ITO 3(1)(2), MUMBAI vs. DHOOT INDUSTRIAL FINANCE PVT. LTD., MUMBAI

Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was correct in allowing relief to the assessee in respect of claim of bad debts claimed written off by the assessee ? 2. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was correct in allowing the claim of bad debts without ascertaining the factual correctness of the amount claimed written off as bad debts by the assessee? 3. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A)’s order is not perverse in ignoring that as per the ledger submitted by the assessee during the assessment proceedings in respect of trade receivables, the outstanding balance as on 31.03.2014 in the case of Systematix Commodity Services Pvt. Ltd. i.e. assessee’s broker for NSEL, was only Rs.67,79,578/- as over Rs.25.95 crores had been received the relevant previous year? 4. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A)’s order is not perverse in ignoring that since the outstanding balance was only Rs.67,79,578/-, assessee could not have claimed bad debts written off in respect of Rs.1,58,19,016/-? 3. Brief facts are that the assessee company is engaged in the business of trading and generation of power. The assessee is also earning income from shares, mutual funds and stock-in-trade. The Assessing Officer (A.O. for short) received information about the illegal claims of bad debts by brokers, traders claiming bogus losses for transaction entered with National Spot Exchange Ltd. (NSEL) for the A.Ys. 2014-15 and 2015-16, this was circulated by CBDT. Subsequently, for recovery process, a Monetary Committee was appointed by Hon'ble Bombay High Court as there were enough assets to liquidate and recover the outstanding amounts. The assessee also claimed bad debts to the tune of Rs.1,58,19,016/- on account of stopping of trading with NSEL. The A.O. required the assessee to explain and the assessee vide letter dated 07.11.2016 explained the entire amount that at the time of entering into the contract of committees, i.e., Rahul in NSEL through its broker, Systematix Committee Services P. Ltd. amount of Rs.240.97 lacs was received by the assessee. Out of this, an amount of Rs.14.99 lacs was recovered till

We have considered the rival contentions and perused the orders of the authorities below. It is not disputed that assessee had started commodity trading in NSEL through its broker Sugal Commodity Brokers Pvt Ltd during the relevant previous year. It is also not disputed that debt of B2,02,42,194/- became due to the assessee from the said exchange, on account of the commodity trading undertaken by the assessee during the relevant previous year. Observation of the ld. Assessing Officer with regard to the claim as it appears at page 3 of its order is reproduced hereunder:- ''It is pertinent to mention here that the Department has' received information from the National Spot Exchange that due to various reasons the trading on the exchange platform was stopped on 3pt July, 2013, and the NSE has to settle the outstanding receivables of the traders. The NSE also stated that the amounts recovered have been distributed to the brokers under the supervision of the Forward Market Commission (FMC). The NSC further stated that there are enough assets to liquidate and recover the outstanding amounts of the traders / Brokers. It has come to the light that most of the brokers 1 traders have claimed the outstanding amount as deduction as bad debt u/s 36(1) (vii) / 37(i) of the Income tax Act, 1961. Similarly, most of the NBFC companies which had lent money to Brokers / Traders have also written off such amounts as bad debts. The NSC further stated that it is in the process of auctioning of the assets and the process have started. It is evident that significant amounts will be received by the brokers / traders. Thus, the claim of bad-debt are premature''. It is significant to note that ld. Assessing Officer had accepted the debt to be bad, but had disallowed the claim deeming it to be premature. It is also clear that debt arose on account of trading in commodities in the exchange and not due to sale of any capital assets. Hon'ble Apex Court in the case of T.R.F. Ltd (supra) had held as under at para 4 of its judgment. ''4. This position in law is well-settled. After April 1, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in the accounts of the assessee. When a bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the abovementioned aspect only and that too only to the extent of the write-off''.