M/s. Omni Lens Pvt.Ltd., Ahmedabad V. The DCIT, Circle-3(1)(2), Ahmedabad

ITA 2818/AHD/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 8985 (ITAT-AHMEDABAD)
• Duration Of Justice: 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 12-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: MUKESH M PATEL
• Keywords: Speculation loss; Bad and doubtful debts; Speculative transactions
• Section: 143(3); 43(5); 28

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMEBR ./ I.T.A. NO. 2818/AHD/2017 ( ASSESSMENT YEAR : 2014-15) OMNI LENS PVT. LTD. C/O. MUKESH M. PATEL & CO., TAX PLANNING HOUSE, ABOVE USMANPURA UNDERBRIDGE, AHMEDABAD - 380013 / VS. DCIT CIRCLE 3(1)(2), AHMEDABAD ./ ./ PAN/GIR NO. : AAACO1725F ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI MUKESH M. PATEL, A.R. / RESPONDENT BY : SHRI LALIT P. JAIN, SR. D.R. DATE OF HEARING 24/07/2018 & 29/08/2018 !'# / DATE OF PRONOUNCEMENT 16/10/2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME TAX (APPEALS)-7, AHMEDABAD (CIT(A) IN SHORT), DATED 1 6.10.2017 ARISING IN THE ASSESSMENT ORDER DATED 22.12.2016 PASSED BY THE ASSESSING ITA NO. 2818/AHD/17 [M/S. OMNI LENS PVT. LTD. VS. DCIT] AY 2014-15 - 2 - OFFICER (AO) U/S. 143(3) OF THE INCOME TAX ACT, 196 1; (THE ACT) CONCERNING ASSESSMENT YEAR 2014-15. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE RE ADS AS UNDER:- 1. THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FAC TS IN DISALLOWING THE APPELLANTS CLAIM FOR RS.3,90,02,779/- IN RESPECT O F BAD DEBTS WRITTEN OFF IN ITS ACCOUNTS FOR F.Y. 2013-14 AND UPHOLDING THE DI SALLOWANCE MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE AFORESAID CLAIM WAS NOT A BAD DEBT AT ALL AND THAT IT HAD BEEN WRONGLY CATEGORIZED BY THE APPELLANT AS A BAD DEBT. 2. THAT THE LEARNED CIT(A) FAILED IN APPRECIATING T HAT THE APPELLANT HAVING FULFILLED ALL RELEVANT CONDITIONS FOR CLAIM OF BAD DEBTS U/S. 36(1)(VII) RWS 36(2), ITS CASE WAS SQUARELY COVERED BY THE RATIO O F THE DECISION OF THE HONBLE SC IN THE CASE OF TRF LTD. AND THE CLEAR GU IDELINES AS LAID DOWN BY THE CBDT CIRCULAR NO. 12/2016 DTD. 30-05-2016. 