RURAL ENGINEERING CO. PVT. LTD.,KOLKATA vs. D.C.I.T., CIRCLE - 1(1),, KOLKATA

The facts as noted are that, the assessee had filed its return of income for AY 2018-19 on 12-10-2018 declaring total loss of Rs.2,20,227/-, after claiming set-off for brought forward business loss of Rs.4,81,93,241/- relatable to AY 2017-18. The case of the assessee was selected for regular scrutiny and the assessment was completed u/s 143(3) by order dated 08.03.2021 at the returned loss of Rs.2,20,227/-. Later on, the ld. AO issued notice u/s 154 of the Act dated 17.02.2023 and disallowed the set-off for brought forward business loss of Rs.4,81,93,241/- vide order dated 27.06.2023. The ld. AO inter alia observed that, the income-tax assessment for AY 2017-18 had been completed at a positive income of Rs.1,22,76,650/- after recharacterizing the bad debts written off amounting to Rs.6,20,12,781/- to be speculative in nature and therefore the speculative loss brought forward from AY 2017-18 was not available for being set off against regular business income of the assessee for AY 2018-19. This action of the ld. AO was upheld by the ld. CIT(A).

The ld. AR, at the time of hearing, placed before us the copy of the order passed in ITA No. 3209/Kol/2025 dated 15.04.2026 passed in assessee’s own case for AY 2017-18 wherein the bad debts written off was treated as a regular business item and consequently the losses for AY 2017-18 was assessed by way of normal business loss. The relevant operative portion of the order is as under:- “8. In so far as the Revenue's case that the impugned loss was speculative in nature is concerned, there is merit in the contention of the ld. AR that when the sales/income had been assessed as normal business income in the respective years of transactions, then as a corollary, the write off out of such business transactions bears the nature of normal business loss. We further observe that the coordinate bench of ITAT, Delhi in the case of Span India Pvt Ltd vs. ACIT (supra) had considered the complete modus operandi of the trading activities conducted on NSEL and the manner of delivery of commodities and thereafter held the write off to be non-speculative in nature. The relevant findings taken note of by us, is as under: …….. 11. The ld. DR was unable to bring any contrary decision on this specific issue before us. Following the decisions (supra), we hold that the assessee was justified in claiming the bad debts

In view of the above, the ld. AR thus prayed that, the rectification order passed u/s 154 of the Act be set aside and the ld. AO be directed to allow the set-off for the brought forward business losses relatable AY 2017-18 against the business income for AY 2018-19, as claimed in the return of income.

The ld. DR appearing for the Revenue was unable to controvert the above factual position. He was also unable to show us whether the order passed in assessee’s own case for AY 2017-18 had been subsequently stayed or reversed by the Hon’ble High Court.

Keeping the above factual position in mind and having regard to the decision rendered in assessee’s own case for AY 2017-18 (supra) treating the losses relatable to that AY as regular business loss, we direct the AO to allow the correctly quantify the business losses available to be brought forward from AY 2017-18 and allow its set-off against the normal business income of the assessee for AY 2018-19, in accordance with law. Needless to say, the AO shall pass a speaking order in this regard, after giving opportunity of hearing to the assessee

In the result, the appeal of the assessee is allowed for statistical purposes.