SMT RASHMI RAMESH DAMANI,MUMBAI vs. DCIT, CIRCLE 17(1), MUMBAI

That aggrieved by the assessment order dated 30/12/2016 passed by the then Assessing Officer for assessment year 2014- 15 an Appeal was preferred with Commissioner of Income Tax (Appeals) and the order was passed by Commissioner of Income Tax (Appeals) National Faceless Appeal Centre (NFAC) on 27/05/2021 confirming the additions/ disallowance / stand made /taken by the Ld. Assessing Officer.

That an Appeal should have been filed with Hon'ble ITAT Mumbai within 60 days from communication of the order of Commissioner of Income Tax (Appeals). Accordingly, the last dated for filing Appeal was 26/07/2021.

That the commercial affairs of my family including myself were looked after by my husband Late Shri Ramesh M Damani. 2 Assessment Year 2014-2015

That unfortunately my husband died of Cancer on 04/06/2020 and the commercial affairs of my family including taxation matters remained unattended because my children were not active in business as they were small.

That for the reason stated above the Appeal with ITAT Mumbai could not be filed.

That on receipt of Penalty Order u/s 271(1)(c) I was advised that an appeal should have been filed with Hon'ble ITAT, Mumbai. 9. That the appeal with Hon'ble ITAT Mumbai is being filed late and there is a delay of more than 32 months which was due to the compelling reasons beyond my control and I was prevented by the reasonable cause. 10. That the present Affidavit is being filed as part of application for condonation of delay. 11. That whatever stated above is true to the best of my knowledge.‖ 3.1. It was submitted that the delay was caused on account of reasons explained in the affidavit and for the reasons beyond the control of the Assessee. The Assessee was dependent upon the her husband Shri Ramesh M. Damani who looked after her commercial affairs who died on 04/06/2020 and her commercial affairs of her family including taxation matters remained unattended. Therefore, the appeal before the Tribunal could not filed within the prescribed time. On receipt of Penalty Order passed under Section 271(1)(c) of the Act, she contacted tax professional who advised her to file appeal before the Tribunal. In the aforesaid facts and circumstances the preset appeal came to be filed after a delay of more than 32 months.

The relevant facts in brief are that the Assessee is a resident individual engaged, inter alia, in trading of commodities. For the Assessment Year 2014-2015, the Assessee filed return of income on 30/09/2014. The case of the Assessee was selected for scrutiny. During the assessment proceedings, the Assessing Officer noted that the Assessee had claimed business loss of INR.2,75,47,930/- in the return of income. On raising queries in relation to the same, the Assessing Officer got to know that the Assessee had indulged in trading in commodities derivatives on National Sport Exchange Limited (NSEL) through his broker M/s SSJ Commodities Pvt Ltd. According to the Assessing Officer the Assessee had entered into Vyaj Badla transactions which were speculative in nature and therefore, vide order sheet noting, dated 19/12/2016, the Assessee was asked to show cause why the aforesaid losses claimed by the Assessee should not be disallowed and be treated as speculative business loss. In response, the Assessee filed Reply Letter, dated 23/12/2016, along with (a) ledger account of SSJ Commodities Pvt Ltd (b) Bank 4 Assessment Year 2014-2015 Statement (c) details of transactions and (d) a note on allowability of bad debts. The aforesaid note of allowability of bad debts read as under:

The share transaction were executed through M/s. Damani Financial Services Pvt. Ltd. and Way to Wealth Securities Pvt. Ltd. both are Share Brokers and commodities transactions were executed through S5J Commodities Pvt. Ltd. commodities brokers.

During the year the Assessee carried on transaction on shares as well as in commodities.

The share transaction which were executed through M/s. Damani Financial Services Pvt. Ltd and Way to Wealth Securities Pvt. Ltd. who were members of Bombay Stock Exchange as well as National Stock Exchange.

The commodity transaction which were executed through SSJ Commodities Pvt. Ltd. and Way to Wealth Commodities Pvt. Ltd. both of them were members of National Spot Exchange Limited (NSEL) and NCDEX.

During the year the Assessee executed transaction in various commodities through these brokers.

The details of commodity wise trading are enclosed herewith (Annexure 1) 8. The payments and other transaction were going on properly till July, 2013.