3. BRIEFLY STATED, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF OPTICAL LENSES. THE ASSESSEE FILE D ITS RETURN OF INCOME FOR AY 2014-15 DECLARING TOTAL INCOME OF RS. 12,21,74,920/- WHICH WAS SUBJECTED TO SCRUTINY ASSESSMENT. IN THE COURSE OF SCRUTINY ASSESSMENT, THE AO INTER ALIA OBSERVED THAT THE ASSESSEE IS ALSO ENGAGED IN COMMODITY TRADING BUSINESS ON NSEL (NATI ONAL SPOT EXCHANGE LTD.) PLATFORM. THE ASSESSEE HAS ENTERED INTO SEVERAL CONTRACTS FOR BUYING OF VARIOUS COMMODITIES ON NSEL PLATFORM. SIMULTANEOUS REVERSE SALE CONTRACT OF THE EXACT SPE CIFICATION OF PURCHASE ALSO ENTERED ON NSEL PLATFORM FOR DELIVERY AT FUTURE DATE AT A GAP OF 25/36 DAYS AFTER THE PURCHASE CONTRACT. T HUS, EACH PURCHASE TRANSACTION WAS MATCHED BY A CROSS CONTRACT OF SIMU LTANEOUS SALE TRANSACTION. BOTH PURCHASE AND SALE WERE CLAIMED T O BE DELIVERY BASED BUSINESS TRANSACTIONS. AS CLAIMED ON BEHALF OF THE ASSESSEE, NSEL ISSUED SOME DELIVERY ALLOCATION REPORT FOR EACH PUR CHASE TRANSACTION BY VIRTUE OF WHICH THE COMMODITY PURCHASED ON BEHAL F OF THE PURCHASER (ASSESSEE) WAS KEPT IN VARIOUS WAREHOUSES ON BEHALF OF THE ITA NO. 2818/AHD/17 [M/S. OMNI LENS PVT. LTD. VS. DCIT] AY 2014-15 - 3 - PARTICIPANT ASSESSEE. THE OBLIGATION OF DELIVERY A T THE TIME OF SALE AT A PRE-DETERMINED SUBSEQUENT DATE WAS BEING MET OUT OF THE PURCHASE DELIVERY OF EXACT SPECIFICATION LYING IN THE WAREHO USES ON BEHALF OF THE VARIOUS PARTICIPANTS INCLUDING ASSESSEE. SUCH TRANSACTIONS OF PURCHASE OF COMMODITY AND SIMULTANEOUS SALE FOR PER FORMANCE OF DELIVERY AT A LATER DATE WERE SUPPORTED BY CONTRACT NOTES IN THE NAME OF THE ASSESSEE ISSUED BY BROKERS AFFILIATED TO NSE L. 3.1 AS STATED ON BEHALF OF THE ASSESSEE BEFORE THE AO, THE ASSESSEE DECIDED TO EMPLOY ITS IDLE FUNDS IN PURCHASE OF COM MODITY ON NSEL PLATFORM AND RECEIVED MONEY BACK AT THE TIME OF DEL IVERY AGAINST SALE OF COMMODITY OF EXACT IDENTIFICATION AND QUANTITY P ERFORMED AT A LATER DATE IN A PRE-DETERMINED GAP OF NEARLY 25/36 DAYS. THIS ACTIVITY OF PURCHASE DELIVERY OBTAINED ON SPOT AND SALE DELIVER Y GIVEN AT LATER DATE YIELDED CERTAIN BUSINESS GAINS. IN SHORT, THE ASSESSEE DEPLOYED ITS FUNDS FOR PURCHASE OF COMMODITY TO BE HELD FOR CERT AIN SPECIFIED PERIOD BEFORE SETTLEMENT OF SALE CONTRACT. THE PHY SICAL DELIVERY OF COMMODITY AS PER THE CONTRACT WAS KEPT IN THE WAREH OUSES OF THE NSEL ON BEHALF OF THE ASSESSEE AND, AS NOTED, THE S AME WERE RETURNED AND DELIVERED BACK BY NSEL AGAINST ITS SALE AT FUTU RE DATE. THE SALE PROCEEDS WERE THUS CREDITED TO THE ACCOUNT OF THE A SSESSEE AT THE TIME OF DELIVERY OF GOODS AND PAID TO PARTICIPANT ASSESS EE. 3.2 IN THE DELIVERY BASED FUTURE CONTRACTS IN COMMO DITY AS PER THE DYNAMICS OF BUSINESS AS NOTED ABOVE, THE ASSESSEE C LAIMED BAD DEBTS TO THE TUNE OF RS.3,90,02,779/- OWING TO ITS ALLEGE D IRRECOVERABILITY FROM THE BUYERS OF THE GOODS ON THE PLATFORM OF SPO T EXCHANGE. 