THE DCIT, CIRCLE-3, AHMEDABAD vs. M/S. KUNVARJI COMMODITIES BROKERS PVT.LTD., AHMEDABAD

This appeal by the Revenue is directed against the order of Ld. CIT(A)-10, Ahmedabad dated 10.09.2015 pertaining to A.Y. 2011-12.

The assessee company is engaged in the business of commodity broking as a member of MCX and NCDX. The return for the year under consideration was selected for scrutiny and accordingly statutory notices were issued and served upon the assessee.

On verification of the Profit and Loss account, the A.O. found that the assessee has claimed bad debts of Rs. 43,73,385/-. The assessee was asked to explain whether the said bad debts have been offered as income in any of the year to fulfill the requirement of Section 36(2) of the Act. The assessee filed the details of bad debts along with the following submission: “In this connection it is submitted that, the assessee is a commodities-broker. The commodities-brokerage is declared in the return of income as income of the assessee. The transactions made by the clients from the assessee results into two items; one is the brokerage and other is the payment for transactions made by the clients. The brokerage is credited into Profit & Loss account and payments for transactions are entered into clients' accounts. Thus parts of the receipts are accounted for in the profit &loss account. As a Member of Commodities Exchange, it is the primary liability of the assessee to make payment for transactions entered into by our customers. If payments are not done by the company, then company would be treated as a defaulter and will not be allowed to carry on their business on the Commodities Exchange. Thus, company is liable to make the payment for full amount for the transactions done by the client on the commodities exchange.

The A.O. was not convinced with the submissions of the assessee and disallowed the claim of bad debts of Rs. 43,73,385/-.

Assessee strongly agitated before the ld. CIT(A) and reiterated its claim of bad debts.

After considering the facts and the submissions and drawing support from various judicial decisions, the ld. CIT(A) allowed the claim of bad debts.

Aggrieved by this, the revenue is before us. The ld. D.R. strongly supported the findings of the A.O. Per contra, the ld. counsel for the assessee reiterated what has been stated before the lower authorities.

We have given a thoughtful consideration to the orders of the authorities below qua the issue. There is no dispute that the assessee has been showing brokerage income from the transactions entered into by it with its client. We find that an identical issue was considered by the Special Bench of the Tribunal Bombay in the case of Shreyas S. Morakhia and the Special Bench decision has been upheld by the Hon’ble High Court of Bombay in 342 ITR 285 wherein the Hon’ble High Court held that value of the share transacted by a broker on behalf of its client is very much allowable as bad debts. We do not find any

Appeal filed by the Revenue is dismissed.