ITO, New Delhi V. M/s. Neha Plastics Pvt. Ltd., New Delhi

ITA 1343/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81807 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 13-10-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 20-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR RAKESH GUPTA; ASWANI TANEJA ADVS
• Assessee Lawyers: J P CHANDRAKAR
• Keywords: Transactions in derivatives; Speculation loss; Bad and doubtful debts
• Section: 43(5); 28

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E : NEW DELHI BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI R.P. YADAV JUDICIAL MEMBER ITA NO . 1343 / DEL / 201 2 ASSESSMENT YEAR : 2006 - 07 ITO, WARD 13(2) NEW DELHI. VS . M/S NEHA PLASTICS PVT. LTD. C2/388, PANKHA ROAD, JANAKPURI NEW DELHI. (APPEL LANT) (RESPONDENT) A PPELLANT BY : DR. RAKESH GUPTA & SH. ASWANI TANEJA, ADVS. RESPONDENT BY : SHRI J.P. CHANDRAKAR, SR. D.R. ORDER PER SHRI RAJ PAL YADAV , J M : 1. THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDER OF LD. CIT(A) DATED 31.10.2011 PASSED FOR A.Y. 2006 - 07. THOUGH THE REVENUE HAS TAKEN FOUR GROUNDS OF APPEAL , BUT ITS GRIEVANCE REVOLVES AROUND OF SINGLE ISSUE , WHEREBY IT HAS CHALLENG ED DELETION OF ADDITION OF RS.16,67,741/ - . 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 24.03.2007 , DECLARING A LOSS OF RS.28,203/ - . THE ASSESSEE HAS INCOME FROM HOUSE PROPERTY OF RS.24,65,225/ - IT HAS LOS S OF RS. 24,93,428/ - UNDER THE ITA NO.1343/DEL /2012 ASSESSMENT YEAR : 2006 - 07 2 HEAD INCOME FROM BUSINESS . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE U/S 143(2) OF THE I.T. ACT, 1961 WAS ISSUED AND SERVED UPON THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON SCRUTINY O F THE ACCOUNTS IT REVEALED TO THE ASSESSING OFFICER THAT ASSESSEE HAS CLAIMED A SUM OF RS.16,67,741/ - UNDER THE HEAD BAD DEBTS WRITTEN OFF /BUSINESS LOSS. THE LD. ASSESSING OFFICER DIRECTED THE ASSESSEE TO EXPLAIN THE NATURE AND SUBMIT COMPLETE DETAILS REGA RDING THIS CLAIM. IN RESPONSE TO THE QUERY OF A.O. , IT WAS CONTENDED BY THE ASSESSEE VIDE A LETTER DATED 03.10.2008 THAT COMPANY HAD ENOUGH DISPOSABLE INCOME, THEREFORE, IT VENTURE OUT NEW PROJECTS/BUSINESS PROPOSAL. THE COMPANY DURING THE YEAR TRIED TO VE NTURE OUT COMMODITY TRANSACTION IN ORDER TO MAKE MORE MONEY , BUT DID NOT HAVE EXPERIENCE AND RELIED UPON THEIR IN EXP ERIENCED STAFF AND SUFFERED HEAVY. ULTIMATELY , THE COMPANY TOOK HELP OF A COMMODITY BROKER , M/S INDIA COMMODITY SERVICES. IN THE INITIAL PER IOD , ASSESSEE SUFFERED LOSS IN THE COMMODITY TRANSACTION S , BUT ULTIMATELY IT WAS ABLE TO RECOVER ITS LOSSES. HOWEVER, THE AMOUNTS PAID TO M/S INDIA COMMODITY SERVICE FOR STARTING THIS BUSINESS COULD NOT BE RECOVERED. THEREFORE, ASSESSEE CLAIMED A SUM OF RS .16,67,741. THE LD. ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT ALLEGED TRANSACTIONS OF THE ASSESSEE IN COMMODITY TRADING ARE NOT GENUINE. TH IS CLAIM CANNOT BE ALLOWED AS BA D DEBT ALSO BECAUSE THE AMOUNTS CLAIMED U/S 36(2) OF TH E I.T. ACT HAD NOT SUFFERED INCOME TAX IN EARLIER YEAR. HE ALSO OBSERVED , NO DOUBT GRANTING DEDUCTION U/S ITA NO.1343/DEL /2012 ASSESSMENT YEAR : 2006 - 07 3 36(1) (VII) THE ONLY CONDITION REQUIRED IS THAT THE AMOUNTS WHICH ARE IRRECOVERABLE HAVE BEEN WRITTEN OFF IN THE BOOKS. THE LD. ASSESSING OFFICER WAS AWARE THAT AFTER 01.04.1989 ASSESSEE IS NOT SUPPOSED TO BRING DEMONSTRATIVE PROOF ON THE RECORD THAT DEBTS HAVE BECOME DEBT . THE ONLY REQUIREMENT IS THAT ASSESSEE HAS TO WRITE OFF THE DEBTS , BUT LD. ASSESSING OFFICER HAS OBSERVED THAT THOUGH THE POSITION O F LAW IS LIKE THIS , BUT STILL IT CANNOT BE LEFT TO IPSI DIXIT OF THE ASSESSEE, THAT WHENEVER HE LIKES, HE CAN CLAIM BA D DEBT, WHERE THE CIRCUMSTANCES SUGGEST OTHERWISE. THE LD. ASSESSING OFFICER THEREAFTER MADE AN ELABORATE DISCUSSION AS TO HOW THE BUSINES S REGARDING COMMODITY TRANSACTION IS TO BE CARRIED OUT . H E MADE REFERENCE TO SE CTION 73(1) WHICH DEALS WITH LOSSES IN SPECULATIVE BUSINESS . H E MADE REFERENCE TO SECTION 43(5) WHICH DEFINES SPECULATIVE TRANSACTION ETC. THE LD. ASSESSING OFFICER ULTIMATELY D ISALLOWED THE CLAIM OF THE ASSESSEE. 3. ON APPEAL, LD. CIT(A) DELETED THE DISALLOWANCE. 4. THE BRIEF FINDING RECORDED BY THE CIT(A) READ AS UNDER: - 4.2 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT COMPANY AND THE FACTS OF THE CASE. AS PER DETAILS FILED BY THE APPELLANT BEFORE ME AS WELL AS BEFORE THE AO, THE AMOUNT OF RS.16,67,741/ - CLAIMED BY THE APPELLANT AS LOSS ON TRADING REPRESENTS THE AMOUNT IT COULD NOT RECOVER FROM M/S INDIA COMMODITY SERVICES, ON ACCOU NT OF FINANCIAL CONSTRAINTS BEING FACED BY THAT PARTY, AND NOT THE LOSS ON ACCOUNT OF TRADING IN COMMODITIES AS HELD BY THE ASSESSING OFFICER . IT WAS EXPLAINED THAT INITIALLY THERE WER E LOSSES INCURRED BY THE APPELLANT FROM TRADING IN COMMODITIES (EFFECTE D THROUGH M/S INDIA COMMODITY SERVICES) BUT LATER ON ALL SUCH LOSSES WERE RECOVERED AND THE NET EFFECT AT THE END OF THE YEAR WAS NEITHER ANY PROFIT NOR LOSS. HOWEVER, THE AMOUNT OF RS.16,67,741/ - OWED BY M/S INDIA COMMODITY SERVICES TO THE ITA NO.1343/DEL /2012 ASSESSMENT YEAR : 2006 - 07 4 APPELLANT BECAM E IRRECOVERABLE AND IT IS THIS AMOUNT WHICH HAS BEEN CLAIMED