3.3 ON INQUIRY TOWARDS CLAIM OF BAD DEBTS IN THE CO URSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE POINTED OUT TH AT IT WAS ENGAGED IN COMMODITY TRADING BUSINESS NARRATED ABOVE IN FY 2012-13 AND FY ITA NO. 2818/AHD/17 [M/S. OMNI LENS PVT. LTD. VS. DCIT] AY 2014-15 - 4 - 2013-14 THROUGH TWO BROKER INTERMEDIARIES VIZ; M/S. DIPAL FINANCE (DF) & M/S. CHIMANLAL POPATLAL COMMODITIES BROKER P VT. LTD. (CPCBPL). IT WAS POINTED OUT ON BEHALF OF THE ASSE SSEE THAT NSEL VIDE ITS CIRCULAR DATED 31 ST JULY, 2013 SUSPENDED ITS TRADING ACTIVITIES IN COMMODITIES. A SUBSTANTIAL FRAUD PURPORTEDLY CO MMITTED BY NSEL AND ITS MANAGEMENT WAS CLAIMED TO BE DISCOVERED. C ONSEQUENTLY, THE MINISTRY OF CONSUMER AFFAIRS VIDE ITS NOTIFICATION DATED 06.08.2013 BARRED NSEL FROM ISSUING ANY NEW CONTRACTS. THE TR ADING ACTIVITY ON NSEL PLATFORM WAS THUS IN EFFECT PERMANENTLY SUSPEN DED. IN THIS BACKDROP, THE ASSESSEE CLAIMED TO HAVE WRITTEN OFF AN AMOUNT OF RS.3,90,02,779/- IN AGGREGATE RECEIVABLE FROM ITS T WO BROKERS AGAINST THE UNREALISED CONTRACTS IN COMMODITIES. IT WAS TH E CASE OF THE ASSESSEE BEFORE THE AO THAT IN VIEW OF LARGE SCALE FRAUD PERPETRATED BY NSEL MANAGEMENT AND IN VIEW OF NEGLIGIBLE CHANCE OF RECOVERY OF THE AMOUNT DUE TO THE ASSESSEE FROM ITS BROKERS (ACTING AS AGENTS OF NSEL), THE ASSESSEE COMPANY CONSIDERED IT COMMERCIA LLY PRUDENT TO WRITE OFF THE OUTSTANDING AMOUNT OF RS.3.90 CRORES AS BAD DEBTS WHILE CLOSING THE FINANCIAL ACCOUNTS PERTAINING TO AY 201 4-15 IN QUESTION. THE AO HOWEVER DECLINED THE CLAIM OF BAD DEBTS OF S UCH UNREALIZED CONTRACTS ON THE GROUND THAT BAD DEBTS IN QUESTION CANNOT BE CONSIDERED AS BAD DEBTS AND THE CLAIM OF BAD DEBTS BY THE ASSESSEE IN RESPECT OF CONTRACTS EXECUTED IN THIS YEAR (FY 2013 -14) ITSELF IS CLEARLY PREMATURE. IT WAS ALSO OBSERVED THAT FINAL DEFICIE NCY COULD NOT BE ARRIVED AT THIS STAGE AS CONTEMPLATED UNDER S.36(2) (II) OF THE ACT. TO SUPPORT THE DISALLOWANCE, THE AO ALSO RELIED UPON V ARIOUS JUDICIAL PRONOUNCEMENTS AND HELD THAT THE ASSESSEE WAS AT LE AST REQUIRED TO SHOW A BONAFIDE STATEMENT OF IRRECOVERABILITY TO DE BTS HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THE AO AC CORDINGLY HELD THAT THE BAD DEBTS CLAIMED BY THE ASSESSEE DOES NOT QUAL IFY FOR DEDUCTION UNDER S.36(1)(VII) R.W.S. 36(2) OF THE ACT IN THE Y EAR UNDER CONSIDERATION. THE AO ACCORDINGLY DISALLOWED BAD D EBTS AMOUNTING TO ITA NO. 2818/AHD/17 [M/S. OMNI LENS PVT. LTD. VS. DCIT] AY 2014-15 - 5 - RS.3,90,02,774/- AND ADDED THE SAME TO THE TOTAL IN COME OF THE ASSESSEE. 