TMI Blog2021 (6) TMI 814X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, the ld AR argued that the disallowance already made by the assessee was much more than disallowance warranted under third limb of Rule 8D(2) of the Rules. We are inclined to agree with the same. Hence we direct the ld AO not to make any disallowance u/s 14A of the Act other than the suo moto disallowance already made by the assessee in the return of income, both under normal provisions of the Act as well as in the computation of book profits u/s 115JB of the Act. Accordingly, the Ground No. 1 raised by the revenue is dismissed. Disallowance of business loss on account of NSEL and also treating the said loss as speculative loss - whether the loss arising on the impugned transaction could be construed as speculative loss specifically? - HELD THAT:- We hold that the loss arising on account of payment made to NSEL through registered broker towards purchase of commodities (which were never delivered to assessee) , shall be allowable as regular business loss u/s 28 of the Act. We further hold that the said loss cannot be construed as speculative in nature. Accordingly, we do not find any infirmity in the order of the ld CITA in this regard. Interest income on fixed deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 2014-15 hereinabove that the business loss would be allowable as business loss u/s 28 of the Act. Hence the said loss would be eligible to be carried forward to subsequent years in terms of section 72 and 32 of the Act to be set off with the business income or other income, as the case may be. We find that the ld AO had primarily dismissed the claim of the assessee since he had already disallowed the business loss in Asst Year 2014-15 - But the said disallowance has already been deleted by us in Asst Year 2014-15. Hence this ground is effectively consequential in nature. The ld AO is hereby directed to allow the set off of losses from Asst Year 2014-15 after giving effect to our tribunal order for Asst year 2014-15 and whatever loss that is available to the assessee thereafter, should be allowed to be carried forward to subsequent years and allowed to be set off against future business income. Accordingly, the Ground No. 3 raised by the revenue is dismissed. - ITA No.6321/Mum/2019, ITA No.6322/Mum/2019, ITA No.6318/Mum/2019 - - - Dated:- 21-6-2021 - Shri C.N. Prasad, Judicial Member And Shri M.Balaganesh, Accountant Member For the Assessee : Shri Rajiv Khandelwal S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 20,35,780 Disallowance u/s 14A ₹ 7,80,743 2.2. We find that the ld CITA had deleted the disallowance of interest made under Rule 8D(2)(ii) of the Rules on the ground that the assessee company is having sufficient interest free funds in its kitty. With regard to disallowance of indirect expenses under Rule 8D(2)(iii) of the Rules, the ld CITA held that since the disallowance already made by the assessee is much more than ₹ 7,25,221/-, no further disallowance is warranted in the case. It is a fact on record that the assessee is having sufficient interest free funds in the form of share capital and reserves to the tune of ₹ 218.14 crores as on 31.3.14 and ₹ 250.02 crores as on 31.3.13 which is evident from the bare perusal of the financial statements for the respective period and that the same is much more than the investments made by the assessee. Hence by applying the ratio laid down by the Hon ble Jurisdictional High Court in the case of HDFC Bank Ltd reported in 366 ITR 505 and of the Hon ble Supreme Court in the case of Reliance Industries Ltd reported in 410 ITR 466, we hold that no disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rade on Bombay Stock Exchange. In respect of trading in commodities, Purvag Commodities Pvt Ltd and Jigar Commodities Pvt Ltd are authorised to trade on electronic platforms of several exchanges. NSEL is a spot exchange incorporated as company under the provisions of the Companies Act, 1956. The NSEL is a national level, electronic spot trading platform for commodities with operations in 16 states in India and providing delivery based spot trading in around 52 commodities. It was an exchange for trading in commodities and carrying out its activities since 2007. NSEL was platform for automated trading system for conducting spot trading system in commodities. In or around September 2009, the NSEL for the first time introduced paired traders contracts, and from time to time the company issued ciruclars regarding the commencement of spot trading in a particular commodity. These circulars would be issued in pairs, one of which would permit a short settlement cycle such as T+2 and the other of which would permit a longer settlement cycle such as T+25. The assessee company had purchased and sold commodities on the exchange platform of NSEL by trading in the paired trader s contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he outstanding contracts and thereby defaulted on the amount owed to the assessee company. 