming the addition of Rs. 5 lakhs on account of loan taken from Shri Hitesh Joshi whereas in grounds of appeal No. 3, the assessee challenged the order of the CIT(A) in confirming the addition of Rs. 50,000 on account of loan taken from Smt. Hansa Jhaveri. 10. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the addition made by the Assessing Officer on account of unexplained cash credit in the case of other parties but sustained the addition on account of Mr. Hitesh Joshi (Rs. 5 lakhs) and Hansa V. Jhaveri (Rs. 50,000). Aggrieved with such order of the CIT(A), the assessee is in appeal before us. 13. After hearing both the sides, we find the CIT(A) sustained the addition relating to the above two parties as the assessee failed to prove the identity and creditworthiness of the loan creditors and the genuineness of the transactions. From the various arguments advanced by the learned counsel for the assessee and details filed in the Paper Book, we find the loan confirmations furnished by the assessee did not contain the GIR No./PAN. It is the settled proposition of law that for accepting any cash credit as genuine, the onus is always on the assessee to prove to the satisfaction of the Assessing Officer, the identity and creditworthiness of the loan creditors and genuineness of the transactions. In the instant case, we find the assessee did not produce the loan creditors nor filed full details in the loan confirmation letters for which the Assessing Officer made the addition. We find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd explain as to how such bad debts are admissible under section 36(1)(vii) read with section 36(2) of the Act. The assessee only submitted the name and address and the amount of debt written off along with copies of the ledger account. Not being satisfied with the explanation given by the assessee the Assessing Officer disallowed the bad debt of Rs. 1,11,910. 18. Before the CIT(A), it was submitted that certain business debts were written off as bad debts during the year as these were found irrecoverable in spite of continuous follow up and reminders. It was submitted that the debts relate to three parties viz., Smt. Aarti Sheth - Rs. 1 lakh, Shri Arun Kamat - Rs. 6,000 and Shri Manoj Pawaskar - Rs. 5,910. It was submitted that the above three parties were clients of the assessee and were doing share trading business through the assessee and they failed to pay the above amounts. In spite of lots of efforts, the assessee was unable to recover the above amounts for which the same were written off as bad debts. However, the CIT(A) was not satisfied with the submissions made by the assessee. He observed that the assessee is a share broker and credits only brokerage income to the Prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eparing the profit and loss account and in computing the income of the assessee, can only be considered as a bad debt for the purpose of deduction under section 36(1)(vii) of the Act and not the remainder. The revenue has also differentiated the share broker from a share trader. 21. Before adjudicating the issue, we prefer to examine the relevant provisions of the Act and the nature of the activities performed by the share trader and share broker. For the sake of reference, we extract the relevant provisions of section 36(1)(vii) and 36(2) of the Act. "Section 36(1)(vii) Subject to the provisions of sub-section (2), the amount of (any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year). (Provided that in the case of (an assessee) to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause.) (Explanation - For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, then the right to recover the same from the buyer accrues to it. Similar is the position when the broker compensates the buyer on account of non-delivery or the bad delivery. But, this right to recover the said debt on account of discharge of liability does not accrue to the share broker on the day when the transactions for sale and purchase were arranged, because, as per the SEBI Guidelines, a settlement period is fixed and within the settlement period, the share broker is required to get the transaction settled between the parties. Meaning thereby, in such type of cases, there are two transactions or two different types of debts. One, which is accrued on the day when the transaction of the sale and purchase is arranged and the other on the day when the liability to make the payment of the cost of the scrip or to compensate on account of non-delivery or the bad delivery is discharged. These two transactions cannot be mixed-up together. These are two different debts which accrued to the assessee on different dates and at different points of time for different reasons. Undisputedly, the brokerage which accrued to the assessee on the very first day when the transaction of sale and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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