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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)- 42, Mumbai (in short ‘the CIT(A)’) dated 16/05/2019 for the assessment year 2015-16.
Shri Akshay J. Shah appearing on behalf of the assessee submitted that the solitary issue raised in the appeal is against disallowance of assessee’s claim of write off of bad debts. Narrating the facts of the case, the ld. Authorized Representative for the assessee submitted that assessee had filed his return of income for the 2 आअसं. 5328/मुं/2019 (�न.व. 2015-16) (A.Y.2015-16)
impugned assessment year on 31/08/2015 declaring total income of Rs.18,48,070/-. Thereafter, the assessee filed revised return of income on 30/03/2017 claiming loss of Rs.5,04,601/- which includes loss on account investment in National Spot Exchange amounting to Rs.31,03,225/-. The assessee set off said loss made against speculation business profits. The Assessing Officer rejected assessee’s claim of loss made in the revised return on the ground that the loss pertains to earlier years and hence, cannot be allowed in the year under consideration. Aggrieved by the assessment order dated 20/10/2017 passed under section 143(3) of the Income Tax Act, 1961 ( in short ‘the Act’), the assessee filed appeal before the CIT(A). The First Appellate Authority without appreciating the facts of the case dismissed the appeal of assessee and upheld the assessment order. Hence, present appeal by the assessee.
2.1 The ld. Authorized Representative for the assessee submitted that a scam was unearthed in National Spot Exchange Ltd. ( NSEL) in July 2013. Thereafter, the NSEL could recover some amounts from the defaulters and the same was distributed amongst investors on prorate basis. The assessee could recover only Rs.2,34,707.28 in financial year 2013-14 and Rs.14,505.05 in financial year 2014-15 against total sum of Rs.39,61,965.90. The assessee suffered loss of Rs.37,12,744/-. Since, the said amount had become irrecoverable, the same was written off as bad debt in financial year 2014-15 i.e. period relevant to assessment year 2015-16. The assessee had filed detailed submissions and the reconciliation before the Assessing Officer. However, the same were neither considered by the Assessing Officer nor the CIT(A). The ld. Authorized Representative for the assessee submitted that the issue raised in the appeal is squarely covered by the decision of Tribunal in the case of M/s. Megh Sakariya International P. Ltd. vs. DCIT, in for assessment year 2014-15 decided on 05/09/2018. The ld. Authorized Representative for the assessee to further buttress his submissions placed reliance on the following decisions:
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Remi Securities Limited vs. ACIT, ITA No.3649/Mum/2018. (i) The Jt. CIT(OSD)2(10(1) vs. M/s. Aditya Commodities Pvt. Ltd. (ii) ITA No.1971/Mum/2018. M/s. Remi Sales and Engineering Limited vs.ACIT (iii) (iv) Omni Lens Pvt. Ltd. vs. DCIT, ITA No.2818/Ahd/2017. 2.2 The ld. Authorized Representative for the assessee further submitted that the CIT(A) has erred in observing that the claim of bad debts was not made by the assessee before the Assessing Officer. The assessee made claim of bad debts before the Assessing Officer and the amount of bad debts is written off in the books of account. To support his submissions, the ld. Authorized Representative for the assessee referred to the letters dated 16/10/2017 and 26/09/2017 written by Chartered Accountant of the assessee during assessment proceedings. The same are at pages 63 and 65 of the Paper Book.
Per contra, Shri Sanjay J. Sethi representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. The ld. Departmental Representative submitted that the documents furnished by the assessee clearly indicate that they pertain to financial year 2013-14 relevant to the assessment year 2014-15. Hence, the loss of earlier year cannot be allowed in assessment year 2015-16.
Controverting the submissions advanced by the ld. Departmental Representative, the ld. Authorized Representative for the assessee submitted that the assessee has not claimed loss in earlier year and has claimed loss in the impugned assessment year only. The ld. Authorized Representative for the assessee placed reliance on the decision of Hon'ble Supreme Court of India in the case of TRF
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Ltd. Vs. CIT, 323 ITR 397 to contend that write off of bad debts has to be allowed in the year of claim.
We have heard the submissions made by rival sides and have examined the orders of authorities below. We have also considered the decisions and documents on record, on which ld. Authorized Representative for the assessee has placed reliance. The assessee has claimed write off of bad debts in respect of amount not recoverable from transactions at NSEL. We find that the Assessing Officer has not considered the claim of the assessee at all. though the assessee had made submissions before the Assessing Officer during the assessment proceedings on two occasions i.e. on 26/09/2017 and again on 16/10/2017. The communication on behalf of assessee is available at pages 65 and 63 of the Paper Book. In first appellate proceedings, the CIT(A) refused to grant relief to the assessee on the ground that the assessee has not made his claim of bad debts before the Assessing Officer. The finding of the CIT(A) are contrary to the documents furnished by the assessee in Paper Book.
