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TMI Blog2017 (7) TMI 821X X X X Extracts X X X X X X X X Extracts X X X X ..... o the factual position. Thirdly, it was not the Assessee’s case to begin with before the AO, that the amount written off by it was a ‘speculative loss’. AO’s analysis of what really the transaction was, was based on the correct understanding of the legal position emanating from Section 36 (1) (vii) of the Act. Revenue is right in the contention that what was not shown to be part of the income of the Assessee for an earlier previous year could not possibly be written off as a debt in the year in question. The failure by the broker to return the aforementioned sum was at the highest a business loss and nothing more. It was not even the Assessee’s case that it was a speculative loss. The observations of the AO have been taken out of cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits by writing off a sum of ₹ 71.82 lakh in the profit and loss account claiming it to be a bad debt. 4. During the course of the assessment proceedings, the AO called upon the Assessee to clarify the aforementioned claim for bad debt. The Assessee submitted a detailed reply dated 27th October, 1995. The Assessee explained that out of sum of ₹ 151.82 lakh due from a broker, Kamlesh Kamal Co. the aforementioned sum of ₹ 71.82 lakh had been written off. The Assessee stated that it had advanced money to the broker for purchase of shares, which unfortunately were not purchased by the broker. The broker was unable to repay the money advanced. It was stated that a Memorandum of Agreement ( MOA ) had been entered into w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r explained that the cheques issued by the broker towards repayment of the aforementioned sum were dishonoured. It was noticed that the broker had applied to the Delhi Stock Exchange to resign from the membership and transfer the ticket to some other person. This led to the Assessee, along with EHL, filing a petition before this Court seeking an injunction on the sale of the stock exchange ticket by the broker. 8. During the pendency of the said petition, the broker is stated to have approached the Assessee for an out-of-court settlement. This led to the signing of the MOA whereby it was agreed by the broker that the following sums would be paid to the Assessee: i. ₹ 65,00,000 within 7 days of the signing of the agreement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey advanced to the broker had not been taken into account in computing the income of the previous year in which the amount of such debt was written off, it was contended by the Assessee that the badla income earned had been duly included in the P L account. The Assessee pointed out that Kamlesh Kamal Co. had filed a copy of the account before the AO which showed that they are committed to pay the amount due to the Assessee Company. It was pointed out that the balance amount of ₹ 80 lakh due under the MOA had not been paid by the broker and therefore, the Assessee had filed a suit for recovery of the said sum together with interest. 12. The above explanation was not accepted by the AO. It was pertinently pointed out by the AO in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income and to carry forward the loss, if any, as per law. 15. The grievance of the Revenue, as articulated by Ms. Vibhooti Malhotra, learned counsel appearing on its behalf, is that the ITAT was in error in proceeding on the basis that the above sum claimed by the Assessee as bad debt was its speculative loss. She submitted that once the AO found on facts that the case of the Assessee that the sum written off was a bad debt was unsustainable in law, the matter should have ended there. There was no question of treating the said amount as the Assessee s speculative loss, particularly when that was not even the Assessee s case. She submitted that unless the said sum constituted the income of the Assessee in the earlier previous year the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee himself was not engaged in dealing of shares, it cannot be said to have been engaged in trading of shares. This was plainly contrary to the factual position. Thirdly, it was not the Assessee s case to begin with before the AO, that the amount written off by it was a speculative loss . 18. The AO s analysis of what really the transaction was, was based on the correct understanding of the legal position emanating from Section 36 (1) (vii) of the Act. This corresponds to Section 2(10)(xi) of the Income Tax Act, 1922, which was interpreted by the Supreme Court in A.V. Thomas Company Limited v. Commissioner of Income Tax (supra). There, the Court explained that a debt means something more than a mere advance. It means something ..... X X X X Extracts X X X X X X X X Extracts X X X X
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