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TMI Blog2014 (1) TMI 840X X X X Extracts X X X X X X X X Extracts X X X X ..... - Shri P. M. Jagtap And Shri Vivek Varma,JJ. For the Appellant : Shri Manoj Kumar For the Respondent : Shri Bhupendra Shah ORDER Per Vivek Varma, JM:- The appeal is filed by the department, against the order of CIT(A) 9, Mumbai, dated 20.10.2011, wherein, the following grounds have been raised:- "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of bad debts amounting to Rs. 21,11,238/- on account of bad debts. 2. On the facts and in the circumstances of the case, the impugned order of the Ld. CIT(A) is contrary to law to be set aside and that of the Assessing Officer be restored." 2. The only issue is with regard to disallowance of bad debts of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e operating section. Therefore, in order to take recourse to section 36(1)(vii) of the Act before writing it off In the books of accounts, the assessing officer has to be convinced that the debt has become bad In the circular No.55 1 dated 23.1.1990, the Central Board of Direct Taxes has explained the provisions of Direct Tax Laws (Amendment) Act, 1987. The relevant amendment is explained in Para 6.6 of the Circular which is also reported 1183 ITR (Statutes) page 37. The relevant portion of the Circular reads as under: 6.6 Amendments to section 36(1) (vii) and 36(2) to rationalise provisions regarding allowability of bad debts. The old provisions of clause (vii) of subsection (1) read with sub-section (2) of the section laid down conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as bad debt u/s. 36(i)(vii). This has significant implications in the cases of shares and stockbrokers. Ihe broker act as agents and facilitate transactions between principals. In the case of share stock brokers, what is credited to profit loss account is the brokerage income arising from the purchase or sale on behalf of the clients. The part of the debit balance which does not pertain to brokerage and pertains to value of shares purchased by client is not covered by Sec. 36(2). Thus, in case the client does not pay, in the future, this debt can not partake the nature of 'bad debt' allowable u/s. 36(1)(vii) as this amount of debt has not been included in the computation of income as required u/s.36(2). Since the debt not collectible f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and also to get the best out of the financial crises faced by the client, the appellant had to settle the sum of .43 lacs and balance ls.21,11,238/- had to be written of as balance despite best efforts.' It was argued that the same was bad debts and should be allowed u/s.36(1)(vii) or u/s.28 as business loss. He relied on the following decisions in the case of Oman International Bank 100 ITD 285(Mum) (SB) which has since been approved by the Bombay High Court. DCIT vs Shreyas J Morakhia (2010) 6 Taxman 49 (Mum) (SB) CIT vs D B (India) Securities Ltd (2009) 226 CTI (Del) 466 CIT vs Bonanza Portfolio Ltd. (2009) 226 CTR 468 TRF Ltd. vs. CIT (2010) 323 ITR 397 (SC) CIT vs. F M Chinoy Company Pvt Ltd. 74 ITR 780 (Bom)". 5. The C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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