Income Tax Appellate Tribunal - Delhi
Chowdry Associates, New Delhi vs Acit, Circle-6(1), New Delhi on 11 March, 2020
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'B', NEW DELHI
Before Sh. H. S. Sidhu, Judicial Member
Dr. B. R. R. Kumar, Accountant Member
ITA No. 3298/Del/2019 : Asstt. Year : 2015-16
Chowdry Associates, Vs Asstt. Commissioner of Income
4th Floor, Punjabi Bhawan, 10, Tax, Circle-6(1),
Rouse Avenue, New Delhi
New Delhi-110002
(APPELLANTT (RESPONDENT)
PAN No. AAACC0387R
Assessee by : Sh. M. P. Rastogi, Adv.
Revenue by : Sh. Saras Kumar, Sr. DR
Date of Hearing: 17.02.2020 Date of Pronouncement: 11.03.2020
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assesse e against the order of the ld. CIT(A)-2 , New Delhi dated 22.03.2019.
2. Following grounds have been raised by the assessee:
"1. That the learned Commissioner of Inco me Tax (Appeals) has erred in confirming the disallowance of business loss Rs.5,56,24,659/- being the amount of unrecoverable balances of brokers M/s Anand Rathi Commodities Services Pvt. Ltd. and M/s Philip Commodities India Pvt. Ltd.
2. That the learned Commissioner of Income Tax (Appeals) has erred in holding that the appellant had indulged in transactions of speculative nature by short selling and dealing in derivatives ignoring the very fact that the National Spot Exchange limited (NSEL) was a spot exchange for trading in commodities and 2 ITA No. 3298/Del/2019 Chowdry Associates did no t permit any derivative or speculative transactions.
3. That the learned Commissioner of Income Tax (Appeals) has e rred in ignoring the fact that each purchase transaction was matched by a cross contract of simultaneous sale transaction. Bo th purchase and sale were delivery based business transactions as NSEL issued delivery allocation re port for each purchase transaction by virtue of which the commodity purchased on behalf o f the purchaser (appellant) was kept in various warehouses on behalf of the participant assessee and further the obligation of delivery at the time of sale at a pre-determined subsequent date was being met out of the purchase delivery of exact specification lying in the warehouses on behalf of the various participants including appellant. Such transactions of purchase of co mmodity and simultaneous sale for perfo rmance of delivery at a later date were supported by contract notes in the name of the appellant issued by brokers affiliated to NSEL.
4. That the learned Commissioner of Income Tax (Appeals) has erre d in ignoring that the above fact which is conclusively evident from the contract notes wherein exchange delivery allocation charges, Vat charges, Service tax, and clearing and forwarding agent charges have been levied by the NSEL.
5. That the learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of business loss Rs.5,56,24,659/- by treating the same to be a speculative loss made by the assessing officer which is based on suspicion, conjectures, surmises without any substantive basis or cogent material.
6. In the facts and circumstances of the case learned Commissio ner of Income Tax (Appeals) has erred in igno ring the fact that what has been written off by the appellant is the mone y advanced to the brokers of NSEL which is in the nature o f trade debt, income /loss from which could be held as speculative but how can a write off of debt be treated as speculative loss.3 ITA No. 3298/Del/2019
Chowdry Associates
7. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in not appreciating that the appellant having fulfilled all relevant conditions for claim of Bad Debts u/s. 36(1)(vii) r.w.s. 36(2), its case was squarely co vered by the ratio of the decision of the Hon'ble SC in the case of TRF Ltd. and tire clear guidelines as laid down by the CBDT Circular No. 12/2016 dtd. 30-05-2 016."
3. Brief facts of the case are that the assessee company is a Non-Banking Financial Company engaged in investment activitie s in shares and purchase & sale of units of various Mutual Funds. The assessee has been dealing in trading on the NSEL platform and treated the receipts as income from business which has been assessed by the revenue under the head of business income regularly and also in the assessment u/s 143(3) for the year 2013-14, 2014-15. During the current year too the assesse has shown the income unde r the head "income from profits and gains of Business". It was submitted that owing to the closer of NSEL, the business could not be carried in the assessment year 2016-17.
