TMI Blog2020 (5) TMI 436X X X X Extracts X X X X X X X X Extracts X X X X ..... ivatives but not in the speculation transaction as held by the AO. The revenue has also accepted the income from the transactions of the assessee as business income but not as income from speculation for all the earlier years.) - Owing to collapse of the NSEL, no further trading could be conducted by the assessee in the latter years). It is also an undisputed fact that the trade advances given by the assessee stands irrecoverable. A tax history of the assessee , treatment given by the revenue to the transactions undertaken by the assessee, finding of the AO that the assessee is into commodity derivatives, provisions of the Section 43 (5) invoked by the AO, provisions of Section 43 (5)(e) relied upon by the ld. AR, Explanation (2) of Section 43 as to what constitutes commodity derivatives, Para 5 of Chapter VII of Finance Act, 2013, CBDT Circular No. 3/2006 dated 27.02.2006, orders of Megh Sakariya International [ 2018 (9) TMI 1961 - ITAT CHENNAI] , Omni Lens Pvt. Ltd. [ 2018 (10) TMI 1426 - ITAT AHMEDABAD] and case of TRF Ltd. [ 2010 (2) TMI 211 - SUPREME COURT] we hereby hold that the business loss claimed by the assessee is allowable u/s 28 of the Act. - Appeal of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of business loss ₹ 5,56 ,24,659 /- by treating the same to be a speculative loss made by the assessing officer which is based on suspicion, conjectures, surmises without any substantive basis or cogent material. 6. In the facts and circumstances of the case learned Commissioner of Income Tax (Appeals) has erred in ignoring the fact that what has been written off by the appellant is the money advanced to the brokers of NSEL which is in the nature of trade debt, income/loss from which could be held as speculative but how can a write off of debt be treated as speculative loss. 7. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in not appreciating that the appellant having fulfilled all relevant conditions for claim of Bad Debts u/ s. 36(1)(vii) r. w.s. 36(2), its case was squarely covered by the ratio of the decision of the Hon' ble SC in the case of TRF Ltd. and tire clear guidelines as laid down by the CBDT Circular No. 12 /2016 dtd. 30 -05 -2016. 3. Brief facts of the case are that the assessee company is a Non-Banking Financial Company engage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brokers as the operations of NSEL were closed. Per the AO, NSEL was formed to be engaged in SPOT Trading but NSEL was carrying out futures contract which was specifically prohibited. Thus, the AO challenged the basic premise about the operations of NSEL. The AO held that the NSEL is SPOT exchange and only SPOT contracts can be executed through NSEL, therefore, the contract has to be necessarily settled by delivery within a period not exceeding 11 days from the date of the trade. Any contract that does not get settled by delivery within 11 days ceases to be a SPOT contract and not covered by Forwards Contracts Regulation Act. The AO has not disputed that the assessee has invested in NSEL through two brokers M/s Anand Rathi Commodities Pvt. Ltd. and M/s Phillip Commodities Pvt. Ltd. The assessee company traded on the exchange during F.Y. 2011-12 , 2012-13 and 2013-14. The AO also held that the assessee has traded through paired contracts. Paired contract means that an investor would enter into two contracts. A buyer would buy the commodity from the market paying cash for it, and store the commodity in warehouses accredited to NSEL. The buyer then use the warehouse receipts as proof o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requested the Department to look into the matter to ensure that bogus bad debt claims being made by Members of NSEL are not allowed. 2. It is further submitted that, on similar facts, the Hon ble ITAT, Ahmadabad, vide its order dated 16 . 10 .2018 in ITA No. 2818 / AHD/2017, has set aside the case of Omni Lens Pvt. Ltd. to A.O for examining it from the angle of speculative loss and set off only against speculative income. 3. Copies of the above- mentioned letter dated 23 /01 /2019 from NSEL and order of the Hon ble ITAT Ahmadabad in ITA No. 2818 / AHD/2017 in the case of M/s Omni lens Pvt. Ltd for A.Y 2014 - 15 are enclosed. 