DCIT-13(3)(2), MUMBAI V. REMI SECURITIES LIMITED, MUMBAI

ITA 6311/MUM/2024

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The case involves the Revenue's appeal against the order of the CIT(A) which upheld the disallowance of bad debts claimed by the assessee, Remi Securities Limited, for the Assessment Year 2017-18. The bad debts claimed were due to non-delivery of stock by the National Spot Exchange Limited (NSEL), following a scam that led to NSEL defaulting on its payment obligations. The Tribunal referenced a similar case involving the assessee's sister concern and previous rulings which supported the assessee's position. The Tribunal concluded that the assessee had rightly written off the debts as bad, given the circumstances and legal provisions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 26524 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2017-2018
• Other Referred Cases: TRF Ltd. Vs. CIT (2010) 323 ITR 397 (SC), M/s Remi Securities and Engineering Limited vs. ACIT, Circle 13(3)(1), Mumbai [ITA No. 3650/Mum/2108 dated 06.09.2019]
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R.R. MAKWANA
• Assessee Lawyers: SHLOKA SHAH
• Keywords: Set aside; Business income; Bad and doubtful debts
• Section: 143(2); 143(1)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘D’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 6311/MUM/2024 (Assessment Year : 2017-18) DCIT-13(3)(2) 229, Aayakar Bhavan, M.K. Road, Mumbai-400020. Vs. Remi Securities Limited Plot No. 11, Cama Industrial Estate, Walbhat Road, Goregaon (East), 400063. PAN/GIR No. AAACR0401R (Appellant) .. (Respondent) Assessee by Ms. Shloka Shah Revenue by Shri. R.R. Makwana, Addl. CIT Date of Hearing 28/01/2025 Date of Pronouncement 28/02/2025 आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the Revenue against order dated 07/10/2024 passed by Addl/JCIT(A)-5, Kolkata for the quantum of assessment passed u/s.143(3) for the A.Y.2017-18. 2. In the gorunds of appeal, the Revenue has raised following grounds:- ITA No.6311/MUM/2024 M/s. Remi Securities Limited 2 \"1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in law and on facts by upholding the disallowance of the bed debts of Rs.2,82,32,482/- claimed by the appellant, despite the compliance with the conditions prescribed under section 36(1)(vii) of the Income Tax Act, 1961. 2. The CIT(A) failed to appreciate that the claim of bed debt due to non delivery of stock is premature and the assessee itself admitted receipts of sums from NSEL.” 3. At the outset, it has been submitted that this issue stands covered by the decision of the Tribunal in assessee’s own case for the A.Y.2014-15 wherein, on similar issue the Tribunal has deleted the said addition. Even the ld. CIT(A) has followed the Tribunal order. For the sake of ready reference, the relevant facts and finding of the Tribunal is reproduced hereunder:- ”2. Briefly stated, the assessee company which is engaged in the business of financing. trading and sub-broking of shares and securities, agro commodities and investment broking had e- filed its return of income for A.Y 2014-15 on 27.11.2014, declaring its total income at Rs. Nil (after claiming current year loss of Rs. 2,06,99,797/-). The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 3. During the course of the assessment proceedings it was observed by the A.O that the assessee company had inter alia claimed 'bad debts' of Rs. 1,98,70,000/-. On being queried, it was submitted by the assessee that it had carried out purchase and sale of commodities on the platform of National Spot Exchange Limited (for short 'NSEL) through M/s Motilal Oswal Commodities Broker Private Limited. It was the claim of the assessee that the aforesaid trading transactions carried out on the platform of NSEL were duly accounted for in its books of account. As such, it was ITA No.6311/MUM/2024 M/s. Remi Securities Limited 3 submitted by the assessee that the profit arising from the aforesaid trading transactions were offered as its 'business income' in the profit and loss account. It was the claim of the assessee that a scam was unearthed in July, 2013, which revealed that NSEL had defaulted in its payment obligation to various investors and traders from August, 2013. As on 01.08.2013, the outstanding of NSEL towards the assessee amounted to Rs. 8,22,62,078/-. Out of the aforesaid outstanding amount the assessee had received an amount of Rs. 56,14,948/- during the F.Y. 2013-14 and a further amount of Rs. 1,56,406/- was received thereafter. As such, the balance outstanding of NSEL towards the assessee amounted to Rs. 7,64,90,724/-, It was submitted by the assessee that after considering all the facts of the case, the management of the assessee company had decided to 'write off 25% of the outstanding amount i.e. Rs. 1,98,70,000/- as bad debts' on 30.09.2013. Accordingly, after writing off the 'bad debts' of Rs. 1,98,70,000/- in its books of accounts, the outstanding balance of NSEL towards the assessee as on 31.03.2014 stood reflected as Rs. 5,67,77,130/-. It was the claim of the assessee that as it had duly shown the income from the aforesaid trading transactions as its 'business income' in its profit and loss account, therefore, the 'writing off the aforesaid amount of Rs. 1,98,70,000/- as 'bad debts was allowable under Sec. 36(2) of the Act However, the A.O was not inclined to accept the aforesaid claim of 'bad debts' that