It is an undisputed fact that the transactions carried out by the assessee at NSEL were in the financial year 2013-14. The assessee suffered losses in the transaction. The contention of the assessee is that the loss was not claimed in the preceding assessment year, as the assessee could recover some amount during the financial year 2013-14 and even during 2014-15. Ostensibly, no payments were received after November, 2014 from NSEL. The assessee in his accounts for the impugned Financial Year has written off irrecoverable amount of NSEL transactions as bad debts.
We find that the Tribunal in the case of various similarly situated assesses has allowed write off of bad debts where the assessee has failed to recover the amount from transactions at NSEL. In the case of Megh Sakariya International P. Ltd.(supra), the Tribunal allowed the claim of bad debts arising from trading of 5 आअसं. 5328/मुं/2019 (�न.व. 2015-16) (A.Y.2015-16)
commodity at NSEL in accordance with principle laid down in the case of TRF Ltd. (supra).
In a recent decision by the Co-ordinate Bench in the case of Remi Securities Ltd.(supra), the Tribunal allowing the claim of write off of bad debts from transactions at NSEL held:
................ We have given a thoughtful consideration and are unable to persuade ourselves to subscribe to the view taken by the lower authorities. As per the post- amended Sec. 36(1)(vii), as had been made available on the statute vide the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 01.04.1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the „debt‟ is „written off‟ as irrecoverable in the accounts of the assessee. Admittedly, in the case before us, the assessee company had „written off‟ 25% of the balance outstanding from NSEL i.e. Rs. 1,98,70,000/- as a „bad debt‟ in its books of accounts for the year under consideration. As observed by us hereinabove, the only reasoning for declining of the aforesaid claim of the assessee by the lower authorities was that as the case was under investigation and the seized assets were yet to be realized, therefore, the aforesaid claim of the assessee was premature. In our considered view, the aforesaid observations of the lower authorities are not in conformity with the settled position of law. As observed by the Hon‟ble Supreme Court in the case of TRF Ltd. Vs. CIT (2010) 323 ITR 397 (SC), as per the post-amended Sec.36(1)(vii), it is not necessary for the assessee to establish that the debt in fact, had become irrecoverable. It is enough if the „bad debt‟ is written off as irrecoverable in the accounts of the assessee. As per the aforesaid settled position of law, we are of the considered view that now when the assessee holding a conviction that the entire amount receivable from NSEL could not be recovered, had thus „written off‟ 25% of the entire receivable amount i.e. Rs. 1,98,70,000/- in its books of accounts, therefore, there was no justification on the part of the lower authorities to have declined the said claim of deduction so raised by the assessee..............
The case of the assessee is that the assessee has written off bad debts in the impugned assessment year in line with the decision rendered by Hon'ble Supreme Court of India in the case of TRF Ltd.(supra). It is no more res-integra that for write off of bad debts as irrecoverable, the assessee is not under obligation to show that the debt has in fact become irrecoverable. Now, the only requirement as per the provisions of section 36(1)(vii) of the Act is that the assessee has to write off the debts as irrecoverable in the accounts. In the present case, the assessee in its books has written off the amount from NSEL as bad debt. Once the assessee has written off bad debts in its book, there is no justification in rejecting the claim of 6 आअसं. 5328/मुं/2019 (�न.व. 2015-16) (A.Y.2015-16)
assessee. The Board has issued Circular No.17/2016 dated 30/05/2016 regarding admissibility of claim of deduction of Bad Debts under section 36(1)(vii) r.w.s. 36(2) of the Act. The CBDT has accepted the law explained by the Hon’ble Supreme Court of India in the case of TRF Ltd. (supra) post amendment to the provisions of Sec. 36(1)(vii) and 36(2) of the Act.
We find that in assessment order Para-5, the Assessing Officer has also observed that the loss is capital in nature and hence, can only be claimed for set off against capital gains. It is nowhere emanating from records that the transactions carried out at NSEL are on capital account. There is no denying the fact that the assessee can simultaneously maintain both portfolios. However, we fail to understand as to from where the Assessing Officer has come to conclusion that the loss suffered by assessee from sale and purchase of transaction at NSEL is on capital account. The observations made by the Assessing Officer are superfluous and unsubstantiated.
Thus, in view of the facts of the case, documents on record and the law laid down by Hon’ble Apex Court, we find merit in the grounds raised by the assessee, hence, the same are allowed.
In the result, impugned order is set-side and the appeal by the assessee is allowed.
Order pronounced in the open court on Wednesday the 24th day of March, 2021.