3.3. METHOD OR MANNER OF SETTLEMENT FOR PAYMENT, EARLY PAYIN, PAYMENT, RECEIPTSAND BASIS OF CLAIMING LOSS BY THE ASSESSEE There are different contracts available for different commodities on the exchange as follows : T+2 days (Buy Contract) and T+25 days (Sell Contract) T+3 days (Buy Contract) and T+36 days (Sell Contract) T+5 days (Buy Contract) and T+30 days (Sell Contract) The term days means working days excluding Saturdays, Sundays and exchange holidays. The different commodities available are Castor Seed, Castor Oil, Cotton wash Oil Cake, Paddy, etc.The Clients enter into contract of the above commodities. For example, a client enters into contract of Castor Seed for T+3 (Buy Contract) and T+36 (Sell Contract), then the client will have to pay the funds on T+3 days for its purchase obligation and client will receive funds on T+36 days for its sales obligation.However, since the sales bill is issued on T+5 days by the clients and amount is received in T+36 days, the sales obligation will be shown as receivables in between T+5 and T+36 days. 3.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14,615,076.40 2923.60 14,618,000.00 20/6/2013 Total For CASTOILKLS 200 14,322,864.00 Total For CASTOLKL30 200 14,573,084.80 14,573,084.80 2915.2 14,576,000.00 21/6/2013 25/6/2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3000 5,233,953.00 5,233,953.00 1,047.00 5,235,000.00 Total For PYTRADHR25 9000 16,664,666.40 16,664,666.40 3,333.60 16,668,000.00 27/6/2013 Total For CASTOILKLS 400 28,885,776.00 Total For CASTOLKL30 400 29,414,116.00 29,414,116.00 5,884.00 29,420,000.00 Total For CWOILKD12 1150 70,946,186.40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .60 7,315,536.60 1,463.40 7,317,000.00 Total For CWOILKD12 1550 95,002,996.80 Total For CWOILKDI25 1550 96,545,687.00 96,545,687.00 19,313.00 985,650.00 3/7/2013 470 33,508,300.32 Total For CASTOILKLS Total For CASTOLKL30 470 34,115,175.60 34,115,175.60 6,824.40 34,122,000.00 Total For CWOILKD12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total For CWOILKDI25 700 43,909,216.40 43,909,216.40 281,783.60 44,191,000.00 Total For 2101 NIRSHILP SECURITIES PVT. LTD., 13495 490,556,016.59 13495 498,675,644.92 1,640,052.20 894,161,931.84 451,868.16 894,613,800.00 3.3.3. An independent auditor SGS was appointed to ascertain the discrepancy of the stocks lying in the warehouse after the NSEL scam broke out in public. As per the SGS Audit Report of the NSEL warehouses, it was revealed that commodities of the stated quantity were not stored in the NSEL designated warehouse. In respect of all the above contracts, the assessee received Delivery Allocation Report according to which stock was in possession of NSEL warehouse though title of the goods was with the assessee. The assessee was given warehouse receipt after mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dues payable to the brokers. Pursuant to the scheduled payouts under the settlement schedule, the NSEL made payments towards settlement of the outstanding contracts and assessee s broker received the payments from the NSEL on various dates commencing from 20.8.2013 to 22.3.2014 totalling to ₹ 5,56,00,000.68. Pursuant to the above receipts by the assessee from NSEL through its broker, the loss suffered by the assessee due to non-receipt of goods was ₹ 87,93,32,350/- being cost of goods purchased and not delivered by NSEL. 3.3.5. It was clear from the SGS audit report that significant stock shortage has been found in some so-called NSEL accredited warehouses relating to certain defaulters. It has been reported that SGS audit team was not even allowed inside the premises of the majority of the NSEL warehouses for audit and inspection in certain warehouses relating to certain defaulters. 3.3.6.The assessee filed a complaint before Economic Offence Wing (EOW) jointly with other traders explaining the fraud committed by NSEL by not having the requisite quantity and quality of commodities at its accredited warehouses. The assessee gave the details of payments made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s referred above will be honored by NSEL in normal course of business. But assessee was taken by surprise when NSEL announced suspension of trade and thereafter it tried to merge the settlements. Assessee along with other similar traders , brokers of NSEL, so called investors in NSEL had gathered and formed a group to pursue the matter with NSEL but no physical stock stated to have been delivered to assessee and others was not traceable at warehouses which means that stock purchased has been lost and cost paid for the same has been reduced to zero. The non -availability of requisite stocks at NSEL warehouses was confirmed by SGS audit report. The assessee had accounted for stock on date of purchase for which delivery allocation report was received and when same was not found up till balance sheet date and in view of non-cooperation of NSEL, the stock purchased has been valued at NIL while preparing trading results of the year though amount received from NSEL in lieu of claim has been separately credited in books of accounts as operating income and offered to tax. Thus assessee suffered loss of an amount of ₹ 87,93,32,350/- equal to cost of goods purchased and lost less amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions as fictitious. Thus the treatment of both purchases