DY. COMMISSIONER OF INCOME TAX 19(3) , MUMBAI vs. SANJIV MAHENDRA PARIKH, MUMBAI
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Income Tax Appellate Tribunal, G BENCH, MUMBAI
Per Rahul Chaudhary, Judicial Member:
By way of the present appeal the Revenue has challenged the order, 1. dated 19/01/2023, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] for the Assessment Year 2014-15, whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 30/12/2016, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). The Revenue has raised following grounds of appeal: 2. 1. “Whether Ld.CIT(A) is right in deleting the addition made u/s 43(5) of the Act towards speculative loss without appreciating action of the Assessing Officer.
The Ld. CIT(A) has grossly erred in deleting the addition made u/s 43(5) of the Act towards speculative loss.
The Ld. CIT(A) has also erred in deleting of total addition of Rs. 3,18,43,201/- as the same was dealt by the AO and ultimately treated the same as speculative loss based upon its nature of transaction and investment made by the future and options by entering the contract without bringing the complete details of the contract on record whether contract is matured on or before 31.03.2014.”
The relevant facts in brief are that the Assessee is a resident individual who was running a proprietorship firm in the name and style of M/s Alpha Securities which was engaged in trading of shares and commodities. The Assessee filed revised return declaring ‘Nil’ income on 23/11/2014. The case of the Assessee was selected for scrutiny and statutory notices were issued.
The Assessing Officer noted that the Assessee had claimed business 4. loss amounting to INR 2,81,39,466/- in the return of income. On raising queries in relation to the same, the Assessing Officer got to know that the Assessee had indulged in trading in commodities derivatives on National Sport Exchange Limited (NSEL) through his broker M/s India Infoline Commodities Limited and KR Choksey Commodities Broker Private Limited. Vide order sheet noting, dated 29/11/2016, the Assessee was asked to show cause why the losses of INR 2,81,39,466/- claimed by the Assessee should not be disallowed. In response, the Assessee submitted that the Assessee had suffered loss on account of NSEL Scam in commodity market. The loss was booked on account of bad debts written off by the 2 Assessee during the relevant previous year. The debts arisen in the normal course of business. However, the Assessing Officer was not convinced. The Assessing Officer noted that NSEL operated in the domain of pair trading of commodities, i.e. traders were required to buy on the near contract and sale on the far contract in every commodity. Thus, NSEL operated both spot and future contracts for commodities. The Assessing Officer concluded that the Assessee had undertaken speculative and non-speculative trades but had not maintained separate accounts. Therefore, the Assessing Officer computed the losses arising from speculative transaction by allocating/appropriating receipts and payments to arrive at the figure of INR 3,18,43,201/- as the loss arising from speculative transactions undertaken by the Appellant during the relevant previous year. The Assessing Officer completed the assessment vide Assessment Order, dated 30/12/2016, passed under Section 143(3) of the Act treating the loss of INR 3,18,43,201/- as speculative loss permitted to be set off against speculative profit and gains of other speculative business only in terms of Section 73 of the Act.
Being aggrieved, the Assessee carried the issue in appeal before
CIT(A). Before CIT(A) the Assessee reiterated the factual submissions made before the Assessing Officer and placed reliance upon Circular No. 12/2016, dated 30/05/2016 issued by Central Board of Direct Taxes (CBDT) and the following decisions of the Tribunal: - Chowdry Associates Vs. ACIT (ITA No. 3298/Del/2019 - Remi Securities Limited Vs. ACIT, Circle 13(3)(1), Mumbai - DCIT Vs. Nirship Securities Pvt. Ltd. (ITAT Mumbai) ITA No. 6321/Mum/2019 Assessment Year 2014-15
3 - In the ITAT Mumbai Bench Jay Ashkaran Shah Vs. Income Tax Officer 18(1)(5), Mumbai - Income Tax Appellate Tribunal Chennai in the casse of Megh
The Assessee also placed reliance on the judgment of Hon’ble Supreme Court in the case of TRF Limited Vs. CIT: 232 ITR 397, wherein it was held that the claim of bad debt was allowable under Section 36(1)(vii) of the Act as the same was written off as irrecoverable in the books of accounts of the Assessee during the relevant previous year and the conditions stipulated in Section 36(2) of the Act were satisfied.