4. In this regard, the background of the NSEL is require d to be looked into.
NSEL was incorporated in 2005 to offer an electro nic platform for delivery- based spot contracts in various ag ricultural and non- ag ricultural commod ities throug h the licensed m em bers. In O ctober 2008, as m any as six state g overnments issued licenses und er the m odel Agricultural Produc e Market Com mittees (APMC) Act to NSEL. NSEL's d elivery-based system worked throug h m em bers warehouses to stock such c om mod ities as transacted betwee n m ultiple parties to trade, with underlying asset always been com modities. The b asic idea of launching the bourse was to provide a place where farm ers, traders, 4 ITA No. 3298/Del/2019 Chowdry Associates corporates, p rocessors, pl anters, manufacturers, and im porters can sell and buy t heir com modities at the best possible and competitive rates.
5. During the AY 2015-16, the assessee was trading in commodity derivatives in the associatio n which is National Spot Exchange Limite d (NSEL). NSEL ran into re gulatory hurdle s and as such its o perations are sto pped by the regulators. The assessee fo rayed in commodity market since FY 2011-12 and availed services of authorized NSEL agents namely M/s. Anand Rathi Commodities Ltd and M/s. Philips Commodities India Pvt Ltd for that purpose. As the business of trading in NSEL platform was regular one and not in nature of speculative transaction u/s 43(5), the Appellant always treated the trading business of NSEL as regular business and offe red for taxation u/s 28. There has been no dispute on these facts since FY 2011- 12 and tax de partme nt has always accepted the same.
6. In the instant AY 2015-16, the AO notice d that the Appellant has claimed loss of Rs.5,56,24,659/- in relation to trade over NSEL counte r owing to non-recove ry of the amounts from the brokers as the operations of NSEL were closed. Pe r the AO, NSEL was fo rmed to be engaged in SPOT T rading but NSEL was carrying out futures contract which was specifically prohibited. Thus, the AO challenged the basic premise about the ope rations of NSEL. The AO held that the NSEL is SPOT exchange and only SPOT contracts can be executed through NSEL, therefore, the contract has to be necessarily settled by delivery within a period not exceeding 11 days from the date of the trade. Any contract that does not get settle d by delivery within 11 days ceases to be a SPOT co ntract and not covered by Forwards Contracts Regulation Act. The AO has not disputed 5 ITA No. 3298/Del/2019 Chowdry Associates that the assessee has invested in NSEL through two brokers M/s Anand Rathi Commodi ties Pvt. Ltd. and M/s Phillip Commo dities Pvt. Ltd. The assessee co mpany traded on the exchange during F.Y. 2011-12, 2012-13 and 2013-14. The AO also held that the assessee has traded through paired contracts. Paired contract means that an investor would enter into two co ntracts. A buyer would buy the commo dity from the market paying cash for it, and sto re the commodity in warehouses accredited to NSEL. The buyer then use the warehouse receipts as proof of ownership of the commodity and sell the commodity to financial investors as standard short term contracts (T +2). Immediately after buying the contract, the investor would put the commo dity up for sale on a T+26/T+35 basis. Looking at the transactions of the assessee, the AO held that the assessee has entered into two contracts on the same day of the same commodity and the same quantity for buying as well as selling. Hence, the AO held that the assessee is e nte red speculation busine ss.
7. The ld. CIT (A) confirmed the additio n holding that the NSEL is meant for spot dealings resulting in actual and physical delivery of commodities in a specified time. But the appellant has indulged in transactions o f speculative nature by sho rt selling and dealing in de rivatives. These dealings do not result in physical delivery of commodities but they involve transaction of value of commodities only. T he appellant has purchased and sold from and to the same party on the same date. The ld. CIT (A) also held that on many occasions, the commodities are sold the next minute after purchase. It was held that the appellant has sold even before the commodity is purchased. Short selling and dealing in derivatives are prohibited on NSEL, hence, the 6 ITA No. 3298/Del/2019 Chowdry Associates assessee has to be treated as dealing in business of speculation.