4. AGGRIEVED, THE ASSESSEE PREFERRED THE APPEAL BEF ORE THE CIT(A). 5. BEFORE THE CIT(A), THE ASSESSEE REITERATED THAT THE CONDITIONS ENVISAGED FOR ALLOWABILITY OF BAD DEBT UNDER S.36(1 )(VII) R.W.S. 36(2) OF THE ACT WERE DULY FULFILLED ON FACTS AND THE CAS E OF THE ASSESSEE IS SQUARELY GOVERNED BY THE RATIO OF THE DECISION REND ERED BY HONBLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT 323 I TR 397 (SC). IT WAS CONTENDED THAT BAD DEBT CLAIM HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF THE ASSESSEE PERTAINI NG TO FY 2013-14 RELEVANT TO AY 2014-15. SECONDLY, THE AFORESAID DE BT FORMED PART OF THE COMMODITY BUSINESS WHICH HAS BEEN DULY TAKEN IN TO ACCOUNT WHILE COMPUTING THE INCOME OF THE ASSESSEE. DISCARDING T HE PLEA OF THE ASSESSEE FOR ALLOWABILITY OF BAD DEBTS HOWEVER, THE CIT(A) OBSERVED THAT THE ASSESSEE IN THE SUBSEQUENT FY 2014-15 (AY 2015-16) HAS ALSO RECOVERED CERTAIN AMOUNT FROM ITS BROKERS AGAINST T HE OUTSTANDING DEBT. THE CIT(A) ALSO OBSERVED THAT IN THIS BACKGR OUND, WHERE THE DEBT MONEY WAS IN THE PROCESS OF BEING RETURNED, TH E ASSESSEE DID NOT WAIT FOR EVEN THE NEXT FY TO JUDGE THE POTENTIAL OF RECOVERY AND CONSIDER WRITE OFF THE AMOUNT AS IRRECOVERABLE IF N ECESSARY. THE CIT(A) ACCORDINGLY HELD THAT THE RATIO OF THE DECIS ION IN TRF LTD.(SUPRA) CANNOT BE APPLIED IN THE FACTS OF THE C ASE WHERE THE MOOT QUESTION ITSELF IS WHETHER THE DEBT IS BAD OR NOT. THE ASSESSEE HAS WRITTEN OFF THE ENTIRE DEBT AS BAD DEBT IN THE SAME VERY FINANCIAL YEAR IMMEDIATELY AFTER SUSPENSION OF ACTIVITY BY NSEL WH ERE THE OFFICIAL RECOVERY PROCESS HAD SET IN MOTION BY THE EXCHANGE AND THEREFORE, THE DEBT AMOUNT COULD NOT BE OUTRIGHTLY REGARDED AS BAD DEBT. THE CIT(A) ACCORDINGLY HELD THAT THE DEBT WAS WRONGLY CATEGORI ZED AS BAD DEBT IN ITA NO. 2818/AHD/17 [M/S. OMNI LENS PVT. LTD. VS. DCIT] AY 2014-15 - 6 - THE GIVEN FACTS AND CONSEQUENTLY, CONFIRMED THE DIS ALLOWANCE OF BAD DEBT MADE BY THE AO. 6. FURTHER AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE TRIBUNAL. 