February 2010
Bad debts: S. 36(1)(vii), (2) of I. T. Act, 1961: A. Y. 2001-02: Assessee share broker purchasing shares for clients and paying money: Money not recoverable from client: Deduction allowable as bad debt:
By K. B. Bhujle | Advocate
New Page 1
Reported:
42 Bad debts: S. 36(1)(vii), (2) of I. T. Act, 1961: A. Y.
2001-02: Assessee share broker purchasing shares for clients and paying money:
Money not recoverable from client: Deduction allowable as bad debt:
CIT vs. Bonanza Portfolio Ltd.; 320 ITR 178 (Del):
The assessee was in the business of share broking. In the
course of its business, the assessee purchased shares on behalf of its clients
and paid the purchase money. The brokerage received by the assessee was shown as
income in its books of account of the immediate previous year. Since the balance
amount of Rs. 50,30,491/- could not be recovered from the client, the assessee
wrote-off the amount as bad debt. The assessee claimed the deduction of the said
amount as bad debt. The Assessing Officer disallowed the claim on the ground
that the conditions for allowing the amount as bad debt, as stipulated in
section 36(1)(vii) and read with sub-section (2), were not satisfied. The
Tribunal held that the conditions are satisfied and allowed the claim.
On appeal by the Revenue, the Delhi High Court upheld the
decision of the Tribunal and held as hereunder:
“i) The money receivable from the client had to be treated
as bad, and since it became bad, it was rightly considered as bad debt and
claimed as such by the assessee in the books of account.
ii) Since the brokerage payable by the client was a part of
the debt and that debt had been taken into account in the computation of the
income, the conditions stipulated in section 36(1)(vii) and (2) stood
satisfied.”
