Bad Debt
Querist :
Anonymous
(Querist) 05 March 2010
This query is : Resolved
In this connection, we have to state that our company has purchased 50000 shares of Lava Coated Paper Ltd. for Rs. 1000000 during the financial year 1993-94 i.e. 01-04-1993 to 31-03-1994 and the transfer expenses were Rs. 5000. So the cost of the said 50000 shares in our hands as on 31-03-1995 was Rs. 1005000. But out of 50000 shares only 3000 shares could be transferred in the name of Company and the balance of 47000 shares could not be transferred since signature differed and share certificates were returned to our broker Shri Tushar Bedi.
However, he could not do anything in respect of transfer of said 47000 shares. The cost of which worked out to Rs. 944700 and hence during F.Y. 1997-98 said sum of Rs, 944700 was transferred to the account of said Shri Tushar Bedi and we made claim from him, but ultimately we had to write off the said account as bad debts since we could not recover the said sum from Shri Tushar Bedi. Since he never responded to our claim/request etc. and hence in the F.Y. 2005-06, the account of Shri Tushar Bedi was written off and the sum was claimed as bad debts. All these facts were reflected in accounts of earlier years by way of notes to balance sheet filed with return of income.
In the above said fatual premises, what we feel :
1. As the said sum is not recoverable from said Shri Tushar Bedi, the same being written off as irrecoverable in P & L A/c. the same should be allowed as claimed.
2. Alternatively the same can be considered as capital loss and has to be adjusted against the capital gain as shown in the return of income and income requires to be recomputed accordingly. According to us, it will have no effect on income as per return.
N.B. The shares are shown under the head investement in balancesheet.
Can you guide us on the issue.
Vineet
(Expert) 05 March 2010
Is your Company treader in shares and securities?
What is the accounting treatment given in books of accounts to the remaining shares, are they investment or stock in trade?
The Share Broker was merely an intermeiary in the share transaction and thus he cannot be deemed to be a debtor in respect of defective shares. You can claim the amount lost in defective shares as business loss only if you have been a trader in shares and securities and the concerned lot was treated as stock in trade and not investment.
If the scrip was purchased on investment account, in my opinion, you cannot claim any loss revenue or capital as the shares were never transferred neither in your name or by you.
Querist :
Anonymous
(Querist) 06 March 2010
The accounting treatment given in books of account as investment.
Querist :
Anonymous
(Querist) 06 March 2010
Is there any remedy to save penalty u/s. 271 (1)(c)
Kumar Thadhani
(Expert) 06 March 2010
Sincein the books of accounts the srips purchased are shown as investment I do not think the penalty of 271(1)(c0 does not arsises. TRY TO SATISFY OR CONVINCE AO that thatis not Investment and we are trading in scrip buying &selling also.
Vineet
(Expert) 06 March 2010
In my opinion it is not a fit case for penalty as the money has genuinely been lost. It is only a matter of interpretation whether the sums written off the books amount to bad debt or not. No mens rea can be established to evade tax in this matter.
soumitra basu
(Expert) 09 March 2010
It has already been held by the Hon'ble Supreme Court and different High Courts that unless there is a deliberate intention to defy the law, there cannot be any penalty. Moreover, since the return income will not change the question of penalty does not arise. For reference of decision you can mail in soumitra_tax@yahoo.co.in
Querist :
Anonymous
(Querist) 11 March 2010
Request mail has been sent.