and sales are to be treated as identical. Either both purchase and sales are fictitious or both are real and genuine. g) The closing stock of commodities cannot be valued at NIL. h) The onus was on the assessee to prove that sale was not reversed. The assessee had paid VATR on 5.7.2013 and did not know of the scam till 31.7.2013. Thus for 25 days, the assessee was treating the transaction as sale. Thereafter while finalising the books, it has reversed the sale, This is clear from qualitative chart of stock submitted as part of audit report. The same has been noted by the auditor who has gone through the basic primary documents like sale ledger, stock ledger etc and gave his finding on the audit report. The assessee did not dispute the findings of the auditors. The assessee has deliberately reversed the sale while finalising the accounts so that the stock can be taken as Nil. If assessee had credited sale, then the claim of assessee would have come to writing off receivables from NSEL. Thus the claim of assessee would have been allowability of bad debts instead of valuation of closing stock. It is estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him in the case of group concern of the assessee namely,Dolat Investments Limited for Assessment Year 2014-15where exactly similar disallowance was made by the ld AO. 6. The ld DR vehemently argued by placing heavy reliance on the assessment order. The gist of the various arguments made by the ld DR could be summarised as under:- a) NSEL is a commodity exchange which is completely different from National and Bombay Stock Exchange (NSE and BSE) . With regard to commodities transaction traded in NSEL platform, the commodities purchased are supported by a warehouse receipt and hence there can be no situation of non-delivery of goods to the assessee. Hence correspondingly assessee incurring loss on account of non-delivery of goods by NSEL is a mere impossibility. b) The assessee had claimed this loss on account of cost of commodities purchased (stated to be not delivered by NSEL) in the same year in which the purchases were made. Admittedly the Asst Year 2014-15 was the year in which the NSEL scam also got unearthed and how can the assessee reach to the conclusion that it would not be able to recover the cost of commodities from NSEL in the same Asst Year 2014-15 itself. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that NSEL ahs not been able to adhere to its payment obligations. Further as company has paid ₹ 8793.87 lakh as cost of purchases for which no stock is received by the company as referred above, hence the said cost is written off as business loss while determining stock in trade as on 31.3.2014. Company received a sum of ₹ 556.00 Lakhs towards disputed transaction on platform of NSEL and same is offered as income and shown under income from operation. (emphasis supplied by us) Economic Offence Wing (EOW) of Mumbai Police is investigating the unsettled transactions of NSEL on the basis of complaint filed by NSEL Investors Forum of which Company s Broker is a member and said forum has also filed writ petition in the Bombay High Court. 7.2. We find that the Statutory Auditors in their Statutory Audit Report had categorically stated that the company is maintaining proper records of inventory (being shares, securities and commodities). Discrepancies noted on physical verification of inventories were not material, except for transactions on National Spot Exchange Ltd (NSEL) platform. 7.3. We find that the assessee had given the quantitative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecoverable purchase cost of commodities on impugned specified contracts alone become speculative in nature. We are unable to persuade ourselves to accept to this proposition of the ld DR. Only when the commodities are actually delivered to the assessee for the payments made by the assessee to NSEL, the assessee would in turn be able to sell the same again in NSEL platform through registered brokers. In the instant case, the non-delivery of the commodities to the assessee by the NSEL had been proved beyond doubt as is evident from the (i) SGS Audit Report not being allowed to inspect certain NSEL accredited warehouses and wherever they had been allowed, they found huge shortage of stocks lying in warehouses ; (ii) assessee lodging complaint with EOW along with other traders for recovery of dues from NSEL ; (iii) NSEL initially issuing a press release on 4.8.2013 that it has got post dated cheques of ₹ 4900 crores to honor its commitments to various traders ; (iv) assessee along with other traders forming an Investors Forum to fight the case against NSEL for recovery of the dues ; and (v) NSEL itself trying to sell the commodities lying in its warehouses and making payments to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the broker gives the complete details of the order number, trade number, contract description, quality, unit, price, brokerage and amount. These transactions mentioned in the contract notes have been duly executed on the online exchange platform of NSEL. A perusal of the contract notes and the Delivery Allocation Reports reveals that the purchase and sale