8. Having said that the ld. CIT (A) disallowe d the claim of business loss declared by the appellant in respect of amount of unrecoverable balance s from broke rs M/s. Anand Rathi Commodities Services Pvt. Ltd. and M/s. Philip commoditie s India Pvt. Ltd.
9. Before us, the ld. AR repeated the submissions taken up before the authorities belo w.
10. The ld. DR submitted his argume nts in writing which are as unde r:
" During the course of hearing of the case to day, i.e. 18.12.201 9, the Ld. Counsel for the assessee referre d to th e case o f M/s Flair Exports Pv t. Ltd , New Delhi, claiming that the facts of that case are similar to those of this case.
1. In this conn ection, it i s submitted that th e MD & CEO, Nation al Spo t Exch ange Ltd, h as written a letter d ated 23.0 1.2019 to the Pr. Chief Commissioner of Income Tax, Delhi, raising the issue of bogus claim of b ad debts written off by some assessees. He has sp ecifically mentioned th e case of M/s Megh Sakariya Internatio nal Pvt. Ltd. in which the Hon 'ble ITAT, Chenn ai has allowed th e assessee's claim. He has requested the Department to look into the matter to ensure that bo gus b ad deb t claims bei ng made by Members of NSEL are not al lowed.
2. It i s further sub mitted that, on similar facts, the Hon'bl e ITAT, Ahmadabad , vide its order dated 16.10 .2 018 in ITA No. 28 18/AHD/20 17, has set asid e the case of Omni Lens Pvt. Ltd. to A.O for examining i t from the ang le of speculati ve loss and set off only ag ainst speculative in come.7 ITA No. 3298/Del/2019
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3. Cop ies of the above-men tioned letter dated 23 /01 /2019 from NSEL an d order of the Hon'ble ITAT Ahmadabad in ITA No. 28 18/AHD/20 17 in the case of M/s Omni len s Pvt. Ltd for A.Y 2 014- 15 are enclosed.
4. In vi ew of the above, the assessee's appeal may kindly be dismissed. Alternatively, the matter may be set aside to A.O for re- exami ning it."
11. He further attached the copy o f the MD & CEO of NSEL wherein the revenue was advised against claim o f bad debts.
"Sub: Claim of Bad Debts by Members of NSEL an d d ifferent treatments given to such claims by d ifferent Tribunals, lead ing to a loss of revenu e, po ssibly amounting to few thousands of cro res in rupees to the Excheq uer Dear Sir, Natio nal Spot Exchange Ltd, (NSEL) h ad brought to you r kind atten ti on in the year 2016 , bogus clai ms towards bad d ebts made by various Members who traded on th e Exchang e platform of NSEL and the need fo r admitting only the legi ti mate claims of su ch Members towards bad d ebts, vide letter nos.:
i. Ref. No .: NSEI/16 -4 7/0 02 d ated Aug 1 7, 2016 {attached as Ann ex - A) ii. Ref. Mo.: NSEL/CEO/16-17/028 2 dated S ep 16, 20 16 (attached as Annex - B) iii. Ref. Non NSEL/CEO/16-17/044S dated Dec 15, 2016 (attached as Annex - C) Recen tly, we have come across one case wherein different Cou rts are taking differen t views on such claims. Fo r instance, the order of th e Chennai ITAT in the case of M/s Meg h Sakariya International Pvt. Ltd . vs. DCIT, Circle 4 (1 ), h as allowed the claim of th e appel lant, disregard ing the g round on whi ch the AO made the addition of 8 ITA No. 3298/Del/2019 Chowdry Associates income and whi ch was upheld by the Hon'ble CIT Appeal-(copy of the order attached as Annex - D).
