ASSTT COMMISSIONER OF INCOME TAX 19(1), MUMBAI vs. KETAN ANIL SHAH, MUMBAI

PER OM PRAKASH KANT, AM

This appeal by the Revenue is directed against the order dated 07th July, 2022 passed by the Ld. Commissioner of Income-tax (Appeals) (National Faceless Appeal Centre, Delhi [in short, ‘the Ld. CIT(A)] for Assessment Year 2014-15, raising the following grounds:

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Act’) were issued and complied with. Act’) were issued and complied with. In the assessment completed n the assessment completed under section 143(3) of the Act on 29/12/2016, the Assessing under section 143(3) of the Act on 29/12/2016, the Assessing under section 143(3) of the Act on 29/12/2016, the Assessing Officer rejected the claim of Officer rejected the claim of ₹10,91,53,148/- as ‘bad debts’ written as ‘bad debts’ written off in profit and loss account. in profit and loss account. Aggrieved, the assessee filed appeal Aggrieved, the assessee filed appeal before the Ld. CIT(A), who CIT(A), who held the amount of ₹10,91,53,148/ 10,91,53,148/- as business loss rather than ‘bad debt’ business loss rather than ‘bad debt’ and allowed allowed the same. Aggrieved, the Revenue is in appeal before the Tribunal raising Aggrieved, the Revenue is in appeal before the Tribunal raising Aggrieved, the Revenue is in appeal before the Tribunal raising grounds as reproduced above. grounds as reproduced above.

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by the assessee that in the enquiries by various law enforcement by the assessee that in the enquiries by various law enforcement by the assessee that in the enquiries by various law enforcement agencies, it was found that goods were not available in many agencies, it was found that goods were not available in many agencies, it was found that goods were not available in many accredited warehouse of NSEL and, therefor warehouse of NSEL and, therefore, it was not possible to e, it was not possible to receive the goods from the NSEL and delivered the goods purchased receive the goods from the NSEL and delivered the goods purchased receive the goods from the NSEL and delivered the goods purchased to the parties, who agreed to purchase the same after 25 / 35 days. to the parties, who agreed to purchase the same after 25 / 35 days. to the parties, who agreed to purchase the same after 25 / 35 days. Therefore, neither assessee received the payment of the sale of the Therefore, neither assessee received the payment of the sale of the Therefore, neither assessee received the payment of the sale of the commodities nor did he rece commodities nor did he receive the stock of commodities or the ive the stock of commodities or the amounts paid for purchase of commodities amounts paid for purchase of commodities from the the NSEL. Since the amounts were paid in normal course the amounts were paid in normal course of the business of the of the business of the assessee, the non-recovery recovery of sale proceeds resulted in business of sale proceeds resulted in business loss to the assessee. However, the Assessing Officer rejected the loss to the assessee. However, the Assessing Officer rejected the loss to the assessee. However, the Assessing Officer rejected the contention of the assessee. In view of the Assessing Officer, the contention of the assessee. In view of the Assessing Officer, the contention of the assessee. In view of the Assessing Officer, the assessee has not made any efforts for recovery of said bad debt of assessee has not made any efforts for recovery of said bad debt of assessee has not made any efforts for recovery of said bad debt of ₹10,91,53,148/- from om M/s Motilal Oswal Securities Pvt /s Motilal Oswal Securities Pvt. Ltd and M/s Philips Commodity Pvt M/s Philips Commodity Pvt. Ltd like sending any legal notice or Ltd like sending any legal notice or filing suit in the Court of Law. He further held that matter of filing suit in the Court of Law. He further held that filing suit in the Court of Law. He further held that recovery from NSEL was subjudice and recovery from NSEL was subjudice and there was no finality on the there was no finality on the status of the debts, therefore, treating the debts as bad and bts, therefore, treating the debts as bad and bts, therefore, treating the debts as bad and

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immediately writing off from the books of account was premature immediately writing off from the books of account was premature immediately writing off from the books of account was premature and without any substance. According to him, recovery is an and without any substance. According to him, recovery is an and without any substance. According to him, recovery is an ongoing process and the ultimate recovery shall take long time and, ongoing process and the ultimate recovery shall take long time and, ongoing process and the ultimate recovery shall take long time and, therefore, any claim of the bad debt earlier to that shall be prima aim of the bad debt earlier to that shall be prima aim of the bad debt earlier to that shall be prima facie considered as premature claim liable for rejection; hence, the facie considered as premature claim liable for rejection; hence, the facie considered as premature claim liable for rejection; hence, the claim of deduction under section 36(1)(vii) read with section 36(2) / claim of deduction under section 36(1)(vii) read with section 36(2) / claim of deduction under section 36(1)(vii) read with section 36(2) / 37(1) was inadmissible. The relevant finding of the Ld. Assessing 37(1) was inadmissible. The relevant finding of the Ld. 37(1) was inadmissible. The relevant finding of the Ld. Officer is reproduced as Officer is reproduced as under: -

“4.14 The facts of the case is that the debt claimed by the appellant relates to the The facts of the case is that the debt claimed by the appellant relates to the The facts of the case is that the debt claimed by the appellant relates to the previous year in which it has been claimed to have become bad. However, law is to previous year in which it has been claimed to have become bad. However, law is to previous year in which it has been claimed to have become bad. However, law is to be interpreted in its essence and spirit. Though the assessee has claimed the bad be interpreted in its essence and spirit. Though the assessee has claimed the bad debt in its account, however, the assessee has not taken pains to show / prove that debt in its account, however, the assessee has not taken pains to show / prove that debt in its account, however, the assessee has not taken pains to show / prove that the debt has actually become bad. The debt is on account of non receipt of sale the debt has actually become bad. The debt is on account of non receipt of sale the debt has actually become bad. The debt is on account of non receipt of sale receipts of commodities from M/s M/s Philips Commodity Pvt Ltd & M/s Motilal receipts of commodities from M/s M/s Philips Commodity Pvt Lt d & M/s Motilal Oswal Securities Pvt Ltd. The debt was only few months old at the time of its write Oswal Securities Pvt Ltd. The debt was only few months old at the time of its write- Oswal Securities Pvt Ltd. The debt was only few months old at the time of its write off and it seems the appellant has not made any effort for the collection of this off and it seems the appellant has not made any effort for the collection of this amount. If they had done it, they would have certainly filed some papers amount. If they had done it, they would have certainly filed some papers or amount. If they had done it, they would have certainly filed some papers evidence or documents to prove their case. The appellant has only relied on the evidence or documents to prove their case. The appellant has only relied on the evidence or documents to prove their case. The appellant has only relied on the amended provision of section 36(1)(vii) for claiming deduction without proving that amended provision of section 36(1)(vii) for claiming deduction without proving that amended provision of section 36(1)(vii) for claiming deduction without proving that the debt has really become bad. Therefore, in the facts and circumstances, I hold the debt has really become bad. Therefore, in the facts and circumstances, I hold the debt has really become bad. Therefore, in the facts and circumstances, I hold that the write off of bad debts are not genuine and with out any substance to prove the write off of bad debts are not genuine and with out any substance to prove the write off of bad debts are not genuine and with out any substance to prove that the debts are actually became bad and virtually irrecoverable. In the absence that the debts are actually became bad and virtually irrecoverable. In the absence that the debts are actually became bad and virtually irrecoverable. In the absence of the same it is held that the claim of bad debts of ₹10,91,53,148/ of the same it is held that the claim of bad debts of ₹10,91,53,148/- is premature and not withstood the test of genuineness of the claim. Hence, the claim of ithstood the test of genuineness of the claim. Hence, the claim of ithstood the test of genuineness of the claim. Hence, the claim of deduction on account of bad debts of ₹10,91,53,148/- is not allowed and added deduction on account of bad debts of is not allowed and added back to the total income of the assessee. Accordingly, the Business loss is disallowed back to the total income of the assessee. Accordingly, the Business loss is disallowed and hence, not allowed to be set off & carried forward. Penalty proceedings u/s and hence, not allowed Penalty proceedings u/s 271(1)(c) are initiated separately for furnishing inaccurate particulars of income 271(1)(c) are initiated separately for furnishing inaccurate particulars of income 271(1)(c) are initiated separately for furnishing inaccurate particulars of income leading to concealment of taxable income.” leading to concealment of taxable income.”

