Shri Rameshchandra D.Chokshi, Ahmedabad v. The Income tax Officer,Ward-3(3),, Ahmedabad

ITA 1015/AHD/2008 | 2004-2005
Pronouncement Date: 19-08-2010 | Result: Allowed

Appeal Details

RSA Number 101520514 RSA 2008
Assessee PAN ACQPC8981Q
Bench Ahmedabad
Appeal Number ITA 1015/AHD/2008
Duration Of Justice 2 year(s) 5 month(s) 1 day(s)
Appellant Shri Rameshchandra D.Chokshi, Ahmedabad
Respondent The Income tax Officer,Ward-3(3),, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 19-08-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 19-08-2010
Date Of Final Hearing 27-07-2010
Next Hearing Date 27-07-2010
Assessment Year 2004-2005
Appeal Filed On 18-03-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI BHAVNESH SAINI JM &SHRI A N PAHUJA AM ITA NO.1015/AHD/2008 (ASSESSMENT YEAR:-2004-05) SHRI RAMESHCHANDRA D CHOKSHI 3 PATIDAR SOCIETY B/H PARADISE PARK NEAR WADAJ AHMEDABAD [PAN: ACQPC 8981 Q] V/S INCOME-TAX OFFICER WARD- 3(3) AHMEDABAD [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI S N DIVATIA AR REVENUE BY:- SHRI K M MAHESH DR O R D E R A N PAHUJA: THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATED 28- 03-2007 OF THE LD. CIT(APPEALS)-VII AHMEDABAD RAI SES THE FOLLOWING GROUNDS:- 1.1 THE ORDER PASSED U/S 250 OF THE ACT ON 28-3-200 7 FOR AY 2004-05 BY CIT(A)-VII AHMEDABAD UPHOLDING THE DISALLOWANCE MA DE BY AO OF RS.7 62 783/- AS TRADING LOSS IS WHOLLY ILLEGAL UN LAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN UPHOLDIN G THE DISALLOWANCE OF RS.7 62 787/- WITHOUT CONSIDERING FULLY AND PROPERL Y THE EXPLANATION OFFERED AND EVIDENCE PRODUCED BY THE APPELLANT. 1.3 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND / OR ON FACTS IN UPHOLDING THE DISALLOWANCE OF RS.7 62 787/- CLAIMED AS TRADIN G LOSS BY THE APPELLANT. 2.1 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) OUGHT NOT TO HAVE UPHELD THE DISALLOWANCE OF RS.7 62 787/-. 3.1 THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT BY VIRTUE OF AGREEMENT DATED 10-11-1994 WITH M/S TULSI INVESTMENTS THE LOSS OF RS.2 83 134/- ON ACCOUNT OF NON-RECOVERY OF DUES FROM THE CUSTOMERS WAS TO BE BORNE BY THE APPELLANT AND NOT THE SAID CONCERN. 3.2 THE LD. CIT(A) HAS ERRED IN UPHOLDING THAT THE APPELLANT HAD FAILED TO PRODUCE ANY EVIDENCE RELATING TO THE EFFORTS MADE B Y IT FOR RECOVERY OF DUES FROM THE SAID 20 CUSTOMERS. ITA NO.1015/AHD/2008 FOR AY 2004-05 SHRI RAMESHCHANDRA D CHOKSHI 2 3.3 THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT TH E APPELLANT WAS NOT FURNISHED WITH THE MATERIAL COLLECTED BY AO RELATIN G TO THE 20 CUSTOMERS BEFORE RELYING UPON THE SAME. 4.1 WITHOUT PREJUDICE TO THE ABOVE THE CLAIM OF RS .7 62 787/- OUGHT TO HAVE BEEN ALLOWED IN THE YEAR IN WHICH IT WAS CONSIDERED BY AO AS IRRECOVERABLE. 