In the above case, Section 3 6(2 ) of the In come Tax Act, 19 61 surprisingly has not been considered. We are not aware ab out other order bu t from the above, it appears that the ad dition o f in come has been mad e in routine manner wi thout discussing the facts and thus the assessee has got relief from th e Tribun al.
In a simil ar case, the Ahmadabad Ben ch of ITAT in ITA No. 28 18/AHD/20 17 in the case of Omni Lens Pvt. Ltd. Vs DCIT, Circle-
3(1)(2) has gi ven a n ew dimension to the issue by stating th at it should be exami ned from view o f speculative lo ss and set-off on ly ag ainst speculati ve income and set aside the fil e back to the AO for re-examin ation (Copy of the order attached as Annex - E).
We h ave bro ught this to the notice of th e CBDT vide ou r letter Ref. No.: NSEL/MD&CE0/18-19/0278 d ated Decemb er 0 5, 2 018 (attached as An nex - F). However, as it may take some time for th e instru ction s to come down, by when it may be too late fo r taking an y corrective actions, we are bringing thi s to you r kind attention for necessary acti on at yo ur end.
Th us, it is requested that:
i. Where, the additions have been made in routine manner, it may ki ndly be defended by bringing o ut the factu al posi tion b efore the App ellate Authority.
ii. Wh ere, th e addi tions have no t been made, the same should b e do ne now using the ap propriate provisions of the law, and also take into consideration the observatio ns made by th e Hon'ble Ahmadabad Tribunal.
iii. Necessary instru ction s may kindly be passed to the field formations, to take a unified stand at the Tri bunals, so that there is 9 ITA No. 3298/Del/2019 Chowdry Associates no loss of revenue, d ue to different position taken by d ifferent Assessing Officers.
We o nce again request you to kindly loo k into the matter, to ensure that bo gus b ad deb t claims bei ng made by Members of NSEL are not al lowed, so that there is no lo ss of reven ue to the exchequ er."
12. From the above events and the arguments of the Ld. DR, the following points are flagge d:
1. The assessee has been claiming the transactions of trading on NSEL platform as business income which has been accepted by the revenue in all the earlier years.
2. The AO has taken a co nscious decision to treat the transactions has speculative in nature during the current year only.
3. The AO held that since the contracts are paired there cannot be any loss to the assessee as sale and purchase have been taken simultaneously with the same person.
4. The AO held that the SPOT contracts have to be necessarily settled by delivery within a period of 11 days.
5. The AO held that the assessee is dealing in "commodity derivative s" and not commodities. (AO-para 5.14)
6. The AO held that the transactions of the assessee are speculative transactions as defined u/s 43(5).
7. The CEO/NSEL advise d not to give benefit of bad debts claimed.
8. The CEO/NSEL advised that it is premature to allow the bad debts owing to unsettling of amount of Rs.5600 crores.
9. The CEO/NSEL advised that an amount of Rs.7000 crores has been secured against the claim of Rs.5600 crores.10 ITA No. 3298/Del/2019
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10. Hence, CEO/NSEL advised that since the amounts would be settled no provision for bad debts be allowed.
11. It is an undisputed fact that the assessee has given money to bro kers namely, M/s Anand Rathi Commodities Pvt. Ltd. and Philips Commodities Pvt. Ltd. for conducting of their business.
12. It is also undisputed fact that the mo nies given abo ve have not been received by the assessee.
13. The loss arrived out of the non-receipt of the amount from the brokers is claimed to be a business loss by the assessee which has been rejected by the AO.