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5.1 The Ld.CIT(A), however, after going through the submission of CIT(A), however, after going through the submission of CIT(A), however, after going through the submission of the assessee held the loss claimed by the assessee as business loss the assessee held the loss claimed by the assessee as business loss the assessee held the loss claimed by the assessee as business loss observing as under: - - “3.5 I have carefully gone through the observations of the AO in the assessment 5 I have carefully gone through the observations of the AO in the assessment 5 I have carefully gone through the observations of the AO in the assessment order extracted in para 3.1 above, written submissions made by the appellant, order extracted in para 3.1 abo ve, written submissions made by the appellant, evidence filed during the appeal proceedings and the case laws relied by the AO and evidence filed during the appeal proceedings and the case laws relied by the AO and evidence filed during the appeal proceedings and the case laws relied by the AO and also the appellant. The AO disallowed the claim of bad debt on the ground that (i) also the appellant. The AO disallowed the claim of bad debt on the ground that (i) also the appellant. The AO disallowed the claim of bad debt on the ground that (i) the write-off of bad debts is not genuine off of bad debts is not genuine and (ii) the assessee was not able to prove and (ii) the assessee was not able to prove that the debts had actually become bad and irrecoverable and in the alternative (iii) that the debts had actually become bad and irrecoverable and in the alternative (iii) that the debts had actually become bad and irrecoverable and in the alternative (iii) the transaction of purchase and sale of commodities at the NSEL were speculative the transaction of purchase and sale of commodities at the NSEL were speculative the transaction of purchase and sale of commodities at the NSEL were speculative transactions and therefore, the loss on account of speculation trading was a transactions and therefore, the loss on accou nt of speculation trading was a speculative loss and the same may be allowed to be carried forward for set off speculative loss and the same may be allowed to be carried forward for set off speculative loss and the same may be allowed to be carried forward for set off against the speculation gains in the subsequent years. against the speculation gains in the subsequent years. 3.6 Verification of computation of income sheet of the appellant shows 'net 3.6 Verification of computation of income sheet of the appellant shows 'net 3.6 Verification of computation of income sheet of the appellant shows 'net profit before tax as per P&L A/c under the Commodities Trading business head before tax as per P&L A/c under the Commodities Trading business head before tax as per P&L A/c under the Commodities Trading business head shows a loss of Rs.10,91,53,148/-. And the P&L a/c of the assessee for the year shows a loss of Rs.10,91,53,148/ . And the P&L a/c of the assessee for the year ended shows a debit of Rs.10,91,53,148/ debit of Rs.10,91,53,148/- under the title 'Loss on account of under the title 'Loss on account of Commodities : irrecoverbility'. This shows that the loss is actually claimed as Commodities : irrecoverbility '. This shows that the loss is actually claimed as business loss by the assessee in his accounts and the return of income. In the business loss by the assessee in his accounts and the return of income. In the business loss by the assessee in his accounts and the return of income. In the submissions extracted at para 3.3 above, the appellant argued that the loss is submissions extracted at para 3.3 above, the appellant argued that the loss is submissions extracted at para 3.3 above, the appellant argued that the loss is allowable as 'business loss'. However it is seen that the AO discussed the claim as allowable as 'business loss'. However it is see n that the AO discussed the claim as 'bad debt' and made the disallowance of Rs.10,91,53,148/- debited to P&L account 'bad debt' and made the disallowance of Rs.10,91,53,148/ debited to P&L account by treating the same as premature and not genuine. AO also took an alternate by treating the same as premature and not genuine. AO also took an alternate by treating the same as premature and not genuine. AO also took an alternate ground for disallowance to treat the transactions on NSEL as speculative and loss as ground for disallowance to treat the transactions on NSEL as speculative and loss as speculation loss. After detailed examination of the issue, my decision is as under. speculation loss. After detailed examination of the issue, my decision is as under. speculation loss. After detailed examination of the issue, my decision is as under. 3.7 AO in the assessment order quoted a letter of NSEL dated 16.06.2016 to state .7 AO in the assessment order quoted a letter of NSEL dated 16.06.2016 to state .7 AO in the assessment order quoted a letter of NSEL dated 16.06.2016 to state that the claims of loss made by the brokers/clients/agents are prem that the claims of loss made by the brokers/clients/agents are premature, since the that the claims of loss made by the brokers/clients/agents are prem recovery process is underway by EOW and HCC and the assets worth 7000 crores as recovery process is underway by EOW and HCC and the assets worth 7000 crores as recovery process is underway by EOW and HCC and the assets worth 7000 crores as against the claim of 5,600 crores have already been secured. It appears against the claim of 5,600 crores have already been secured. It appears from the against the claim of 5,600 crores have already been secured. It appears record that the AO has not supplied the ecord that the AO has not supplied the assessment proceedings. Appellant contested this letter in his submissions. It is true assessment proceedings. Appellant con tested this letter in his submissions. It is true that the AO was under obliga^jbn to supply the information collected from third that the AO was under obliga^jbn to supply the information collected from third that the AO was under obliga^jbn to supply the information collected from third party to the assessee, if she wanted to use the same in the assessment. Mere party to the assessee, if she wanted to use the same in the assessment. Mere party to the assessee, if she wanted to use the same in the assessment. Mere statement regarding the alleged observations of NSEL, and /making addition is statement regarding the alleged observations of N SEL, and /making addition is against the principles of natural justice. Such statement/letter,, if/any has ,to be against the principles of natural justice. Such statement/letter,, if/any has ,to be against the principles of natural justice. Such statement/letter,, if/any has ,to be

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supplied to the assessee for giving;an opportunity and;aiso an opportunity to cross supplied to the assessee for giving aiso an opportunity to cross examine the third party. Hon'ble Supreme Court in the case of Andaman Timber examine the third party. Hon'ble Supreme Court in the case of Andaman Timber Industries vs.\ Commissioner of Central Excise (2015) 281 CTR 241 (SC) has Commissioner of Central Excise (2015) 281 CTR 241 (SC) has Commissioner of Central Excise (2015) 281 CTR 241 (SC) has reaffirmed the' principles of natural justice and held that the opportunity of cross reaffirmed the' principles of natural justice and held that the opportunity of cross reaffirmed the' principles of natural justice and held that the opportunity of cross examination of witness is must in a case where some adverse inference is to b examination of witness is must in a case where some adverse inference is to be examination of witness is must in a case where some adverse inference is to b drawn against the assessee. Reliance is also placed on Asst. CIT Vs. Katrina drawn against the assessee. Reliance is also placed on Asst. CIT Vs. Katrina drawn against the assessee. Reliance is also placed on Asst. CIT Vs. Katrina Rosemary Turcotte 87 Taxmann.com 116 (ITAT Mum) Addl. CIT Vs. Miss Lata Rosemary Turcotte 87 Taxmann.com 116 (ITAT Mum) Addl. CIT Vs. Miss Lata Rosemary Turcotte 87 Taxmann.com 116 (ITAT Mum) Addl. CIT Vs. Miss Lata Mangeshkar 97 ITR 696 (Bom). Mangeshkar 97 ITR 696 (Bom). loss of Rs.10,91,53,148/-. And the P&L a/c of the assessee for the year ende loss of Rs.10,91,53,148/ . And the P&L a/c of the assessee for the year ended shows a debit of Rs.10,91,53,148/ debit of Rs.10,91,53,148/- under the title 'Loss on account of Commodities under the title 'Loss on account of Commodities irrecoverbility'. This shows that the loss is actually claimed as business loss by the irrecoverbility'. This shows that the loss is actually claimed as business loss by the irrecoverbility'. This shows that the loss is actually claimed as business loss by the assessee in his accounts and the return of income. In the submissions extracted at assessee in his accounts and the return of income. In the submissions extracted at assessee in his accounts and the return of income. In the submissions extracted at para 3.3 above, the appellant argued that the loss is allowable as 'business loss'. ara 3.3 above, the appellant argued that the loss is allowable as 'business loss'. ara 3.3 above, the appellant argued that the loss is allowable as 'business loss'. However it is seen that the AO discussed the claim as 'bad debt' and made the However it is seen that the AO discussed the claim as 'bad debt' and made the However it is seen that the AO discussed the claim as 'bad debt' and made the disallowance of Rs.10,91,53,148/- debited to P&L account by treating the same as disallowance of Rs.10,91,53,148/ debited to P&L account by treating the same as premature and not genuine. AO also took an alternate ground for disallowance to not genuine. AO also took an alternate ground for disallowance to not genuine. AO also took an alternate ground for disallowance to treat the transactions on NSEL as speculative and loss as speculation loss. After treat the transactions on NSEL as speculative and loss as speculation loss. After treat the transactions on NSEL as speculative and loss as speculation loss. After detailed examination of the issue, my decision is as under. examination of the issue, my decision is as under. 5.7 AO in the assessment order quoted a letter of NSEL dated 16.06.2016 to state the assessment order quoted a letter of NSEL dated 16.06.2016 to state the assessment order quoted a letter of NSEL dated 16.06.2016 to state that the claims of loss made by the brokers/clients/agents are premature, since the loss made by the brokers/clients/agents are premature, since the loss made by the brokers/clients/agents are premature, since the recovery process is underway by EOW and HCC and the assets underway by EOW and HCC and the assets worth 7000 crores as worth 7000 crores as against the claim of 5,600 crores have already been secured. It of 5,600 crores have already been secured. It appears from appears from the record that the AO has not supplied the said letter to the appellant during the record that the AO has not supplied the said letter to the appellant during the assessment proceedings. Appellant contested this letter in his submissions. assessment proceedings. Appellant contested this letter submissions. It is true that the AO was under obligation to supply the information collected from third that the AO was under obli on to supply the information collected from third party to the assessee, to the assessee, if she wanted to use the same in the assessment. Mere the assessment. Mere statement regarding the alleged observations of NSEL, and making addition is statement regarding the alleged observations of NSEL, and making addition is statement regarding the alleged observations of NSEL, and making addition is against theprinciples of natural justice. Such statement/letter,.if any against theprinciples of natural justice. Suc h statement/letter,.if any,has to be supplied to the assessee for giving ;an opportunity and:a!so an opportunity to cross supplied to the assessee for giving a!so an opportunity to cross examine the third party. Hon'ble Supreme Court in the case of Andaman examine the third party. Hon'ble Supreme Court in the case of Andaman Timber examine the third party. Hon'ble Supreme Court in the case of Andaman Industries vs. Commissioner of Central Excise (2015) 281 CTR 241 (SC) has Industries vs. Commissioner of Central Excise (2015) 281 CTR 241 (SC) has Industries vs. Commissioner of Central Excise (2015) 281 CTR 241 (SC) has reaffirmed theprinciples of natural justice and held that the opportunity of cross reaffirmed theprinciples of natural justice and held that the opportunity of cross reaffirmed theprinciples of natural justice and held that the opportunity of cross examination of witness is must in a case where some adverse inference is to be examination of witness is must a case where some adverse inference is to be drawn against the assessee. Reliance is also placed on Asst. CIT Vs. Katrina assessee. Reliance is also placed on Asst. CIT Vs. Katrina assessee. Reliance is also placed on Asst. CIT Vs. Katrina Rosemary Turcotte 87 Taxmann.com 116 (ITAT Mum) Addl. CIT Vs. Miss Lata Rosemary Turcotte 87 Taxmann.com 116 Addl. CIT Vs. Miss Lata Mangeshkar 97 ITR 696 696 (Bom). 3.8 Let the statement of NSEL be as it may, but the opinion of NSEL that Let the statement of NSEL be as it may, but the opinion of NSEL that Let the statement of NSEL be as it may, but the opinion of NSEL that brokers/agents/clients are claiming loss which may result in duplication of bad debt ts are claiming loss which may result in duplication of bad debt ts are claiming loss which may result in duplication of bad debt

