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2020 (5) TMI 436

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....odities and did not permit any derivative or speculative transactions. 3. That the learned Commissioner of Income Tax (Appeals) has erred in ignoring the fact that each purchase transaction was matched by a cross contract of simultaneous sale transaction. Both purchase and sale were delivery based business transactions as NSEL issued delivery allocation report for each purchase transaction by virtue of which the commodity purchased on behalf of the purchaser (appellant) was kept in various warehouses on behalf of the participant assessee and further the obligation of delivery at the time of sale at a pre-determined subsequent date was being met out of the purchase delivery of exact specification lying in the warehouses on behalf of the various participants including appellant. Such transactions of purchase of commodity and simultaneous sale for performance of delivery at a later date were supported by contract notes in the name of the appellant issued by brokers affiliated to NSEL. 4. That the learned Commissioner of Income Tax (Appeals) has erred in ignoring that the above fact which is conclusively evident from the contract notes wherein exchange delivery allocation charges, ....

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....ransacted between multiple parties to trade, with underlying asset always been commodities. The basic idea of launching the bourse was to provide a place where farmers, traders, corporates, processors, planters, manufacturers, and importers can sell and buy their commodities at the best possible and competitive rates. 5. During the AY 2015-16, the assessee was trading in commodity derivatives in the association which is National Spot Exchange Limited)NSEL). NSEL ran into regulatory hurdles and as such its operations are stopped by the regulators. The assessee forayed in commodity market since FY 2011-12 and availed services of authorized NSEL agents namely M/s. Anand Rathi Commodities Ltd and M/s. Philips Commodities India Pvt Ltd for that purpose. As the business of trading in NSEL platform was regular one and not in nature of speculative transaction u/ s 43(5), the Appellant always treated the trading business of NSEL as regular business and offered for taxation u/ s 28. There has been no dispute on these facts since FY 2011- 12 and tax department has always accepted the same. 6. In the instant AY 2015-16 , the AO noticed that the Appellant has claimed loss of Rs. 5 ,56,24 ,659....

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....ppellant has sold even before the commodity is purchased. Short selling and dealing in derivatives are prohibited on NSEL, hence, the assessee has to be treated as dealing in business of speculation. 8. Having said that the ld. CIT (A) disallowed the claim of business loss declared by the appellant in respect of amount of unrecoverable balances from brokers M/s. Anand Rathi Commodities Services Pvt. Ltd. and M/s. Philip commodities India Pvt. Ltd. 9. Before us, the ld. AR repeated the submissions taken up before the authorities below. 10. The ld. DR submitted his arguments in writing which are as under: " During the course of hearing of the case today, i. e. 18 . 12. 2019, the Ld. Counsel for the assessee referred to the case of M/ s Flair Exports Pvt. Ltd, New Delhi, claiming that the facts of that case are similar to those of this case. 1. In this connection, it is submitted that the MD & CEO, National Spot Exchange Ltd, has written a letter dated 23 .01 .2019 to the Pr. Chief Commissioner of Income Tax, Delhi, raising the issue of bogus claim of bad debts written off by some assessees. He has specifically mentioned the case of M/ s Megh Sakariya International Pvt. Ltd. in....

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....n routine manner without discussing the facts and thus the assessee has got relief from the Tribunal. In a similar case, the Ahmadabad Bench of ITAT in ITA No. 2818 / AHD/2017 in the case of Omni Lens Pvt. Ltd. Vs DCIT, Circle- 3)1))2) has given a new dimension to the issue by stating that it should be examined from view of speculative loss and set- off only against speculative income and set aside the file back to the AO for re- examination (Copy of the order attached as Annex - E). We have brought this to the notice of the CBDT vide our letter Ref. No.: NSEL/ MD&CE0 / 18 -19 / 0278 dated December 05 , 2018 (attached as Annex - F). However, as it may take some time for the instructions to come down, by when it may be too late for taking any corrective actions, we are bringing this to your kind attention for necessary action at your end. Thus, it is requested that: i. Where, the additions have been made in routine manner, it may kindly be defended by bringing out the factual position before the Appellate Authority. ii. Where, the additions have not been made, the same should be done now using the appropriate provisions of the law, and also take into consideration the obse....

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....rst deposited the commodity with the Exchange accredited warehouse and received a warehouse receipt which was deposited with NSEL for the purpose of transactions under the control and supervision of NSEL. The transactions in NSEL are made through members of NSEL, who are authorized brokers. The assessee has made the transactions under paired contracts. Under the paired contract, generally the purchases were made at T+2 cycle and sales were made at T+25 or T+ 35 cycle. Under these transactions, the assessee company made full payment for purchase immediately and delivery of the commodity lying in the warehouse was assigned to it. The transactions were subjected to VAT, delivery charges, service tax. As far as sale is concerned, the assessee company immediately put a contract for sale on T+25 and T+ 35 and delivery was assigned from buyer to the seller. The amount is received as and when the transaction is completed. In the assessment years 2013 -14 and 2014-15 , whatever the transactions were made on NSEL, whatever the profits or losses obtained, the same were duly disclosed in the profit & loss account and assessed as business income. 14. Heard the arguments of both the parties and....

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....bye-laws, rules and regulations of the recognized association for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and the rules, regulations or bye-laws made or directions issued under that Act on a recognized association; and (B)) which is supported by a time stamped contract note issued by such member or intermediary to every client indicating in the contract note, the unique client identity number allotted under the Act, rules, regulations or bye-laws referred to in sub-clause (A), unique trade number and permanent account number allotted under this Act; 21. The " recognized association" means" recognized association" means a recognized association as referred to in clause (j) of section 281 of the Forward Contracts)Regulation) Act, 1952 (74 of 1952) and which fulfils such conditions as may be prescribed82 and is notified83 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. ....

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....f assessee for the earlier years. The amount kept with M/s Anand Rathi Commodities Pvt. Ltd. was Rs. 1 .30 crores for the year ending 31.03.2014 and Rs. 4 .60 crores for the ending 31.03.2013 and Rs. 2 .95 crores for the year ending 31 .03 .3012. Similarly, the amount kept with M/s Philips Commodities India Pvt. Ltd. was Rs. 4 .33 crores for the year ending 31 .03 .2014 and Rs. 14 .95 crores for the ending 31 .03.2013 . During the year, the assessee could not recover the amounts from these two brokers owing to suspension of operations by the NSEL which was given as a part of the business transaction for purchase of commodities in the conduct of regular business operations. Hence, the amount advanced made to purchase the commodity during the 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 the provisions of Section 263 of the Act proposing to withdraw the bad debts claimed by the 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 with the issue of bad debts claime....

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....r the reason that the debt has not been established to be irrecoverable. The Hon' ble Supreme Court in the case of TRF Ltd. in CA Nos. 5292 to 5294 of 2003 vide judgment dated 9 . 2 .2010 , has stated that the position of law is well settled. " After 1. 4 .1989 , for allowing deduction for the amount of any bad debt or part thereof under section 36 (1))vii) of the Act, it is not necessary for assessee to establish that the debt, in fact has become irrecoverable; it is enough i f bad debt is written off as irrecoverable in the books of accounts of assessee." 4. In view of the above, claim for any debt or part thereof in any previous year shall be admissible under section 36 (1)(vii) of the Act, if it is written 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, i f 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. ....