On July, 20, 2013 the Assessee was informed by its broker that NSEL had issued press release on July 15, 2013 and a circular on July 16, 2013 which specified that NSEL had received a directive from the Department of Consumer Affairs (DCA) requiring NSEL to Submit and undertaking that new contract would not be launched until further instruction from the concerned authority. Ultimately a circular was issued on 31 July, 2013 suspending trading and deferring settlement of one day forward contract. A copy of circular is enclosed herewith (Annexure 2). As a result there was total loss of trading interest in the market due to 5 Assessment Year 2014-2015 underlying uncertainties.

After these developments no payment were received and it was unilaterally decided by NSEL to stagger the outstanding payments indefinitely.

Subsequently there were failures on the part of NSEL to honour the commitments of assured payments time and again. Accordingly the broker expressed his inability to honour the commitment due to non payment of dues by NSEL 12. These developments broke out in public and police case was filed against NSEL and its Associates.

After marathon efforts from all corners no payment could be realised except few negligible amount.

The assessee was asked to appear before Economic Offence Wing (EOW) and explain the nature of transactions which were communicated by the Assessee.

After the year end the payments as per assured schedule were not received and only meager amount were received which were only in the nature of a drop in the occasion. It was stated that the brokers defaulted in pay-in to the NSEL accordingly no pay out could be made.

In the mean time a consortium was formed in the name NSEL Investors Forum (NIF) to make effort for recovery but could not succeed. Accordingly a circular was issued by NIF on December 2, 2013 asking its members to write off the dues from NSEL as the chances of recovery were remote.

Accordingly the other members and the Assessee claimed the amount due from NSEL as bad debts u/s. 36(vii) of Income Tax Act, 1961. The Assessee fulfills all conditions specified in section 36(vii) and 36(2) of the Act. A copy of the circular issued by NIF is enclosed herewith (Annexure 3) 18. In view of the above the Assessee has rightly claimed the amount not recoverable as bad debts and the claim of the Assessee perfectly within the provisions of law and therefore the claim should be allowed accordingly.

It is given to understand by the Tax Authority that perhaps such dues from NSEL are likely to recover in future. This is a wishful thinking and far from reality. 6 Assessment Year 2014-2015

Even if some part of it is recovered in future then in that case such bad debts recovered is taxable in the year of recovery.

In view of the above the Assessee has rightly made the claim and should be allowed.”

Before the Assessing Officer it was contended that the Assessee had suffered loss on account of NSEL Scam in commodity market. The loss was booked on account of bad debts written off by the Assessee during the relevant previous year. The debts had arisen in the normal course of business. However, the Assessing Officer was not convinced. The Assessing Officer rejected the contentions raised by the Assessee concluding as under vide Assessment Order dated 30/12/2016 passed under Section 143(3) of the Act:

We have heard both the sides and have perused the material on record.

The facts as emanating from the record are that during the relevant previous year the Assessee undertook trade in commodities on the NSEL through its broker. In the Profit & Loss Account for the relevant previous year the Appellant recognized Purchases of Commodities (NSEL) amounting to INR.19,04,95,553.27/- and Sales of Commodities (NSEL) amounting to INR.19,32,83,253.03/-. The Assessee also debited to the Profit & Loss Account INR.28,764,372.06/- as bad debts written off during the relevant previous year being part of consideration from Sale of Commodities (NSEL) not realized on account of NSEL scam. The Assessing Officer treated the commodities transactions as speculative transactions and computed loss of INR 2,62,71,507/- arising from the same. In appeal preferred by the Assessee, the CIT(A) declined to interfere with the order passed by the Assessing Officer on this issue. Thus, in effect, the CIT(A) concluded that all the transactions undertaken by the Assessee were speculative in nature. During the course of hearing before this Tribunal the Learned Authorised Representative for the Assessee had placed reliance upon the decisions of the Delhi Bench of the Tribunal in the case of Chowdray Associates Vs. Assistant Commissioner of Income Tax [ITA No.3298/Del/2019, Assessment Year 2015-2016, dated 11/03/2020], the relevant extract reads as under:

We have also perused the notice of PCIT, Central, New Delhi issued under the provisions of Section 263 of the Act proposing to withdraw the bad debts claimed by the assessee and accepted by the Assessing Officer. We categorically refrain from adjudicating on the strength of the notice , however, we observe that the said notice also dealt with the issue of bad debts claimed u/s 36(1)(vii) by that assessee.

