Business expenditure — Bad debt

Brokerage/commission income arising to the share broker (assessee) constitutes trading debt, and when amount of such brokerage/commission has been taken into account in the computation of income of the relevant previous year or any earlier year, the assessee is entitled to a deduction under s 36(1)(vii) by way of bad debts after having written off the said debts from his books of accounts as irrecoverable, as held by MumTrib in BS Vasa v DCIT — In favour of: The assessee (partly).

The matter is remitted to the AO to decide the assessee’s (share broker) claim of deduction under s 36(1)(vii), where the assessee had written off a certain amount of brokerage/commission received from his clients and claimed a deduction under s 36(1)(vii), since it was not examined as to whether the commission income accruing to the assessee as a result of transactions done on behalf of the clients was offered to tax or not.

After 1 April 1989, it is not necessary for the assessee to establish that the debt had, in fact, become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee.

Decided on: 29 July 2011.