transaction of the assesseecompany cannot be held to be non-genuine / bogus by any stretch of imagination. The ld CIT(A) further goes on to discuss the DAR issued by the NSEL and holds that its contents clearly shows that NSEL had duly informed the assessee company that for the purchases made by it, the ownership of the commodities in the form of the warehouse receipts is with the assessee company. However, such warehouse receipts were in the custody of NSEL. This clearly shows that the assessee company had made a valid purchase transaction on the Exchange and further, the Exchange had confirmed the same by giving the Delivery Allocation Report of the said commodities. c) In para 21, the ld CIT(A) discusses the letter issued by the broker namely, Purvag Commodities and Derivatives Pvt. Ltd. to the assessee company da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the amount of ₹ 41,35,51,452/- due and payable by NSEL as on 21.11.2013. Thus, it needs to be appreciated that the assessee company had made all efforts to recover its money lost in the scam. The ld CIT(A) also discusses the reply sent by NSEL in response to the Statutory Winding Up notice given by the assessee company. A perusal of the said reply reveals that the NSEL has clearly stated that they are not bound to pay the outstanding balance to the assessee company, as it is not a trading member of NSEL. Thus, NSEL had totally brushed off the claim made by the assessee company on the ground that they have not contracted with them. The reply of NSEL clearly states that they have contractual obligation towards the members only and not towards their clients. e) In para 23, the ld CIT(A) observes that assessee company had made every effort to recover the disputed amount resulting from the disputed transactions on NSEL. f) In para 24, the ld CIT(A) notes that the assessee company had voluntarily offered for taxation on receipt basis in subsequent years, whatever had been recovered from the said amount of loss the same is accepted by the ld AO as business income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes that the NSEL had totally abdicated its responsibility and liability about the non-availability of the physical goods against the various Warehousing Receipts. The stand taken by NSEL is that there is no liability of NSEL regarding the commodities lying in the designated delivery centres/warehouses relating to transactions carried out by members on the Exchange Platform. Thus, the ldCIT(A) holds that the ld AO had grossly erred in holding that the NSEL had the legal as well financial responsibility for making good the business loss of the assesseecompany, arising out of the missing goods. k) In para 29, the ldCIT(A) counters the argument of the ld AO that the Settlement Guarantee Fund (SGF) of NSEL, also guarantees the settlement of net financial obligation. The ldCIT(A) observes that there is only Cash Margin amounting to ₹ 37,46,08,831/-, which is available in the SGF-MC account. This amount lying in SGF is too meagre to cater to the financial liability of more than ₹ 5600 Crore arising out of the Scam. Further, the notes to accounts of NSEL also makes it clear that the Margin money is refundable to the respective member and is only subject to adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even as per the SGS Audit Report. The ld CIT(A) holds that the ld AO failed to appreciate that the assessee company follows cost or market value whichever is less, as the method of valuation of stock in respect of commodities. The declaration in the Significant Accounting Policies at Note 2.7 clearly states that commodities stock held as stock-in-trade under current assets are valued at cost or market value, whichever is lower on a FIFO basis. He further, notes that when a theft, burglary etc. occurs, the goods are written off by valuing them at Rs. NIL, if there is no chance of any recovery of goods. In the present case, SGS Audit Report had clearly revealed that goods purchased by the assessee company had not been found in the designated warehouses of NSEL. Further, the assessee company had already made the payments for such purchases. In these facts and circumstances, the closing stock had been rightly valued at Rs. Nil by the assessee company. The ld CIT(A) then observes that the assessee company had correctly followed the Accounting Standard 9 and holds that the Accounting Policy followed by the assessee company, the contract for sale cannot be recognized as revenue, si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 73 of the Contract Act, the party suffering by such breach becomes entitled to receive from the party who broke the contract, compensation for any loss or damage caused to him thereby. There is no reason why the sense conveyed by the law relating to contracts should not be imported into the definition of 'speculative transaction' in section 43(5) of the Act. The award of damages for breach of a contract is not the same thing as a party to the contract accepting satisfaction of the contract otherwise than in accordance with the original term thereof. It may be that in a general sense the layman would understand that the contract must be regarded