2 FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT THE RETURN DECLARING NIL INCOME FILED ON 25-10-2004 BY THE ASS ESSEE A SHARE BROKER AFTER BEING PROCESSED ON 9.11.2004 U/S 143( 1) OF THE INCOME-TAX ACT 1961 [HEREINAFTER REFERRED TO AS TH E ACT] WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 11.7.2005. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE AS SESSEE HAD CLAIMED DEDUCTION OF BAD DEBTS OF RS.7 62 787/- W RITTEN OFF BY THE ASSESSEE WHICH INCLUDED AN AMOUNT OF RS.2 83 134/- IN RESPECT OF TULSI INVESTMENT WHILE THE REMAINING AMOUNT OF RS. 4 79 653/- RELATED TO 20 OTHER DEBTORS. THE AO NOTICED THAT M /S TULSI INVESTMENT WAS A SUB-AGENT OF THE ASSESSEE AND AMOU NT OF BAD DEBT OF RS.2 83 134/- IN RELATION TO TULSI INVESTMENT PE RTAINED TO SUCH INVESTORS WHICH WERE NOT IN THE BOOKS OF ASSESSEE BUT HAD DEALINGS WITH M/S TULSI INVESTMENT. A COPY OF ACCOUNT OF TU LSI INVESTMENT FOR THE F.Y. 2003-04 FILED BY THE ASSESSEE REVEALED OP ENING DEBIT BALANCE OF RS.86 48 172/- AND CLOSING DEBIT BALANCE OF RS.76 38 944/-. THE DEBIT BALANCE IN THE BOOKS OF T HE ASSESSEE AS ON 31.3.2002 WAS RS.65 57 152/- AND AS ON 31.3.2001 - RS.28 64 329/- IN RESPECT OF TULSI INVESTMENT. SIN CE THE DEBTS OF RS. 2 84 134 WERE ACCOUNTED FOR IN THE BOOKS OF M/S TULSI INVESTMENT THE AO DISALLOWED THE CLAIM FOR DEDUCTI ON OF THE SAID AMOUNT . 2.1 THE AO FURTHER OBSERVED THAT A STOCK BROKER ACTS AS AN AGENT FOR PURCHASE AND SALE OF SHARES ON BEHALF OF HIS CL IENTS AND IN THE ITA NO.1015/AHD/2008 FOR AY 2004-05 SHRI RAMESHCHANDRA D CHOKSHI 3 ORDINARY COURSE OF BUSINESS MAKES PAYMENT ON BEHALF OF HIS CLIENTS. THUS ONLY COMMISSION/BROKERAGE INCOME ALONE WAS RE FLECTED IN THE BOOKS OF ACCOUNTS. WHILE REFERRING TO PROVISIONS OF SEC. 36(2) OF THE ACT THE AO OBSERVED THAT UNLESS DEBT OR PART THERE OF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE A SSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR P ART THEREOF WAS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR THE DED UCTION WAS NOT PERMISSIBLE. SINCE THE AMOUNT WHICH ASSESSEE CLAI MED AS BAD DEBT WAS NOT ACCOUNTED FOR AS HIS INCOME IN ANY PREVIOUS YEAR THE AO CONCLUDED THAT THIS AMOUNT COULD NOT BE ALLOWED AS BAD DEBT U/S 36(1)(VII) OF THE ACT. TO A QUERY BY THE AO THE AS SESSEE EXPLAINED THAT DURING THE COURSE OF THEIR BUSINESS SOME TIME S THE SECURITIES SOLD BY THE CLIENTS WERE FOUND TO BE EITHER FAKE O R BAD DELIVERIES OR THE PURCHASING CLIENT FOR VARIOUS REASONS REFUSE TO TAKE DELIVERY OF THE SCRIPT PURCHASED ON HIS BEHALF. THE SHARE BROKE