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;j claims is not the basis for allowing a loss in the assessment in Income Tax ;j claims is not the basis for allowing a loss in the assessment in Income Tax ;j claims is not the basis for allowing a loss in the assessment in Income Tax proceedings. The allowability of a claim has to be examined with respect to the proceedings. The allowability of a claim has to be examined with respect to the proceedings. The allowability of a claim has to be examined with respect to the transactions, books of accounts of the assessee and provisions of the Income Tax transactions, books of accounts of the assessee and provisions of the Income Tax Act. So, the reliance placed by the AO on the said letter regarding the duplication of Act. So, the reliance placed by the AO on the said lette r regarding the duplication of claim of loss and premature claim of bad debts by the tax payers cannot be basis claim of loss and premature claim of bad debts by the tax payers cannot be basis claim of loss and premature claim of bad debts by the tax payers cannot be basis fordisallowance. Further, an agent or broker cannot claim a loss as they cannot fordisallowance. Further, an agent or b roker cannot claim a loss as they cannot account sale and purchases of the clients as their transactions. An agent or broker sale and purchases of the clients as their transactions. An agent or broker sale and purchases of the clients as their transactions. An agent or broker only records commission in its books of account. only records commission in its books of account. 3.9 It transpires from the record that the appellant regularly trades in 3.9 It transpires from the record that the appellant regularly trades in commodities 3.9 It transpires from the record that the appellant regularly trades in on NSEL and the payments are received in 25/35 days. However, due to the on NSEL and the payments are received in 25/35 days. However, due to the on NSEL and the payments are received in 25/35 days. However, due to the manipulation of transactions on NSEL by some of the authorized brokers a scam manipulation of transactions on NSEL by some of the authorized brokers a scam manipulation of transactions on NSEL by some of the authorized brokers a scam broke out and the NSEL as an intermediary between the buyer and sellers of broke out and the NSEL as an intermediary between the buyer and sellers of broke out and the NSEL as an intermediary between the buyer and sellers of to honour the payments on 31st July 2013 for the first time. This commodities failed to honour the payments on 31 July 2013 for the first time. This information was in public domain and it became a scam. AO also described the scam information was in public domain and it became a scam. AO also described the scam information was in public domain and it became a scam. AO also described the scam that has taken place in NSEL in paragraphs 4.3 to 4.7 of the assessment order and that has taken place in NSEL in paragraphs 4.3 to 4.7 of the assessment order and that has taken place in NSEL in paragraphs 4.3 to 4.7 of the assessment order and accepted that NSEL did not honour their commitment and wrongly caused loss to accepted that NSEL did no t honour their commitment and wrongly caused loss to the investors. As NSEL failed to pay the outstanding amounts, the assessee neither the investors. As NSEL failed to pay the outstanding amounts, the assessee neither the investors. As NSEL failed to pay the outstanding amounts, the assessee neither received the payment for the commodities sold nor did he receive the stock of received the payment for the commodities sold nor did he receive the stock of received the payment for the commodities sold nor did he receive the stock of commodities or the amounts paid for the purchase of commodities from NSEL for commodities or the amounts paid for the pu rchase of commodities from NSEL for the contracts through its broker-members. Further,as the investigation by SEBI and the contracts through its broker Further,as the investigation by SEBI and other agencies revealed that stock of goods required to be available in accredited other agencies revealed that stock of goods required to be available in accredited other agencies revealed that stock of goods required to be available in accredited warehouses of NSEL was not found. Appellant argued that as the operations of NSEL warehouses of NSEL was not found. Appellant argued that as the operations of NSEL got completely suspended and was shut consequently, the assessee completely lost got completely suspended and was shut consequently, the assessee completely lost got completely suspended and was shut consequently, the assessee completely lost its chance of recovering the amounts from NSEL. It is argued that since the amount its chance of recovering the amounts from NSEL. It is argued that since the amount its chance of recovering the amounts from NSEL. It is argued that since the amount were paid in the normal course of business of the assessee, the non were paid in the normal course of business of the assessee, t he non-recovery of the sale proceeds would result in regular 'business loss' for the assessee. Therefore he sale proceeds would result in regular 'business loss' for the assessee. Therefore he sale proceeds would result in regular 'business loss' for the assessee. Therefore he claimed the non recoverable amount as a 'business loss' for the year. claimed the non recoverable amount as a 'business loss' for the year.” claimed the non recoverable amount as a 'business loss' for the year. 5.2 Further, the Ld. Further, the Ld. CIT(A) has also rejected the finding of the CIT(A) has also rejected the finding of the Ld.AO that the claim in question was of bad debts written off. he claim in question was of bad debts written off. he claim in question was of bad debts written off. Relevant finding of the Ld. Relevant finding of the Ld. CIT(A) is reproduced as under: CIT(A) is reproduced as under:- “3.10 However, the AO argued that the assessee has not provided any suppor in 3.10 However, the AO argued that the assessee has not provided any suppor in 3.10 However, the AO argued that the assessee has not provided any suppor in respect of the claim of bad debts therefore the claim is illegal. It is seen from the respect of the claim of bad debts therefore the claim is illegal. It is seen from the record that the assessee had provided documentary evidences in the form of record that the assessee had provided documentary evidences in the form of record that the assessee had provided documentary evidences in the form of contract notes of the brokers M/s. Motilal Oswal Securities Pvt. Ltd. and M/s. Phillip contract notes of the brokers M/s. Motilal Oswal Securities Pvt. Ltd. and M/s. Phillip contract notes of the brokers M/s. Motilal Oswal Securities Pvt. Ltd. and M/s. Phillip Commodities Pvt. Ltd to show that the amount of Rs.10,91,53,1487 Commodities Pvt. Ltd to show that the amount of Rs.10,91,53,1487- was Commodities Pvt. Ltd to show that the amount of Rs.10,91,53,1487

