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TMI Blog2011 (7) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... ev Jain for the Respondent. ORDER N.V. Vasudevan, Judicial Member. This is an appeal by the assessee against order dated 4-2-2009 of CIT(A)-4, Mumbai relating to assessment year 2004-05. The Ground of appeal of the assessee reads as follows : "The learned CIT (Appeals) has erred in law in view of the facts and circumstances of the case in confirming the disallowance of Rs. 16,55,210 being bad debt/trading loss under section 36(1)(vii) of the Income-tax Act, 1961." 2. The assessee is an individual. He is an Advocate by profession. He also carries on the business as NSE Broker. The assessee claimed as deduction while computing income under the head 'Bad debts' written off a sum of Rs. 16,55,210. The details of the debts writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Another objection of the Assessing Officer was that the assessee acts as broker in buying and selling securities on behalf of its clients. On the settlement date, the Assessee has to collect delivery of the shares, where client has sold shares. He has to collect the amount for the value of shares, where he effects purchase on behalf of the clients. Whenever, clients fails to give delivery for shares sold or payment for purchase of shares, the assessee has to make good the delivery of shares or payment to the stock exchange. The claim of the assessee for bad debt written off partly arises out of the assessee having to make good the delivery of shares for shares sold, payment for purchase made on behalf of the clients. The assessee accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed the order of the Assessing Officer giving rise to the present appeals by the assessee before the Tribunal. 7. We have heard the rival submissions. With regard to the objection of the revenue that the debt in question has not been established to have become bad, we are of the view that the law in this regard is by now well settled. Prior to 1-4-1989, every assessee had to establish, as a matter of fact, that the debt advanced by the assessee had, in fact, become irrecoverable. That position got altered by deletion of the word "established", which earlier existed in section 36(1)(vii) of the Income-tax Act, 1961 ['Act', for short]. For the sake of clarity, we re-produce herein below provisions of Section 36(1)(vii) of the Act, both pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not fulfilled, we find that issue was decided by the Special Bench ITAT in the case of Dy. CIT v. Shreyas S. Morakhia [2010] 40 SOT 432 (Mum.). In that case, the assessee, a broker, claimed deduction for bad debts in respect of shares purchased by him for his clients. The Assessing Officer rejected the claim though the CIT(A) upheld it. On appeal by the Revenue, the matter was referred to the Special Bench. Before the Special Bench, the department argued that under section 36(2), no deduction on account of bad debt can be allowed unless "such debt or part thereof has been taken into account in computing the income of the assessee". It was argued that as the assessee had offered only the brokerage income to tax but not the value of shares pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he loss was suffered owing to breach of SEBI Guidelines framed to safeguard the interest of brokers in respect of amount receivable from the clients against purchase of shares is irrelevant. If the broker chooses not to follow the guidelines, it is a decision taken by him as a businessman having regard to his business relations with the client. The loss cannot be equated to expenditure incurred by the assessee for any purpose which is an offence or which is prohibited by law. (CIT v. Pranlal Kesurdas [1963] 49 ITR 931 (Bom.) followed where bad debts on account of forbidden vayada transactions were held allowable); (iii) The contention of the Revenue that the sale value of the shares remaining with the assessee should be adjusted against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The above aspects will be relevant in the matter of quantification of the amount to be allowed as deduction on account of bad debts written off. These aspects were also considered by the Special Bench in the aforesaid decision and the Special Bench had directed the Division Bench to examine the claim of the assessee and the stand of the revenue on the above aspects. These aspects should be looked into by the Assessing Officer and for this limited purpose, the issue is remanded to the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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