9911796707
TMI Blog2025 (1) TMI 1291X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is quite sufficient. Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... rom undertaking such commodity transaction was declared as business income in Assessment Years 2013-14 and 2014-15. The income declared from such activity, being commodities income was Rs. 3.25 lakhs in Assessment Year 2013-14 and Rs. 19.48 lakhs in Assessment Year 2014-15. He submitted that one the largest scam came to be detected on the NSEL platform occurred sometime in July 2013, widely circulated in the national media and CBI as well as SEBI became active. The issue was referred to Economic Offences Wing of Mumbai Police who found large scale irregularities on the part of certain brokers in which officials of NSEL was also found to be involved. 6.1 The Ld. AR submitted that, the assessee was undertaking the commodity transactions through a recognized broker namely Phillip Commodities India Pvt. Ltd. The outstanding advance with this broker, when the scam occurred was Rs. 2,27,89,517/-. The assessee / appellant opted to write off 25% of the advance in Financial Year 2013-14 relevant to the Assessment Year 2014-15. As the chances of recovery of this amount was quite remote, the assessee opted to write off 25% of the advance in F.Y. 2013-14 relevant to A.Y. 2014-15 and on the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in July, 2013. This loss is not on account of trading of commodities during this year but towards business advances which the assessee had given for the day today online trading in the commodity market the income from which had been admittedly accounted for as business income and therefore the question of trading the same as speculative does not arise. Assessee's loss has arisen from amounts recoverable and not from trading during the year. Hence the question of determining the nature of transaction as speculative is irrelevant. 7. Relevant extract of the order passed by the Ld. AO is reproduced as under: 4.3 The reply of the assessee was considered but the same was not found satisfactory. As has already been mentioned, the recovery process has already been initiated by NSEL and various other agencies. Thus, it is cleare that the debt which has been written off by the assessee company for A.Y. 2014-15 are not in mature stage to be written off. The ultimate deficiency in the amount recoverable cannot be arrived at this stage and hence, the claim of bad debt of the assessee cannot be concluded till the final deficiency amount is arrived at. As per section 36(2) of Income ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t covered by the provisions of section 43(5) of the Act as the transactions were delivery based. In this regard, it is important to analyze the nature of transaction undertaken by various vendors including the appellant on NSEL. It is observed that the appellant had made bids on National Spot Exchange Ltd. (NSEL) for purchase & sale of paddy and other items. The sale contract is entered by the appellant on T+2 trading cycle i.e. the appellant makes bid for sale of paddy and the contract is finalized within 2 days of the transaction and the appellant receives the payment and is expected to make delivery of the goods contracted for. On the same day of the transaction, the appellant enters into another contract for purchase of same goods and this contract is done on T+35 (or T+37, etc.) trading cycle i.e. the appellant makes the payment after 35 days of the transaction date and is expected to be delivered the goods. However, all such transactions were later found to be simply speculative transactions as in both the sale/purchase transactions, it was found by the investigation agencies that there was no underlying stock i.e. with respect to the contracts, contracts, only money was bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The issue involved deduction under two specific section namely section 28 and section 36 and 37. There is a subtle difference between the business loss and business expenditure while loss arises from regular operation of the business, business expenditure is conscious charge in an endeavor to earn Income. Sections 30 to 36 deal specifically with expenditure allowable in computing the taxable income and Section 37 is a general provision for allowing the deductions of expenditure taking into consideration the business of the assessee. The exception being capital expenditure and personal expenditure. The Hon'ble Supreme Court in the case of Quershi Vs CIT 287 ITR 547 held that explanation II Section 37 is not applicable to the case of business loss but to business expenditure. In the instant case, the assessee paid amount to Philip Commodities India Pvt. Ltd. in the month of June 2013 of Rs. 1,50,66,407/- and also got the amounts till March 2014 and could not receive money of Rs. 47,58,533/- owing to crash of NSEL. This gives rise to a situation where the assessee incurred business loss owing to his transaction with M/s Philip Commodities India Pvt. Ltd. Hence, the loss will hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R referred the order passed by the Co-ordinate Bench of ITAT, in the case of Megh Sakariya International P. Ltd. vs. DCIT, in ITA No. 59/Chny/2018 vide order dated 05.09.2018. The relevant part of this order is reproduced as under: "It is significant to note that Ld. Assessing Officer had accepted the debt to be bad, but had disallowed the deeming it to be premature. It is also clear that debt arose on account of trading in commodities in the exchange and not due to sale of any capital assets. Hon'ble Apex Court in the case of T.R.F. Ltd. (supra) had held as under at para 4 of its judgment: "4. This position in law is well-settled. After April 1, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in the accounts of the assessee. When a bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of companies, the provision is deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
