S. 28, S. 36(1)(vii), S. 37. Amount paid by the assessee under Performance Guarantee Bond is allowable as a business loss/expenditure. Mere fact that the assessee has claimed the amount written off in the course of business as ‘bad debt’ does not preclude

6. Anang Tradevest Pvt. Ltd. v. ITO

ITAT ‘A’ Bench,
Mumbai

Before D.
Manmohan (VP) and

Abraham George
(AM)

ITA No.
10/Mum./2008

A.Y. : 2003-04.
Decided on : 10-8-2009

Counsel for assessee/revenue :

Prakash Jhunjhunwala/R.
S. Srivastava

S. 28, S.
36(1)(vii), S. 37. Amount paid by the assessee under Performance Guarantee
Bond is allowable as a business loss/expenditure. Mere fact that the assessee
has claimed the amount written off in the course of business as ‘bad debt’
does not preclude him from claiming the same as business loss/expenditure.

Per Abraham P.
George :

Facts :

The assessee, as a
part of its business activity, was introducing certain clients to M/s. Joindre
Capital Services Ltd., who entered into share purchase and sale transactions
for such clients. As per the terms of the agreement entered into between the
assessee and M/s. Joindre Capital Services Pvt. Ltd., assessee had to
indemnify Joindre Capital Services Ltd., in case clients introduced by the
assessee failed to honor any of their commitments.

During the previous
year in respect of three parties, assessee had shown a sum of Rs.11,90,779 as
bad debts written off. The Assessing Officer (AO) held that such claim could
not be allowed since assessee was a sub-broker and the debt was never taken
into account for computing the income of the assessee for the relevant
previous year or any preceding previous years.

The CIT(A) held that
the bad debt written off was rightly disallowed by the AO.

Aggrieved, the
assessee preferred an appeal to the Tribunal where disallowance of bad debt of
Rs. 11,90,779 was taken as a ground. In the course of the hearing, the
assessee withdrew the original ground and by way of an additional ground
claimed that this sum of Rs.11,90,779 paid under a performance guarantee bond
be allowed either as business expenditure u/s.37(1) or as business loss. On
behalf of the assessee it was contended that the Tribunal has in the case of
India Infoline Securities (P) Ltd. v. ACIT, (25 SOT 123) (Mum.) held
that losses incurred by an assessee in the course of his business as a stock
broker, on account of default of his clients, could be claimed as a business
loss.

Held :

Neither the AO nor the CIT(A) had gone through the agreement entered into by
the assessee with Joindre Capital Services Ltd., for verifying whether such
claim could be allowed as business expense or loss. The fact that the assessee
had claimed the amount as bad debt would not preclude it from claiming the
amount as business loss or expenses, since the write off was done in the
course of business only.