4. In view of the above, the assessee s appeal may kindly be dismissed. Alternatively, the matter may be set aside to A.O for re- examining it. 11. He further attached the copy of the MD CEO of NSEL wherein the revenue was advised against claim of bad debts. Sub: Claim of Bad Debts by Members of NSEL and different treatments given to such claims by different Tribunals, leading to a loss of revenue, possibly amounting to few thousands of crores in rupees to the Exchequer Dear Sir, National Spot Exchange Ltd, (NSEL) had bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble Ahmadabad Tribunal. iii. Necessary instructions may kindly be passed to the field formations, to take a unified stand at the Tribunals, so that there is no loss of revenue, due to different position taken by different Assessing Officers. We once again request you to kindly look into the matter, to ensure that bogus bad debt claims being made by Members of NSEL are not allowed, so that there is no loss of revenue to the exchequer. 12. From the above events and the arguments of the Ld. DR, the following points are flagged: 1. The assessee has been claiming the transactions of trading on NSEL platform as business income which has been accepted by the revenue in all the earlier years. 2. The AO has taken a conscious decision to treat the transactions has speculative in nature during the current year only. 3. The AO held that since the contracts are paired there cannot be any loss to the assessee as sale and purchase have been taken simultaneously with the same person. 4. The AO held that the SPOT contracts have to be necessarily settled by delivery within a period of 11 days. 5. The AO held that the assessee is dealing in commodity derivatives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth 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, the assessee had made purchases in the middle or last week of June 2013 through M/s Anand 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 any transactions after 1st July 2013 . The details of outstanding unsettled transactions of the assessee through both the brokers has also been furnished to the revenue authorities by the NSEL. 16. The AO disallowed the losses as claimed by the assessee on the ground that transactions has carried out by the assessee are speculative transactions settled without the delivery in terms of Section 43(5) of the Act. The AO in the assessment order reproduced the relevant provisions of Section 43 (5) upto sub-Section (d) of 45 (3). The AO stopped at short of sub- Section (d) without going further to sub-Section (e). 17. Reading further, sub-Section (e) which was introduced by the Finance Act, 2013 w.e. f. 1 st April 2014 reveals that in respect of trading and commodity derivatives carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L) as per the details collected by the revenue. 23. We have also gone through the provisions of the Act introduced vide Finance Bill 2005 in respect of measures to rationalize the tax treatment of derivative transactions. The 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 a 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 carried forward for eight years for set- off against speculation profits in subsequent years. These restrictions were essentially designed as an anti-evasion measure to prevent claims of artificially generated losses in the absence of an appropriate institutional infrastructure. Recent systemic and technological changes introduced by stock markets have resulted in sufficient transparency to prevent generating fictitious losses through artificial transactions or shifting of incidence of loss from one person to another. The screen based computer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, we observe that the said notice also dealt with 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 Sakariya International Pvt. Ltd. in ITA No. 59/Chennai/2018 wherein the bad debts have been 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 that 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 said purpose. The revenue claimed that the claim of bad debts was premature. However, the ITAT has allowed the claim of the assessee based on the judgment of the Hon ble Apex Court in the case of TRF Ltd. Vs CIT 320 ITR 397 wherein it was held that after 1st April, 1989, it was not necessary for the assessee to establish that the debt has become irrecoverable and it was enough if the debt was written off as irrecoverable in the books. Further, the CBDT vide Circular No. 12/ 2016 clarified regarding the claim of the bad debts, the same is reproduced as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essed 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 ld. 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 which such amount has recovered. Owing to taxability of the amounts recovered, the revenue would at liberty to tax the amount as and when received in accordance with the provisions of the Act. The department must obtain the information pertaining to payment by the NSEL to brokers/ traders on real time basis and bring these amounts to tax net. Hence, the advisory of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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