Vide order dated 19/01/2023, the CIT(A) decided the issue in favour of the Assessee holding as under: “I have perused the assessment order, grounds of appeal and submission of the Appellant carefully. I find that the during the course of assessment proceedings, the appellant relying on the decision of Hon'ble Supreme Court of India in the case of TRF Ltd vs. CIT (2010) 323 ITR 397 (SC) and relying on CBDT circular 12/2016 dated 30/07/2016 had submitted before the AO that the bad debts arised out of transaction with NSEL are eligible for deduction u/s 36(1)(vii). However the AO had denied the claim of the Appellant. The observation of the AO in para 5.4 of the assessment order is reproduced as under:-
While considering the facts of the case it is to be noted that the National Spot Exchange (NSEL) operated in the domain of pair trading of commodities, Le, traders were required buy on the near contract and sell on the far side in every commodity. Thus, It operated in both the spot and future contracts for commodities since spot delivery contracts are ready delivery contracts as defined in clause (1) of section 2 of Forward Contracts 4 (Regulation) Act, 1952, which put these transactions outside commodity derivatives. Thus, the losses accruing to assessee from trading on NSEL falls squarely within the ambit of speculative transaction and the gains or loss resulting from such transaction should rightly be characterized as speculative in nature. Flowing from the discussion above, it is concluded that the assessee Indulged in speculative business during the year by indulging in pair trading of commodities on NSEL However, it is seen that during the year, the assessee has debited both receipts In this regard I find that Hon'ble ITAT Mumbai in the case of DCIT vs. Nirship Securities Pvt Ltd in appeal No. ITA/6321/Mum/2019 for AY 2014-15 has held that the loss arising on account of payment made towards purchase of commodities which were never delivered to the assesse shall be allowable as regular business loss w/s 28 of the Act and the said loss cannot be considered as speculative. In view of the above decision and the decision of Hon'ble Supreme Court of India in the case of TRF Ltd vs. CIT (2010) 323 JTR 397 (SC) and CBDT circular 12/2016 dated 30/07/2016, I am of the opinion that the AO was not justified in treating the derivative loss as speculation loss.
Therefore the derivative loss of Rs.3,18,43,201/- is treated as business loss. Thus the ground raised by the Appellant is allowed.” The Revenue is now in appeal before us challenging the above relief 6. granted by the CIT(A).
We have considered the rival submissions and perused the material on record. The facts as emanating from the record are that during the relevant previous year the Assessee undertook trade in commodities on the NSEL through its broker. In the Profit & Loss Account for the relevant previous year the Appellant recognized Purchases of Commodities (NSEL) amounting to INR 21,25,20,041/- and Sales of Commodities (NSEL) amounting to INR 21,62,66,114/-.
5 The Appellant also debited to the Profit & Loss Account INR 3,42,63,568/- as bad debts written off during the relevant previous year being part of consideration from Sale of Commodities (NSEL) not realized on account of NSEL scam. The Assessing Officer treated the commodities transactions as speculative transactions and computed loss of INR 3,18,43,201/- arising from the same. At the same time, the Assessing Officer computed the income of INR 38,32,805/- as being income from non-speculative transactions and brought the same to tax as business income while denying the set off of the speculative loss of INR 3,18,43,201/- by invoking provisions of Section 73 of the Act. In appeal preferred by the Assessee, the CIT(A) held that the commodities transactions undertaken by the Assessee on NSEL were not speculative in nature by relying upon the decision of the Mumbai Bench of the Tribunal in the case of Nirshilp Securities Pvt. Ltd. (supra). The CIT(A) concluded that the Assessing Officer was not justified in treating loss of INR 3,18,43,201/- as a derivative loss since the same was in the nature of business loss. Thus, in effect, the CIT(A) concluded that all the transactions undertaken by the Assessee were not non-speculative in nature and thereby discarded the incorrect bifurcation made by the Assessing Officer and allowed the set off of loss of INR 3,18,43,201/- computed by the Assessing Officer with the business income of INR 38,32,805/- computed by the Assessing Officer. We do not find any infirmity in the order passed by the CIT(A) as the CIT(A) has granted relief by following the decision of Mumbai Bench of the Tribunal in the case of Nirshilp Securities Pvt. Ltd. (supra) wherein it has been held that the commodities transaction undertaken on NSEL were paired purchase & sale transactions backed by the delivery of commodities as per warehouse receipt issued/retained by NSEL accredited warehouses which did not fall in the definition of 6 ‘speculative transaction’ as defined in Section 43(5) of the Act. The aforesaid decision of the Tribunal in the case of Nirshilp Securities Pvt. Ltd. (supra) has been followed by the Mumbai Bench of the Tribunal in the case of Smt. Asha Devi Poddar Vs. ACIT-19(1), Mumbai, (ITA No. 687/Mum2022, dated 05/08/2022, Assessment Year 2014-15). Respectfully following the aforesaid decisions of the Tribunal we decline to interfere with the order passed by the CIT(A). Ground No. 1 to 3 raised by the Revenue are dismissed.
In result, the present appeal preferred by the Revenue is dismissed.
Order pronounced on 30.11.2023. (B.R. Baskarn) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 30.11.2023 Alindra, PS
7 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध, आयकर अपीलीय अदधकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.
आिेश न स र/ BY ORDER, सत्य दपि प्रदि //// उप/सह यक पुंजीक र /(Dy./Asstt.
