ANAND RATHI COMMODITIES LIMITED,MUMBAI V. DEUPTY COMMISSIONER OF INCOME TAX, MUMBAI

CO 325/MUM/2025

AI Insights

The case involves the Deputy Commissioner of Income Tax as the appellant and Anand Rathi Commodities Limited as the respondent. The dispute centered on the reassessment order for the Assessment Year 2018-19, where the Assessing Officer made additions to the assessee's income, which were later contested and deleted by the Ld. CIT(A). The Revenue appealed against the CIT(A)'s decision, challenging the deletion of disallowances related to bad debts and client claim expenses. The assessee, in turn, filed a cross-objection against the validity of the reassessment.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 831956 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-01-2026
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: misc
• Appeal Filed On: 24-11-2025
• Other Referred Cases: Commissioner of Income-tax v. Shreyas S. Morakhia
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SURENDRA MOHAN
• Assessee Lawyers: DHARMESH SHAH; SAIYAMI SHAH
• Keywords: Business income; Difference of opinion; Change of opinion; Bad and doubtful debts; Reopening of assessment; Competent authority
• Section: 147; 148; 143(3); 37(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER& SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER ITA No. 5983/Mum/2025 (Assessment Year: 2018-19) & CO. No. 325/Mum/2025 (Assessment Year: 2018-19) Deputy Commissioner of Income Tax Room No. 429, 4th Floor, Kautilya Bhavan, BKC, Mumbai Vs. Anand Rathi Commodities Limited A-Wing, 10th Floor, Express Zone, Western Express Highway, Goregaon East, Mumbai- 400063 PAN/GIR No. AAACP6209K (Applicant) (Respondent) Assessee by Shri Dharmesh Shah & Ms Saiyami Shah Revenue by Shri Surendra Mohan (SR. DR.) Date of Hearing 14.01.2026 Date of Pronouncement 22.01.2026 Printed from counselvise.com 2 ITA No. 5983/Mum/2025 & Co No.325/Mum/2025 Anand Rathi Commodities Limited आदेश / ORDER PER MAKARAND VASANT MAHADEOKAR, AM: This appeal by the Revenue and the cross-objection by the assessee are directed against the order dated 31.07.2025 passed by the Ld. Commissioner of Income Tax (Appeals)-53, Mumbai [hereinafter referred to as “the Ld. CIT(A)”] under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] for Assessment Year 2018–19 arising out of assessment framed under section 147 read with section 143(3) of the Act by the Assistant Commissioner of Income Tax, Central Circle – 5(1), Mumbai [hereinafter referred to as “Assessing Officer or AO”] vide order dated 28.02.2025. Since both the appeal and the cross- objection arise out of the same impugned appellate order and involve common facts, they were heard together and are being disposed of by this consolidated order for the sake of convenience. Facts of the Case 2. The assessee is a company engaged in the business of commodity broking. For Assessment Year 2018–19, the assessee filed its return of income on 15.10.2018 declaring a loss of Rs. 2,78,79,687/-. The case was selected for scrutiny, and the assessment was completed under section 143(3) of the Act vide Printed from counselvise.com 3 ITA No. 5983/Mum/2025 & Co No.325/Mum/2025 Anand Rathi Commodities Limited order dated 22.05.2021, wherein the returned loss was accepted without making any addition. 3. Subsequently, proceedings for reopening of the assessment were initiated. An order under section 148A(d) of the Act dated 27.03.2024 was passed after obtaining approval from the competent authority, followed by issuance of notice under section 148 of the Act on the same date. In response thereto, the assessee filed a return of income on 23.05.2024, again declaring loss of Rs. 2,78,79,687/-. 4. The reassessment was thereafter completed by the Assessing Officer under section 147 read with section 143(3) of the Act vide order dated 28.02.2025, determining the total income at Rs. 1,40,31,175/-, inter alia, by making the following additions: - Disallowance of Rs. 3,08,35,862/-, treating the same as bad debts written off and holding that the conditions of section 36(1)(vii) of the Act were not satisfied; and - Disallowance of Rs. 1,10,75,000/- on account of loss on operation / client claim, holding that the assessee had failed to establish that the expenditure was incurred wholly and exclusively for the purposes of business under section 37(1) of the Act. Penalty proceedings under section 