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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI PRAMOD KUMAR, VICE- & SHRI VIKAS AWASTHY
आदेश/ ORDER
PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-53, Mumbai [in short ‘the CIT(A)’] dated 19/06/2019 for the assessment year 2014-15.
The assessee in appeal has primarily assailed the findings of CIT(A) in rejecting assessee’s claim of write off of bad debts in respect of loss suffered during trading at National Spot Exchange, as well rejection of alternate claim of allowing irrecoverable bad debts as ‘business loss’ under section 28(1)/37(1) of the Income Tax Act, 1961 (in short ’the Act’).
Shri. Mihir Naniwadekar appearing on behalf of the assessee narrating facts of the case submitted that: The assessee was engaged in trading of various commodities at National Spot Exchange Ltd. (in short ‘the NSEL’). The trading at NSEL was abruptly stopped by the Government in July 2013. Due to sudden closure of trading, the assessee could not recover outstanding payments to the extent of Rs.1,26,61,739/- from the brokers. In the impugned assessment year the assessee wrote off irrecoverable amounts as bad debts. The assessee has written off bad debts in accordance with the provisions of section 36(1)(vii) of the Act and judgement rendered by the Hon’ble Supreme Court of India in the case of TRF Ltd vs. CIT reported as 323 ITR 397. The Assessing Officer rejected assessee’s claim of write off of bad debts stating it to be premature.
3.1. Aggrieved by the assessment order dated 25/12/2016 the assessee filed appeal before the CIT(A). The CIT(A) placing reliance on the decision in the case of ACIT vs. A.U Financial India Ltd. reported as 102 taxmann.com 290 (Jaipur-Trib.) and Omni Lens Pvt. Ltd. vs DCIT, 99 taxamnn.com. 333 held the loss at NSEL is speculative and hence, cannot be allowed against other sources income and dismissed assessee’s claim. The ld. Authorized Representative of the assessee submitted that the CIT(A) has erred in coming to the conclusion that the transaction carried out by the assessee at NSEL were speculative. The ld. Authorized Representative of the assessee submitted that the transactions were on actual delivery basis. In earlier assessment year the assessee had offered profit from similar transactions as business income and the same was accepted by the Revenue. There is no change in the nature and manner of transaction wherein the assessee could not recover the amounts. The assessee could not recover the amount only for the reason of abrupt suspension of trading at NSEL by the Government.
3.2. The ld. Authorized Representative of the assessee submitted that in case irrecoverable amounts cannot be allowed as bad debts, the same be allowed as business loss under section 28(1) of the Act. To support his alternate contention, the ld. Authorized Representative of the assessee placed reliance on the decision in the case of Chaudhary Associate vs. ACIT, 117 taxamann.com 840 (Del).
Ms. Usha Gaikwad representing the department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. The ld. Departmental Representative submitted that in the case of A.U Financial India Ltd. (supra) the Tribunal has held the transactions at NSEL are speculative.
We have heard the submissions made by rival sides and have examined the orders of authorities below. The short point involved in present appeal is: Whether the assessee is entitled for the benefit of write off of bad debts on amounts irrecoverable from transactions at NSEL? The contention of assessee is that the transactions carried out at NSEL are delivery based and not speculative. The ld. Authorized Representative of the assessee has pointed that in preceding assessment years, the assessee has offered profit from transactions at NSEL as, ‘Business Income’ and the same was accepted by the Revenue. In support of later argument no material has been brought on record by the assessee.
The CIT(A) has rejected the claim of assessee inter alia on the ground that the loss from transactions at NSEL is speculative. We observe that the CIT(A) has given the said finding merely on the basis of two decisions of the Tribunal. The CIT(A) has not examined the contract notes, delivery allocation report, ledger accounts etc. furnished by the assessee. Without actual examination of relevant documents, the observation made by the CIT(A) are merely on surmises and conjunctures, hence, unsustainable.