R HAS THEREFORE TO EITHER TAKE THE DELIVERY THEREOF OR TO PAY TO TH E STOCK EXCHANGE IN CASE THE PRICE OF THE PURCHASED SCRIPT HAS FALLEN O N THE SETTLEMENT DAY. IN THAT EVENT THE LIABILITY IS ALWAYS ON THE SHARE BROKER SINCE THE ACCOUNT HAS TO BE SQUARED UP WITH THE STOCK EXC HANGE TO CONTINUE TO REMAIN IN THE BUSINESS. IN THE LIGHT OF THESE FACTS RELYING UPON DECISIONS IN THE CASE OF BADRIDAS DAGA VS. CIT 34 ITR 10(SC) CIT VS. NAINITAL BANK LTD. 55 ITR 707(SC) AND CIT VS. ABDUL RAZAK & CO. 136 ITR 825(GUJ) AS ALSO ITO VS. ASHOKUMAR LA LITKUMAR 54 ITD 326 THE ASSESSEE CONTENDED THAT THE AMOUNT HA S TO BE ALLOWED EITHER U/S 28 OR SECTION 36(1)(VII) OF THE ACT DEB T HAVING BEEN WRITTEN OFF. HOWEVER THE AO REJECTED THE CONTENTI ONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DID NOT DI SCHARGE THE BURDEN TO PROVE THAT THE AMOUNT WAS ALLOWABLE AS A TRADING LOSS OR AS AN EXPENDITURE U/S 28 AND/OR UNDER SECTION 37 WHILE IN THE INSTANT CASE THE ASSESSEE DID NOT SUBMIT COMPLETE DETAILS IN RESPECT OF BAD DEBTS . EVEN IN THE COPY OF ACCOUNTS OF DEBTORS EXCEEDING RS.20 000/- EACH SUBMITTED BY THE ITA NO.1015/AHD/2008 FOR AY 2004-05 SHRI RAMESHCHANDRA D CHOKSHI 4 ASSESSEE THE AO NOTICED THAT IN SOME OF THE CASES OF DEBTORS LAST TRANSACTIONS WITH THEM WERE PRIOR TO 1996-97 AND THUS LOSS COULD NOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION. ON ENQUIRIES M/S INDRA CONSU LTANCY ADMITTED IN WRITING THAT HE HAD NOT PAID AN AMOUNT OF RS.1 25 000/- BE ING FINAL PAYMENT TO SHRI R.D. CHOKSHI (BROKER) AND HAD WRITTEN OFF THIS AMOUNT DU RING ACCOUNTING YEAR 1996-97. M/S 'PUSTI INVESTMENT' ALSO IN HIS CONFIRMATION DAT ED 27-12-2006 ACCEPTED THE SAID TRANSACTION MADE WITH SHRI R. D. CHOKSHI IN 19 97-98 AND DUE TO BAD FINANCIAL POSITION HE COULD NOT MAKE THE PAYMENT. CONSIDERING THESE FACTS THE AO NEGATIVED THE CLAIM OF THE ASSESSEE FOR DEDUCTIO N OF RS.7 62 787/- AS BAD DEBTS IN THE YEAR UNDER CONSIDERATION. 3. ON APPEAL THE LD. CIT(A) NOTICED THAT M/S TU LSI INVESTMENT WAS A PARTNERSHIP FIRM AND A SUB-BROKER OF THE ASSESSEE. THE PARTNER OF THIS FIRM WAS RELATED TO THE ASSESSEE SHRI RAMESHCHANDRA D. CHOKS I. THE AMOUNT OF RS.2 83 134/- WAS IN FACT IRRECOVERABLE AMOUNT O F TULSI INVESTMENT FROM ITS CLIENTS AND THE ASSESSEE VIDE AN AGREEMENT DATED 1 0-11-94 WITH TULSI INVESTMENT AS SUB-BROKER AGREED TO PAY FOR ANY LO SS ON ACCOUNT OF SHARE TRANSACTION. THEREFORE THE SAME AMOUNT HAD BEEN W RITTEN OFF AS A BAD DEBT ON ACCOUNT OF TULSI INVESTMENT BEING IN THE NATURE OF BUSINESS LOSS AND DIRECTLY CONNECTED TO THE BUSINESS OF THE ASSESSEE AS A SHAR E BROKER. IN THESE CIRCUMSTANCES THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO ON THE GROUND THAT TULSI INVESTMENT WAS AN INTERMEDIARY IN THE ENTIRE TRANSACTION DONE BY THE ASSESSEE FOR WHICH IT PAID A PART OF COMMISSION TO TULSI INVESTMENT AND THUS THE ASSESSEE CLAIMED LOSS BECAUSE DEBTORS WERE DEBTORS OF TULSI INVESTMENT AND NOT OF THE ASSESSEE. MOREOVER THERE WAS NO EVIDENCE ON RECORD AS TO WHY AND ON WHOSE ACCOUNT SUCH LOSS HAS BEEN INCURRED. 