We have also perused the order of the Chennai Tribunal in the case of Megh Sakariya International Pvt. Ltd. in wherein the bad debts have been allowed by the Tribunal u/s 36(1)(vii) of the Income Tax Act, 1961. In that case too, the revenue has also brought to the notice regarding the information received from NSEL that trading on that platform was topped since 31.07.2014 and the NSEL was in the process of settling the outstanding dues of its traders and auctioning its assets for the said purpose. The revenue claimed that the claim o f bad debts was premature. However, the ITAT has allowed the claim o f the assessee based on the judgment of the Hon’ble Apex Court in the case of TRF Ltd. Vs CIT 320 ITR 397 wherein it was held that after 1st April, 1989, it was not necessary for the assessee to establish that the debt has become irrecoverable and it was enough if the debt was written off as irrecoverable in the books . Further, the CBDT vide Circular No. 12/2016 clarified regarding the claim of the bad debts, the same is reproduced as under:

Direct Tax Laws (Amendment) Act, 1987 amended the provisions of sections 36(1)(vii) and 36(2) of the Income Tax Act 1961, (hereafter referred to as the Act) to rationalize the provisions regarding allowability of bad debt with effect from the April , 1989.

The legislative intention behind the amendment was to eliminate litigation on the issue of the allowability of the bad debt by doing away with the requirement for the assessee to establish that the debt, has in fact, become irrecoverable . However, despite the amendment, disputes on the issue of allowability continue, mostly for the reason that the debt has not been established to be irrecoverable. The Hon’ble Supreme Court in the case of TRF Ltd. in CA Nos. 5292 to 5294 of 2003 vide judgment dated 9.2.2010 , has stated that the position o f law is well settled. ―After 1.4.1989, for allowing deduction for the amount o f any bad debt or part thereof under section 36(1)(vii) of the Act, it is not necessary for assessee to establish that the debt, in fact has become irrecoverable; it is enough if bad debt is written off as irrecoverable in the books of accounts of assessee.‖ 4. In view of the above, claim for any debt or part thereof in any previous year shall be admissible under section 36(1)(vii) of the Act, if it is written off as irrecoverable in the books of accounts of the assessee for that previous year and it fulfills the conditions stipulated in sub section (2) of sub- section 36(2) of the Act.

Accordingly, no appeals may henceforth be filed on this ground and appeals already filed, if any, on this issue before various Courts/Tribunal s may be 11 Assessment Year 2014-2015 withdrawn/not pressed upon.

This may be brought to the notice of all concerned. (Sadhana Panwar) DCIT (OSD) (ITJ), CBDT, New Delhi.

Thus, we find that the CBDT has unequivocally allowed the claim of bad debts once the same is written off in the books of accounts as irrecoverable. Thus, the argument of the ld. DR that the bad debts should not be allowed which is based on the letter issued by the NSEL that NSEL is in the process of settling the amounts in view of the sufficiency of the assets and not to allow bad debts as the claim is pre-mature.

We also hold that, if in any previous year, the debt has been written off as bad and the relevant deduction has also been claimed but later on the same debt is recovered in full or part, then the amount so recovered will be included as income of the financial year in which such amount has recovered. Owing to taxability of the amounts recovered, the revenue would at liberty to tax the amount as and when received in accordance with the provisions of the Act. The department must obtain the information pertaining to payment by the NSEL to Chowdry Associates 18 brokers/traders on real time basis and bring these amounts to tax net. Hence , the advisory o f the NSEL not to allow the bad debts claim would be legally untenable owing to the provisions of the Act, Circular of the CBDT and ruling o f the Hon’ble Apex Court in the case of TRF Ltd. Vs CIT (323 ITR 397).

Further, we have also perused the order in the case of M/s Omni Lens Pvt. Ltd. in ITA No. 2818/Ahd./2010 wherein the matter was referred back to the file of the AO to examine the issue of speculation/non-speculation business after taking note of crucial aspect of actual delivery of the commodity, if any, as claimed and to ascertain as to how the entire debt has turned bad when the assessee was purportedly in possession of the goods purchased. The issue before us is clear on this aspect.