as settled when damages are paid by way of compensation for its breach. What is really settled by the award of such damages and their acceptance by the aggrieved party is the dispute between the parties. Section 43(5) speaks of a settlement of the contract, and, consequently, where there is a breach of the contract resulting in a dispute between the parties and culminating in award of damages as compensation by an arbitration award, the transaction cannot be treated as a 'speculative transaction' within the meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business loss as claimed by the assessee is nothing but a loss due to embezzlement and should be allowed under the Act. For this, he relies on Circular No. 35-D (XL-VII-20) [F.No.10/48/75-IT(A- 1)], dated 24-11-1965 of the CBDT. He also states that the impugned loss has been incurred in the regular course of business. Further, he relies on various decisions of Hon ble Supreme Court and various Hon ble High Courts and concludes that the business loss incurred by the assessee company, as a result of the NSEL Scam on the transactions executed on the Exchange Platform is allowable, as the same had been incurred in the normal course of business. t) In para 38, the ld CIT(A) refutes the arguments of the ld AO that the transactions executed by the assessee company are non-genuine / bogus by stating that all the purchase and sale transactions of the assessee company had been conducted online on the exchange platform of NSEL. Trading on the electronic exchange platform is anonymous order driven trading system i.e. the buyer does not know the seller in the same way the seller does not know the buyer, and that the ld AO has not brought any adverse material on record to show that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany had suffered a trading loss in the normal course of business, wherein the Appellant Company had made payment for the purchases made but has not got the delivery of the goods purchased. Hence, the payment made for the purchase trade is to be treated as a business loss of the Appellant Company, which is allowable u/s 37(1) of the Act. 7.8. We deem it fit to address the issue as to whether the loss arising on the impugned transaction could be construed as speculative loss specifically as more emphasis has been laid on the same by the ld DR at the time of his arguments as well as during his rejoinder at the time of hearing. We find that the ld AO had disallowed the claim of business loss of the assessee on the ground that loss claimed is speculative in nature and therefore the same would be eligible for set off only against speculation profit. In our considered opinion, the ld AO had wrongly interpreted the provisions of section 43(5) of the Act. For the sake of convenience, the said provisions are reproduced below:- 43. In sections 28 to 41 and in this section, unless the context otherwise requires - . (5) speculative transaction means a transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act; (ii) recognised stock exchange means a recognised stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified 74 by the Central Government for this purpose;] The following Explanation 2 to clause (5) of section 43 shall be inserted by the Finance Act, 2013, w.e.f. 1-4-2014 : Explanation 2.-For the purposes of clause (e), the expressions- (i) commodity derivative shall have the meaning as assigned to it in Chapter VII of the Finance Act, 2013; (ii) eligible transaction means any transaction,- (A) carried out electronically on screen-based systems through member or an intermediary, registered under the bye-laws, rules and regulations of the recognised association for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and the rules, regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o him or accepts instead of it, any satisfaction he thinks fit. A contract which is not performed or where there is breach of contract cannot be covered as it lacks fundamental aspect of settlement as required by section 43(5) of the Act. 7.8.2. In the instant case before us, the impugned contract of purchases that took place on floor of the NSEL and wherefrom loss arose are not settled at all. Of course, the issuance of warehouse receipt by NSEL could be construed as settlement. But the undisputed fact is that the warehouse receipt was retained by NSEL itself and never handed over the assessee company. Moreover, as per SGS audit report, there were no physical goods in requisite quantity as stated in the delivery allocation report and warehouse receipt, present in the accredited warehouses of NSEL, which came to light during physical inspection by SGS. Hence the transfer of warehouse receipts by NSEL on behalf of buyers and sellers cannot be considered as actual delivery for the purpose of section 43(5) of the Act as settlement of contract did not take place at all as is evident from SGS audit report reporting the stock discrepancies. In the instant case, the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arise at all of treating transaction as commodity derivative not qualifying or fitting into clause (e) of the Proviso to Section 43(5) of the Act. 7.10. Yet another