14. The assessee has also not disputed that the transactions are under paired transactions.
13. The ld. AR argued, reiterating the modus operandi the stockists of the commodities first deposited the commodity with the Exchange accredited warehouse and received a warehouse receipt which was deposited with NSEL for the purpose of transactions under the control and supervision of NSEL. The transactions in NSEL are made through members of NSEL, who are authorized brokers. The assessee has made the transactio ns unde r paired co ntracts. Under the paired contract, generally the purchases were made at T+2 cycle and sales were made at T+25 or T+35 cycle. Under these transactions, the assessee company made full payment for purchase immediately and delivery of the commo dity lying in the warehouse was assigned to it. The transactio ns we re subjected to VAT, delivery charges, service tax. As far as sale is concerned, the assessee company immediately put a co ntract for sale on T+25 and T+35 and delivery was assigned from buyer to the seller. The amount is 11 ITA No. 3298/Del/2019 Chowdry Associates received as and when the transaction is completed. In the assessment years 2013-14 and 2014-15, whatever the transactions we re made on NSEL, whatever the profits or losse s obtaine d, the same were duly disclosed in the profit & loss account and assessed as busine ss income.
14. Heard the arguments of bo th the parties and perused the material available on reco rd.
15. From the entirety of the events, we find that in the assessment year 2014-15, the assessee had made purchases in the middle or last week of June 2013 through M/s Anand Rathi Commodities Pvt. Ltd. and M/s Philips Commo dities Pvt. Ltd. The NSEL failed to fulfill its commitments and ultimately the Government had prohibited NSEL to make any transactions after 1 s t July 2013. The de tails of outstanding unsettled transactions of the assessee through bo th the brokers has also been furnished to the revenue authorities by the NSEL.
16. The AO disallowed the losses as claimed by the assessee on the ground that transactions has carried out by the assessee are speculative transactions settle d without the delivery in terms of Section 43(5) of the Act. The AO in the assessment order reproduced the relevant provisions of Section 43(5) upto sub-Section (d) of 45(3). T he AO stopped at short of sub- Section (d) without going further to sub-Section (e).
17. Reading further, sub-Section (e ) which was introduced by the Finance Act, 2013 w.e.f. 1 s t April 2014 re veals that in respect of trading and commodity derivatives carried out in a recognized association shall not be a speculative transaction.
12 ITA No. 3298/Del/2019Chowdry Associates The relevant provisions of Section 43(5)(e) are as detailed belo w.
[(e) an eligible transaction in respect of trading in commodity derivative s carried out in a recognised association [, which is chargeable to commo ditie s transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013),]] shall not be deemed to be a speculative transaction:
18. Further, Explanation 2 for the purpose of Clause (e) define s what co nstitutes "commodity de rivative". The meaning has been assigned as per Chapter VII of the Finance Act, 2013.
19. Chapter VII of the Finance Act, 2013 at definitions mentioned at para 106(5)- Commodity derivative means -
(i) a contract fo r delivery of goods which is not a ready delivery contract; or
(ii) a contract for differences which derive s its value from prices or indices of prices-
(A) of such underlying goods; or
(B) of related se rvices and rights, such as warehousing
and freight; o r
(C) with reference to weathe r and similar events and
activitie s.
20. The "eligible transactions" means
(A) carried out electronically on screen-based systems through member or an intermediary, registered under the bye-laws, rules and regulations of the recognized association for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and the rules, regulations or bye -laws made or directions issued under that Act on a re cognized association; and 13 ITA No. 3298/Del/2019 Chowdry Associates (B) which is supported by a time stamped contract note issued by such member or intermediary to every client indicating in the contract note, the unique client identity number allotted under the Act, rules, regulations or bye-laws referred to in sub-clause (A), unique trade number and permanent account number allotted unde r this Act;
21. The "recognized association" me ans "recognized association" means a recognize d association as referred to in clause (j) of section 281 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which fulfils such conditions as may be prescribed82 and is notified83 by the Central Go vernment for this purpose;]
22. We also find that all the transactions made by the assessee are evidencing the client ID and PA No. and also carried out through compute rized exchanged through electronic screen (NSEL) as pe r the details collected by the revenue.