270A of the Act were also initiated. Printed from counselvise.com 4 ITA No. 5983/Mum/2025 & Co No.325/Mum/2025 Anand Rathi Commodities Limited 5. Aggrieved by the reassessment order, the assessee carried the matter in appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee challenged both the validity of the reopening under section 147 as well as the additions on merits.It was contended that the reopening was bad in law as it was initiated beyond four years from the end of the relevant assessment year without there being any failure on the part of the assessee to disclose fully and truly all material facts, and that the reassessment was based merely on a change of opinion, since both the issues were examined during the original assessment proceedings under section 143(3). 6. On merits, the assessee reiterated that the amount of Rs. 3,08,35,862/- was only a reversal of a provision earlier disallowed and did not constitute a fresh claim of bad debts, and that disallowing the same resulted in double taxation. It was further submitted that the loss on operation / client claim was incurred wholly and exclusively for the purposes of business and was supported by detailed documentation. 7. The Ld. CIT(A), after considering the material on record and the submissions of the assessee, deleted the additions made by the Assessing Officer. The Ld. CIT(A) accepted the assessee’s explanation that the amount of Rs. 3,08,35,862/- represented reversal of a provision for doubtful debts disallowed in the year of Printed from counselvise.com 5 ITA No. 5983/Mum/2025 & Co No.325/Mum/2025 Anand Rathi Commodities Limited creation and that the disallowance thereof in the reassessment would lead to impermissible double taxation. The Ld. CIT(A) also deleted the disallowance of Rs. 1,10,75,000/- holding the same to be allowable. 8. Aggrieved by the relief granted by the Ld. CIT(A), the Revenue is in appeal before us raising following grounds of appeal: “a) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in deleting the disallowance of ₹1,10,75,000, despite the assessee failing to substantiate that the said loss on operation/client claim was incurred wholly and exclusively for the purposes of business, as required under Section 37(1) of the Income-tax Act, 1961? b) Whether the Ld. CIT(A) was justified in allowing the assessee’s claim of ₹1,10,75,000 as deductible under Section 37(1), without proper verification of the genuineness, necessity, and nexus of the expenditure with the business of the assessee? c) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of ₹3,08,35,862/- by holding that the said amount represents reversal of provision for doubtful debts earlier disallowed in the year of creation, and thereby ignoring that the assessee had claimed the same as bad debts written off during the year under consideration, leading to an impermissible reduction of taxable income? d) The appellant craves leave, to add, amend and/or alter any of the ground of appeal if need be.” 9. The assessee, on the other hand, has filed a cross-objection. Following grounds of Cross-objection are without prejudice to each other and assessee’s arguments in Department’s appeal: 1. “The Ld. CIT(A) ought to have appreciated that the reopening of assessment by issue of notice u/s. 148 of the Act was invalid and void ab initio. 2. The Ld. CIT(A) ought to have appreciated that the impugned reopening of assessment is on account of change of opinion and hence invalid and void ab initio. Printed from counselvise.com 6 ITA No. 5983/Mum/2025 & Co No.325/Mum/2025 Anand Rathi Commodities Limited 3. The respondent craves leave of Your Honour to add to, amend or alter the foregoing grounds of cross-objection.” 10. During the course of hearing before us, the learned Authorised Representative (AR) for the assessee submitted details as tabulated as below: Sr. No. Particulars Paper Book Reference Page No. Amount (Rs.) 1. Bad debts written off 38- 53 3,99,01,275/- 2. Less: Provision for bad debts of F.Y. 2014-15 reversed 30 and 20 (3,08,35,862/-) 3. Net bad debts written off 37 90,65,413/- 4. Add: Client claim expenses 20,09,918/- 5. Net loss on operation / client claim debited to P&L A/c 15 1,10,75,331/- 11. The learned AR took us through the paper book page No. 38-53 giving the chart of party wise details of bad debts written of during the A.Y. 2018-19. It was also explained with example of one item of Rs.36,05,250.70 