AS A BAD DEBT/LOSS ON ACCOUNT OF TRADING IN COMMODITIES. THEREFORE, THE PROVISIONS OF SECTION 73(1) READ WITH SECTION 43(5) AND EXPLANATION (2) SECTION 28 WOULD NOT BE APPLICABLE IN THE INSTANT C ASE. THE LOSS OF RS.16,67,741/ - HAS BEEN INCURRED BY THE APPELLANT IN THE COURSE OF ITS BUSINESS AND IS ACCORDINGLY ALLOWABLE. THE TRANSACTIONS HAVE BEEN CONFIRMED BY THE PARTY M/S INDIA COMMODITY SERVICES. THESE GROUNDS OF APPEAL ARE ALLOWED. 5. WITH TH E ASSISTANCE OF LD. REPRESENTATIVE, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE LD. CIT(A) HAS DELETED THE DISALLOWANCE BY OBSERVING THAT THE ASSESSING OFFICER HAS UNNECESSARILY APPROACH THE CONTROVERSY WITH A DIFFERENT ANGLE AND MADE REFERENCE TO SECTI ON 7 3 (1) R.W.S. 43(5) AND EXPLANATION (2) TO SECTION 28. SECTION 73 OF THE I.T. ACT TALKS ABOUT SPECULATIVE LOSSES IN SPECULATION BUSINESS , WHEREAS SECTION 43(5) DEFINE THE SPECULATIVE TRANSACTIO N . T HE ASSESSEE HAS NOT CLAIMED A TRADING LOSS IN THE COMMODI TY TRANSACTION WHICH CAN BE TERMED AS A SPECULATIVE BUSINESS OF THE ASSESSEE . THE ASSESSING OFFICER MIGHT BE JUSTIFIED TO EXAMINE THE FACTS AS PER SECTION 73 , IF THE ASSESSEE HAS CLAIMED THE LOSSES IN COMMODITY TRANSACTION . BUT IT HAS NOT SUFFERED LOSSES. THE AMOUNTS PAID INITIALLY FOR DOING THE BUSINESS REMAINED UNREALIZED FROM THE BROKER. IT CLAIMED THOSE AMOUNTS. THE ASSESSING OFFICER DID NOT FIND ERROR IN THIS CLAIM , HE HAS OBSERVED THAT SUCH LOSS COULD BE ON ACCOUNT OF LOSSES IN THE COMMODITY TRADI NG. THE LD. A.O. WAS OF THE VIEW THAT THIS CLAIM BE VIEWED WITH AN ANGLE THAT ASSESSEE HAS ACTUALLY SUFFERED LOSSES IN THE TRADING AND IT CAN NOT BE CHARACTERIZED AS B A D DEBTS. THE ASSESSEE HAS FILED COPY OF THE ACCOUNTS OF M/S INDIA COMMODITY SERVICE , IT H AS FILED DETAIL S OF TRANSACTION . I T HAS FILED ITA NO.1343/DEL /2012 ASSESSMENT YEAR : 2006 - 07 5 CONFIRMATION FROM M/S INDIA COMMODITY SERVICE , WHICH HAS BEEN NOTICED BY THE ASSESSING OFFICER O N PAGE 7. PERUSAL OF THESE DETAILS SHOW THAT THERE WAS NO LOSS IN THE TRADING OF COMMODITIES. THE LD. A.O. ON HIS ASSUMPTION GIVING THAT COLOUR WITH OUT REFERRING TO ANY EVIDENCE OR MATERIAL. THEREFORE, ON DUE CONSIDERATION OF CIT(A) FINDING EXTRACTED (SUPRA), WE DO NOT FIND ANY ERROR IN IT , THE APPEAL OF THE REVENUE IS DEVOID OF MERIT, HENCE, IT IS REJECTED. TH E DECIS ION IS PRONOUNCED IN THE OPEN COURT ON 1 7 TH OCTO BER, 201 4 . SD/ - SD/ - ( J.S. REDDY ) ( RAJPAL YADAV ) A CCOUNTANT MEMBER J UDICIAL MEMBER DATED: 1 7 TH OCTOBER , 201 4 . AKS/ - COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST . REGISTRAR, ITAT, NEW DELHI