23. We have also gone through the provisio ns of the Act introduced vide Finance Bill 2005 in respect of measures to rationalize the tax treatment of derivative transactions. The same is as under:
Und er the existing provi sion s cl ause (5 ) of Section 43, a transac tion for the purchase an d sale of an y commodity includin g sto cks and shares is deemed to be a "speculative tran saction". If i t is settled otherwise than by actu al delivery. However, certain categ ories of transac tio ns are exclu ded from the purvi ew of the said provision. Fu rther the un absorbed speculation losses are allowed to be carried forward for eig ht yea rs for set-off ag ainst speculation profits in subsequent years. These restricti ons were essential ly designed as an 14 ITA No. 3298/Del/2019 Chowdry Associates an ti -evasion measure to prevent claims of artificially g enerated losses in th e absence of an app ro priate institutional infrastructure.
Recen t systemic an d technologi cal chang es introduced by stock markets h ave resulted in sufficient transparency to prevent generating fictitious lo sses through arti fi cial transactions or shifting of incidence of loss from on e p erson to ano th er. The screen b ased computerized trad ing p ro ves fo r an excellent audit trail . Therefore, the present distinctio n b etween speculative and non -speculative transac tio ns, particularly relating to derivati ves is no more req uired. Th e p ro posed amendment, th erefore, seeks to provide that an el igible tran saction carried out in respect of trading in derivatives in a recognized stock exchange shall not be deemed to be a speculative transac tio n. The proposed amendment also seeks to notify relevant rules etc. regarding condition s to be fulfilled by recognized exchanges in this reg ard. Further, it is also proposed to amend sub- section (4 ) of Section 73 so as to reduce th e period of carry forward of speculation losses from eight assessment years to four assessmen t years.
Th ese amendments will take effect fro m 1 s t Ap ri l, 2 006and will, acco rd ingly, apply in relatio n to assessment year 2006-07 and subsequent years.
24. The re venue has clearly held that the asse ssee is in the trading of commodity derivatives. Revenue, having said that failed to give the be nefit of provisions of Section 43(5)(e ). Hence, the transactions done by the assessee shall not be deemed to be a spe culative transaction in te rms of the provisions of the Act.
25. We have also gone through the accounts of assessee for the earlier years. The amount kept with M/s Anand Rathi 15 ITA No. 3298/Del/2019 Chowdry Associates Commodities Pvt. Ltd. was Rs.1.30 crores fo r the year ending 31.03.2014 and Rs.4.60 crores for the ending 31.03.2013 and Rs.2.95 crores for the year ending 31.03.3012. Similarly, the amo unt kept with M/s Philips Commodities India Pvt. Ltd. was Rs.4.33 crores for the year e nding 31.03.2014 and Rs.14.95 crores for the ending 31.03.2013. During the year, the assessee could not reco ver the amo unts from these two brokers o wing to suspension of operations by the NSEL which was given as a part of the business transaction for purchase of commodities in the conduct of regular business operations. Hence , the amount advanced made to purchase the commodity during the course of the business is a business loss allowable u/s 28 o f the Act.
26. We have also perused the notice of PCIT, Central, New Delhi issued under the provisions of Se ction 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, howeve r, we observe that the said notice also dealt with the issue of bad debts claimed u/s 36 (1)(vii) by that assessee.
27. We have also perused the order of the Chennai Tribunal in the case o f Megh Sakariya International Pvt. Ltd. in ITA No. 59/Chennai/2018 whe rein 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 re venue 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 clai med 16 ITA No. 3298/Del/2019 Chowdry Associates that the claim of bad debts was premature. Ho wever, the ITAT has allowed the claim of the asse ssee 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 1 s t April, 1989, it was not necessary for the assessee to establish that the debt has become irrecoverable and it was enough if the de bt 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 unde r:
Circular No. 12/2016F.No.279/Misc./140/2015 -ITJ G overnm ent of I nd ia Mi nistry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, Dated 30th May, 2016 Subj ect: - Ad missi bility of clai m of deduction of Bad Debt under secti on 36(1) (vii) read with secti on 36(2) of the Incom e-Tax A ct, 1961-- reg.
Proposals have b een received b y the Central Board of Direct Taxes regarding fil ing of appeals/pursuing litigation on t he issue of al lowability of bad d ebt that are written off as irrecoverable i n the accounts of th e a ssessee. The di spute r elates to cases involvin g fai lure on the p art of assesse e to establish that the deb t is irrecoverable.