The CIT(A) has referred to the findings of Tribunal in the case of AU Financers (India) Ltd.(supra). In the said case the assessee failed to substantiate that the transactions were delivery based, hence, the transactions were held to be speculative. The facts in the said case are different from the facts in present case. In the instant case, exercise to verify the transactions by the assessee at NSEL has not been done. Therefore, the decision of Tribunal in the case of AU Financers (India) Ltd. (supra) would not support the cause of Revenue, unless it is proved that the transactions are speculative in nature.
The second decision on which the CIT(A) has placed reliance is Omni Lens (P.) Ltd. (supra). We find that in the said case, in principle the Tribunal agreed with the contention of assessee in allowability of claim of write off of bad debts. Since, the transaction of purchase and sale with respect to actual delivery were not examined by the authorities below, the Tribunal remitted the matter back to the file of Assessing Officer to ascertain whether transactions were backed by actual delivery before allowing the claim of write off of bad debts. The Tribunal no where observed that all transactions at NSEL are speculative and hence cannot be allowed as bad debts within the meaning of section 36(1)(iii) of the Act. Therefore, reliance placed by the CIT(A) on the above decisions without ascertaining the facts is misplaced.
In so far as the findings of the Assessing Officer that the claim of write off of bad debts is premature, the same is without any substance. The amounts are outstanding since 2013. The assessee’s claim of write off of irrecoverable debts cannot be stated to be premature for the reason that the Central/State Governments are devising some mechanism to recover the amounts by attaching the assets and auctioning the same for making payments to traders/brokers etc. The Assessing Officer has not disputed the fact that the assessee has carried out trading of commodities at NSEL and there were outstanding amounts 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’ off the same, there is no statutory requirement for the 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. [Re. TRF Ltd. vs. CIT (supra)]. Later, if at any stage, the assessee recovers any money against the sum written off as bad debt, the assessee is under obligation to declare it as income.
We find that in the case of M/s. Megh Sakariya International P. Ltd. vs. DCIT in decided on 05/09/2018, under somewhat similar set of facts where the assessee therein had claimed write off of bad debts in respect of transactions at NSEL, the Assessing Officer rejected assesses claim being premature, the Tribunal allowed the claim of assessee. Similar view was taken by Indore Bench of the Tribunal in identical set of facts in the case of Mohan Jain vs ITO in ITA No.605/Ind/2017 for AY2014-15 decided on 05/2/2019.
We observe that there is discrepancy in quantum of claim of write off of debts before the Assessing Officer and the CIT(A). Taking into consideration entire facts, we deem it appropriate to restore this issue back to the file of Assessing Officer for examining assessee’s return of income/assessment order in the preceding assessment years wherein the income from transactions at NSEL were allegedly offered and accepted as ‘Business Income’, contract notes etc. to ascertain the transactions being actual delivery based and to iron out inconsistencies in the amount of claim. The Assessing Officer shall allow reasonable opportunity of hearing to the assessee, in accordance with law. In view of our above findings, ground no. 1 to 4 of the appeal are allowed for statistical purpose, in the terms aforesaid.
In ground No.5, the assessee has made alternate claim of allowing irrecoverable amount as loss u/s. 28(1) of the Act. Since, in principle we have accepted primary contention of the assessee, the alternate plea raised by the assessee becomes academic, hence, is not deliberated upon.
In ground No.6 of appeal, the assessee has assailed the finding of CIT(A) in not giving directions to the Assessing Officer in allowing tax credit of Rs.8,18,565/-. The contention of the assessee is that the Assessing Officer has not allowed TDS credit of the entire amount of Rs.8,18,565/-. The Assessing Officer has allowed credit only to the extent of Rs.6,67,127/-. We deem it appropriate to restore this issue back to the file of Assessing Officer for re-verification/reconciliation of TDS credit claimed by the assessee with the documents/statements furnished by the assessee. The assessee is directed to furnish relevant documents before the Assessing Officer for reconciliation of tax credit. The Assessing Officer shall grant the benefit of tax credit after examining the statements and reconciliation, in accordance with law. The ground No.6 is allowed for statistical purpose.
The ground No.7 & 8 are general in nature, hence, require no adjudication.
In the result, appeal of the assessee is allowed for statistical purpose.
Order pronounced in the open court on Monday the 03rd day of May, 2021.