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recoverable from NSEL. As operations on NSEL were banned and the law enforcing verable from NSEL. As operations on NSEL were banned and the law enforcing verable from NSEL. As operations on NSEL were banned and the law enforcing agencies swooped on it and found that the actual goods were not available in the agencies swooped on it and found that the actual goods were not available in the agencies swooped on it and found that the actual goods were not available in the accredited warehouses of NSEL the appellant felt the amounts due to him not accredited warehouses of NSEL the appellant felt the amounts due to him not accredited warehouses of NSEL the appellant felt the amounts due to him not recoverable. It is seen that the appellant also explained to the AO as to how he recoverable. It is seen that the appellant also explained to the AO as to how he satisfies the conditions section 36(l)(vii) read with section 36(2) of the Act to claim satisfies the conditions section 36(l)(vii) read with section 36(2) of the Act to claim satisfies the conditions section 36(l)(vii) read with section 36(2) of the Act to claim the loss incurred as bad debt. Therefore, I do not find any force in arguments of the the loss incurred as bad debt. Therefore, I do not find any force in arguments of the the loss incurred as bad debt. Therefore, I do not find any force in arguments of the AO that there is no documentary evidence for the loss incurred. AO that there is no docum 3.11 AO observed that the assessee has not made any efforts for recovery of 3.11 AO observed that the assessee has not made any efforts for recovery of said 3.11 AO observed that the assessee has not made any efforts for recovery of bad debts from M/s. Phillip Commodities Pvt. Ltd and M/s. Motilal Oswal Securities bad debts from M/s. Phillip Commodities Pvt. Ltd and M/s. Motilal Oswal Securities Pvt. Ltd like sending legal notices and filing cases against the brokers and the NSEL. Pvt. Ltd like sending legal notices and filing cases against the brokers and the NSEL. This avermment of the AO appears to be not correct as the assessee has filed the ment of the AO appears to be not correct as the assessee has filed the ment of the AO appears to be not correct as the assessee has filed the suit against M/s. Motilal Oswal Securities Pvt. Ltd. & M/s. Phillip Commodities for suit against M/s. Motilal Oswal Securities Pvt. Ltd. & M/s. Phillip Commodities for suit against M/s. Motilal Oswal Securities Pvt. Ltd. & M/s. Phillip Commodities for recovery in the Bombay High Court (Recovery Suit Number 70 of 2017). Against recovery in the Bombay High Court (Recovery Suit Number 70 of 2017). Against NSEL M/s Modern India Ltd. (Investor in NSEL) has filed a Suit under Order 1 Rule 8 NSEL M/s Modern India Ltd. (Investor in NSEL) has filed a Suit under Order 1 Rule 8 NSEL M/s Modern India Ltd. (Investor in NSEL) has filed a Suit under Order 1 Rule 8 of the CPC (Class action suit) which includes all investors in NSEL including the of the CPC (Class action suit) which includes all investors in NSEL including the of the CPC (Class action suit) which includes all investors in NSEL including the appellant. From the above facts it is clear that there is loss that occurred to the appellant. From the above facts it is clear that there is loss that occurred to the appellant in the normal course of business and it became irrecoverable on account appellant in the normal course of business and it became irrecoverable on account appellant in the normal course of business and it became irrecoverable on account of the scam that has taken place in NSEL, ban on operations of NSEL and also that of the scam that has taken place in NSEL, ban on operations of NSEL and also that of the scam that has taken place in NSEL, ban on operations of NSEL and also that there was no stock of commodities in the accredited warehouses. Therefore, as it there was no stock of commodities in the accredited warehouses. Therefore, as it has become bad, the appellant booked loss for the year and claimed in the return of has become bad, the appellant booked loss for the year and claimed in the return of has become bad, the appellant booked loss for the year and claimed in the return of income for the year. 3.12 The Assessing Officer has not disputed the fact that the assessee has The Assessing Officer has not disputed the fact that the assessee has The Assessing Officer has not disputed the fact that the assessee has carried out trading of commodities at NSEL and there were outstanding amounts carried out trading of commodities at NSEL an d there were outstanding amounts that remained to be recovered by the assessee on account to abrupt embargo on that remained to be recovered by the assessee on account to abrupt embargo on that remained to be recovered by the assessee on account to abrupt embargo on trading at NSEL. Once the amount has become irrecoverable and the assessee writes trading at NSEL. Once the amount has become irrecoverable and the assessee writes trading at NSEL. Once the amount has become irrecoverable and the assessee writes off the same in the books of accounts, there is no statutory requirement for the off the same in the books of accounts, there is no statutory re quirement for the assessee to establish that the debt, in fact, has become irrecoverable. It is sufficient assessee to establish that the debt, in fact, has become irrecoverable. It is sufficient assessee to establish that the debt, in fact, has become irrecoverable. It is sufficient if the bad debts are written off as irrecoverable in the accounts of the assessee. [TRF if the bad debts are written off as irrecoverable in the accounts of the assessee. [TRF if the bad debts are written off as irrecoverable in the accounts of the assessee. [TRF Ltd.]. Later, if at any stage", the assessee recovers any money against the sum Ltd.]. Later, if at any stage", the assessee recovers any mon ey against the sum written off as bad debt, the assessee is under obligation to declare it as income. It is written off as bad debt, the assessee is under obligation to declare it as income. It is written off as bad debt, the assessee is under obligation to declare it as income. It is also seen that an amount of' Rs.1,27,98,621/- only was received by the assessee also seen that an amount of' Rs.1,27,98,621/ only was received by the assessee from NSEL as against the outstanding amount of Rs. 15,62,29,161/ from NSEL as against the outstanding amount of Rs. 15,62,29,161/- due and from NSEL as against the outstanding amount of Rs. 15,62,29,161/ receivable from NSEL. Appellant has offered the recovered amount as income in the receivable from NSEL. Appellant has offered the recovered amount as income in the receivable from NSEL. Appellant has offered the recovered amount as income in the year of receipt as per the submissions made. year of receipt as per the submissions made. 3.13 AO has argued that the debt has to be bad and then only he can write off. The 3.13 AO has argued that the debt has to be bad and then only he can write off. The 3.13 AO has argued that the debt has to be bad and then only he can write off. The facts narrated above show that the amounts became irrecoverable and bad. Be that facts narrated above show that the amo unts became irrecoverable and bad. Be that as it may, after the amendment made to the Act with effect from 15th April, 1989, as it may, after the amendment made to the Act with effect from 15 as it may, after the amendment made to the Act with effect from 15 the assessee is not required to establish that the debt has in fact become the assessee is not required to establish that the debt has in fact become the assessee is not required to establish that the debt has in fact become

Ketan Anil Shah 11 ITA No. 2188/M/2022

irrecoverable. The only requirement under section 36(l)(vii) read with section 36(2) irrecoverable. The only requirement under section 36(l)( vii) read with section 36(2) of the Act is write off the debt as irrecoverable in the books of account of the of the Act is write off the debt as irrecoverable in the books of account of the of the Act is write off the debt as irrecoverable in the books of account of the assessee for claiming deduction u/s. 36(l)(vii) of the Act which is complied with by assessee for claiming deduction u/s. 36(l)(vii) of the Act which is complied with by assessee for claiming deduction u/s. 36(l)(vii) of the Act which is complied with by the assessee. Reliance in this regard is placed on the decision of the Apex Court in the assessee. Reliance in this regard is placed on the decisi on of the Apex Court in TRF Ltd. Vs. CIT [(2010) 323 ITR 397 (SC)] and the Board Circular No. . CIT [(2010) 323 ITR 397 (SC)] and the Board Circular No. 12/2016 . CIT [(2010) 323 ITR 397 (SC)] and the Board Circular No. [F.NO.279/MISC./140/2015-ITJ], DATED 30-5-2016. Therefore, the observations of [F.NO.279/MISC./140/2015 Therefore, the observations of the AO in para 4.11 and para 4.14 of the assessment order are not correct a the AO in para 4.11 and para 4.14 of the assessment order are not correct and go the AO in para 4.11 and para 4.14 of the assessment order are not correct a against the settled law which is accepted by the Board by issuing a circular. against the settled law which is accepted by the Board by issuing a circular. against the settled law which is accepted by the Board by issuing a circular. 3.14 It is seen that number of other assessees also incurred losses on account of 3.14 It is seen that number of other assessees also incurred losses on account of 3.14 It is seen that number of other assessees also incurred losses on account of scam in NSEL and stoppage of payments by NSEL in July 2013, which have reached scam in NSEL and stoppage of payments by NSEL in July 2013, which have reached scam in NSEL and stoppage of payments by NSEL in July 2013, which have reached higher appellate forums and claim of bad debts of such assessees have been appellate forums and claim of bad debts of such assessees have been appellate forums and claim of bad debts of such assessees have been accepted by courts. Reliance is placed on the following case laws. accepted by courts. Reliance is placed on the following case laws.  DCIT vs. Cello Pens and Stationery Pvt. Ltd. in ITA No. 305/Mum/2019 for A.Y. 2014 DCIT vs. Cello Pens and Stationery Pvt. Ltd. in ITA No. 305/Mum/2019 for A.Y. 2014-15 DCIT vs. Cello Pens and Stationery Pvt. Ltd. in ITA No. 305/Mum/2019 for A.Y. 2014 dated 22nd October, 2021 dated 22nd October, 2021 • Remi Securities Ltd. v. ACIT in ITA No. 3649/Murn/2018 for A.Y. 2014 Remi Securities Ltd. v. ACIT in ITA No. 3649/Murn/2018 for A.Y. 2014 Remi Securities Ltd. v. ACIT in ITA No. 3649/Murn/2018 for A.Y. 2014-15 dated 10th January, 2019 M/s Remi Securities and Engineering Limited vs. ACIT, Circle 13(3)(1), Mumbai [ITA No. M/s Remi Securities and Engineering Limited vs. ACIT, Circle 13(3)(1), Mumbai [ITA No. M/s Remi Securities and Engineering Limited vs. ACIT, Circle 13(3)(1), Mumbai [ITA No. 3650/Mum/2108; dated 06.09.2019 3650/Mum/2108; dated 06.09.2019 • Megh Sakariya International (P.) L • Megh Sakariya International (P.) Ltd. v. Dy. CIT [ITA No.59/Cheny/2018 decided on 5 td. v. Dy. CIT [ITA No.59/Cheny/2018 decided on 5-9- 2018 . (129 taxmann.com 6, Mum.)(dated 3rd May, 2021 • JayAshkaran Shah vs. • JayAshkaran Shah vs. I.T.O. (129 taxmann.com 6, Mum.)(dated 3rd May, 2021 2-2019” • Mohan Jain v. ITO [ITA No. 605/ind/2017forAY2014 • Mohan Jain v. ITO [ITA No. 605/ind/2017forAY2014-15 decided on 5-2