aspect that remains to be addressed is that the ld AO had treated the loss arising from impugned transactions as bogus and non-genuine. We find that the ld AO in Para 6.7 of his order alleged that both purchase and sale transactions are bogus and non-genuine. He also alleged that the assessee was aware of the true nature of the transaction that they are fictitious. We find that these allegations are baseless and are only based on conjectures and assumptions. The transactions were entered on electronic platform provided by NSEL. The counter party for sale or purchase of commodity were not known to the assessee when trades were executed. The assessee has paid for the purchases from own funds. The delivery allocation report are received for the purchases made. NSEL as per regulation of bye-laws was required to verify and weigh the goods before receiving the goods in their accredited warehouse and then only warehouse receipt was to be issued. The delivery allocation report mentioned full details of goods, and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warehouses of NSEL and the assessee had already made the payments for the purchases and received Delivery Allocation Report, the closing stock was valued at Rs. NIL in respect of such goods as there was no physical stock found at the accredited warehouses of NSEL. In our considered opinion, no fault could be attributed on the assessee in this regard. 7.12. With regard to reversal of sales when no sale could be said to have been effected in the absence of goods , we find that that NSEL was acting as agent and custodian of the goods purchased by the assessee. Upon payments to NSEL and receipt of the Delivery Allocation Report, the property in goods lying in warehouse is transferred to the assessee and NSEL acts as custodian/trustee to the assessee. Non-existence of goods was revealed when audit by SGS Report found that in most of the cases goods were not available in the warehouse. Since payments for purchases were already made and delivery of goods were received by way of Delivery Allocation Report the purchases are rightly accounted for by the assessee as per the accounting principles followed. Once purchases are accounted in the books then under normal circumstances, sales a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not and cannot be transferred to the buyer. In present case, before the settlement date of sale contract which were after 31.7.2013, it came to light that goods lying in the warehouse has vanished. The treatment given in books by reversing the sales is in line and in consonance with the accounting policy followed regularly and consistently by the assessee which is declared in audited financial accounts. 7.12.2. Yet another observation made by the ld AO was that the assessee has reversed the sale which could not be done once it is booked in the accounts vide para 6.8 and 6.9 of his order as under. We find that the the matter of recognizing the revenue depends upon the accounting policy followed regularly by the assessee. The accounting policy followed by the assessee in respect of sale of goods as stated in their audited annual accounts at Note No. 2.3 (g) and the same is reproduced below :- g) Sales The amount recognized as sale is exclusive of sale/VAT and are net of returns and excludes freight and other charges and accounted at time when the invoices are raised andgoods are delivered. (Emphasis supplied) 7.13. Another aspect which the ld AO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also submitted that this VAT return could not be revised due to lapse of time. It was specifically clarified that at the time of preparation of balance sheet of the assessee company, the assessee had considered only actual sales and hence not considered sales which were not executed at NSEL. The assessee also furnished the statements showing state wise, commodity wise details and other statement in Exchange wise details. These details are for physical trading of commodities. Overall outcome of both the statements were showing figures of opening stock, purchases, sales , amount written off, and closing stock of commodities for the year ended 31.3.2014 which are matching with each other. The disputed transactions with NSEL had been separately reflected in such statements. Hence it could be safely concluded that the entire quantitative details of commodities transactions had been duly reconciled by the assessee with its books, stock register, VAT returns filed by broker. Hence the genuinity of loss claimed by the assessee cannot be doubted at all. 7.16. We also find that the co-ordinate bench of Delhi Tribunal in the case of Chowdry Associates vs ACIT reported in 117 Taxm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racts. 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 of ownership of the commodity and sell the commodity to financial investors as standard short term contracts (T+2). Immediately after buying the contract, the investor would put the commodity up for sale on a T+26/T+35 basis. Looking at the transactions of the assessee, the AO held that the assessee has entered into two contracts on the same day of the same commodity and the same quantity for buying as well as selling. Hence, the AO held that the assessee is entered speculation business. . 