TaxTMI 
TaxTMI 
2023 (1) TMI 1541
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....) from M/s Philips Commodities India Pvt Ltd & Motilal Oswal Commodities Broker Pvt Ltd transaction without appreciating the fact that the contract notes only state about the derivative transactions. 3. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) erred in giving relief by deleting addition of Rs.10,91,53,148/- without appreciating the fact that the Derivative transaction was banned on the NSEL platform (Spot Exchange) hence transaction made by the assessee was not valid as per section 45V of the RBI Act." 2. Briefly stated, facts of the case are that the assessee, an individual was engaged in carrying out transactions of commodity dealing on National Spot Exchange Ltd (NSEL) and was also engaged in the business of merchant export of products such as brass adapter, brass chain, connectors' screw, etc. through his proprietary concern, M/s Conex Metals. For the year under consideration, the assessee filed return of income on 19th November, 2014 declaring total income of Rs.19,21,250/-. The return of income filed by the assessee was selected for scrutiny and statutory notices under the Income-tax Act, 1961 (in short, 'the Act') w....
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....he goods from the NSEL and delivered the goods purchased to the parties, who agreed to purchase the same after 25 / 35 days. Therefore, neither assessee received the payment of the sale of the commodities nor did he receive the stock of commodities or the amounts paid for purchase of commodities from the NSEL. Since the amounts were paid in normal course of the business of the assessee, the non-recovery of sale proceeds resulted in business loss to the assessee. However, the Assessing Officer rejected the contention of the assessee. In view of the Assessing Officer, the assessee has not made any efforts for recovery of said bad debt of Rs.10,91,53,148/- from M/s Motilal Oswal Securities Pvt. Ltd and M/s Philips Commodity Pvt. Ltd like sending any legal notice or filing suit in the Court of Law. He further held that matter of recovery from NSEL was subjudice and there was no finality on the status of the debts, therefore, treating the debts as bad and immediately writing off from the books of account was premature and without any substance. According to him, recovery is an ongoing process and the ultimate recovery shall take long time and, therefore, any claim of the bad debt earlie....
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....e claim of bad debt on the ground that (i) the write-off of bad debts is not genuine and (ii) the assessee was not able to prove that the debts had actually become bad and irrecoverable and in the alternative (iii) the transaction of purchase and sale of commodities at the NSEL were speculative transactions and therefore, the loss on account of speculation trading was a speculative loss and the same may be allowed to be carried forward for set off against the speculation gains in the subsequent years. 3.6 Verification of computation of income sheet of the appellant shows 'net profit before tax as per P&L A/c under the Commodities Trading business head shows a loss of Rs.10,91,53,148/-. And the P&L a/c of the assessee for the year ended shows a debit of Rs.10,91,53,148/- under the title 'Loss on account of Commodities : irrecoverbility'. This shows that the loss is actually claimed as business loss by the assessee in his accounts and the return of income. In the submissions extracted at para 3.3 above, the appellant argued that the loss is allowable as 'business loss'. However it is seen that the AO discussed the claim as 'bad debt' and made the ....
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.... loss as speculation loss. After detailed examination of the issue, my decision is as under. 5.7 AO in the assessment order quoted a letter of NSEL dated 16.06.2016 to state that the claims of loss made by the brokers/clients/agents are premature, since the recovery process is underway by EOW and HCC and the assets worth 7000 crores as against the claim of 5,600 crores have already been secured. It appears from the record that the AO has not supplied the said letter to the appellant during the assessment proceedings. Appellant contested this letter in his submissions. It is true that the AO was under obligation to supply the information collected from third party to the assessee, if she wanted to use the same in the assessment. Mere statement regarding the alleged observations of NSEL, and making addition is against the principles of natural justice. Such statement/letter, .if any, has to be supplied to the assessee for giving 'an opportunity and also an opportunity to cross examine the third party. Hon'ble Supreme Court in the case of Andaman Timber Industries vs. Commissioner of Central Excise (2015) 281 CTR 241 (SC) has reaffirmed the principles of natural justi....
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....the normal course of business of the assessee, the non-recovery of the sale proceeds would result in regular 'business loss' for the assessee. Therefore he claimed the non recoverable amount as a 'business loss' for the year." 5.2 Further, the Ld. CIT(A) has also rejected the finding of the Ld.AO that the claim in question was of bad debts written off. Relevant finding of the Ld. CIT(A) is reproduced as under :- "3.10 However, the AO argued that the assessee has not provided any suppor in respect of the claim of bad debts therefore the claim is illegal. It is seen from the record that the assessee had provided documentary evidences in the form of contract notes of the brokers M/s. Motilal Oswal Securities Pvt. Ltd. and M/s. Phillip Commodities Pvt. Ltd to show that the amount of Rs.10,91,53,1487- was recoverable from NSEL. As operations on NSEL were banned and the law enforcing agencies swooped on it and found that the actual goods were not available in the accredited warehouses of NSEL the appellant felt the amounts due to him not recoverable. It is seen that the appellant also explained to the AO as to how he satisfies the conditions section 36(1)(vii)....