5.3 Further, the Ld.CIT(A) has also rejected the contention of Further, the Ld.CIT(A) has also rejected the contention of Further, the Ld.CIT(A) has also rejected the contention of transactions being in the nature of transactions being in the nature of ‘speculative transaction speculative transaction’ by observing as under:-

“3.15 AO observed that if the assessee succeeds in appeal on the claim as bad AO observed that if the assessee succeeds in appeal on the claim as bad AO observed that if the assessee succeeds in appeal on the claim as bad debts/business loss, as an alternative, the transactions of purchase and sale of commodities debts/business loss, as an alter native, the transactions of purchase and sale of commodities at the NSEL may be held as speculative transactions, the loss as speculation loss and the at the NSEL may be held as speculative transactions, the loss as speculation loss and the at the NSEL may be held as speculative transactions, the loss as speculation loss and the same may be allowed to be carried forward for set off against the speculation gains in the same may be allowed to be carried forward for set off against the speculation gains in the same may be allowed to be carried forward for set off against the speculation gains in the subsequent years. It is seen that the appellant did trading in commodities in earlier years rs. It is seen that the appellant did trading in commodities in earlier years rs. It is seen that the appellant did trading in commodities in earlier years

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also and the department accepted the income out of these trading transactions as business also and the department accepted the income out of these trading transactions as business also and the department accepted the income out of these trading transactions as business transaction. In the circumstances loss for the year cannot be treated as speculative loss. transaction. In the circumstances loss for the year cannot be treated as speculative transaction. In the circumstances loss for the year cannot be treated as speculative 3.16 The issue of treating the commodity trading transactions on NSEL as speculative The issue of treating the commodity trading transactions on NSEL as speculative The issue of treating the commodity trading transactions on NSEL as speculative transactions is also examined by the courts in similar cases involving the loss from NSEL. transactions is also examined by the courts in similar cases involving the transactions is also examined by the courts in similar cases involving the Hon. Tribunal Mumbai Bench in the case of DCIT vs. M/s Nirshilp Securitie Hon. Tribunal Mumbai Bench in the case of DCIT vs. M/s Nirshilp Securities Pvt. Ltd (ITA No.6321/Mum/2019 for A.Y. 2016-17 held that the loss arising on account of payment No.6321/Mum/2019 for A.Y. 2016 17 held that the loss arising on account of payment made to NSEL through registered broker towards purchase of commodities shall be made to NSEL through registered broker towards purchase of commodities shall be made to NSEL through registered broker towards purchase of commodities shall be allowable as regular business loss u/s 28 of the Act and that the said loss cannot be allowable as regular business loss u/s 28 of the Act and that the said loss c allowable as regular business loss u/s 28 of the Act and that the said loss c construed as speculative in nature. Therefore, the alternate conclusion of the AO to the construed as speculative in nature. Therefore, the alternate conclusion of the AO to the construed as speculative in nature. Therefore, the alternate conclusion of the AO to the effect that the transactions of purchase and sale of commodities by the assessee at NSEL effect that the transactions of purchase and sale of commodities by the assessee at NSEL effect that the transactions of purchase and sale of commodities by the assessee at NSEL were speculative transactions is contrary to the facts, consistency and also the law laid were speculative transactions is contrary to the facts, consistency and also the law laid down.” 6. Before us, the Ld. Before us, the Ld. Counsel of the assessee has relied on the Counsel of the assessee has relied on the decision of the co-ordinate bench of the Tribunal in the case of ordinate bench of the Tribunal in the case of ordinate bench of the Tribunal in the case of Chowdry Associates vs Associates vs. ACIT in ITA No.3928/Del/2019 ACIT in ITA No.3928/Del/2019 for Assessment Year 2015 Assessment Year 2015-16 wherein identical claim of the loss 16 wherein identical claim of the loss from transaction carried on NSEL transaction carried on NSEL has been held to be a a business loss. The Tribunal has also rejected the contention that these The Tribunal has also rejected the contention that these The Tribunal has also rejected the contention that these transactions are in the nature of speculative transactions. The transactions are in the nature of speculative transactions. Th transactions are in the nature of speculative transactions. Th relevant finding of the Tribunal is reproduced as under:- relevant finding of the Tribunal is reproduced as under: relevant finding of the Tribunal is reproduced as under: 14. Heard the arguments of both the parties and perused the material available on re 14. Heard the arguments of both the parties and perused the material available on re 14. Heard the arguments of both 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. From the entirety of the events, we find that in the assessment year 2014 15. From the entirety of the events, we find that in the assessment year 2014-15 assessee had made purchases in the middle or last week of June 2013 through M/s A Rathi Commodities es in the middle or last week of June 2013 through M/s A Rathi Commodities es in the middle or last week of June 2013 through M/s A Rathi Commodities Pvt. Ltd. and M/s Philips Commodities Pvt. Ltd. The NSEL fail Pvt. Ltd. and M/s Philips Commodities Pvt. Ltd. The NSEL failed to fulfill its commitments and fulfill its commitments and ultimately the Government had prohibited NSEL to make transactions after 1st July 2013. The ultimately the Government had prohibited NSEL to make transactions after 1 ultimately the Government had prohibited NSEL to make transactions after 1 details of outstanding unsettled transactions c assessee through both the brokers has also details of outstanding unsettled transactions c assessee through both the brokers has also details of outstanding unsettled transactions c assessee through both the brokers has also been furnished to the revenue authoritii the NSEL. been furnished to the revenue authoritii the NSEL. 16. The AO disallowed the losses as claimed by the assessee on the ground transactions has 16. The AO disallowed the losses as claimed by the assessee on the ground transactions has 16. The AO disallowed the losses as claimed by the assessee on the ground transactions has carried out by the assessee are speculative transactions settled wi the assessee are speculative transactions settled with delivery in terms of th delivery in terms of Section 43(5) of the Act. The AO in the assessment < reproduced the relevant provisions of Section 43(5) of the Act. The AO in the assessment < reproduced the relevant provisions of Section 43(5) of the Act. The AO in the assessment < reproduced the relevant provisions of

