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TMI Blog2018 (10) TMI 1426X X X X Extracts X X X X X X X X Extracts X X X X ..... to remit the matter back to the file of the AO to ascertain as to whether the transaction of purchase and sale were backed by actual delivery as claimed or not and a fair value of stock lying undelivered against unrealized sale is thus required to deducted from the quantum of debt. The solemn duty requires us to direct the AO to examine the issue after taking note of crucial aspect of actual delivery of 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 matter is remanded back to the file of AO accordingly. - Appeal of the assessee is allowed for statistical purposes. - I.T.A. No. 2818/Ahd/2017 - - - Dated:- 16-10-2018 - SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMEBR For The Appellant : Shri Mukesh M. Patel, A.R. For The Respondent : Shri Lalit P. Jain, Sr. D.R. ORDER PER PRADIP KUMAR KEDIA - AM: The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals)-7, Ahmedabad ( CIT(A) in short), dated 16.10.2017 arising in the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aneous sale for performance of delivery at a later date were supported by contract notes in the name of the assessee issued by brokers affiliated to NSEL. 3.1 As stated on behalf of the assessee before the AO, the assessee decided to employ its idle funds in purchase of commodity on NSEL platform and received money back at the time of delivery against sale of commodity of exact identification and quantity performed at a later date in a pre-determined gap of nearly 25/36 days. This activity of purchase delivery obtained on spot and sale delivery given at later date yielded certain business gains. In short, the assessee deployed its funds for purchase of commodity to be held for certain specified period before settlement of sale contract. The physical delivery of commodity as per the contract was kept in the warehouses of the NSEL on behalf of the assessee and, as noted, the same were returned and delivered back by NSEL against its sale at future date. The sale proceeds were thus credited to the account of the assessee at the time of delivery of goods and paid to participant assessee. 3.2 In the delivery based future contracts in commodity as per the dynamics of business as not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration. The AO accordingly disallowed bad debts amounting to ₹ 3,90,02,774/- and added the same to the total income of the assessee. 4. Aggrieved, the assessee preferred the appeal before the CIT(A). 5. Before the CIT(A), the assessee reiterated that the conditions envisaged for allowability of bad debt under s.36(1)(vii) r.w.s. 36(2) of the Act were duly fulfilled on facts and the case of the assessee is squarely governed by the ratio of the decision rendered by Hon ble Supreme Court in the case of TRF Ltd. vs. CIT 323 ITR 397 (SC). It was contended that bad debt claim has been written off as irrecoverable in the books of the assessee pertaining to FY 2013-14 relevant to AY 2014-15. Secondly, the aforesaid debt formed part of the commodity business which has been duly taken into account while computing the income of the assessee. Discarding the plea of the assessee for allowability of bad debts however, the CIT(A) observed that the assessee in the subsequent FY 2014-15 (AY 2015-16) has also recovered certain amount from its brokers against the outstanding debt. The CIT(A) also observed that in this background, where the debt money was in the process of bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.12/2016 dated 30th May, 2016 to submit that it is not necessary for the assessee at all to establish that the debt in fact has become irrecoverable. The writing off the bad debt as an irrecoverable in the books of accounts is sufficient discharge of onus to claim bad debt. The learned AR also submitted that in keeping with the decision of Hon ble Supreme Court in TRF Ltd. (supra), the circular seeks to eliminate the protractive litigation on the issue. 7.2 When the hearing was in progress, the learned AR for the assessee was required by the Bench to also furnish the copy of contract notes from both brokers together with the ledger accounts of the brokers, bank statement showing NSEL transaction as well as copy of delivery note to appreciate the nature of transactions in perspective to take an informed decision. The hearing was accordingly adjourned and the Bench re-assembled to look into the documents called for and continue with the hearing. 7.3 The learned AR, in the light of some sample contract notes, submitted that the assessee entered into a purchase contract of various quantities of different commodities from time-to-time and also simultaneously sold exact commodit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly that no interference with the conclusion drawn by the CIT(A) is called for. 9. We have carefully considered the rival submissions and perused the orders of the authorities below. We have also perused the material placed before us and referred to in the course of hearing. The sole controversy in the captioned appeal relates to maintainability of claim of bad debts arising from transactions executed on the platform of NSEL. It is the case of the assessee that the bad debt has arisen in the course of commodity trading activity due to non-receipt of money against the sale part of the integrated contracts of both purchase and sale of commodity issued by the commodity brokers affiliated to National Spot Exchange. It is further case of the assessee that it is a matter of record that a nefarious scam broke out in July 2013 whereby the commodity trading activity on the platform of the National Spot Exchange was perennially suspended under the directions of Government of India. The National Spot Exchange could not recover money of the participants from the corresponding borrowers (buyers of commodity) and only a miniscule fraction of money could be recovered till the date of finalizat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delivery against purchase is statedly obtained by the exchange on behalf of the respective participants on spot against payments by the participants and is re-delivered on behalf of the participants against sale at a future date (gap of prefixed 25/36 days) and sale consideration is received on delivery of such commodity. Simply put, a participant invests money in the spot exchange against the purchase of commodity, the delivery of which is kept in the command of the spot exchange. The delivery so obtained against the purchase is returned at the time of sale at a future date for which the contract of future sale is already executed at the time of purchase itself. The moot question therefore arises in these facts is to know as to what has happened to the delivery of the goods purportedly obtained on purchase as per the contract note which has given rise to the present unrealized debt in question. Once a debt is backed and secured by the delivery of goods of equivalent amount or near thereto, one cannot outrightly say that debt is not recoverable or realizable at all. Therefore, to decide the question on allowability of bad debt on such transactions, the integral aspect about the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The bad debt arising from speculative transaction in such an event would be deemed to be speculative loss as per the ratio of the decision of the Hon ble Supreme Court in case of Rajputana Trading Co. Ltd. vs. CIT (1969) 72 ITR 286 (SC). All these aspects require factual verification at the end of the AO to determine the nature as well as quantification of bad debt having regard to security of commodity. Accordingly, as discussed above, the matter is restored to the file of the AO for re-determination of the issue in accordance with law in the light of observations noted above. Needless to say, a reasonable opportunity shall be given to the assessee while determining the issue. 15. At this juncture, we may hasten to add that Section 254 of the Act defines the powers of the Tribunal in widest possible terms. Where it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason to prevent assessee from raising grievance before the Tribunal in this regard. In the similar vain, the ITAT is under solemn duty to set the facts right and in perspective to determine the correct position of taxability on a given issue. The aspect of delivery of go ..... X X X X Extracts X X X X X X X X Extracts X X X X
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