was raised by the assessee. The A.O observed that the matter was under investigation by the Economic Offenses Wing (EOW) and the recovery process was being monitored by a committee appointed by the Hon'ble High Court of Bombay Also, it was observed by the A.O that as per the information available in the public domain NSEL had sufficient assets to liquidate and repay the outstanding amounts. It was also noticed by him that the properties of NSEL and the various entities which had fraudulently benefitted from the funds of NSEL had been attached. In fact, the A.O observed that the assessee in part discharge of its outstanding dues was in itself in receipt of amount from NSEL even after FY. 2013-14. Apart from that, the A.O held a conviction that since the trading transactions were guaranteed by NSEL, therefore, compensations against non- delivery of commodities bought on the exchange platform were legally enforceable. On the basis of his aforesaid observations, the A.O was of the view that the claim of bad debts' raised by the ITA No.6311/MUM/2024 M/s. Remi Securities Limited 4 assessee due to non-delivery of stock was premature and hence could not be allowed. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(A) Observing, that the matter was sub judice and the recovery was still in progress, the CIT(A) was of the view that as the 'writing off of part of the outstanding amount of Rs. 1,98,70,000/- by the assessee was not backed by any sound reasoning, therefore, the A.O had rightly disallowed the claim of the assessee. Accordingly, the CIT(A) dismissed the appeal of the assessee. 5. The assessee being aggrieved with the order of the CIT(A) has carried matter in appeal before us. The Learned Authorized Representative (for short 'A.R') for the assessee took us through the facts of the case. It was submitted by the Ld. A.R that as the profit arising from the trading transactions carried out on the NSEL platform had been taken into account in computing its income, therefore, the 'writing off the part of the outstanding debt (including profit) as a 'bad debt was rightly claimed as a deduction by the assessee under Sec. 36(2)(1) of the Act. It was submitted by the Ld. A.R that subsequent to 01.04.1989, it was no more necessary for the assessee to establish that the debt, in fact, had become irrecoverable, and it was sufficient if the \"bad debt' was 'written off as irrecoverable in the account of the assessee. In support of the aforesaid contention the Ld. A.R had relied on the judgment of the Hon'ble Supreme Court in TRF LId. Vs. CIT (2010) 323 ITR 397 (SC). Apart from that, the Ld. A.R submitted that the issue involved in the present appeal was squarely covered by the order of a coordinate bench of the Tribunal in the case of a 'sister concern' of the assessee company viz. assesses own case in M/s Remi Securities and Engineering Limited vs. ACIT, Circle 13(3)(1), Mumbai [ITA No. 3650/Mum/2108 dated 06.09.2019] for A.Y 2014-15 (Copy placed on record). 6. Per contra the Learned Departmental Representative (for short 'D.R) relied on the orders of the lower authorities. It was submitted by the Ld. D.R that as the issue was sub judice and recovery work from NSEL was also in progress, therefore, the 'writing off a part of the outstanding debt due towards the assessee from NSEL was premature and had rightly been rejected by the lower authorities. ITA No.6311/MUM/2024 M/s. Remi Securities Limited 5 7 We have heard the authorized representatives for both the parties, perused the orders of the lower authorities, material available on record, as well as the judicial pronouncements relied upon by them. Admittedly, the assessee had been carrying out purchase and sale of commodities on the platform of NSEL through M/s Motilal Oswal Commodities Broker Private Limited. The assessee company as on 30.09.2013 had an outstanding receivable of Rs. 7,94,79,966/- from NSEL. The NSEL which had started functioning in the year 2007 was an exchange for trading in commodities, acting as a platform for automated trading system for conducting spot trading in commodities. Later, the NSEL had introduced the concept of paired traders contracts and would from time to time issues circulars regarding the commencement of spot trading in a particular commodity. The traders would deal in purchase and sale of commodities on the exchange platform by trading in the paired traders contract through brokers over an electronic platform. As per the bye-laws of NSEL, it acted as a legal counter party in respect of transactions executed and also guaranteed the settlement of net financial obligations. The traded commodities were claimed to be kept in the designated warehouses controlled by NSEL. The exchange used to issue delivery allocation report for the purchase transaction. The warehouse receipts were kept in the custody of exchange and the same were tendered by NSEL against the commodity pay-in obligation of the client. 