2026 (4) TMI 1017

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....they were heard together and are being disposed of by this consolidated order for the sake of convenience. Facts of the Case 2. The assessee is a company engaged in the business of commodity broking. For Assessment Year 2018-19, the assessee filed its return of income on 15.10.2018 declaring a loss of Rs. 2,78,79,687/-. The case was selected for scrutiny, and the assessment was completed under section 143(3) of the Act vide order dated 22.05.2021, wherein the returned loss was accepted without making any addition. 3. Subsequently, proceedings for reopening of the assessment were initiated. An order under section 148A(d) of the Act dated 27.03.2024 was passed after obtaining approval from the competent authority, followed by issuance of notice under section 148 of the Act on the same date. In response thereto, the assessee filed a return of income on 23.05.2024, again declaring loss of Rs. 2,78,79,687/-. 4. The reassessment was thereafter completed by the Assessing Officer under section 147 read with section 143(3) of the Act vide order dated 28.02.2025, determining the total income at Rs. 1,40,31,175/-, inter alia, by making the following additions: - Disallowa....

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....g to substantiate that the said loss on operation/client claim was incurred wholly and exclusively for the purposes of business, as required under Section 37(1) of the Income-tax Act, 1961? b) Whether the Ld. CIT(A) was justified in allowing the assessee's claim of Rs.1,10,75,000 as deductible under Section 37(1), without proper verification of the genuineness, necessity, and nexus of the expenditure with the business of the assessee? c) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of Rs.3,08,35,862/- by holding that the said amount represents reversal of provision for doubtful debts earlier disallowed in the year of creation, and thereby ignoring that the assessee had claimed the same as bad debts written off during the year under consideration, leading to an impermissible reduction of taxable income? d) The appellant craves leave, to add, amend and/or alter any of the ground of appeal if need be." 9. The assessee, on the other hand, has filed a cross-objection. Following grounds of Cross-objection are without prejudice to each other and assessee's arguments in Department's appeal....

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....the net amount of Rs. 90,65,413.32/- along with Rs. 20,09,918/- representing client claim expenses were debited to Profit and Loss account totalling to Rs. 1,10,75,331/- (as appearing on page No.15 of the paper book). The learned AR submitted that the provision had already been disallowed in Assessment Year 2015-16 therefore the reversal was correspondingly adjusted in the computation of income by reducing the said amount while computing the taxable income for Assessment Year 2018-19, solely to avoid double taxation. 12. With regard to the client claim expenses amounting to Rs. 20,09,918/-, the learned Authorised Representative submitted that the said amount, as detailed in the chart placed at page No. 226 of the paper book, does not represent a fresh or unsubstantiated claim of expenditure. It was explained that the corresponding amounts had already been offered to tax as income in the respective earlier years by the assessee. The learned Authorised Representative submitted that the debit of the said amount during the year under consideration was only in the nature of settlement or write-off of client balances and, therefore, disallowance of the same would result in double taxa....

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.... the reversal of provision for doubtful debts which had already been subjected to tax disallowance in earlier years, and (ii) the nexus and prior taxability of the client claim amounts. 18. On examination of the material placed before us, we find that the reconciliation furnished by the assessee demonstrates a one-to-one correlation between the amounts written off in the books, the reversal of earlier provisions, and the figures reflected in the computation of income. The Revenue has not pointed out any specific discrepancy in the reconciliation, nor has it brought on record any material to show that the assessee has claimed deduction of the same amount twice. 19. We also take note of the reliance placed by the learned Authorised Representative on the judgment of the Hon'ble Bombay High Court in CIT v. Shreyas S. Morakhia [2012] 342 ITR 285 (Bom), wherein it has been held that in the case of a broker, unrecovered amounts from clients, where the brokerage income has already been taken into account in computing business income, constitute allowable bad debts under section 36(1)(vii) read with section 36(2) of the Act. While the said decision lays down the governing legal princi....