TaxTMI 
TaxTMI 
TaxTMI 
2025 (6) TMI 880
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....l) 2. The only issue to be decided in this appeal of the assessee is as to whether the addition of CSR expenses of Rs. 7,80,750/- could be made while computing book profit u/s 115JB of the Act. 3. We have heard the rival submissions and perused the materials available on record. The assessee is engaged in the business of manufacturing, trading and export of all types of readymade garments. The return of income for AY 2015-16 was electronically filed on 30.09.2015 declaring total income of Rs. 7,24,05,240/-. This return was later revised on 04.12.2015 declaring total income of Rs. 7,23,37,560/- under normal provisions of the Act and book profit of Rs. 11,44,39,560/- u/s 115JB of the Act. 4. The assessee debited a sum of Rs. 7,80,750/- as provision of Corporate Social Responsibility (CSR) expenses in its Profit and Loss Account. This sum was duly added back in the computation of income voluntarily by the assessee under normal provisions of the Act. Accordingly, the ld AO concluded that this sum is to be added back in the computation of book profit u/s 115JB of the Act also. This action of the ld AO was upheld by the ld CIT(A). 5. At the outset, we find that CSR expenditure has b....
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....were called for. The assessee submitted that the same represents amounts receivable from NSEL on account of trading of commodities undertaken by the assessee on that exchange in the past and due to irrecoverability of the amount from NSEL, the assessee choose to write off 25% each year of the amounts receivable which was claimed as bad debt written off. The assessee explained the complete narration of events which lead to the write off of the amounts due from NSEL after duly getting satisfied that the same is irecoverable from NSEL, but the ld AO concluded that nature of the transaction in commodities market had no linkage with the business of the assessee and it is speculative in nature. The ld AO observed that the assessee had dealt in earlier years, commodities like sugar, alloys, etc and had paid monies towards that business to NSEL and those monies were sought to be written off as irrecoverable during the year under consideration. Since, the assessee is engaged in the business of manufacturing and sale of readymade garments, the said write off of commodities trading loss has got no link with the business of the assessee and accordingly disallowed. The ld AO treated the said lo....
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....ransaction in the commodities contract is allowed by the Exchange; iii. Warehouse Development Regulatory Authority (WRDA) - covers the aspect of negotiability of warehouse receipt thus trading of warehouse receipt of commodities in all the notified commodities. 11.1. The assessee further submitted as under:- a) All contracts with single day duration. b) All positions outstanding at end of day result into compulsory delivery. c) Fully automated screen based trading system with national reach. d) An order driven trading system. e) Transparent and Fair system for automatic order matching. f) Identity of the participants undisclosed. g) Flexibility for placing orders. 11.2. In the chapter relating to "Delivery Procedure At NSEL Warehouse", the salient features of the delivery system are as under:- a. The sellers desirous to sell/buy through NSEL have to compulsorily deliver the commodity in the NSEL designated warehouse of a particular location specified in the Exchange circular. For example, Ex-Kadi castor seed contract has delivery centre in Kadi. b. The quality of the commodities brought for the trading purpose should be as per the quality specification laid do....
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....d indeed duly offered the income and complied with the provisions of Section 36(2) of the Act. During the year under consideration, the assessee had written off the amounts due from the NSEL. In fact the assessee even specifically said that the bad debts emanated in respect of contract note dated 25.07.2013 for AY 753.28 lacs and further enclosed copy of the said contract. It was pointed out that a sum of Rs. 46.60 crores was recovered during the FY 2013-14 thereby leaving balance of Rs. 706.89 lacs as on 31.03.2014. The debt actually become bad debt. It was pointed out only a sum of Rs. 21,85,961.13 has been recovered by the assessee during the FY 2014-15 against the total outstanding of Rs. 7,06,89,348.62. However, there was no recovery after 24.11.2014. The assessee also placed reliance on the decision of the Hon'ble Supreme Court in the case of TRF Ltd Vs. CIT reported in 323 ITR 397 (SC) in support of its contention by stating debt actually become irrecoverable, the assessee had indeed written off the sum in its books of account and claimed deduction as bad debt and also placed on the decision the CBDT Circular No. 12/2016 dated 30.05.2016. 13. The ld CIT(A) duly understo....
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....containing the details of charges which indicates the delivery is not tenable as it has been proved that there was no actual delivery of the commodities. 4.8 In response the appellant has submitted copies of the various literature of NSEL such as "NSEL Regulatory Set Up", "Delivery Procedure At NSEL Warehouse" and "Delivery Mechanism At Electronic Spot Market". 4.9 The appellant states that the delivery was being handled by NSEL for which the appellant was also being charged in the contract notes. The appellant has also submitted copies of Delivery Allocation Reports to justify that the deliveries were actually made and received though they were handled by NSEL. Further, the appellant has also drawn attention to section 43(5) of the IT Act, 1961 and has claimed that the nature of the transactions entered into by the appellant are in the nature of "forward contracts" and these are specifically excluded from the definition of speculative activity. 4.10 The appellant has further submitted that by its very definition, forward contracts are dealing in commodities, currencies, and securities for future (forward) delivery at prices agreed-upon today (date of making the contrac....
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.... the goods. 4.15 I agree with the submission of the appellant that the transactions entered into by the appellant have all the characteristics of a forward contract and that the nature of transactions is essentially forward contracts. I also agree that the deliveries of the contracts failed because of reasons beyond the control of the appellant, i.e. the closure of NSEL. 4.16 Having said so, this contention of the AO for treating the transactions as speculative does not hold. 4.17 The next contention of the AO is that "while claiming deduction for bad debts written off, assessee must take into account such debt or part thereof in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off." 4.18 My attention has been drawn to the provisions of section 36(2)(i) of the IT Act, 1961 which states as follows. Section 36(2) in The Income Tax Act, 1961 (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply- (i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year ....