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2019 (2) TMI 1532 - ITAT JAIPURAllowability of claim of bad debt u/s 36(1)(vii) - Conditions specified u/s 36(2) - Bad debt has been written off as irrecoverable in its books of accounts - loss on derivative transaction on the spot market - provisions of Section 45V of RBI Act - Whether derivative transactions and loss arising therefrom is in the nature of speculative loss which cannot be allowed set off against normal business income - HELD THAT:- conceptually, the derivative transactions are not delivery based but are based on future prices, however the transaction on the spot market are delivery based having certainty of their values. However, question that arises for consideration is whether in the instant case, the transaction of purchase and sell of commodities are delivery based or not and a related issue of whether they are speculative transaction or not. Both the issues are closely linked and connected, and needs to be examined thoroughly to determine the exact nature of the transaction and treatment thereof for tax purposes. Once it is decided that the transactions are delivery based and thus not speculative in nature, the question of allowability of claim of bad debt under section 36(1)(vii) will arise for consideration. Merely stating that the VAT charges have been levied as per contract notes would not make the transaction as that of sale and delivery unless the transaction is demonstrated by actual stock of commodity and transfer through delivery. Once it is determined that there was actual stock of requisite quantity which has been contracted to be purchased and sold and the delivery thereof has happened, the transaction would be considered as delivery based transaction and not a speculative transaction. The allowability of claim under section 36(1)(vii) will arise for consideration and need to be reconsidered by the AO in light of legal proposition so laid down by the various Courts, so relied upon by the AR, wherein it has been held that when the assessee treats the debt as a bad debt in his books, the decision has to be a business or commercial decision and not whimsical or fanciful. The decision must be based on material that the debt is not recoverable and the decision must be bona fide. The assessee company has to show that bad debt has been written off as irrecoverable in its books of accounts and conditions specified u/s 36(2) have been satisfied. The allowability of claim u/s 36(1)(vii) will need to be reconsidered by the AO including on the point of satisfaction of conditions specified u/s 36(2). We are setting aside the matter to the file of the AO to examine the matter afresh in light of above directions after providing reasonable opportunity to the assessee. - Remanded back - Decided in favour of revenue for statistical purposes. Disallowance u/s 14A - HELD THAT:- The investments in subsidiary companies have been made out of fresh capital raised during the year and further, there has been no dividend income in respect of investment in subsidiary during the year and hence, the said investment will not form part of disallowance under section 14A read with Rule 8D. In respect of fresh investments under PTC amounting to ₹ 17.07 Crores during the year, the assessee company has sufficient interest free funds and it has been stated that tax has already been paid by the assessee company. In light of the same, following the order of the Coordinate Benches in the earlier year, the AO was not justified in making disallowance u/s 14A of the Act r.w. Rule 8D - Decided against revenue.
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