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Facts
The assessee claimed a deduction of Rs. 2,14,52,400/- as bad debt on account of a scam on the National Spot Exchange Limited (NSEL). The Assessing Officer disallowed this deduction, considering the transactions to be speculative. The CIT(A) upheld the disallowance, also viewing the transactions as speculative.
Held
The Tribunal noted that the CIT(A) had not properly examined the appellant's submissions and evidence regarding the delivery of goods and warehousing charges. Therefore, the Tribunal set aside the CIT(A)'s order and restored the appeal to the CIT(A) for a fresh decision.
Key Issues
Whether the bad debt written off on account of the NSEL scam is a speculative transaction and thus not eligible for deduction.
Sections Cited
143(3), 147, 36(1)(vii), 36(1)(viii), 43(5)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, C“ BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL "C“ BENCH, MUMBAI SHRI AMARJIT SINGH, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER Premcem Gums Private Limited 401, Udaybhanu Apartments, M.G. Road, Rajawadi, Mumbai – 400077. [PAN: AAACP2012L] ………. Appellant Vs Deputy Commission of Income Tax Circle-14(2)(2),Mumbai Aaykar Bhawan, M.K. Road, Mumbai Maharashtra – 400 020 ………. Respondent Appearance For the Appellant/Assessee : Shri Kirit Sanghvi For the Respondent/Department : Shri HM Bhatt/Shri Raj Singh Meel Date Conclusion of hearing : 29.08.2024 Pronouncement of order : 30.08.2024 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Assessee has challenged the order, dated 18/01/2024, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’] whereby the Ld. CIT(A) had dismissed the appeal preferred by the Assessee against the Assessment Order, dated 20/12/2016, passed by the Commissioner of Income Tax (Appeals) under Section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The appellant has raised following grounds of appeal :
The learned CIT(A) erred on facts and in law in confirming addition of Rs.2,14,52,400/- being bad debt on the ground that Assessment Year 2014-15 the said amount arose from a speculative transaction without appreciating that the ground on which the AO had made the addition was different. Relief claimed: The addition/disallowance of Rs.2,14,52,400/- being bad debt be allowed as such. Writing off a bad debt considered as a transaction speculative in nature 2. The learned CIT(A) erred in law and on facts in confirming the disallowance of Rs 2,14,52,400/-by holding it to be a speculative transaction without realizing that a "bad debt" is not a transaction to which s.43(5) my apply. Relief claimed: The write off of the bad debt of Rs.2,14,52,400 be allowed. Two Assessment Orders passed 3. The learned CIT(A) erred on facts and in law in passing the impugned Order when we know that the AO had passed one more assessment order making disallowance/addition of the same amount as in the first assessment order. Relief claimed: The appeal may be allowed. The Appellant craves leave to add to, modify or amend one or more of the Grounds of Appeal
.”
3. The relevant facts in brief are that Appellant is a domestic company that was engaged, at the relevant time, in the business of manufacturing and trading of gaur gum, cassia gum, gum ghatti etc. The Appellant filed return of income for the Assessment Year 2013-14 on 30/09/2014 declaring income of INR 16,60,18,190/- which was selected for regular scrutiny. Vide Assessment Order, dated 28/12/2016, passed under Section 143(3) of the Act, income of the Appellant was assessed at INR 18,74,70,592/- after making disallowance of claim of deduction of INR 2,14,52,400/- under Section 36(1)(vii) of the Act in respect of bad debts written off during the relevant previous year. The appeal preferred by the Appellant before the CIT(A) against the aforesaid assessment order did not yield any favourable results as 2 Assessment Year 2014-15 the CIT(A) dismissed the appeal vide order dated 18/01/2024 which has been impugned by the Appellant by way of present appeal preferred before the Tribunal on the grounds reproduced in paragraph 2 above.
4. When the Appeal was taken up for hearing on 29/05/2024, the Learned Authorized Representative for the Appellant invited our attention to Paragraph No. 4 of the impugned order passed by the CIT(A) and submitted that thought the CIT(A) has recorded that the submissions of the Appellant were duly considered, however, the order passed by the CIT(A) does not dealt with any of the submissions made by the Appellant before the CIT(A). The Learned Authorized Representative of the Appellant further submitted that during the regular scrutiny assessment proceedings the Assessing Officer had noted that the Assessee had traded in goods at National Spot Exchange Limited (NSEL), through registered brokers viz. Anand Rathi Commodities and Motilal Oswal Commodities Broker Private Limited. Since the Assessee had claimed deduction of INR 2,14,52,400/- as bad debts under section 36(1)(viii) of the Income Tax Act, the Assessee was asked to provide explanation for the same. The Appellant has explained before the Assessing Officer that on account of NSEL scam, there was no possibility of recovering dues from NSEL and therefore, the Assessee had written off the amount recoverable from NSEL as bad debt in the books of accounts. Therefore, the Assessee was entitled to claim deduction for the same under section 36(1)(vii) of the Act. However, the Assessing Officer was not convinced and therefore, disallowed the deduction claimed by the Assessee under Section 36(1)(viii) of Act observing that the Assessee had neither shown sales nor shown purchases in relation to the trades made by the NSEL. When the Appellant preferred appeal against the assessment order, the CIT(A)
3 Assessment Year 2014-15 declined to grant any relief observing that the transaction undertaken at NSEL were speculative in nature. Even the detailed submissions were filed before the CIT(A), along with Contract Notes, Ledger Account and the supporting documents, the same were not taken into consideration by the CIT(A) while dismissing the appeal.