written off in case of Satyanarayan Lodha as supported by the ledger account (paper book page No. 54). The learned AR submitted that the amount of Rs. 3,08,35,862/-, as referred to in the show cause notice and reflected at Sr. No. 2 above, did not represent bad debts written off during the relevant assessment year 2018–19. It was explained that the said amount represented part of provision for doubtful debts created in Assessment Year 2015–16 amounting to Rs 3,17,59,383/- which was debited to Profit and Loss Account Printed from counselvise.com 7 ITA No. 5983/Mum/2025 & Co No.325/Mum/2025 Anand Rathi Commodities Limited for the A.Y. 2015-16 (paper book page No. 30). It was also explained that, in the year of creation, such provision was duly disallowed under section 36(1)(vii) of the Act, as it was only a provision and not an actual write-off of the parties’ balances (as per computation of income for the A.Y.2015-15 placed on paper book page No. 20).The learned AR further submitted that during the current assessment year, namely Assessment Year 2018–19, the said provision for doubtful debts amounting to Rs. 3,08,35,862/- was reversed by crediting the same to the Bad Debts Account as appearing on page No. 37 of the paper book)and the net amount of Rs.90,65,413.32/- along with Rs.20,09,918/- representing client claim expenses were debited to Profit and Loss account totalling to Rs. 1,10,75,331/- (as appearing on page No.15 of the paper book). The learned AR submitted that the provision had already been disallowed in Assessment Year 2015–16 therefore the reversal was correspondingly adjusted in the computation of income by reducing the said amount while computing the taxable income for Assessment Year 2018–19, solely to avoid double taxation. 12. With regard to the client claim expenses amounting to Rs. 20,09,918/-, the learned Authorised Representative submitted that the said amount, as detailed in the chart placed at page No. 226 of the paper book, does not represent a fresh or unsubstantiated claim of expenditure. It was explained that the corresponding amounts had already been offered to tax as income Printed from counselvise.com 8 ITA No. 5983/Mum/2025 & Co No.325/Mum/2025 Anand Rathi Commodities Limited in the respective earlier years by the assessee. The learned Authorised Representative submitted that the debit of the said amount during the year under consideration was only in the nature of settlement or write-off of client balances and, therefore, disallowance of the same would result in double taxation of the very same income, which is impermissible in law. In support of the claim, the learned AR placed reliance on the judgment of the Hon’ble Bombay High Court in the case of Commissioner of Income-tax v. Shreyas S. Morakhia reported in [2012] 19 taxmann.com 64 (Bom) / [2012] 342 ITR 285 (Bom). It was submitted that the assessee being engaged in broking activities, the unrecovered amounts from clients, where the corresponding brokerage had already been credited to the Profit and Loss Account and offered to tax, are allowable as bad debts under section 36(1)(vii) read with section 36(2) of the Act. The learned Authorised Representative submitted that the ratio laid down by the Hon’ble jurisdictional High Court squarely covers the issue under consideration. 13. Per contra, the learned Departmental Representative relied on the orders of the Assessing Officer. 14. We have carefully considered the rival submissions, perused the orders of the Assessing Officer and the Ld. CIT(A), and examined the material placed on record, including the paper book and the judicial precedents relied upon. Printed from counselvise.com 9 ITA No. 5983/Mum/2025 & Co No.325/Mum/2025 Anand Rathi Commodities Limited 15. The core controversy before us relates to the quantification and reconciliation of amounts claimed by the assessee towards bad debts and client claim expenses and the manner in which such amounts have been accounted for in the books of account and the computation of income. 16. During the course of hearing, the learned Authorised Representative furnished a detailed reconciliation explaining that bad debts aggregating to Rs. 3,99,01,275/- were written off during the relevant previous year. Out of the said amount, a sum of Rs. 3,08,35,862/- was stated to represent provision for doubtful debts created in earlier years, which had already been disallowed in the year of creation and which stood reversed during the year under consideration. After such reversal, the net bad debts relatable to the year were stated to be Rs. 90,65,413/-. It was further explained that client claim expenses of Rs. 20,09,918/- were incurred in the normal course of business, resulting in a net debit of Rs. 1,10,75,331/- under the head loss on operation / client claim. 