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TMI Blog2025 (4) TMI 1214X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the fact that during search and survey proceedings it was established that the penny stocks in which the assessee traded and booked losses have been used for providing bogus LTCG/STCL?" 2. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) is justified in deleting the disallowance of loss booked through trading in penny scrips amounting to Rs. 26,98,630/- and commission of Rs. 69,870/- paid to the broker without appreciating the fact that the trading loss booked by assessee in his books were pre-arranged method to evade taxes?" 3. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) is justified in deleting the disallowance of loss booked through trading in penny scrips amounting to Rs. 26,98,630/- and commission of Rs. 69,870/- paid to the broker without appreciating the fact that the Securities and Exchange Board of India (SEBI) found that price of these scrips were rigged uncommonly to provide benefit to persons holding or trading in such shares in the form of accommodation entries?" 4. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by it in the ordinary course of its business of trading in shares. Also, when the assessee traded in the scrip alleged to be penny stock were not declared by the regulators as penny stock and therefore there was no restriction or bar by the SEBI or Exchange to deal in these so called penny stocks at that time. In absence of any such restrictions, the dealing of the assessee in these scrips could not be termed as non- genuine transactions without any proof to the contrary and also when the assessee's regular business is trading and investment in shares etc. and it had traded in more than 1300 scrips during the relevant previous year. The assessee also submitted details of transactions entered into by it in the selected scrips and had also provided copies of contract notes of the transactions issued by its usual SEBI registered brokers. The transactions entered into by it were genuine trading transactions which were declared by the regulators as penny stock subsequently. From the contract notes, it is further evident that the alleged scrips which were traded on a particular day were not the only scrip in the contract notes but there were several other trades in different scrips also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a regular trader and investor in shares. During the year under consideration, the appellant has traded in more than 1300 scrips which inter alia include above seven scrips also. Total volume of sales is Rs. 1,365.07 Crores whereas the sales consideration of above seven alleged penny stock is Rs. 23,27,044/. The sales consideration of alleged stock as compared with total sales works out to 0.017% of the total sales. This is highly improbable that a company, who is regular trader or for that matter whose business is trading only, with turnover of Rs. 1,365.07 Crores will intentionally do the trading in penny stock for Rs. 23,27,044/-. Furthermore, the AO has alleged that the appellant has done the trading in alleged penny stock to earn fictitious losses. On perusal of the trading details it is observed that the appellant has incurred losses in various other scrips also some of which are tabulated as under..................................... It can be seen that the appellant has incurred huge losses in other scrips also and, hence, it cannot be concluded that the loss incurred in the alleged seven scrips is intentional. The above facts show that appellant is a regular trader and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sised that the action of the AO was not correct in as much as he disbelieved only the loss incurred by the assessee in the said scrips while no adverse finding has been adduced in respect of gains/profit earned on them. Further, the assessee had a turnover of Rs 1365 cr.in share trading and losses in other scrips were duly accepted by the AO. 6.1 We have carefully considered all the relevant facts of the case,rival submissions as also the detailed order passed by the ld.CIT(A). We notice that the AO has primarily placed reliance on the report given by the Investigation Wing of the Income-tax Department, Kolkata in order to arrive at the conclusion that the business loss in scrips reported by the assessee was bogus in nature. We find that the said investigation report is a generalized report with regard to the modus operandi adopted in manipulation of prices of certain shares and generation of bogus capital gains etc. The ld.AO has placed reliance on the said report, without bringing any material on record to show that the transactions entered by the assessee were found to be a part of manipulated transactions, i.e., it was not proved that the assessee has carried out the transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issued and shares were also sold on the floor of Stock Exchange. The ITAT therefore, in our view, rightly concluded that there was no merit in the appeal." 