The matter before us deals with the non-recovery of the advances given to the brokers. The AO, for the instant year held that the assessee is dealing in speculative transactions and invoked provisions Section 43(5) of the Act. The AO has also held that the assessee has been carrying trade in commodity derivatives. Section 43(5)(e) considers an eligible transaction in 12 Assessment Year 2014-2015 respect of trading in commodity derivatives carried out in a recognized association shall not be deemed to be a speculative transaction. Hence , we hold that the transactions of the assessee shall not be deemed to be speculative transactions. Chapter VII o f the Finance Act, 2013 w.e.f. 01.04.2014, details as to what is a commodity derivative in the Commodities Transaction Tax (CTT). As per the CTT commodity derivative means a contract for delivery of goods which is no t a ready delivery contract or a contract for differences which derives its value from the prices o f such underlying goods. Thus, we find that the assessee is in the business of commodity derivatives but not in the speculation transaction as held by the AO. The revenue has also accepted the income from the transactions o f the assessee as business income but not as income from speculation for all the earlier years. (Owing to collapse of the NSEL, no further trading could be conducted by the assessee in the latter years). It is also an undisputed fact that the trade advances given by the assessee stands irrecoverable.

In conclusion, keeping in view the facts of the case, a tax history of the assessee, treatment given by the revenue to the transactions undertaken by the assessee, finding of the AO that the assessee is into commodity derivatives, provisions o f the Section 43(5) invoked by the AO, provisions o f Section 43(5)(e) relied upon by the ld. AR, Explanation (2) of Section 43 as to what constitutes commodity derivatives , Para 5 of Chapter VII of Finance Act, 2013, CBDT Circular No. 3/2006 dated 27.02.2006, orders o f the Co-ordinate Bench of ITAT in Megh Sakariya International (supra), Omni Lens Pvt. Ltd. (supra), judgment of the Hon’ble Apex Court in the case of TRF Ltd. (supra), we hereby hold that the business loss claimed by the assessee is allowable u/s 28 of the Act.

In the result, the appeal of the assessee is allowed.‖

The above decision of the co-ordinate bench of the Tribunal supports the stand taken by the Assessee. In that case identical transactions undertaken on NSEL were held to be not speculative in nature and the loss incurred on non-recovery of debts on account of suspension of operations by NSEL was held to a business loss allowable as deduction under Section 28 of the Act. We note that the above decision was followed by the Mumbai Bench of the Tribunal in the case of Income- 13 Assessment Year 2014-2015 tax Officer vs. Fairdeal Infin Services (P.) Ltd. [2025] 173 taxmann.com 517 (Mumbai - Trib.)[07-04-2025]. Further, identical view has been taken by the Mumbai Bench of the Tribunal in the case of DCIT Vs. Nirship Securities Pvt. Ltd. [ITA No. 6321/Mum/2019 Assessment Year 2014-15, dated 21/06/2021] wherein it has been held that the commodities transaction undertaken on NSEL were paired purchase & sale transactions backed by the delivery of commodities as per warehouse receipt issued/retained by NSEL accredited warehouses which did not fall in the definition of ‘speculative transaction’ as defined in Section 43(5) of the Act. We note that in the present case also the Learned Authorised Representative for the Assessee had relied upon the invoices placed on record to show that warehousing charges for storage of goods was being were charged from the Assessee and that the Assessee had no intention to undertake any speculative transaction. The transactions entered by the Assessee were purchase & sale transactions backed by the delivery of commodities. Respectfully following the aforesaid decisions of the Tribunal we overturn the decision of the Assessing Officer and the CIT(A) holding that in the facts and circumstances of the present case the transaction undertaken by the Assessee cannot be regarded as speculative transactions. It has not been disputed by the Revenue that the Assessee had written off the amount of bad debt in the books of accounts during the relevant previous year. Further, we note that the Assessee has offered to tax the part of bad debt as income in the assessment year relevant to the previous year in which the same was received. We hold that the Assessee is entitled to claim deduction for the bad debt INR.2,75,47,930/- under Section 36(1)(vii) read with Section 36(2) of the Act. The Assessing Officer is directed compute the taxable income accordingly. In terms of the aforesaid Ground No. 1 & 2 raised by the Assessee are allowed and Ground No. 3 raised by the Assessee is dismissed.