8 As is discernible from the orders of the lower authorities, the assessee had entered into numerous paired traders contracts in which it bought the commodities and obtained allocation report in lieu of warehouse receipts. As observed by us hereinabove, a scam was unearthed in July, 2013, which revealed that NSEL had defaulted in its payment obligation to its various Investors and traders from August, 2013. On a perusal of the records, we find, that the assessee company which was one of the trader in NSEL could recover only an amount of Rs. 58 lacs (approx.), as against its outstanding dues of Rs. 8,22,62,078/- on 01.08.2013. As such, the balance outstanding due by NSEL towards the assessee amounted to Rs. 7,64,90,724/-, As can be gathered from the orders of the lower authorities, the NSEL investors forum of which the assessee is also a member had filed a writ petition with the ITA No.6311/MUM/2024 M/s. Remi Securities Limited 6 Hon'ble High Court of Bombay, which had thereafter appointed a committee for monitoring the recovery process. Also, the EOW of Mumbai Police, SFIO and SEBI are also conducting investigations in the aforesaid case. As observed by us hereinabove, the assessee had also recovered an amount of Rs. 58 lacs from NSEL in two parts viz. (1) amount received in FY 2013-14 Rs. 56,14,948/- and (ii) amount received thereafter Rs. 1,56,406/-. We find that in the totality of the facts, the management of the assessee company being of the view that the full outstanding amount of Rs. 7,64,90,724/- could not be recovered from NSEL, had thus 'written off 25% of the aforesaid amount i.e. Rs. 1,98,70,000/- as 'bad debts' in its books of accounts on 30.09.2013 9. Our indulgence in the present appeal has been sought by the assessee for adjudicating the solitary issue as to whether the 'writing off of 25% of the outstanding amount from NSEL as 'bad debt' by the assessee is in order, or not. As observed by us hereinabove, it is a matter of fact borne from the records that pursuant to a scam unearthed in July, 2013, it surfaced that NSEL had defaulted in meeting out its payment obligations towards the various investors and traders from August, 2013. Admittedly, the recovery process from NSEL was being monitored by a committee appointed by the Hon'ble High Court of Bombay. Also, the matter was under Investigation of EOW of Mumbai Police, SFIO and SEBI. Apart from that, it is matter of fact bome from the records that the assessee had recovered an amount of Rs. 58 lacs from NSEL. As observed by us hereinabove, both the lower authorities had declined the assesses claim of 'bad debt', for the reason, that as the matter was under investigation and the seized assets of NSEL and its beneficiaries are yet to realized, therefore, it would be premature to treat any part of the amount receivable by the assessee from NSEL as bad debt. We have given a thoughtful consideration and are unable to persuade ourselves to subscribe to the view taken by the lower authorities. As per the post- amended Sec. 36(1)(vii), as had been made available on the statute vide the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 01.04.1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the 'debt\" is 'written off as irrecoverable in the accounts of the ITA No.6311/MUM/2024 M/s. Remi Securities Limited 7 assessee. Admittedly, in the case before us, the assessee company had 'written off 25% of the balance outstanding from NSEL i.e. Rs. 1,98,70,000/- as a 'bad debt in its books of accounts for the year under consideration. As observed by us hereinabove, the only reasoning for declining of the aforesaid claim of the assessee by the lower authorities was that as the case was under investigation and the seized assets were yet to be realized, therefore, the aforesaid claim of the assessee was premature. In our considered view, the aforesaid observations of the lower authorities are not in conformity with the settled position of law. As observed by the Hon'ble Supreme Court in the case of TRF Ltd. Vs. CIT (2010) 323 ITR 397 (SC), as per the post-amended Sec.36(1) (vii), it is not necessary for the assessee to establish that the debt in fact, had become irrecoverable. It is enough if the 'bad debt' is written off as irrecoverable in the accounts of the assessee. As per the aforesaid settled position of law, we are of the considered view that now when the assessee holding a conviction that the entire amount receivable from NSEL could not be recovered, had thus 'written off 25% of the entire receivable amount i.e. Rs. 1,98,70,000/- in its books of accounts, therefore, there was no justification on the part of the lower authorities to have declined the said claim of deduction so raised by the assessee. Apart from that, we find, that the said issue also covered by the view taken by a coordinate bench of the Tribunal in the case of a 'sister concern' of the assessee company viz. M/s Remi Securities and Engineering Limited vs. ACIT, Circle 13(3)(1), Mumbai [ITA No. 3650/Mum/2108; dated 06.09.2019] for A.Y 2014-15. Accordingly, in terms of our aforesaid observations and finding no reason to take a view different from that arrived at by the Tribunal in the case of the 'sister concern' of the assessee company, we herein 'set aside' the order of the CIT(A) and vacate the disallowance of the assesses claim for 'bad debt' of Rs. 1,98,70,000/-.” 4. Thus, respectfully following the aforesaid order of the Tribunal, which has been followed by the CIT(A) and also applies mutatis mutandis in the present year, the order of Ld. CIT(A) is upheld and accordingly, the appeal of the Revenue is dismissed. ITA No.6311/MUM/2024 M/s. Remi Securities Limited 8 5. In the result, appeal of the Revenue is dismissed. Order pronounced on 28.02.2025. Sd/- (GIRISH AGRAWAL) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 28/02/2025 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// "