DEUPTY COMMISSIONER OF INCOME TAX, MUMBAI vs. ANAND RATHI COMMODITIES LIMITED, MUMBAI

This appeal by the Revenue and the cross-objection by the assessee are directed against the order dated 31.07.2025 passed by the Ld. Commissioner of Income Tax (Appeals)-53, Mumbai [hereinafter referred to as “the Ld. CIT(A)”] under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] for Assessment Year 2018–19 arising out of assessment framed under section 147 read with section 143(3) of the Act by the Assistant Commissioner of Income Tax, Central Circle – 5(1), Mumbai [hereinafter referred to as “Assessing Officer or AO”] vide order dated 28.02.2025. Since both the appeal and the cross- objection arise out of the same impugned appellate order and involve common facts, they were heard together and are being disposed of by this consolidated order for the sake of convenience.

The assessee is a company engaged in the business of commodity broking. For Assessment Year 2018–19, the assessee filed its return of income on 15.10.2018 declaring a loss of Rs. 2,78,79,687/-. The case was selected for scrutiny, and the assessment was completed under section 143(3) of the Act vide

Subsequently, proceedings for reopening of the assessment were initiated. An order under section 148A(d) of the Act dated 27.03.2024 was passed after obtaining approval from the competent authority, followed by issuance of notice under section 148 of the Act on the same date. In response thereto, the assessee filed a return of income on 23.05.2024, again declaring loss of Rs. 2,78,79,687/-.

The reassessment was thereafter completed by the Assessing Officer under section 147 read with section 143(3) of the Act vide order dated 28.02.2025, determining the total income at Rs. 1,40,31,175/-, inter alia, by making the following additions: - Disallowance of Rs. 3,08,35,862/-, treating the same as bad debts written off and holding that the conditions of section 36(1)(vii) of the Act were not satisfied; and - Disallowance of Rs. 1,10,75,000/- on account of loss on operation / client claim, holding that the assessee had failed to establish that the expenditure was incurred wholly and exclusively for the purposes of business under section 37(1) of the Act. Penalty proceedings under section 270A of the Act were also initiated.

Aggrieved by the reassessment order, the assessee carried the matter in appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee challenged both the validity of the reopening under section 147 as well as the additions on merits.It was contended that the reopening was bad in law as it was initiated beyond four years from the end of the relevant assessment year without there being any failure on the part of the assessee to disclose fully and truly all material facts, and that the reassessment was based merely on a change of opinion, since both the issues were examined during the original assessment proceedings under section 143(3).

On merits, the assessee reiterated that the amount of Rs. 3,08,35,862/- was only a reversal of a provision earlier disallowed and did not constitute a fresh claim of bad debts, and that disallowing the same resulted in double taxation. It was further submitted that the loss on operation / client claim was incurred wholly and exclusively for the purposes of business and was supported by detailed documentation.

The Ld. CIT(A), after considering the material on record and the submissions of the assessee, deleted the additions made by the Assessing Officer. The Ld. CIT(A) accepted the assessee’s explanation that the amount of Rs. 3,08,35,862/- represented reversal of a provision for doubtful debts disallowed in the year of Co No.325/Mum/2025 Anand Rathi Commodities Limited creation and that the disallowance thereof in the reassessment would lead to impermissible double taxation. The Ld. CIT(A) also deleted the disallowance of Rs. 1,10,75,000/- holding the same to be allowable.

Aggrieved by the relief granted by the Ld. CIT(A), the Revenue is in appeal before us raising following grounds of appeal: “a) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in deleting the disallowance of ₹1,10,75,000, despite the assessee failing to substantiate that the said loss on operation/client claim was incurred wholly and exclusively for the purposes of business, as required under Section 37(1) of the Income-tax Act, 1961? b) Whether the Ld. CIT(A) was justified in allowing the assessee’s claim of ₹1,10,75,000 as deductible under Section 37(1), without proper verification of the genuineness, necessity, and nexus of the expenditure with the business of the assessee? c) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of ₹3,08,35,862/- by holding that the said amount represents reversal of provision for doubtful debts earlier disallowed in the year of creation, and thereby ignoring that the assessee had claimed the same as bad debts written off during the year under consideration, leading to an impermissible reduction of taxable income? d) The appellant craves leave, to add, amend and/or alter any of the ground of appeal if need be.”