Per Contra reliance was placed on behalf of Revenue on the order passed by the authorities below during the hearings.
We have considered the rival submission and perused the material on record. We are of the considered view that the factual averments made by the Learned Authorized Representative for the Appellant regarding non-consideration of written submissions and supporting documents filed before the CIT(A) has gone uncontroverted during the appellate proceedings before us. On perusal of order passed by the CIT(A),we find that the CIT(A) has recorded in paragraph no. 4 as under: “The case was posted for hearing through web portal. In response to the notice issued under Section 250 of the Act, the Appellant has uploaded a written submissions through web portal. The submission of the Appellant is duly considered.”
Thereafter, referring to the assessment order in paragraph nos. 6 and 7 of the order impugned, the CIT(A) has in paragraph no. 8 concluded as under:
“8. Having considered the submission of the appellant I find that in this case, the appellant has not obtained the possession of goods as contracted. The same has not been demonstrated by uploading the warehousing receipt. The uploading of the contract note is not enough to prove that the possession of the goods was received by the appellant. Thus, it cannot be said that the impugned transactions of purchase and sale were backed by actual delivery of goods. Accordingly, in this case the purchase and sale contracts have been settled otherwise than by actual delivery of goods. Thus, it is a case of business transactions of speculative nature covered by section 43(5) of the Act. As this is the case of 4 Assessment Year 2014-15 speculative transaction, the bad debt of Rs 2,14,52,400/- cannot be allowed as bad debt. Therefore, the grounds of the appellant are dismissed.
We note that the reasoning given by the Assessing Officer while rejecting the claim of bad debts was that the Appellant had not recorded sales and purchases in respect of trades made at NSEL. On perusal of material on record including the ledger accounts, we find that the Appellant had recorded purchases/sales transactions in the books of accounts. However, while preparing the final statements, the Assessee had recorded net profits/losses arises from the aforesaid transactions.
We further note that while dismissing the appeal the CIT(A) had declined to grant relief to the Appellant giving different reasoning. The CIT(A) had concluded that the claim for deduction of bad debts claimed by the Appellant under Section 36(1)(vii) of the Act could not be allowed as the transactions were speculative in nature since the Appellant had failed to substantiate the delivery of goods traded through NSEL. During the course of hearing, relying upon the contract notes, it was submitted by the Learned Authorized Representative for the Appellant that the delivery charges were already paid by the Appellant and that the goods were warehoused with the NSEL. However, we find that this aspect has not been examined by the CIT(A). Accordingly, accepting the contentions of the Appellant, we set aside the order, dated 18/01/2024, passed by the CIT(A) and restore the appeal back to the file of the CIT(A) with directions to decide the grounds raised
therein afresh after taking into consideration the written submissions and documentary evidence furnished by the Appellant. Since we are restoring the appeal back to the file of CIT(A), all the rights and contentions of the Appellant are left open. The Appellant would be at liberty to placed before the CIT(A) such detail/documents as the Appellant may deem
5. Assessment Year 2014-15 necessary to support its claim. The Appellant shall be granted reasonable opportunity of being heard. In terms of the aforesaid, Ground Nos. 1 and 2 raised by the Assessee are allowed for statistical purposes.
As regards Ground No. 3 raised by the Appellant is concerned, we note that in the case of Appellant, the reassessment proceedings were initiated and order, dated 13/12/2019, was passed by the Assessing Officer under section 143(3) r/w Section 147 of the Act, whereby claim of deduction for bad debts amounting to INR 2,14,52,400/- was again disallowed by the Assessing Officer. In the appeal, the CIT(A) deleted the aforesaid disallowance on the ground that the disallowance in this regard had already been made in the original Assessment Order, dated 28/12/2016, passed under Section 143(3) of the Act. Therefore, contentions of the Assessee that more than one assessment orders were passed making same disallowance cannot be sustained. Accordingly, Ground No. 3 raised by the Appellant is dismissed.
In result, in terms of paragraph 9 and 10 above, the present appeal preferred by the Assessee is partly allowed.
Order pronounced on 30.08.2024. ( Amarjit Singh ) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 30.08.2024 Patil,Sr.P.S.