3.1 AS REGARDS REMAINING AMOUNT OF RS.4 79 653/ - THE LD. CIT(A) CONCLUDED THAT THE AMOUNT DUE FROM THESE DEBTORS ARE CLAIMED AS IRRECOVERABLE WITHOUT ANY BASIS THE ASSESSEE HAVING NOT FILED ANY EVIDENCE T O SHOW THAT IT HAS TAKEN ANY ITA NO.1015/AHD/2008 FOR AY 2004-05 SHRI RAMESHCHANDRA D CHOKSHI 5 STEP FOR RECOVERY OF THE DUES. ACCORDINGLY THE DIS ALLOWANCE MADE BY THE AO FOR RS.4 79 653/- CLAIMED AS BUSINESS LOSS WAS UPHELD. 4 THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESSEE WHILE REFERRING TO PAGE 4 &5 OF THE PAPER BOOK AND RELYIN G UPON A DECISION DATED 27-02-2009 OF THE ITAT AHMEDABAD BENCH-A IN T HE CASE OF ACIT VS. H NYALCHAND FINANCIAL SERVICES LTD. AND O THERS IN ITA NO.2631/AHD/2004 CONTENDED THAT THEIR CLAIM HAS T O BE ALLOWED IN THE LIGHT OF THE SAID DECISION .ON THE OTHER HAND THE LD. DR SUPPORTED THE ORDER OF THE LD. CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISION OF THE ITAT . THERE IS NO DISPUTE ON THE FACTS THAT THE ASSESSEE WAS ENGAGED IN A SHARE BROKING BUSINESS AND HAS BOUGHT AND SOLD THE SHARES DURING THE COURSE OF BUSINESS ON BEHALF OF ITS CLIENTS AND EAR NED BROKERAGE THEREON. UNDISPUTEDLY THE AMOUNT HAS BEEN WRITTEN OFF BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. WE FIND T HAT THE AO DISALLOWED THE CLAIM ON THE GROUND THAT THE DEBTS O F RS. 2 84 134 WERE ACCOUNTED FOR IN THE BOOKS OF M/S TULSI INVEST MENT AND WERE NOT THE DEBTS OF THE ASSESSEE AND THAT THE ASSESSEE DID NOT DISCHARGE ONUS LAID DOWN UPON THEM NOR SUBMITTED CO MPLETE DETAILS AS TO WHEN THESE DEBTS BECAME IRRECOVERABLE OR RESU LTED IN TO LOSS SINCE LAST TRANSACTIONS WITH SOME OF THEM LIKE IND RA CONSULTANCY & PUSTI INVESTMENT WERE PRIOR TO OR IN THE FY 1996-97 AND T HUS LOSS COULD NOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION. AS IS EVIDENT FR OM THE FACTS OF THE CASE THE ASSESSEE WROTE OFF THE AMOUNT IN THE YEAR UNDER CON SIDERATION AND CONTENDED THAT THE ULTIMATE LIABILITY FOR THE TRANSACTIONS E NTERED IN TO BY M/S TULSI INVESTMENTS A SUB-BROKER OF THE ASSESSEE WAS THAT OF THE ASSESSEE THE LATTER ALONE BEING RESPONSIBLE FOR MAKING PAYMENT TO STOCK EXCHANGE. THE LD. AR ITA NO.1015/AHD/2008 FOR AY 2004-05 SHRI RAMESHCHANDRA D CHOKSHI 6 APPEARING BEFORE US RELIED UPON THE