2. Direct Tax Laws (Amendm ent) A ct, 1987 am end ed the provisions of sections 36(1)(vii) and 36(2) of the I ncom e Tax A ct 1961, (hereaft er referred to as the A ct) to rationalize the provisions regarding allowability of b ad d ebt with eff ect from the A pril, 1989.
3. The legi slative inte ntion b ehind the am end ment was to elim inate litigation on t he i ssue of the allowability of the b ad de bt b y doing away with the requi rement for the assessee to establi sh that the debt, has in fact , becom e irrecoverable. H owever, despi te the am endment, d isp utes on the issue of allowab ility continue, m ostl y for the reason that the d eb t has not b een established to b e irrecoverable. The H on'bl e Supreme Court i n the case of TRF Ltd. in CA Nos. 5292 to 5294 of 2003 vid e j udgm ent dated 9.2.2010, has stated that the po sition of law is well settled. "A fter 1.4.1989, for al lowing d ed uction for the am ou nt o f any bad debt or part thereof 17 ITA No. 3298/Del/2019 Chowdry Associates und er section 36(1)(vii) of the A ct, it is not necessary f or assessee to establish that the d ebt, in fact has become irrecoverable; it is en oug h i f bad d eb t is written off as irrecoverab le in the b ooks of accounts of assessee. "
4. In view of the above, claim for any d eb t or part th ereof in any previous year shall b e ad missible und er section 36(1)(vii) of the A ct, if it is written o ff as i rrecoverab le in the books of accounts of t he assessee f or that previ ous y ear and it fulfills the cond itions stipulated in sub se ction (2) of sub-se ction 36 (2 ) of the A ct.
5. A ccord ingly, no appeals m ay henceforth b e filed o n thi s ground and ap peals alread y filed , i f any, on this issue be f ore various Courts/Tribunal s may b e withdrawn/not pressed up on .
6. This may be b roug ht to t he n otice of all concerned.
(Sad hana Panwar) DCIT (OSD) (ITJ), CBDT, New Delhi.
28. 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 o f the sufficiency of the assets and not to allow bad de bts as the claim is pre-mature.
29. 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 late r on the same debt is recovered in full or part, then the amount so recovered will be included as inco me 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 provisio ns of the Act. The department must obtain the information pertaining to payment by the NSEL to 18 ITA No. 3298/Del/2019 Chowdry Associates brokers/traders on real time basis and bring these amounts to tax net. Hence, the advisory of 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 of the Hon'ble Apex Court in the case of TRF Ltd. Vs CIT (323 ITR 397).
30. 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 re fe rred back to the file of the AO to examine the issue of speculation/non-speculation business after taking note of crucial aspect of actual delive ry 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.
31. 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 asse ssee 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 derivative s. Section 43(5)(e) considers an eligible transaction in respect of trading in commodity derivatives carried out in a recognized association shall not be deemed to be a speculative transaction. He nce, 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 o f goods which is no t a ready delivery contract or a contract for differences which derives its 19 ITA No. 3298/Del/2019 Chowdry Associates value from the prices of 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 of 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 conducte d by the assessee in the latter years). It is also an undisputed fact that the trade advances given by the assessee stands irre coverable.
32. In conclusion, keeping in view the facts o f 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 of the Section 43(5) invoked by the AO, provisions of Section 43(5)(e) relied upon by the ld. AR, Explanation (2) of Section 43 as to what constitute s commodity derivatives, Para 5 of Chapter VII of Finance Act, 2013, CBDT Circular No. 3/2006 dated 27.02.2006, o rders of the Co-ordinate Bench of ITAT in Megh Sakariya International (supra), Omni Lens Pvt. Ltd. (supra), judgme nt 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.
33. In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 11 /03/2020.
Sd/- Sd/- (H. S. Sidhu) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 11/03/2020 *Subodh*