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.... he can write off. The facts narrated above show that the amounts became irrecoverable and bad. Be that as it may, after the amendment made to the Act with effect from 15th April, 1989, the assessee is not required to establish that the debt has in fact become irrecoverable. The only requirement under section 36(1)(vii) read with section 36(2) of the Act is write off the debt as irrecoverable in the books of account of the assessee for claiming deduction u/s. 36(1)(vii) of the Act which is complied with by the assessee. Reliance in this regard is placed on the decision of the Apex Court in TRF Ltd. Vs. CIT [(2010) 323 ITR 397 (SC)] and the Board Circular No. 12/2016 [F.NO.279/MISC./140/2015-ITJ], DATED 30-5-2016. Therefore, the observations of the AO in para 4.11 and para 4.14 of the assessment order are not correct and go against the settled law which is accepted by the Board by issuing a circular. 3.14 It is seen that number of other assessee also incurred losses on account of scam in NSEL and stoppage of payments by NSEL in July 2013, which have reached higher appellate forums and claim of bad debts of such assessee have been accepted by courts. Reliance is placed on th....
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....al in the case of Chowdry Associates vs. ACIT in ITA No.3928/Del/2019 for Assessment Year 2015-16 wherein identical claim of the loss from transaction carried on NSEL has been held to be a business loss. The Tribunal has also rejected the contention that these transactions are in the nature of speculative transactions. The relevant finding of the Tribunal is reproduced as under :- 14. Heard the arguments of both the parties and perused the material available on record. 15. From the entirety of the events, we find that in the assessment year 2014-15 assessee had made purchases in the middle or last week of June 2013 through M/s A Rathi Commodities Pvt. Ltd. and M/s Philips Commodities Pvt. Ltd. The NSEL failed to fulfill its commitments and ultimately the Government had prohibited NSEL to make transactions after 1st July 2013. The details of outstanding unsettled transactions assessee through both the brokers has also been furnished to the revenue authority the NSEL. 16. The AO disallowed the losses as claimed by the assessee on the ground transactions has carried out by the assessee are speculative transactions settled with delivery in terms of Section 43....
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....recognized association as referred to in clause (j) c section 281 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which fulfill such conditions as may be prescribed and is notified by the Central Government for this purpose;]. 22. We also find that all the transactions made by the assessee are evidencing the client ID and PA No. and also carried out through computerized exchanged through electronic screen (NSEL) as per the details collected by the revenue. 23. We have also gone through the provisions of the Act introduced vide Finance Bill 200 in respect of measures to rationalize the tax treatment of derivative transactions. Th same is as under: Under the existing provisions clause (5) of Section 43, a transaction for the purchase and sale of any commodity including stocks and shares is deemed to be "speculative transaction". If it is settled otherwise than by actual delivery. However certain categories of transactions are excluded from the purview of the said provision. Further the unabsorbed speculation losses are allowed to be came forward for eight years for set-off against speculation profits in subsequent yean These restrictions we....
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....rchase the commodity during t course of the business is a business loss allowable u/s 28 of the Act. 26. We have also perused the notice of PCIT, Central, New Delhi issued under t provisions of Section 263 of the Act proposing to withdraw the bad debts claimed by t assessee and accepted by the Assessing Officer. We categorically refrain from adjudicating on the strength of the notice, however, we observe that the said notice also dealt w the issue of bad debts claimed u/s 36(1)(vii) by that assessee. 27. We have also perused the order of the Chennai Tribunal in the case of Megh Sakari International Pvt. Ltd. in ITA No. 59/Chennai/2018 wherein the bad debts have be allowed by the Tribunal u/s 36(1)(vii) of the Income Tax Act, 1961. In that case too, the revenue has also brought to the notice regarding the information received from NSEL if trading on that platform was topped since 31.07.2014 and the NSEL was in the process of settling the outstanding dues of its traders and auctioning its assets for the s; purpose. The revenue claimed that the claim of bad debts was premature, However, t ITAT has allowed the claim of the assessee based on the judgment of the Hon'....
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.... off as irrecoverable in the books of accounts of the assessee for that previous year and it fulfills the conditions stipulated in sub section (2) of sub-section 36(2) of the Act. 5. Accordingly, no appeals may henceforth be filed on this ground and appeals already filed, if any, on this issue before various Courts/Tribunals may be withdrawn/not pressed upon. 6. This may be brought to the notice of all concerned. (Sadhana Panwar) DCIT (OSD) (ITJ. CBDT, New Delhi.) 28. Thus, we find that the CBDT has unequivocally allowed the claim of bad debts once the same is written off in the books of accounts as irrecoverable. Thus, the argument of the Id. DR that the bad debts should not be allowed which is based on the letter issued by the NSEL that NSEL is in the process of settling the amounts in view of the sufficiency of the assets and not to allow bad debts as the claim is pre-mature. 29. We also hold that, if in any previous year, the debt has been written off as bad and the relevant deduction has also been claimed but later on the same debt is recovered in full or part, then the amount so recovered will be included as income of the financial year in ....