AFORESAID DECIS ION OF THE ITAT IN H NYALCHAND FINANCIAL SERVICES LTD. AHMEDABAD AND OT HERS(SUPRA) WHEREIN THE TRIBUNAL WHILE RELYING UPON DECISION IN THE CASE OF LORD DAIRY FARM LTD. V CIT (1955) 27 ITR 700 (BOM) HELD THAT THERE BEING NO CONTRARY EVIDENCE BROUGHT ON RECORD BY THE REVENUE THAT THE AMOUNT HAS NOT BECOME IRRECOVERABLE DURING THE YEAR THE LOSS HAS ARISEN DURING THE YEAR. 5.1 THE TRIBUNAL IN THE AFORECITED DECISI ON IN H NYALCHAND FINANCIAL SERVICES LTD. AHMEDABAD AND OTHERS(SUPRA ) WHILE REFERRING TO DECISION DATED 18-07-2008 IN THE CASE OF PAARKAR SECURITIES LTD. IN ITA NO.752/AHD/2004 AND ITA NO.340/AHD/2006 DECISI ON DATED11- 05-2008 IN SOUTH GUJARAT SHARE & SHARE BROKERS LTD . V ITO IN ITA NO.1502/AHD/2004 CIT V ABDUL RAZAK & CO. 136 ITR 8 25 (GUJ) MAHESH J PATEL V ACIT (2008) 297 ITR (AT) 74 (MUM) CIT V CRESCENT FILMS (P) LTD. 248 ITR 670 (MAD) CIT V H HOWRAH & CO. (P) LTD. 194 ITR 345 (CAL) INDIA INFOLINE SECURITI ES (P) LTD. V ACIT (2008) 25 SOT 123 (MUM) G R PANDYA SHARE BROKING L TD. V ITO (2008) 26 SOT 431 (MUM) AND ANGEL CAPITAL & DEBT MA RKET LTD. V ACIT (2008) 118 TTJ (MUMBAI) 351 AND CANNON CAPITA L & FINANCE LTD. V ACIT IN ITA NO.1119&1447/AHD/2005(AHD.) CONC LUDED THAT THE NON-RECOVERY OF THE AMOUNTS PAID BY THE ASSESSEE F OR AND ON BEHALF OF ITS CUSTOMERS (PURCHASERS) AND THE DELIVERY HAVING BEEN FOUND TO BE BAD DELIVERIES THE LOSS SUFFERED BY THE ASSESSEE WAS A BAD DEBT A ND CONSEQUENTLY WAS ALLOWABLE AS DEDUCTION ON ACCOUNT OF BAD DEBTS AS W ELL AS TRADING LOSS U/S.28(I) OF THE ACT . 5.2 WHILE ADJUDICATING A SIMILAR ISSUE IN CIT VS. DB (INDIA) SECURITIES LTD 318 ITR 26 HONBLE DELHI HIGH COURT NOTICED THAT THE ASSESSEE WAS A MEMBER OF DELHI STOCK EXCHANGE AND CARRIED ON THE BUSINESS OF SHARES AND STOCK BROKING. THE ASSESSEE PURCHASED SHARES ON BEHALF OF HIS CLIENT FOR THE TOTAL VALUE OF RS. 1.06 CRORES AT AN AVERAGE PRICE OF RS. 55 PE R SHARE. THE SAID CLIENT MADE A ITA NO.1015/AHD/2008 FOR AY 2004-05 SHRI RAMESHCHANDRA D CHOKSHI 7 PAYMENT TO THE EXTENT OF RS. 65 LACS ONLY AND THE REMAINING AMOUNT OF RS. 41 LACS REMAINED UNPAID. THE BROKERAGE INCOME EARNED B Y THE ASSESSEE IN RESPECT OF THE SAID TRANSACTION OF PURCHASE OF SHARES WAS D ULY DECLARED IN ITS RETURN OF INCOME AND WAS ASSESSED AS WELL IN THE EARLIER YEAR . THE BALANCE AMOUNT OF RS. 41 LACS REMAINED UNPAID EVEN IN THE NEXT YEAR ALSO APPARENTLY BECAUSE OF THE REASON THAT THE PRICE OF SHARES FELL FROM RS. 55 TO RS. 5 PER SHARE. IN THE RETURN OF INCOME FILED FOR THE SAID YEAR THE ASSESSEE CLAIME D DEDUCTION OF RS. 41 LACS AS BAD DEBTS U/S 36(1)(VII). THE A.O. DISALLOWED THE C LAIM OF THE ASSESSEE FOR THE SAID DEDUCTION