Ketan Anil Shah 13 ITA No. 2188/M/2022

Section 43(5) upto sub Section 43(5) upto sub-Section (d) of 45(3) AO stopped at short of sub- -Section (d) without going further to sub-Section (e). Section (e). Section (e) which was introduced by the Finance Act, 2013 w.e.f. 1st 17. Reading further, sub 17. Reading further, sub-Section (e) which was introduced by the Finance Act, 2013 April 2014 reveals that in respect of trading and commodity derivatives carried c a recogni/ed April 2014 reveals that in respect of trading and commodity derivatives carried c a recogni/ed April 2014 reveals that in respect of trading and commodity derivatives carried c a recogni/ed association shall not be a spe association shall not be a speculative transaction. (e relevant provisions of Section 43(5)(e) are as detailed below. (e relevant provisions of Section 43(5)(e) are as detailed below. f[(e) an eligible transaction in respect of trading in commodity derivatives a out in a recognised [(e) an eligible transaction in respect of trading in commodity derivatives a out in a recognised [(e) an eligible transaction in respect of trading in commodity derivatives a out in a recognised association [, which is chargeable to commodities trans association [, which is chargeable to commodities transaction under Chapter VII of the Finance hapter VII of the Finance Act, 2013 (17 of 2013),]] shall not be Act, 2013 (17 of 2013),]] shall not be deemed to be a speculative transaction: speculative transaction: 18. Further, Explanation 2 for the purpose of Clause (e) defines what const 18. Further, Explanation 2 for the purpose of Clause (e) defines what const 18. Further, Explanation 2 for the purpose of Clause (e) defines what constitutes "commodity derivative". The meaning has been assigned as per Chapter VII of the Fit Act, 2013. derivative". The meaning has been assigned as per Chapter VII of the Fit Act, 2013. derivative". The meaning has been assigned as per Chapter VII of the Fit Act, 2013. 19. Chapter VII of the Finance Act, 2013 at definitions mentioned at para 1C Commodity 19. Chapter VII of the Finance Act, 2013 at definitions mentioned at para 1C Commodity 19. Chapter VII of the Finance Act, 2013 at definitions mentioned at para 1C Commodity derivative means- (i) a contract for delivery of goods which is not a ready delivery contract; or (i) a contract for delivery of goods which is not a ready delivery contract; or (i) a contract for delivery of goods which is not a ready delivery contract; or (ii) a contract for differences which derives its value from prices or indices of p (ii) a contract for differences which derives its value from prices or indices of p (ii) a contract for differences which derives its value from prices or indices of prices- (A) of such underlying goods; or (A) of such underlying goods; or (B) of related services and rights, such as warehous (B) of related services and rights, such as warehousing and freight; or ing and freight; or(C) with reference to weather and similar events and activities. weather and similar events and activities. 20. The "eligible transactions" means 20. The "eligible transactions" means (A) carried out electronically on screen (A) carried out electronically on screen-based systems through member or based systems through member or an intermediary, registered under the bye registered under the bye-laws, rules and regulations of the recognized association for trading in association for trading in commodity derivative in accordance with the provisions of th commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, Forward Contracts (Regulation) Act, 1952 (74 of 1952) and the rules, regulations or bye laws made or directions issued under that Act 1952 (74 of 1952) and the rules, regulations or bye laws made or directions issued under that Act 1952 (74 of 1952) and the rules, regulations or bye laws made or directions issued under that Act on a recognized association; and n a recognized association; and (B) which is supported by a time stamped contract note issued by such member o intermediary to (B) which is supported by a time stamped contract note issued by such member o intermediary to (B) which is supported by a time stamped contract note issued by such member o intermediary to every client indicating in the contract note, the unique client identit every client indicating in the contract note, the unique client identity number allotted under the Act, number allotted under the Act, rules, regulations or bye rules, regulations or bye-laws referred to in sub-clause (A), unique trade number and permanent (A), unique trade number and permanent account number allotted under this Act; account number allotted under this Act; 21. The "recognized association" means 21. The "recognized association" means "recognized association" means a recognized association as referred to in clause (j) c section 281 of "recognized association" means a recognized association as referred to in clause (j) c section 281 of "recognized association" means a recognized association as referred to in clause (j) c section 281 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which fulfill such conditions as may such conditions as may be prescribed and is notified by the Central Government fo be prescribed and is notified by the Central Government for this purpose;] . 22. We also find that all the transactions made by the assessee are evidencing the clien ID and PA 22. We also find that all the transactions made by the assessee are evidencing the 22. We also find that all the transactions made by the assessee are evidencing the No. and also carried out through computerized exchanged through electroni screen (NSEL) as per No. and also carried out through computerized exchanged through electroni screen (NSEL) as per No. and also carried out through computerized exchanged through electroni screen (NSEL) as per the details collected by the revenue. the details collected by the revenue. 23. We have also gone through the provisions of the Act introduced vide Finance Bill 200 in respect 23. We have also gone through the provisions of the Act introduced vide Finance Bill 200 in respect 23. We have also gone through the provisions of the Act introduced vide Finance Bill 200 in respect of measures to rationalize the tax treatment of derivative transactions. Th same is as under: ures to rationalize the tax treatment of derivative transactions. Th same is as under: ures to rationalize the tax treatment of derivative transactions. Th same is as under: Under the existing provisions clause (5) of Section 43, a transaction for the purchas Under the existing provisions clause (5) of Section 43, a transaction for the purchas 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 "speculative sale of any commodity including stocks and shares is deemed to be "speculative sale of any commodity including stocks and shares is deemed to be "speculative transaction". If it is settled otherwise than by actual delivery. Howeve transaction". If it is settled otherwise than by actual delivery. Howeve transaction". If it is settled otherwise than by actual delivery. However certain categories of transactions are excluded from the purview of the sai of transactions are excluded from the purview of the said provision. Further th provision. Further the unabsorbed speculation losses are allowed to be came forward for eight years for set unabsorbed speculation losses are allowed to be came forward for eight years for set unabsorbed speculation losses are allowed to be came forward for eight years for set-off against speculation profits in subsequent yean These restrictions were essentially designed against speculation profits in subsequent yean These restrictions were essentially designed against speculation profits in subsequent yean These restrictions were essentially designed as an anti-evasion measure to prevent evasion measure to prevent claims of artificially generated lo claims of artificially generated losses in the absence of an appropriate institutions infrastructure. of an appropriate institutions infrastructure. Recent systemic and technological changes introduced by stock markets hav Recent systemic and technological changes introduced by stock markets hav Recent systemic and technological changes introduced by stock markets have resulted in sufficient transparency to prevent generating fictitious losses throug sufficient transparency to prevent generating fictitious losses throug sufficient transparency to prevent generating fictitious losses through artificial transactions or shi transactions or shifting of incidence of loss from one person to another. Th fting of incidence of loss from one person to another. The screen based