The learned AR took us through the paper book page No. 38-53 giving the chart of party wise details of bad debts written of during the A.Y. 2018-19. It was also explained with example of one item of Rs.36,05,250.70 written off in case of Satyanarayan Lodha as supported by the ledger account (paper book page No. 54). The learned AR submitted that the amount of Rs. 3,08,35,862/-, as referred to in the show cause notice and reflected at Sr. No. 2 above, did not represent bad debts written off during the relevant assessment year 2018–19. It was explained that the said amount represented part of provision for doubtful debts created in Assessment Year 2015–16 amounting to Rs 3,17,59,383/- which was debited to Profit and Loss Account

With regard to the client claim expenses amounting to Rs. 20,09,918/-, the learned Authorised Representative submitted that the said amount, as detailed in the chart placed at page No. 226 of the paper book, does not represent a fresh or unsubstantiated claim of expenditure. It was explained that the corresponding amounts had already been offered to tax as income

Per contra, the learned Departmental Representative relied on the orders of the Assessing Officer.

We have carefully considered the rival submissions, perused the orders of the Assessing Officer and the Ld. CIT(A), and examined the material placed on record, including the paper book and the judicial precedents relied upon.

The core controversy before us relates to the quantification and reconciliation of amounts claimed by the assessee towards bad debts and client claim expenses and the manner in which such amounts have been accounted for in the books of account and the computation of income.

During the course of hearing, the learned Authorised Representative furnished a detailed reconciliation explaining that bad debts aggregating to Rs. 3,99,01,275/- were written off during the relevant previous year. Out of the said amount, a sum of Rs. 3,08,35,862/- was stated to represent provision for doubtful debts created in earlier years, which had already been disallowed in the year of creation and which stood reversed during the year under consideration. After such reversal, the net bad debts relatable to the year were stated to be Rs. 90,65,413/-. It was further explained that client claim expenses of Rs. 20,09,918/- were incurred in the normal course of business, resulting in a net debit of Rs. 1,10,75,331/- under the head loss on operation / client claim.

The above explanation was supported by ledger accounts, financial statements and a reconciliation chart placed on record. We find that the issue, therefore, is purely factual in nature, turning upon verification of (i) the reversal of provision for doubtful debts which had already been subjected to tax

On examination of the material placed before us, we find that the reconciliation furnished by the assessee demonstrates a one-to-one correlation between the amounts written off in the books, the reversal of earlier provisions, and the figures reflected in the computation of income. The Revenue has not pointed out any specific discrepancy in the reconciliation, nor has it brought on record any material to show that the assessee has claimed deduction of the same amount twice.

We also take note of the reliance placed by the learned Authorised Representative on the judgment of the Hon’ble Bombay High Court in CIT v. Shreyas S. Morakhia [2012] 342 ITR 285 (Bom), wherein it has been held that in the case of a broker, unrecovered amounts from clients, where the brokerage income has already been taken into account in computing business income, constitute allowable bad debts under section 36(1)(vii) read with section 36(2) of the Act. While the said decision lays down the governing legal principle, its applicability in the present case depends upon factual verification of the amounts claimed and their treatment in the books, which stands satisfied on the basis of the reconciliation placed before us.

In view of the above factual verification and reconciliation of amounts, we find no reason to interfere with the conclusion reached by the Ld. CIT(A) in granting relief to the assessee on this issue.

The assessee has raised a cross-objection challenging the validity of reopening under section 147 of the Act. However, since the dispute relating to the quantum of additions has been decided on merits after verification of facts in favour of the assessee, adjudication of the cross-objection on jurisdictional grounds is rendered unnecessary at this stage.Accordingly, the cross-objection is not adjudicated, and the issue raised therein is kept open, without expressing any opinion on the validity of the reopening.

In the result, the appeal filed by the Revenue is dismissed and the cross-objection filed by the assessee is treated as infructuous and disposed of accordingly, with the issue raised therein being kept open, without expressing any opinion on the same. Order pronounced in the open court on 22.01.2026.