DCIT 4(1), MUMBAI vs. ANGEL CAPITAL & DEBT MARKET LTD, MUMBAI

2. On the facts and circumstances of the case and in law, the impugned order of the Ld. CIT(A) is contrary to law and consequently merits to be set aside and that of the Assessing Officer be restored”.

At the outset, the Ld. Counsel for the assessee submitted that, the issue of bad debt had come-up for consideration in earlier year also in assessee’s own case before the Tribunal and also before the Hon’ble Bombay High Court in the assessment year 2006-07 and 2007-08. He thus submitted that, the issue involved is squarely covered in favour of the assessee by judicial precedence.

The Ld. DR, on the other hand, relied upon the order of the AO.

After considering the relevant finding given in the impugned orders and also the decision of Hon’ble Bombay High Court, which has been followed by the Tribunal also, we find that the issue involved is in fact squarely covered in favour of the assessee. The brief facts are that, the assessee is engaged in the business of share and stock broking and distribution of financial products. The assessee has debited an amount of Rs. 6,41,26,475/- as bad debts in its profit and loss account. In response to the show cause notice by the AO, as to why the bad debt should not be disallowed because it is not arising out of brokerage which is the main activity and primary source of income, the assessee submitted that, as against the bad debt of Rs.6,41,26,475/- the brokerage earned was Rs.78,97,512/- from the same clients and it has arisen during the course of carrying out of the share broking business. The Ld. AO did not accept the assessee’s explanation and held that bad debt of Rs. 5,62,28,963/- cannot be allowed as eligible bad debt from business of the assessee and after detailed discussion, he disallowed the same.

It is an undisputed fact that, now in wake of decision of Hon’ble Bombay High Court in the case of Shreyas S Morarkhia, reported in [2012] 342 ITR 285. this issue now stands decided in favour of the assessee, wherein the Hon’ble High Court held that, the value of share transaction by the assessee as a Stock broker on behalf of its clients is as much a part of the debt as is the brokerage which is charged by the assessee on the transaction. If the brokerage was credited to the profit and loss account and that part of the debt arisen on the transaction undertaken is taken into account in computing the income of the assessee, then the debt arises from the same transaction sale or purchase, therefore, requirement of section 36(2) gets fulfilled. Thus, bad debt has to be allowed to the Broker. This ratio has been followed by the Tribunal in assessee’s own case which has been affirmed by Hon’ble Bombay High Court in the case of assessee itself. Accordingly, we do not find any substance in the impugned issue raised by the revenue and same is dismissed.

In the result, appeal of the revenue stands dismissed. Order pronounced in the open court on 16th March, 2016.