Ketan Anil Shah 14 ITA No. 2188/M/2022

computerized trading proves for an excellent audit trail. Therefore the present distinction computerized trading proves for an excellent audit trail. Therefore the present distinction computerized trading proves for an excellent audit trail. Therefore the present distinction between speculative and non between speculative and non-speculative transactions, particularly relating to derivatives particularly relating to derivatives is no more required. The proposed amendmen s no more required. The proposed amendment, therefore, seeks to provide that an eligible , therefore, seeks to provide that an eligible transaction carried out in respect c trading in derivatives in a recognized stock exchange transaction carried out in respect c trading in derivatives in a recognized stock exchange transaction carried out in respect c trading in derivatives in a recognized stock exchange shall not be deemed to be speculative transaction. The proposed amendment al shall not be deemed to be speculative transaction. The proposed amendment al shall not be deemed to be speculative transaction. The proposed amendment also seeks to notify relevant rules etc. regarding conditions to be fulfilled by recognized exchanges in rules etc. regarding conditions to be fulfilled by recognized exchanges in rules etc. regarding conditions to be fulfilled by recognized exchanges in this regard. Further, it is also proposed to amend sub Further, it is also proposed to amend sub-section (4) of Section 73 so as to section (4) of Section 73 so as to reduce the period of carry forward of speculation losses from eight assessment years t four the period of carry forward of speculation losses from eight assessment years t four the period of carry forward of speculation losses from eight assessment years t four assessment years. assessment years. These amendments will take effect from 1st April, 2006and will, accordingly, These amendments will take effect from 1 April, 2006and will, accordingly, applyin relation to assessment year 2006 relation to assessment year 2006-07 and subsequent years. 24. The revenue has clearly held that the assessee is in the trading of commod revenue has clearly held that the assessee is in the trading of commodity derivatives. revenue has clearly held that the assessee is in the trading of commod Revenue, having said that failed to give the benefit of provisions of Sect 43(5)(e). Hence, the Revenue, having said that failed to give the benefit of provisions of Sect 43(5)(e). Hence, the Revenue, having said that failed to give the benefit of provisions of Sect 43(5)(e). Hence, the transactions done by the assessee shall not be deemed to be speculative t transactions done by the assessee shall not be deemed to be speculative t transactions done by the assessee shall not be deemed to be speculative transaction in terms of the provisions of the Act. of the provisions of the Act. 25. We have also gone through the accounts of assessee for the earlier years. The amo 25. We have also gone through the accounts of assessee for the earlier years. The amo 25. We have also gone through the accounts of assessee for the earlier years. The amount kept with M/s Anand Rathi Commodities Pvt. Ltd. was Rs.1.30 crores for the year endi kept with M/s Anand Rathi Commodities Pvt. Ltd. was Rs.1.30 crores for the year endi 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 y< ending 31.03.2014 and Rs.4.60 crores for the ending 31.03.2013 and Rs.2.95 crores for the y< ending 31.03.2014 and Rs.4.60 crores for the ending 31.03.2013 and Rs.2.95 crores for the y< ending 31.03.3012. Similarly, the amount kept with M/s Philips Commodities India P Ltd. was Rs.4.33 31.03.3012. Similarly, the amount kept with M/s Philips Commodities India P Ltd. was Rs.4.33 31.03.3012. Similarly, the amount kept with M/s Philips Commodities India P Ltd. was Rs.4.33 crores for the year ending 31.03.2014 and Rs.14.95 crores for the end 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 t brokers owing to the year, the assessee could not recover the amounts from these t brokers owing to the year, the assessee could not recover the amounts from these t brokers owing to suspension of operations by the NSEL which was given as a part of t business transaction for suspension of operations by the NSEL which was given as a part of t business transaction for suspension of operations by the NSEL which was given as a part of t business transaction for purchase of commodities in the conduct of regular busine purchase of commodities in the conduct of regular business operations. Hence, the amount operations. Hence, the amount advanced made to purchase the commodity during t course of the business is a business loss advanced made to purchase the commodity during t course of the business is a business loss advanced made to purchase the commodity during t course of the business is a business loss allowable u/s 28 of the Act. allowable u/s 28 of the Act. 26. We have also perused the notice of PCIT, Central, New Delhi issued under t provisions of 26. We have also perused the notice of PCIT, Central, New Delhi issued under t provisions of 26. We have also perused the notice of PCIT, Central, New Delhi issued under t provisions of Section 263 of the Act proposing to withdraw the bad debts claimed by t assessee and 63 of the Act proposing to withdraw the bad debts claimed by t assessee and 63 of the Act proposing to withdraw the bad debts claimed by t assessee and accepted by the Assessing Officer. We categorically refrain from adjudicati accepted by the Assessing Officer. We categorically refrain from adjudicati 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 w the issue of bad of the notice, however, we observe that the said notice also dealt w the issue of bad of the notice, however, we observe that the said notice also dealt w the issue of bad debts claimed u/s 36(l)(vii) by that assessee. claimed u/s 36(l)(vii) by that assessee. 27. We have also perused the order of the Chennai Tribunal in the case of Megh Sakari 27. We have also perused the order of the Chennai Tribunal in the case of Megh Sakari 27. We have also perused the order of the Chennai Tribunal in the case of Megh Sakari International Pvt. Ltd. in ITA No. 59/Chennai/2018 wherein the bad debts have be allowed by International Pvt. Ltd. in ITA No. 59/Chennai/2018 wherein the bad debts have be allowed by International Pvt. Ltd. in ITA No. 59/Chennai/2018 wherein the bad debts have be allowed by the Tribunal u/s 36(l)(vii) o the Tribunal u/s 36(l)(vii) of the Income Tax Act, 1961. In that case too, the he revenue has also brought to the notice regarding the information received from NSEL brought to the notice regarding the information received from NSEL if trading on that platform f trading on that platform was topped since 31.07.2014 and the NSEL was in the pro was topped since 31.07.2014 and the NSEL was in the process of settling the outstanding dues of settling the outstanding dues of its traders and auctioning its assets for the s; purpose. The revenue claimed that the claim f its traders and auctioning its assets for the s; purpose. The revenue claimed that the claim f its traders and auctioning its assets for the s; purpose. The revenue claimed that the claim of bad debts was premature, However, t ITAT has allowed the claim of the assessee based on of bad debts was premature, However, t ITAT has allowed the claim of the assessee based on of bad debts was premature, However, t ITAT has allowed the claim of the assessee based on the judgment of the Hon'ble Ap the judgment of the Hon'ble Apex Court in the case of TRF Ltd. Vs CIT 320 ITR 397 wherein it 320 ITR 397 wherein it was held that after 1st April 1989, it was not necessary for the assessee to establish that the was held that after 1 1989, it was not necessary for the assessee to establish that the debt has becor irrecoverable and it was enough if the debt was written off as irrecoverable in debt has becor irrecoverable and it was enough if the debt was written off as irrecoverable in debt has becor irrecoverable and it was enough if the debt was written off as irrecoverable in the books. Further, the CBDT vide Circula Further, the CBDT vide Circular No. 12/2016 clarified regarding the claim of the r No. 12/2016 clarified regarding the claim of the bad deb the same is reproduced as under: . bad deb the same is reproduced as under: .

Ketan Anil Shah 15 ITA No. 2188/M/2022

“Circular No. 12/20 F.No.2 79/Misc./14 0/2015-ITJ Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes Ministry of Finance Department of Revenue Central Board of Direct Taxes Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, Dated 30th May, 2016 New Delhi, Dated

Subject: - Admissibility of claim of deduction of Bad Debt under section 36(1) ( Admissibility of claim of deduction of Bad Debt under section 36(1) ((vii) read with section 36(2) of the read with section 36(2) of the Income-Tax Act, 1961— reg. reg. Proposals have been received by the Central Board of Direct Taxes regarding filing of appeals/pu Proposals have been received by the Central Board of Direct Taxes regarding filing of appeals/pu Proposals have been received by the Central Board of Direct Taxes regarding filing of appeals/pursuing litigation on the issue of allowability of bad debt that are written off as irrecoverable in the accounts of the assessee. The dispute the issue of allowability of bad debt that are written off as irrecoverable in the accounts of the assessee. The dispute the issue of allowability of bad debt that are written off as irrecoverable in the accounts of the assessee. The dispute relates to cases involving failure on the part of assessee to establish that the debt is irrecoverable. relates to cases involving failure on the part of assessee to establish that the debt is irrecoverable. relates to cases involving failure on the part of assessee to establish that the debt is irrecoverable. 2. Direct Tax Laws (Amendment) Act, 1987 amended the provisions of sections 36(l)(vii) and 36(2) of the Income Tax Tax Laws (Amendment) Act, 1987 amended the provisions of sections 36(l)(vii) and 36(2) of the Income Tax Tax Laws (Amendment) Act, 1987 amended the provisions of sections 36(l)(vii) and 36(2) of the Income Tax Act 1961, (hereafter referred to as the Act) to rationalize the provisions regarding allowability of bad debt with effect Act 1961, (hereafter referred to as the Act) to rationalize the provisions regarding allowability of bad debt with effect Act 1961, (hereafter referred to as the Act) to rationalize the provisions regarding allowability of bad debt with effect from the 3. The legislative intention behind the amendment was to eliminate litigation on the issue of the allowability of the 3. The legislative intention behind the amendment was to eliminate litigation on the issue of the allowability of the 3. The legislative intention behind the amendment was to eliminate litigation on the issue of the allowability of the bad debt by doing away with the requirement for the bad debt by doing away with the requirement for the assessee to establish that the debt, has in fact, become to establish that the debt, has in fact, become irrecoverable. However, despi irrecoverable. However, despite the amendment, disputes on the issue of allowability continue, mostly for the reason te the amendment, disputes on the issue of allowability continue, mostly for 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 that the debt has not been established to be irrecoverable. The Hon'ble Supreme Court in the case of TRF Ltd. in CA 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 9.2.20 Nos. 5292 to 5294 of 2003 vide judgment dated 9.2.2010, has stated that the position of law is well settled. "After 10, 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(l)(vii) of the Act, it is 1.4.1989, for allowing deduction for the amount of any bad debt or part thereof under section 36(l)(vii) of the Act, it is 1.4.1989, for allowing deduction for the amount of any bad debt or part thereof under section 36(l)(vii) of the Act, it is not necessary for assessee to establish that the debt, in fact has be not necessary for assessee to establish that the debt, in fact has become irrecoverable; it is enough if bad debt is come irrecoverable; it is enough if bad debt is written off as irrecoverable in the books of accounts of assessee." 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 4. In view of the above, claim for any debt or part thereof in any previous year shall be admissible 4. In view of the above, claim for any debt or part thereof in any previous year shall be admissible under section 36(l)(vii) of the Act, if it is written off as irrecoverable in the books of accounts of the under section 36(l)(vii) of the Act, i f 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 assessee for that previous year and it fulfills the conditions stipulated in sub section (2) of sub-section assessee for that previous year and it fulfills the conditions stipulated in sub section (2) of sub 36(2) of the Act. 5. Accordingly, no appeals may henceforth be filed on this ground and appeals already filed, if any, on 5. Accordingly, no appeals may henceforth be filed on this g round and appeals already filed, if any, on this issue before various Courts/Tribunals may be withdrawn/not pressed upon. 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 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 Thus, we find that the CBDT has unequivocally allowed the claim of bad debts once the same is 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 Id. DR that the bad written off in the books of accounts as irrecoverable. Thus, the argument of the Id. DR that the bad written off in the books of accounts as irrecoverable. Thus, the argument of the Id. DR that the bad debts should not be allowed which is based on the letter issued by the NSEL that NSEL is in the debts should not be allowed which is based on the letter issu ed 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 process of settling the amounts in view of the sufficiency of the assets and not to allow bad debts as 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 29. We also hold that, if in any previous year, the debt has been written off as bad and the relevant 29. We also hold that, if in any previous year, the debt has been written off as bad and the deduction has also been claimed but later on the same debt is recovered in full or part, then the deduction has also been claimed but later on the same debt is recovered in full or part, then the 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 amount so recovered will be included as income of the financial year in which such amount has 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 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 amount as and when received in accordance with the provisions of the Act. The department must 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 obtain the information pertaining to payment by the NSEL to brokers/traders on real time basis and 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 the NSEL not to allow the bad debts claim o tax net. Hence, the advisory of the NSEL not to allow the bad debts claim o tax net. Hence, the advisory of the NSEL not to allow the bad debts claim would be legallyuntenable owing to the provisions of the Act, Circular of the CBDT and ruling of the would be legallyuntenable owing to the provisions of the Act, Circular of the CBDT and ruling of the would be legallyuntenable owing to the provisions of the Act, Circular of the CBDT and ruling of the Hon't Apex Court in the case of TRF Ltd. Vs CIT (323 ITR 397). Hon't Apex Court in the case of TRF Ltd. Vs CIT (323 ITR 397). 30. Further, we have also perused the order in the case of M/s Omni Lens Pvt. Ltd. in have also perused the order in the case of M/s Omni Lens Pvt. Ltd. in have also perused the order in the case of M/s Omni Lens Pvt. Ltd. in I No. 2818/Ahd./2010 wherein the matter was referred back to the file of the AO to exami 2818/Ahd./2010 wherein the matter was referred back to the file of the AO to examine the issue of 2818/Ahd./2010 wherein the matter was referred back to the file of the AO to exami