WHICH WAS CONFIRMED BY THE LD. CIT( A). ON FURTHER APPEAL THE TRIBUNAL ALLOWED THE SAID DEDUCTION . HONBLE DELHI HIGH COURT IN THESE CIRCUMSTANCES OBSERVED THAT THERE WAS A VALID TRANS ACTION BETWEEN THE ASSESSEE AND HIS CLIENT AND SINCE THE ASSESSEE HAD TO MAKE P AYMENT ON BEHALF OF HIS CLIENT WHICH HE COULD NOT RECOVER TO THE EXTENT OF RS. 41 LACS THE SAID SUM HAS TO BE TREATED AS HIS DEBT. IT WAS ALSO HELD THAT THE BR OKERAGE WHICH WAS RECEIVED FOR THE SAID TRANSACTION WAS SHOWN AS INCOME BY THE ASS ESSEE IN THE EARLIER YEARS AND THE SAME WAS TAXED AS SUCH BY THE ASSESSING AUT HORITY. ACCORDINGLY HONBLE HIGH COURT CONCLUDED THAT THE ASSESSEE WAS ENTITLE D FOR DEDUCTION ON ACCOUNT OF BAD DEBT U/S 36(1)(VII) R.W.S. 36(2) OF THE ACT. A N SLP FILED AGAINST THE SAID DECISION HAS BEEN DISMISSED BY THE HONBLE SUPREME COURT IN THEIR DECISION DATED 30.4.2010 IN CC 6427/2010 5.3 A SIMILAR ISSUE AGAIN CAME UP FOR CONSIDERAT ION BEFORE THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BONANZA PORTFOLIO LTD. 320 ITR 178 WHEREIN THE HONBLE HIGH COURT CONCLUDED THAT THE MONEY RE CEIVABLE BY THE ASSESSEE AS SHARE BROKER FROM HIS CLIENTS AGAINST PURCHASE OF S HARES MADE ON THEIR BEHALF HAS TO BE TREATED AS DEBT AND SINCE THE BROKERAGE PAY ABLE BY THE CLIENT WAS A PART OF THAT DEBT AND THAT PART HAD BEEN TAKEN INTO ACCO UNT IN COMPUTATION OF HIS INCOME THE CONDITIONS STIPULATED IN SECTION 36(1)( VII) AND 36(2) STOOD SATISFIED AND THE ASSESSEE WAS ENTITLED FOR DEDUCTION IN RESP ECT OF THE SAID AMOUNT SINCE IT HAD BECOME BAD. ITA NO.1015/AHD/2008 FOR AY 2004-05 SHRI RAMESHCHANDRA D CHOKSHI 8 5 .4 FOLLOWING THE VIEW TAKEN BY THE HONBLE DELHI HIGH COURT IN THE AFORESAID TWO DECISIONS SPECIAL BENCH MUMBAI IN T HE CASE OF SHRI SHREYAS S. MORAKHIA IN ITA NO. 3374/MUM/2004 IN THEIR ORDER D ATED 16.7.2010 WHILE ADJUDICATING A SIMILAR CLAIM CONCLUDED AS UNDER: 32. KEEPING IN VIEW ALL THE FACTS OF THE CASE AND THE LEGAL POSITION EMANATING FROM THE VARIOUS JUDICIAL PRONOUNCEMENTS AS DISCUSS ED ABOVE WE ARE OF THE VIEW THAT THE AMOUNT RECEIVABLE BY THE ASSESSEE WHO IS A SHARE BROKER FROM HIS CLIENTS AGAINST THE TRANSACTIONS OF PURCHASE OF SHA RES ON THEIR BEHALF CONSTITUTES DEBT WHICH IS A TRADING DEBT. THE BROKERAGE/COMMISS ION INCOME ARISING FROM SUCH TRANSACTIONS VERY MUCH FORMS PART OF THE SAID DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE/COMMISSION HAS BEEN TAKEN INTO ACCOU NT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVANT PREVIOUS YEA R OR ANY EARLIER YEAR IT SATISFIES THE CONDITION STIPULATED IN SECTION 36(2) (I) AND THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 36(1)(VII) BY WAY OF BAD DEBTS AFTER HAVING WRITTEN OF THE SAID DEBTS FROM HIS BOOKS OF ACCOUNT AS IRRECOVERABLE. WE THE REFORE ANSWER THE QUESTION REFERRED TO THIS SPECIAL BENCH IN THE AFFIRMATIVE T HAT IS IN FAVOUR OF THE ASSESSEE. 