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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) with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 infrastr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 claimed u/s 36(1)(vii) by that assessee. 27. We have also perused the order of the Chennai Tribunal in the case of MeghSakariya 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 31-7-2014 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. v. CIT 320 ITR 397 wherein it was held that after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs). It is also an undisputed fact that the trade advances given by the assessee stands irrecoverable. 32. In conclusion, keeping in view the facts of the case, 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 27-2-2006, orders of the Co-ordinate Bench of ITAT in MeghSakariya International (supra), Omni Lens Pvt. Ltd. (supra), judgment of the Hon'ble Apex Court in the case of TRF Ltd. (supra), we hereby hold that the business loss claimed by the assessee is allowable u/s 28 of the Act. 33. In the result, the appeal of the assessee is allowed. 7.17. In view of our elaborate observations in the facts and circumstances of the instant case and respectfully following the aforesaid judicial precedent relied upon, we hold that the loss arising on account of payment made to NSEL throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as according to him, the said interest income was not incidental to business. We find that the assessee had pleaded that it had availed Overdraft facility of ₹ 13.50 crores against Fixed Deposit of ₹ 15 crores from ICICI Bank. We find that the assessee had submitted that it is engaged in trading in shares , securities and commodities and that its business requires availability of the funds when opportunity to earn money arises in the volatile security and commodity market. The timing of opportunity are always unpredictable and therefore liquidity is of an essence for the type of business. Accordingly, the fixed deposit was created with ICICI Bank so that an overdraft facility could be availed against such fixed deposit from the same bank in order to meet the business exigencies. The assessee submitted that this fixed deposit was made admittedly out of business funds of the assessee and for business purposes and accordingly the interest income earned thereon was taxable as business income. It was pleaded that the investment in fixed deposit was therefore inextricably linked with the purpose of the business and therefore interest on fixed deposits would be taxed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 140 (Bom) and the decision of Hon ble Supreme Court in the case of Radhasoami Satsang vs CIT reported in 193 ITR 321 (SC). Hence we do not find any infirmity in the said order of the ld CITA granting relief to the assessee. Accordingly, the Ground No.1 raised by the revenue is dismissed for the Asst Year 2016-17. 14. The Ground No. 2 raised by the revenue is with regard to deletion made by the ld CITA in respect of disallowance made u/s 14A of the Act read with Rule 8D(2) of the Rules. 14.1. We have heard the rival submissions and perused the materials available on record. We find that the ld AO had stated in his order that the assessee had average investment of ₹ 27.83 crores during the year under consideration in exempt income yielding assets, for which no expenses have been disallowed voluntarily by the assessee u/s 14A of the Act. Accordingly, the ld AO directly proceeded to apply the computation mechanism provided in Rule 8D(2) of the Rules and proceeded to make disallowance of ₹ 73,08,242/- u/s 14A of the Act in the assessment, without recording any satisfaction in terms of Section 14A(2) read with Rule 8D(1) of the Rules and without even mentioning a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 8D(1) of the Rules. This issue is no longer res integra by the decision of the Hon ble Supreme Court in the case of Maxopp Investments reported in 402 ITR 640 (SC) in para 41 thereon. We find that the ld CITA had also granted relief on this count by placing reliance on the decision of Hon ble Delhi High Court in the case of Eicher Motors Ltd vs CIT reported in 86 taxmann.com 49 (Delhi), on which, we find no infirmity. Hence the Ground No. 2 raised by the revenue is dismissed. 15. The third ground raised by the revenue is with regard to adjustment of brought forward business loss and unabsorbed depreciation of Asst Year 2014-15 against the business income of the assessee during the year under consideration. 15.1. We have heard the rival submissions and perused the materials available on record. We have already held in assessee s own case for the Asst Year 2014-15 in ITA No. 6321/Mum/2019 hereinabove that the business loss of ₹ 87.93 crores would be allowable as business loss u/s 28 of the Act. Hence the said loss would be eligible to be carried forward to subsequent years in terms of section 72 and 32 of the Act to be set off with the business income or ot ..... 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