Case Law Details
Case Name : CIT vs. Bonanza Portfolio (Delhi High Court)
Appeal Number : 226 CTR 468
Date of Judgement/Order :
Related Assessment Year :
Courts :
All High Courts Delhi High Court
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In a recent ruling Delhi High Court (HC) [226 CTR 468] in the case of CIT vs. Bonanza Portfolio (Taxpayer). The HC held that the Taxpayer, who is a share broker, is eligible to claim deduction for bad debts, pursuant to Section 36(1)(vii)of the Indian Tax Law (ITL). The ITL provides that a debt, which is written off in the books of account, is allowable as a bad debt, if the same had been taken into account in computing the income of the financial year in which the debt is written off or in any earlier financial year.
Background and facts of the case
- The Taxpayer, a share broker, purchased shares on its client’s behalf out of its own funds. The brokerage on the said transaction was offered for tax. As the client did not pay for the shares, the Taxpayer wrote off the amount as a bad debt and claimed deduction, pursuant to the ITL.
- As per the ITL, a taxpayer is entitled to claim deduction in respect of any amount of ‘debt or part thereof’ which is written off as bad debt in the books of account, provided that the debt, or part thereof, had been taken into account in the computation of income.
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Does it mean that a Share Broker who have earned 1 crore from brokerage on turnover of 100 crore & has written off bad debts of 1 crore will not be required to pay any tax as the profit it NIL?