Ketan Anil Shah 16 ITA No. 2188/M/2022

speculation/non-speculation business after taking note of crucial aspect actual de speculation business after taking note of crucial aspect actual de speculation business after taking note of crucial aspect actual delivery of the commodity, if any, as claimed and to ascertain as to how the entire debt has turned bad when the commodity, if any, as claimed and to ascertain as to how the enti debt has turned bad when the assessee was purportedly in possession of the goo purchased. The issue before us is clear on this assessee was purportedly in possession of the goo purchased. The issue before us is clear on this assessee was purportedly in possession of the goo purchased. The issue before us is clear on this aspect.V 31. The matter before us deals with the non-recovery of the advances given to tl brokers. The AO, for 31. The matter before us deals with t recovery of the advances given to tl brokers. The AO, for the instant year held that the assessee is dealing in speculative transactions and invoked provisions the instant year held that the assessee is dealing in speculati transactions and invoked provisions Section 43(5) of the Act. The AO has also held the the assessee has been carrying trade i Section 43(5) of the Act. The AO has also held th the assessee has been carrying trade in commodity derivatives. Section 43(5)( considers an eligible transaction in respect of trading in commodity derivatives. Section 43(5)( considers an eligible transaction in respect of trading in commodity derivatives. Section 43(5)( considers an eligible transaction in respect of trading in commodity derivatives carried o in a recognized association shall not be deemed to be a speculative transaction. derivatives carried o in a recognized association shall not be deemed to be a speculative transaction. derivatives carried o in a recognized association shall not be deemed to be a speculative transaction. ssessee shall not be deemed to be speculati1 Hence we hold that the transactions of the a we hold that the transactions of the assessee shall not be deemed to be speculati transactions. Chapter VII of the Finance Act, 2013 w.e.f. 01.04.2014, details as to wh is a commodity transactions. Chapter VII of the Finance Act, 2013 w.e.f. 01.04.2014, details as to wh is a commodity transactions. Chapter VII of the Finance Act, 2013 w.e.f. 01.04.2014, details as to wh is a commodity derivative in the Commodities Transaction Tax (CTT). As per the C" commodity derivative means a derivative in the Commodities Transaction Tax (CTT). As per the C" commodity derivative means a derivative in the Commodities Transaction Tax (CTT). As per the C" commodity derivative means a contract for delivery of goods which is not a ready delive contract or a contract for differences which delivery of goods which is not a ready delive contract or a contract for differences which delivery of goods which is not a ready delive contract or a contract for differences which derives its value from the prices of su< underlying goods. Thus, we find that the assessee is in the derives its value from the prices of su< underlying goods. Thus, we find that the assessee is in the derives its value from the prices of su< underlying goods. Thus, we find that the assessee is in the business of commodi derivatives but not in the speculation transaction as held by the AO. The business of commodi derivatives but not in the speculation trans action as held by the AO. The revenue has also accepted the income from the transactions of the assessee as business income but accepted the income from the transactions of the assessee as business income but accepted the income from the transactions of the assessee as business income but not; income from speculation for all the earlier years. (Owing to collapse of the NSEL, not; income from speculation for all the earlier years. (Owing to collapse of the NSEL, no further not; income from speculation for all the earlier years. (Owing to collapse of the NSEL, trading could be conducted by the assessee in the latter years). It is also c undisputed fact that the trading could be conducted by undisputed fact that the trade advances given by the assessee stands irrecoverable. 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 32. In conclusion, keeping in view the facts of the case, a tax history of the assessee treatment given 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, findi the transactions undertaken by the assessee, finding of the AO that the assessee is of the AO that the assessee is into commodity derivatives, provisions of the Section 43(' invoked by the AO, provisions of Section into commodity derivatives, provisions of the Section 43(' invoked by the AO, provisions of Section into commodity derivatives, provisions of the Section 43(' invoked by the AO, provisions of Section 43(5)(e) relied upon by the Id. AR, Explanation (2) of Section 43 as to what constitutes commodity 43(5)(e) relied upon by the Id. AR, Explanati what constitutes commodity derivatives, Para 5 of Chapter VII Finance Act, 2013, CBDT Circular No. 3/2006 dated 27.02.2006, derivatives, Para 5 of Chapter VII Finance Act, 2013, CBDT Circular No. 3/2006 dated 27.02.2006, derivatives, Para 5 of Chapter VII Finance Act, 2013, CBDT Circular No. 3/2006 dated 27.02.2006, orders of the Co-ordinate Bench of ITAT in Megh Sakariya International (supra), Omni Lens Pvt. Ltd. Bench of ITAT in Megh Sakariya International (supra), Omni Lens Pvt. Ltd. Bench of ITAT in Megh Sakariya International (supra), Omni Lens Pvt. Ltd. (supra judgment of the Hon'ble Apex Court in the case of TRF Ltd. (supra), we hereby hold th (supra judgment of the Hon'ble Apex Court in the case of TRF Ltd. (supra), we hereby hold that the (supra judgment of the Hon'ble Apex Court in the case of TRF Ltd. (supra), we hereby hold th business loss claimed by the assessee is allowable u/s 28 of the Act. business loss claimed by the assessee is allowable u/s 28 of the Act. esult, the appeal of the assessee is allowed.” 33. In the result, the appeal of the assessee is allowed. 9. Facts and circumstances of the instant case being exactly Facts and circumstances of the instant case being exactly Facts and circumstances of the instant case being exactly

identical to the facts and circumstances in the case of Chowdry identical to the facts and circumstances in the case of identical to the facts and circumstances in the case of

Associates vs. ACIT (supra), respectfully following the finding of the (supra), respectfully following the finding of the (supra), respectfully following the finding of the

Tribunal, we uphold the finding of the Ld.CIT(A) as the loss being uphold the finding of the Ld.CIT(A) as the loss being uphold the finding of the Ld.CIT(A) as the loss being

business loss.

Ketan Anil Shah 17 ITA No. 2188/M/2022

Order pronounced under Rule 34(4) of the ITAT Rules, Order pronounced under Rule 34(4) of the ITAT Rules, Order pronounced under Rule 34(4) of the ITAT Rules, 1963 on 19/01/2023. 01/2023. Sd/- Sd/- - (SANDEEP SINGH KARHAIL SANDEEP SINGH KARHAIL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 19/01/2023 Pavanan, Sr. P.S (on contract)

Ketan Anil Shah 18 ITA No. 2188/M/2022

Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, BY ORDER, //True Copy// (Sr. Private Secretary) (Sr. Private Secretary) ITAT, Mumbai ITAT, Mumbai