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TMI Blog2025 (1) TMI 1291X X X X Extracts X X X X X X X X Extracts X X X X ..... rming the addition of Rs. 56,74,032/- is unjust, illegal, arbitrary, uncalled for and devoid of any merit and the appellant prays that the same be deleted. 3. The action of the CIT(A) in holding that NSEL was nota recognized association/ platform as it did not pay commodities transaction tax (CTT) is unjust, illegal, arbitrary, uncalled for and devoid of any merit. 4. The action of the CIT(A) in not accepting the transactions as a forward contract covered under exception to section 43(5) is unjust, illegal, arbitrary, uncalled for and devoid of any merit. 5. The appellant craves leave to add, alter, modify or delete any ground of appeal either before or at the time of the hearing." 3. Brief facts of the case may be summarized as that the assessee/ appellant E-filed its return of income on 30.09.2015, declaring total income of Rs. 3,05,02,810/-. Subsequently, the case was selected for Manual scrutiny on the basis of guidelines of CBDT issued vide Instruction No. 4/2016 dated 13.07.2016. Accordingly, notice u/s 143(2) dated 30.09.2016 was issued and served upon the assessee within stipulated time. Thereafter, notices u/s 142(1) was issued to the assessee from time to time, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As the chances of recovery of this amount was quite remote, the assessee opted to write off 25% of the advance in F.Y. 2013-14 relevant to A.Y. 2014-15 and on the same basis 25% of the amount which remained outstanding as on 31.03.2015 (Rs.93,390/- was recovered through the efforts/committee appointed for making recoveries at the instance of Hon'ble Bombay High Court), another write off during the year @ 25% was Rs. 56,74,032/-. 6.2 Furthermore, the learned AO disallowed the amount by holding that because the government authorities have stepped in for making recoveries on behalf of various persons who got stuck in the scam and the write off by the assessee was premature. The Assessing Officer referred to a Circular issued by CBDT regarding alleged bogus losses for transaction on the National Stock Exchange on account of said scam in which, the Departmental officer were cautioned that certain brokers are claiming bogus loses. However, in the case of the assessee no finding has been rendered that the advance given by the assessee to its broker namely Phillip Commodities India Pvt. Ltd. were bogus or had not been advanced by the assessee in the ordinary course of business. The L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this stage and hence, the claim of bad debt of the assessee cannot be concluded till the final deficiency amount is arrived at. As per section 36(2) of Income tax Act, 1961," "In making any deduction for a bad debt or part thereof, the following provisions shall apply- (ii) If the amount ultimately recovered on any such debt or part of debt is less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made;" 4.4 Since the recovery shall take longer time and hence, any claim earlier to that shall be, prima facie, considered as premature claim, liable for rejection. In view of the above facts, it is evident that assessee's claim of bad debt is not allowable. Hence, written off amount of bad debt of Rs. 56,74,032/- is added back to the total income of the assessee company. The undersigned is satisfied that the assessee company has concealed income by furnishing inaccurate particulars of income, and hence penalty proceedings u/s 271(1)(c) are initiated separately. Addition of Rs. 56,74,032" 8. The Ld. CIT(A) upheld the addition made by the Ld. AO, relevant part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions, it was found by the investigation agencies that there was no underlying stock i.e. with respect to the contracts, contracts, only money was being exchanged and no delivery of goods was being done. In this regard, it is to be noted that NSEL was not a recognized Association/platform and it did not pay any commodity transaction tax. Section 43(5) defines 'speculation transaction' which means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips and accordingly, in view of the facts and the provisions of section 43(5)(e) of the Act, the transactions done by the assessee on NSEL were speculative transactions as no commodity transaction tax was being paid on these transactions and there was no physical delivery of goods. Explanation 2 to section 28 provides that where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business, i.e., the speculation business shall be deemed to be distinct and separate from any other business and therefore, any loss o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise to a situation where the assessee incurred business loss owing to his transaction with M/s Philip Commodities India Pvt. Ltd. Hence, the loss will have to be allowable at loss incidental to the business while computing the income u/s 28. Since, it is not an expenditure, the provisions u/s 30 to 37 are not attracted in this case. We hold that loss must be during the course or of incidental to business. It is the nexus with the business which is more relevant to claim the loss (CIT Vs Textool Co. Ltd. 135 ITR 200). The loss must have a direct and proximate nexus with the business operations and the loss is incidental to it, then such loss is deductible as, without business operations, no profit can be earned. If profit is earned in such an endeavour it is to be taxed and if loss is earned it is to be allowed. Without going into the grammatical issue of debt or bad debts or receivables, since the facts clearly prove that the assessee has incurred loss by the way of his business with M/s Philip Commodities India Pvt. Ltd. and the loss has been in the current year itself, in the peculiar facts and circumstances of the case, such loss incurred in such transaction with regard to NSE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the abovementioned aspect only and that too only to the extent of the write-off". It is clear that once a debt is written off as irrecoverable in the accounts of the assessee, it has to be allowed. It is not required that debt should have arose on account of transactions in any preceding years. Once a debt is claimed as bad and written off in the accounts it has to be allowed. No doubt, if the assessee at a later point of time recovers any money against any sum, it is bound to show it as income. Considering the judgment of Hon'ble Apex Court in the case of T.R.F. Ltd. (supra), we are of the opinion that the claim of the assessee had to be allowed. Orders of the lower authorities on this issue are set asid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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