5.5 RECENTLY HONBLE SUPREME COURT IN THEIR D ECISION DATED 9.2.2010 IN THE CASE OF TRF LTD. VS. CIT IN CIVIL APPEAL NO.5293 OF 2003 NOW REPORTED IN 23 0 CTR 14 (SC) HELD THAT THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL 1989 IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT H AS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER IN THE PRESENT CASE THE ASSESSI NG OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS IN FACT BEEN WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS THE BAD DEBT ACCOUNT IS DEBITED AN D THE CUSTOMER'S ACCOUNT IS CREDITED THUS CLOSING THE ACCOUNT OF THE CUSTOMER . IN THE CASE OF COMPANIES THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. AS STATE D ABOVE THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER IN FACT THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING OFFICER. HENCE THE MATTER IS REMITTE D TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE-MENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE OFF. 5.6 IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DECISION BY THE HONBLE APEX COURT AND IN THEIR TWO DECISIONS BY T HE HONBLE DELHI HIGH COURT FOLLOWED BY THE SPECIAL BENCH MUMBAI SINCE THE AMOUNT OF RS.7 62 787/- BEING THE MONEY RECEIVABLE BY THE ASSESSEE AS SHARE BROKER FROM HIS CLIENTS AGAINST PURCHASE OF S HARES MADE ON THEIR BEHALF HAS ITA NO.1015/AHD/2008 FOR AY 2004-05 SHRI RAMESHCHANDRA D CHOKSHI 9 TO BE TREATED AS DEBT WHILE UNDISPUTEDLY THE BROK ERAGE PAYABLE BY THE CLIENTS WAS A PART OF THAT DEBT AND THAT PART HAD BEEN TAKE N INTO ACCOUNT IN COMPUTATION OF HIS INCOME AND THE AFORESAID AMOUNT OF RS.7 62 787/- HAVING BEEN WRITTEN OFF IN THE YEAR UNDER CONSIDERATION AS BAD DEBT WE ARE OF THE OPINION THAT THE SAID AMOUNT BEING THE LOSS SUFFER ED BY THE ASSESSEE WAS ALLOWABLE AS A BAD DEBT U/S 36(1)(VIII)/36(2) OF THE ACT . THEREFORE WE HAVE NO HESITATION IN REVERSING THE ORDER OF THE LD. CIT(A ) AND CONSEQUENTLY ALLOWING THE CLAIM OF THE ASSESSEE. 6. IN THE RESULT APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE COURT TODAY ON 19-08-2010 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 19-08-2010 COPY OF THE ORDER FORWARDED TO: 1. SHRI RAMESHCHANDRA D CHOKSHI 3 PATIDAR SOCIETY B/H PARADISE PARK NEAR WADAJ AHMEDABAD 2. THE ITO WARD-3(3) AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-VII AHMEDABAD 5. DR BENCH-C ITAT AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD