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TMI Blog2021 (6) TMI 814X X X X Extracts X X X X X X X X Extracts X X X X ..... we hold that no disallowance of interest need to be made under Rule 8D(2)(ii) of the Rules. Disallowance under Rule 8D(2)(iii) of the Rules, the ld AR argued that the disallowance already made by the assessee was much more than disallowance warranted under third limb of Rule 8D(2) of the Rules. We are inclined to agree with the same. Hence we direct the ld AO not to make any disallowance u/s 14A of the Act other than the suo moto disallowance already made by the assessee in the return of income, both under normal provisions of the Act as well as in the computation of book profits u/s 115JB of the Act. Accordingly, the Ground No. 1 raised by the revenue is dismissed. Disallowance of business loss on account of NSEL and also treating the said loss as speculative loss - whether the loss arising on the impugned transaction could be construed as speculative loss specifically? - HELD THAT:- We hold that the loss arising on account of payment made to NSEL through registered broker towards purchase of commodities (which were never delivered to assessee) , shall be allowable as regular business loss u/s 28 of the Act. We further hold that the said loss cannot be construed as speculative in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business income of the assessee - HELD THAT:- We have already held in assessee s own case for the Asst Year 2014-15 hereinabove that the business loss would be allowable as business loss u/s 28 of the Act. Hence the said loss would be eligible to be carried forward to subsequent years in terms of section 72 and 32 of the Act to be set off with the business income or other income, as the case may be. We find that the ld AO had primarily dismissed the claim of the assessee since he had already disallowed the business loss in Asst Year 2014-15 - But the said disallowance has already been deleted by us in Asst Year 2014-15. Hence this ground is effectively consequential in nature. The ld AO is hereby directed to allow the set off of losses from Asst Year 2014-15 after giving effect to our tribunal order for Asst year 2014-15 and whatever loss that is available to the assessee thereafter, should be allowed to be carried forward to subsequent years and allowed to be set off against future business income. Accordingly, the Ground No. 3 raised by the revenue is dismissed. - Shri C.N. Prasad, Judicial Member And Shri M.Balaganesh, Accountant Member For the Assessee : Shri Rajiv Khandelwal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to disallowance of indirect expenses under Rule 8D(2)(iii) of the Rules, the ld CITA held that since the disallowance already made by the assessee is much more than ₹ 7,25,221/-, no further disallowance is warranted in the case. It is a fact on record that the assessee is having sufficient interest free funds in the form of share capital and reserves to the tune of ₹ 218.14 crores as on 31.3.14 and ₹ 250.02 crores as on 31.3.13 which is evident from the bare perusal of the financial statements for the respective period and that the same is much more than the investments made by the assessee. Hence by applying the ratio laid down by the Hon ble Jurisdictional High Court in the case of HDFC Bank Ltd reported in 366 ITR 505 and of the Hon ble Supreme Court in the case of Reliance Industries Ltd reported in 410 ITR 466, we hold that no disallowance of interest need to be made under Rule 8D(2)(ii) of the Rules. 2.3. With regard to disallowance under Rule 8D(2)(iii) of the Rules, the ld AR argued that the disallowance already made by the assessee was much more than disallowance warranted under third limb of Rule 8D(2) of the Rules. We are inclined to agree with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 states in India and providing delivery based spot trading in around 52 commodities. It was an exchange for trading in commodities and carrying out its activities since 2007. NSEL was platform for automated trading system for conducting spot trading system in commodities. In or around September 2009, the NSEL for the first time introduced paired traders contracts, and from time to time the company issued ciruclars regarding the commencement of spot trading in a particular commodity. These circulars would be issued in pairs, one of which would permit a short settlement cycle such as T+2 and the other of which would permit a longer settlement cycle such as T+25. The assessee company had purchased and sold commodities on the exchange platform of NSEL by trading in the paired trader s contracts offered by the NSEL through their broker M/s Purvag Commodities and Derivatives Pvt ltd, who is registered as a member with the NSEL with registration no. 10120. The transaction of purchase and sale of commodities was done by the broker-members on the electronic exchange platform of the NSEL. As is usually the norm in any electronic exchange, at the time of trading on the anonymous order drive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... +5 days (Buy Contract) and T+30 days (Sell Contract) The term days means working days excluding Saturdays, Sundays and exchange holidays. The different commodities available are Castor Seed, Castor Oil, Cotton wash Oil Cake, Paddy, etc.The Clients enter into contract of the above commodities. For example, a client enters into contract of Castor Seed for T+3 (Buy Contract) and T+36 (Sell Contract), then the client will have to pay the funds on T+3 days for its purchase obligation and client will receive funds on T+36 days for its sales obligation.However, since the sales bill is issued on T+5 days by the clients and amount is received in T+36 days, the sales obligation will be shown as receivables in between T+5 and T+36 days. 3.3.1. The Exchange issues Delivery Allocation report for the purchase transaction. The warehouse receipts are in the custody of the exchange and the warehouse receipts will be tendered by NSEL against the commodity pay-in obligation of client. Further as per the Exchange delivery allocation letter, the said deliveries will be taken as early commodity pay in against the sale transaction. 3.3.2. At the time of suspending the trading and settlement, the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l For CWOILKD12 1200 73,792,755.60 Total For CWOILKDI25 1200 74,985,000.00 74,985,000.00 15,000.00 75,000,000.00 4/7/2013 Total For CASTOILKLS 300 21,547,308.60 Total For CASTOLKL30 300 21,955,608.00 21,955,608.00 4,392.00 21,960,000.00 Total For CWOILKD12 1300 80,001,997.20 Total For CWOILKDI25 1300 81,233,750.00 81,233,750.00 16,250.00 81,250,000.00 Total For 04/07/2013 1600 101,549,305.80 1600 103,189,358.00 1,640,052.20 5/7/2013 Total For CASTOILKLS 390 28,085,616.00 Total For CASTOLKL30 390 28,612,476.36 28,612,476.36 5,723.64 28,618,200.00 Total For CWOILKD12 700 43,198,638.00 Total For CWOILKDI25 700 43,909,216.40 43,909,216.40 281,783.60 44,191,000.00 Total For 2101 NIRSHILP SECURITIES PVT. LTD., 13495 490,556,016.59 13495 498,675,644.92 1,640,052.20 894,161,931.84 451,868.16 894,613,800.00 3.3.3. An independent auditor SGS was appointed to ascertain the discrepancy of the stocks lying in the warehouse after the NSEL scam broke out in public. As per the SGS Audit Report of the NSEL warehouses, it was revealed that commodities of the stated quantity were not stored in the NSEL designated warehouse. In respect of all the above contracts, the assessee received Delivery Allocat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the majority of the NSEL warehouses for audit and inspection in certain warehouses relating to certain defaulters. 3.3.6.The assessee filed a complaint before Economic Offence Wing (EOW) jointly with other traders explaining the fraud committed by NSEL by not having the requisite quantity and quality of commodities at its accredited warehouses. The assessee gave the details of payments made to NSEL for purchase of commodities and this fact was also mentioned in the compliant lodged with EOW and craved the indulgence of EOW to assist in recovery of the dues from NSEL. 3.3.7. The assessee also served legal notice on the NSEL for winding up of their Company under Section 434 of the Companies Act, 1956 in the capacity of one of the creditor. In response thereto, the assessee received a reply from the advocate of NSEL disowning their responsibility to make payment to the assessee. These details with supporting evidences were furnished before the lower authorities and are forming part of the records. 3.3.8. Since the NSEL acts as a counterparty to the transactions executed on its exchange platform and further stands as a guarantor for settlement of all the contracts traded on its pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of non-cooperation of NSEL, the stock purchased has been valued at NIL while preparing trading results of the year though amount received from NSEL in lieu of claim has been separately credited in books of accounts as operating income and offered to tax. Thus assessee suffered loss of an amount of ₹ 87,93,32,350/- equal to cost of goods purchased and lost less amount recovered from NSEL. 4. This loss was sought to be disallowed by the ld AO on the following grounds :- a) The value of stock which was purchased during the year was determined at Rs NIL by the assessee which is not possible, more especially when the assessee is fighting the case against NSEL for recovery of dues. b) The transactions of purchase and sale through NSEL are speculative in nature. It is clear that there was no actual delivery of goods, the fact reiterated in the Hon ble High Court order no. 1263 of 2014. The Act states that any transactions without actual delivery of goods is speculative in nature. Speculation is defined in section 43(5) of the Act and sub-section (e) thereon deals with treatment of commodity derivatives. As per Rule 6DDD of the Income Tax Rules, National Spot Exchange Limited is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely reversed the sale while finalising the accounts so that the stock can be taken as Nil. If assessee had credited sale, then the claim of assessee would have come to writing off receivables from NSEL. Thus the claim of assessee would have been allowability of bad debts instead of valuation of closing stock. It is established that assessee had receivables from NSEL. The claim of receivable from NSEL deserved to be not allowed as bad debts as assessee had itself reversed the sales. The ld AO mentioned that assessee had explained that both sale and purchase contracts are entered on same date. The purchase settlement is done in T+2 (or 3 or 5) and sale in T+25 (or 36 or 30) days. Thus the bye laws of NSEL mandates that both sale and purchase has to be booked simultaneously on same date with settlement at future date. In this regard, the assessee submitted that sale is recognised after the name of the party to whom it is sold is conveyed by NSEL to assessee. i) The scam came to knowledge only on 31.7.2013. If assessee contention is correct then only sales after 24.7.2013 should not have been recognised. Because assessee submitted that sales party name is received from NSEL within 7 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same year in which the purchases were made. Admittedly the Asst Year 2014-15 was the year in which the NSEL scam also got unearthed and how can the assessee reach to the conclusion that it would not be able to recover the cost of commodities from NSEL in the same Asst Year 2014-15 itself. He argued that cases were filed with EOW and some persons have even received some part of monies in subsequent years. c) The assessee had dealt in odd kinds of commodities which had allegedly resulted in loss to the assessee. These are not regular commodities that could be traded by any prudent businessman. Hence the alleged loss that had arose to the assessee would only be speculative loss. d) When other parties had received some monies from NSEL in subsequent years, how come the assessee had not received any monies from NSEL. e) The assessee had actually not paid ₹ 87 crores towards the cost of commodities purchased (but allegedly not delivered) to NSEL through its broker. Hence the assessee would not be entitled for any loss as deduction. 7. We find that the assessee had shown inventories held as stock in trade comprising of shares securities and Commodities , both valued at the lower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). Discrepancies noted on physical verification of inventories were not material, except for transactions on National Spot Exchange Ltd (NSEL) platform. 7.3. We find that the assessee had given the quantitative details of traded goods in Annexure 7 to the Form 3CD (Tax Audit Report) for the Asst Year 2014-15 which is already forming part of the records of the lower authorities. 7.4. We find that the assessee had furnished the complete details of Commodity Transactions with quantity and value wise details along with payment of Commodity Transaction Tax (CTT) before the ld AO at the time of assessment proceedings. The relevant documents together with the Contract Notes and the details of trading in Commodities in which the assessee incurred losses were also duly highlighted and furnished before the lower authorities. These facts are not in dispute before us. 7.4.1. The ld AR before us at the time of hearing explained the concept of Paired Contracts in a diagrammatical representation as below:- 7.5. From the perusal of the financial statements of the assessee for the year ended 31.3.2014 together with the significant accounting policies and notes forming part of accounts and statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing an Investors Forum to fight the case against NSEL for recovery of the dues ; and (v) NSEL itself trying to sell the commodities lying in its warehouses and making payments to the assessee and other traders during the year and also in subsequent years. It is a fact on record that the assessee had recovered the following sums from NSEL and had offered the same as its business income :- Received in Asst Year 2014-15 itself - ₹ 5,56,00,000.68 Received in Asst Year 2015-16 - ₹ 34,38,481.38 Received in Asst Year 2019-20 - ₹ 63,01,922.00 We find that the ld DR had lost sight of recoveries made from NSEL by the assessee as listed above. Hence the argument advanced by ld DR on this point is hereby dismissed. 7.6. It is not in dispute that the NSEL scam got unearthed in July 2013 i.e during the year under consideration before us. Hence the assessee after taking all the steps for recovery of its purchase cost of commodities from NSEL , and after coming to a conscious conclusion that the NSEL had in connivance with various brokers had resorted to cheat various traders such as assessee. All these information got triggered and concluded within the assessment year itself. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20.08.2013, wherein the assessee company had been informed that the payment towards the sales transaction has not been received from NSEL and hence, the receivable amounting to ₹ 43,12,65,350/- may be treated as its business loss. He further observes that the above letter clearly states that NSEL had stopped paying the funds relating to the disputed paired trades, as the counter parties had defaulted in their payment obligation. M/s. Purvag Commodities and Derivatives Pvt. Ltd. had further, stated that in these circumstances they are unable to meet the pay-out obligation to the assessee company. The said letter also suggests the assessee company to institute legal remedies available to them at the appropriate forums. The ld CIT(A) further observes that the Broker had further confirmed that full payment had been made by the assessee company to them on account of the purchase transactions worth ₹ 42,62,16,780/-. It had also been confirmed by the Broker that the amount paid by the assessee company towards the disputed purchases have been fully remitted by them to NSEL, on behalf of the assessee. Further, it had been informed by the Broker that the corresponding unsettled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) discusses the reliance of the ld AO on financial capability of NSEL and their legal responsibility to hold that the business loss of the assessee company is still recoverable and hence, the claim of business loss is premature in nature. The ldCIT(A) observes that the claim of the ld AO that NSEL guarantees the settlement of net financial obligations does not hold any ground, as there is no material on record to show that NSEL had come forward to own up the financial liability of the clients, who had suffered from the fraud. h) In para 26, the ld CIT(A) discusses the circular dated 29.7.2013 issued by the NSEL, wherein the settlement schedule of all the contractswithdeliveryschedulesmorethanT+10dayshadbeenmodifiedto T+10days this circular hinted towards the scam. Further, in para 26.1 to 26.3, the ld CIT(A) discusses the circular on reduced settlement dated 04.08.2013, which clearly shows that NSEL had refused to own up the liability arising out of the scam. Its main argument contention before the Hon ble High Court were - it is not central counterparty; - if it is a counterparty then such guarantee is limited to the Settlement Guarantee Fund; - that NSEL has the authority to wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that nothing is available from the corpus of SGF, which can be paid to the assessee company or the other clients, who had lost their money in the scam. The ld CIT(A) thus, states that the ld AO had talked about the guarantee provided by the NSEL in his assessment order, but on the contrary the NSEL had clearly stated that though it had taken several legal, regulatory and commercial measures, but it is not sure as to how much money and by when it will be recovered, as the matter is still sub-judice. Accordingly, the ldCIT(A) holds that the ld AO had again wrongly held that the business loss of the assessee is fully guaranteed and covered by the Settlement Guarantee Fund. l) In para 30, the ld CIT(A) counters the argument of the ld AO that the properties of NSEL and associate companies are under attachment and since the seized assets are yet to be realized, the amount of loss incurred by the assessee cannot be treated as irrecoverable. The ldCIT(A) holds that the ld AO had erred in holding that the business loss is recoverable, ignoring the vital fact that no worthwhile assets of NSEL are under attachment and the assets of the holding company are too meagre to make good of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferred. This was because of the fact that there was no stock of goods in the warehouse of NSEL. The sale transactions therefore do not qualify to be accounted for as revenue, as per the Accounting Standard published by Institute of Chartered Accountants of India. Hence, the sale transaction even though booked in the accounts was required to be reversed, as revenue cannot be recognized when the property in goods are not and cannot be transferred to the buyer. o) In para 33, the ld CIT(A) discusses the classification of loss as speculation loss by the ld AO by virtue of section 43(5) r.w.s. 73(2) of the Act. He observes that as per the definition of speculative transaction under section 43(5), only those transactions are covered under it, which arises from the contracts of purchase or sale of good sand are periodically or ultimately settled otherwise than by actual delivery. Thus, settlement of a contract is sine qua non before treating any transaction to be speculative in nature. He further, holds that the impugned contracts for purchase sale of commodities that took place on floor of the NSEL platform and wherefrom loss had arisen to the assessee were not settled at all. Both th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vered under the provisions of Section 43(5) of the Act relating to speculative transactions. The ld CIT(A) further, makes a mention of the fact that delivery allocation report is being issued by the NSEL clearly proves that both the purchaser and the seller, takes and gives delivery, respectively. Hence, the paired trades in which the assessee is dealing cannot be treated as speculative in nature, as they are delivery based. The ld CIT(A) further, notes that there were other transactions of purchase and sale of commodities through NSEL of paired trades, which have been accepted by the ld AO and the income therefrom had also been correctly accepted as non-speculative business income. It is worthy to note that the trading on the NSEL platform in commodity in the case of the assessee company were also accepted for the past years as non- speculative in nature, since A.Y. 2012-13.The assessee has offered subsequent recoveries from NSEL as business income which has been accepted by the revenue as such. Then how the loss arising out of irrecoverability of cost of commodities purchased which were not delivered at all, would alone become speculative loss. Hence the argument of the ld DR on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of Hon ble Jurisdictional High Court in the case of CIT v. Jamna Devi Agarwal reported in 328 ITR 656 (Bom). u) In para 39, the ld CIT(A) states that the claim of the ld AO is based on conjectures, surmises, assumptions and presumptions only. He further, relies on various decision of Hon ble Supreme Court and various Hon ble High Courts wherein it was held that no addition can be made without bringing material evidence on record and that a suspicion however strong cannot substitute the place of legal proof. v) In para 40, the ld CIT(A) holds that the Revenue cannot place itself in the armchair of a businessman. He observed that it is a material fact on record that NSEL could not deliver the goods after taking the purchase consideration and accordingly, the management decided to recognize the loss suffered in the normal course of its business. It is settled law that claim for expenses and losses are to be viewed from the businessman s perspective and so long they are for the purpose of the business or incidental to carrying on business, the same are to be allowed. The ld AO cannot sit in chair of the businessman and decide how and when loss is to be claimed, when the fact o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : Provided that for the purposes of this clause- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; [or] [(d) an eligible transaction in respect of trading in derivatives referred to in clause [(ac)] of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; [or]] The following clause (e) shall be inserted in proviso to clause (5) of section 43 by the Finance Act, 2013, w.e.f. 1-4-2014 : (e) an eligible transaction in respect of trading in commodity der ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (A), unique trade number and permanent account number allotted under this Act; (iii) recognised association means a recognised association as referred to in clause (j) of section 2 74a of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which fulfils such conditions as may be prescribed and is notified by the Central Government for this purpose; 7.8.1. From the plain reading of the above provisions, it is clear that to label any transaction as speculative transaction , certain conditions are to be met. The term speculative transactions have been defined under the Act for the purpose of section 28 to 41 pertaining to computation of Income from Business Profession and hence it is to be read strictly as it begins with the word means while defining the term speculative transaction and it is not to be considered as definition of explanatory nature. The ld AO treated the impugned transactions as speculative transaction as there was no actual delivery of the goods. In our considered opinion, he erred in applying the test of actual delivery without first satisfying whether a contract for purchase and sale falls within the ambit of a contract envisaged under law. We find th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imagination be treated as speculative transaction covered under section 43(5) of the Act. This aspect is no longer res integra in view of the decision of Hon ble Supreme Court in the case of CIT vs Shantilal (P) Ltd reported in 144 ITR 57 (SC) wherein the term settlement has been explained as under:- The law, however, speaks of a settlement of the contract, and a contract is settled when it is either performed or the promisee dispenses with or remits, wholly or in part, the performance of the promise made to him or accepts instead of it any satisfaction which he thinks fit. In the above decision, their Lordships have also distinguished the decision in case of Davenport Co. (P) Ltd. v. CIT [1975] 100 ITR 715 which was heavily relied upon by the ld AO in the present case. 7.9. Further we find that the ld AO in para 6.13 of his order erred in treating the impugned transaction of purchase and sale (which never fructified) as commodity derivative transactions and hence he treated it as speculative transaction as, in his opinion, it does not fit into exception provided in clause (e) of proviso to Section 43(5) of the Act. He erred in interpreting the proviso enacted to give different mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctitious and managed transactions are therefore, not only baseless, but also illogical that no person will put oneself knowingly into a situation risking his own money in a fictitious and managed transaction. 7.10.1. It is pertinent to note that during the year, there were other transactions of purchase and sale of commodities through NSEL which are accepted by the ld AO as genuine and the income therefrom is also correctly accepted as non-speculative business income. It is worthy to note that the trading on NSEL platform in commodity were also accepted for past years since the Asst Year 2012-13 onwards when such transactions were carried out regularly by the assessee. 7.11. With regard to valuation of stock in respect of cost of commodities not received by assessee from NSEL at Rs Nil , the same has been done as per method of valuation of closing stock at lower of cost or market price by the assessee. Admittedly, this method has been consistently followed by the assessee year on year, which has been accepted by the revenue in the past. The assessee s plea is that having paid monies for the purchase cost of commodities, the assessee got cheated by NSEL by not having the delivery of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be as per set out in Paragraphs 11 of AS-9. The relevant paragraphs 10 and 11 of Accounting Standard 9 applicable in case of sale of goods are reproduced below for immediate reference:- 10. Revenue from sales or service transactions should be recognised when the requirements as to performance set out in paragraphs 11 and 12 are satisfied, provided that at the time of performance it is not unreasonable to expect ultimate collection. If at the time of raising of any claim it is unreasonable to expect ultimate collection, revenue recognition should be postponed. 11. In a transaction involving the sale of goods, performance should be regarded as being achieved when the following conditions have been fulfilled: (i) the seller of goods has transferred to the buyer the property in the goods for a price or all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership; and (ii) no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods. 7.12.1. Going by the above accounting standard and accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g hue and cry about the scam when the same is in public domain. 7.14. We find that the ld AO further in his order at para 6.6, reproducedthe operative part of the decision of Hon ble Bombay High Court in the matter of bail application of Jignesh Shah, promoter Director of NSEL. At the time of hearing of Bail application, the investigation was still under progress. In our considered opinion, the Bail applications are heard on the basis of prima facie facts stated by both parties and it does not carry any precedential as well as evidentiary value. The ld AO while relying upon the decision overlooked the observation of the Hon ble Bombay High Court which conveyed in no uncertain terms that their decision is based on investigation carried out so far and judging by the broad probabilities of the case as should be done at the stage of bail. Hence reliance placed on the decision of Hon ble Bombay High Court in respect of Bail application of Jignesh Shah , does not advance the case of the revenue. 7.15. We also find that the assessee had not taken any VAT registration under any state in India and had conducted commodities transactions through its brokers namely Purvag Commodites Derivative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory hurdles and as such its operations are stopped by the regulators. The assessee forayed 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 offered for taxation u/s 28. There has been no dispute on these facts since FY 2011-12 and tax department has always accepted the same. 6. In the instant AY 2015-16, the AO noticed that the Appellant has claimed loss of ₹ 5,56,24,659/- in relation to trade over NSEL counter owing to non-recovery of the amounts from the brokers as the operations of NSEL were closed. Per the AO, NSEL was formed to be engaged in SPOT Trading but NSEL was carrying out futures contract which was specifically prohibited. Thus, the AO challenged the basic premise about the operations 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores has been secured against the claim of ₹ 5600 crores. 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 brokers 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 monies given above 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 transactions under paired contracts. Under the paired contract, generally the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 for delivery of goods which is not a ready delivery contract; or (ii) a contract for differences which derives its value from prices or indices of prices- (A) of such underlying goods; or (B) of related services and rights, such as warehousing and freight; or (C) with reference to weather and similar events and activities. 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 recognized association; and (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (4) of Section 73 so as to reduce the period of carry forward of speculation losses from eight assessment years to four assessment years. These amendments will take effect from 1st April, 2006and will, accordingly, apply in relation to assessment year 2006-07 and subsequent years. 24. The revenue has clearly held that the assessee is in the trading of commodity derivatives. Revenue, having said that failed to give the benefit of provisions of Section 43(5)(e). Hence, the transactions done by the assessee shall not be deemed to be a speculative transaction in terms 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 Commodities Pvt. Ltd. was ₹ 1.30 crores for the year ending 31-3-2014 and ₹ 4.60 crores for the ending 31-3-2013 and ₹ 2.95 crores for the year ending 31.03.3012. Similarly, the amount kept with M/s Philips Commodities India Pvt. Ltd. was ₹ 4.33 crores for the year ending 31-3-2014 and ₹ 14.95 crores for the ending 31-3-2013. During the year, the assessee could not recover the amounts from these two brokers owing to suspension of operations by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the debt is irrecoverable. 2. 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. 3. 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 of law is well settled. After 1-4-1989, for allowing deduction for the amount of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 of the Finance Act, 2013 w.e.f. 1-4-2014, 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 not a ready delivery contract or a contract for differences which derives its 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 specula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irshilp Securities Pvt. Ltd.,) 11. This appeal in ITA No. 6322/Mum/2019 for A.Y. 2016-17 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-50, Mumbai in appeal No. CIT(A)-50/10214/2018-19 dated 16/07/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 10/12/2018 by the ld. Asst. Commissioner of Income Tax-10(3)(1) / Dy. Commissioner of income Tax-Central Circle 8(1), Mumbai (hereinafter referred to as ld. AO). 12. The first issue to be decided in this appeal of the revenue is as to whether the ld CITA was justified in deleting the addition of ₹ 1,34,86,279/- made by the ld AO on account of treating interest income on fixed deposits under the head Income from other sources as against the assessee s claim to be taxed under the head Income from Business. 13. We have heard the rival submissions and perused the materials available on record. We find that the ld CITA had observed that the assessee had received interest of ₹ 1,34,86,279/- on the fixed deposits kept with ICICI Bank which was offered to tax by the assessee as business income. This income was sought t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon ble Jursidictional High Court as stated supra. Apart from that, the ld CITA also relied on the following decisions to grant relief to the assessee:- a) Decision of Hon ble Supreme Court in the case of S G Mercantile Corporation P Ltd vs CIT reported in 83 ITR 700 (SC) b) Decision of Hon ble Supreme Court in the case of CIT vs D P Sandu Bros, Chembur (P) Ltd reported in 273 ITR 1 (SC) 13.2. We find that the ld CITA had categorically given a finding that the investment in fixed deposit made with ICICI Bank has got an inextricable link with the business activity of the assessee and hence the interest income thereon is required to be taxed only as business income. Moreover, the ld CITA also recorded the fact that the ld AO himself had accepted this fact in Asst Year 2015-16 u/s 143(3) of the Act. With regard to resjudicata in income tax proceedings, we find that the ld CITA had stated though the principle of resjudicata does not apply to income tax proceedings, but the principle of consistency cannot be given a go by. Reliance in this regard was placed on the decision of Hon ble Jurisdictional High Court in the case of CIT vs Gopal Purohit reported in 188 Taxman 140 (Bom) and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted in 383 ITR 529 (Bom). It was pleaded before the ld CITA that none of the factual and legal submissions made by the assessee were considered by the ld AO with regard to the impugned issue. We find that the ld CITA gave a categorical finding that the interest free funds available with the assessee company are much more than the value of investments that had actually yielded exempt income to the assessee and hence there cannot be any disallowance of interest under second limb of Rule 8D(2) of the Rules. This factual finding was not controverted by the revenue before us. Hence we do not deem it fit to interfere with the said finding of the ld CITA. 14.3. Moreover, we find that the ld CITA had also recorded a categorical finding that the ld AO had not recorded any objective satisfaction having regard to the books of accounts of the assessee, as to why the claim made by the assessee that no expenditure has been incurred other than ₹ 33,886/- for the purpose of earning exempt income, is incorrect. This objective satisfaction with cogent reasons are required to be recorded in terms of section 14A(2) of the Act read with Rule 8D(1) of the Rules. This issue is no longer res integr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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