HARSHAD J CHOKSI Vs. ASSISTANT COMMISSIONER OF INCOME TAX
INCOME TAX APPELLATE TRIBUNAL
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M.K. Chaturvedi, Judicial Member -
(1.) THIS appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-XIX, Bombay (Mrs. V. Sharma) and pertains to the assessment year 1991-92.
(2.) The assessee is a stock and share broker. He is a member of the Bombay Stock Exchange. Mercantile system of accountancy was followed during the year under consideration. A receipt of Rs. 1, 82, 86, 821 towards brokerage (gross) was reflected in the accounts. It was stated before the AO that brokerage had been charged ranging from 0. 15% to 0. 17% depending upon the prices of the shares. Rate varied from client to client. There was no uniform rate. On the net amount of brokerage of Rs. 1, 03, 30, 257 the assessee shown a net profit of Rs. 9, 41, 781. An amount of Rs. 47, 58, 250 was written off. It was alleged to be loss caused to the assessee due to the breach committed by the three members of the Bombay Stock Exchange. These members were declared as defaulters. The detail of the loss is as under:
The abovesaid amount was debited in the book under the head 'Vatav Kasar' account.
The amount of Rs. 47, 58, 250 had been written off and the same was claimed as 'BAD DEBTS' before the AO. The claim of the assessee was, therefore, examined by the AO on the touchstone of Section 36(1)(vii) and Section 37(2) of the Income-tax Act. It was found that conditions precedent for availing of the benefit of these sections did not exist in the facts and circumstances of the present case. It was observed that for allowing deduction in respect of any bad debt, written off as irrecoverable, the essential conditions under Section 36(2) are that the debts should have become bad and must have been taken into account in the computation of income of the previous year or of an earlier previous year. It is not sufficient to claim the debt to be bad merely on the basis of declaration of the Stock Exchange.
(3.) EVEN before us initially the dispute on this point was raised in the same manner. The grounds 1. 1 and 1. 2 taken before us are reproduced here as under:
1. 1. On the facts and in the circumstances of the case, and in law, the CIT(A) erred in disallowing the claim of bad debts of Rs. 47, 58, 250.
1. 2. The CIT(A) had come to the conclusion that the brokers were defaulters as certified by the Stock Exchange and he ought to have taken into consideration the provisions of Section 36(1)(iii) and 36(2) and allowed the same. Inspite of overwhelming evidence, the CIT(A) disallowed the bad debts claimed by the appellant of Rs. 47, 58, 250.;
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