7. In our considered view, the documentary evidences put forth by the assessee could not be rejected without bringing on record any substantial contrary piece of evidence. Moreover, the jurisdictional High Court decisions and as also plethora of co-ordinate benches of Mumbai tribunal support the above observations. We have no hesitation in deleting both the additions. The AO is therefore, directed to allow the business loss claimed by the assessee. Also the addition made u/s 69C w.r.t alleged commission paid being devoid of any basis is also deleted. Accordingly, ground nos. 1 to 3 are dismissed. 8. In ground no.4,the Revenue has contested the deletion of addition made by the AO in respect of Rs. 45,95,746/-, being the amount receivable from National Spot Exchange Limited (NSEL) written off and claimed as Bad Debt. During the course of assessment proceedings, it was noted by the ld.AO that the above amount due from NSEL had been written-off by the assessee. The AO observed that as per the information received by from NSEL, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten off in the books of the accounts of the assessee as irrecoverable either in full or in part. The AO passed the order in a very casual manner without proper appreciating the facts. The finding is mere imagination, surmise, conjecture and suspicion of AO and there is no evidence against the assessee which could prove that it had lent its PAN, name and is front of someone else. The assessee further submitted that it had invested in commodities of NSEL through its own sources and submitted evidences of the same. Further, the bad debt written off duly fulfil the conditions stipulated under section 36(2) of the Act and submitted copies of contract notes of the transactions in evidence of the same. The assessee further submitted that it had written off an amount of Rs. 45.96 lakh during the F Y 2013- 14 also and the same was duly allowed during the course of assessment proceedings u/s. 143(3) of the Act for the A Y 2014-15. Once the bad debts was allowed in the earlier year and the assessee had written off the part of debts again in the subsequent year, the department could not take a different view and therefore claim of the bad debts was admissible u/s. 36(1)(vii) of the Act and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment of India. The National Spot Exchange could not recover money of the participants from the corresponding buyers of commodity. Subsequently, the dues of the NSEL became irrecoverable, and the same need to be written off in the books of the appellant. It is submitted that the amount due from NSEL have been recognized and recorded in books of accounts as revenue from operations. Under the circumstances, the debt outstanding from the respective brokers was rightly written off in the accounts as bad debt. Therefore, the disallowance made on account of deduction of bad debts needs to be allowed. Further, the deduction of amount receivable from NSEL is not res integra as the same issue is decided in series of judgments in favour of the appellant. 7.4.2 JCIT vs Aditya Commodities Private Limited (ITA 1971/Mum/2018) In the above case, the grounds of appeal was "On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance of bad debt on account of "Bad Debt- NSEL" The above grounds of appeal by the department has been dismissed by the Hon'ble Mumbai ITAT in following words: 7. We notice that the Ld. CIT (A) has based his findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bring these amounts to tax net. Hence, the advisory of the NSEL not to al low 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 (supra). 30. Further, we have also perused the order in the case of M/s Omni Lens (P) Ltd. in ITA No. 2818/Ahd./2010 wherein the matter was referred back to the file of the AO to examine the issue of speculation/non-speculation business after taking note of crucial aspect of actual delivery 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 assessee is dealing in speculative transactions and invoked provisions s. 43(5) of the Act. The AO has also held that the assessee has been carrying trade in commodity derivatives. Sec. 43(5)(e) considers an eligible transaction in respect of trading in commodity derivatives carried out in a recognized ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same in the subjected year. 8.4.5 It is a fact that the appellant has written off the bad debts in the books of accounts and it fulfils the conditions stipulated in sub-section 2 of section 36(2) of the Act. Therefore, the deduction is allowable u/s 36(1)(vii) of the I.T. Act. In view of the facts of the case and decisions discussed above, I am of the view that the disallowance made by the AO is unjustified; hence, the disallowance made by the AO is deleted. Therefore, the appeal on this ground is ALLOWED." 11. We have carefully considered all the relevant facts of the case, the provisions of law in the matter and find no infirmity in the conclusion drawn by the ld.CIT(A). The disallowance has been made by the AO without any basis and against the well laid down provisions of the Act and also in contraventions of the Board Circular. Similar claim of Bad debt written off has been allowed by the department on similar facts and the circumstances in other assessment years. Therefore, there is no justification for disallowing the same in the year under consideration. Though the principles of res judicata are not attracted to income tax proceedings since each assessment year is separat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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