17. The above explanation was supported by ledger accounts, financial statements and a reconciliation chart placed on record. We find that the issue, therefore, is purely factual in nature, turning upon verification of (i) the reversal of provision for doubtful debts which had already been subjected to tax Printed from counselvise.com 10 ITA No. 5983/Mum/2025 & Co No.325/Mum/2025 Anand Rathi Commodities Limited disallowance in earlier years, and (ii) the nexus and prior taxability of the client claim amounts. 18. On examination of the material placed before us, we find that the reconciliation furnished by the assessee demonstrates a one-to-one correlation between the amounts written off in the books, the reversal of earlier provisions, and the figures reflected in the computation of income. The Revenue has not pointed out any specific discrepancy in the reconciliation, nor has it brought on record any material to show that the assessee has claimed deduction of the same amount twice. 19. We also take note of the reliance placed by the learned Authorised Representative on the judgment of the Hon’ble Bombay High Court in CIT v. Shreyas S. Morakhia [2012] 342 ITR 285 (Bom), wherein it has been held that in the case of a broker, unrecovered amounts from clients, where the brokerage income has already been taken into account in computing business income, constitute allowable bad debts under section 36(1)(vii) read with section 36(2) of the Act. While the said decision lays down the governing legal principle, its applicability in the present case depends upon factual verification of the amounts claimed and their treatment in the books, which stands satisfied on the basis of the reconciliation placed before us. Printed from counselvise.com 11 ITA No. 5983/Mum/2025 & Co No.325/Mum/2025 Anand Rathi Commodities Limited 20. In so far as the client claim expenses of Rs. 20,09,918/- are concerned, the assessee has demonstrated, with reference to the details placed at page No. 226 of the paper book, that the corresponding amounts had already been offered to tax as income in the respective years. Sample ledger accounts were also placed by the assessee before lower authorities and also placed in the paper book page No. 373). Upon verification of the said details, we find merit in the submission that disallowance of the same would result in taxing the same income twice, which is impermissible. 21. In view of the above factual verification and reconciliation of amounts, we find no reason to interfere with the conclusion reached by the Ld. CIT(A) in granting relief to the assessee on this issue. 22. The assessee has raised a cross-objection challenging the validity of reopening under section 147 of the Act. However, since the dispute relating to the quantum of additions has been decided on merits after verification of facts in favour of the assessee, adjudication of the cross-objection on jurisdictional grounds is rendered unnecessary at this stage.Accordingly, the cross-objection is not adjudicated, and the issue raised therein is kept open, without expressing any opinion on the validity of the reopening. Printed from counselvise.com 12 ITA No. 5983/Mum/2025 & Co No.325/Mum/2025 Anand Rathi Commodities Limited 23. In the result, the appeal filed by the Revenue is dismissed and the cross-objection filed by the assessee is treated as infructuous and disposed of accordingly, with the issue raised therein being kept open, without expressing any opinion on the same. Order pronounced in the open court on 22.01.2026. Sd/- Sd/- (AMIT SHUKLA) (MAKARAND VASANT MAHADEOKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 22/01/2026 Disha Raut, Stenographer आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. संबंधधत आयकर आयुक्त / The CIT(A) 4. आयकर आयुक्त(अपील) / Concerned CIT 5. धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई/ DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशानुसार/BY ORDER, सत्याधपत प्रधत //True Copy// 1. उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai Printed from counselvise.com "