7. WHEN THE MATTER WAS FIRST CALLED FOR HEARING, TH E LEARNED AR FOR THE ASSESSEE REITERATED VARIOUS SUBMISSIONS MADE BE FORE THE LOWER AUTHORITIES AND ESSENTIALLY SUBMITTED THAT THE DEBT HAD ARISEN IN THE COURSE OF COMMODITY BUSINESS CONDUCTED ON THE PLATF ORM OF NSEL AND THEREFORE, THE DEBT AROSE IN THE COURSE OF CARRYING ORDINARY BUSINESS. THE PROFITS ARISING ON VARIOUS CONTRACTS ENTERED IN TO FOR PURCHASE AND SALE OF COMMODITY WERE TAKEN INTO ACCOUNT WHILE COM PUTING THE INCOME OF THE ASSESSEE DURING FINANCIAL YEAR IN WHI CH THE AMOUNT OF SUCH DEBT BECAME IRRECOVERABLE. IT IS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE TRADING ACTIVITIES WERE PERMANENT LY SUSPENDED ON THE SPOT EXCHANGE PLATFORM BY THE GOVERNMENT NOTIFICATI ON AND SERIOUS FRAUD WAS ALLEGED TO BE COMMITTED BY THE SPOT EXCHA NGE. THE NSEL FAILED TO HONOUR ITS COMMITMENT AND, IN TURN, THE T WO BROKERS COULD NOT PAY AMOUNT DUE TO ASSESSEE. IN SUCH SCENARIO, I T WAS NOT UNREASONABLE ON THE PART OF THE ASSESSEE TO ASSUME THAT THE CHANCES OF RECOVERY OF DEBT OUTSTANDING WITH TWO BROKERS ARE N EGLIGIBLE. A PALTRY AMOUNT OF RS.19,066/- AND RS.3,755/- WAS RECEIVED I N THE SUBSEQUENT ASSESSMENT YEAR WHICH NATURALLY WOULD NOT INSPIRE A NY CONFIDENCE TOWARDS RECOVERY. THE LEARNED AR THUS CONTENDED TH AT THE ACTION OF THE ASSESSEE IS WITHIN FOUR CORNERS OF LAW AND CANN OT BE FAULTED IN THE LIGHT OF THE CATEGORICAL DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF TRF LTD. (SUPRA). 7.1 THE LEARNED AR THEREAFTER REFERRED TO A CBDT CI RCULAR NO.12/2016 DATED 30 TH MAY, 2016 TO SUBMIT THAT IT IS NOT NECESSARY FOR ITA NO. 2818/AHD/17 [M/S. OMNI LENS PVT. LTD. VS. DCIT] AY 2014-15 - 7 - THE ASSESSEE AT ALL TO ESTABLISH THAT THE DEBT IN F ACT HAS BECOME IRRECOVERABLE. THE WRITING OFF THE BAD DEBT AS AN IRRECOVERABLE IN THE BOOKS OF ACCOUNTS IS SUFFICIENT DISCHARGE OF ONUS T O CLAIM BAD DEBT. THE LEARNED AR ALSO SUBMITTED THAT IN KEEPING WITH THE DECISION OF HONBLE SUPREME COURT IN TRF LTD. (SUPRA), THE CIRC ULAR SEEKS TO ELIMINATE THE PROTRACTIVE LITIGATION ON THE ISSUE. 7.2 WHEN THE HEARING WAS IN PROGRESS, THE LEARNED A R FOR THE ASSESSEE WAS REQUIRED BY THE BENCH TO ALSO FURNISH THE COPY OF CONTRACT NOTES FROM BOTH BROKERS TOGETHER WITH THE LEDGER ACCOUNTS OF THE BROKERS, BANK STATEMENT SHOWING NSEL TRANSACTIO N AS WELL AS COPY OF DELIVERY NOTE TO APPRECIATE THE NATURE OF TRANSA CTIONS IN PERSPECTIVE TO TAKE AN INFORMED DECISION. THE HEARING WAS ACCO RDINGLY ADJOURNED AND THE BENCH RE-ASSEMBLED TO LOOK INTO THE DOCUMEN TS CALLED FOR AND CONTINUE WITH THE HEARING. 7.3 THE LEARNED AR, IN THE LIGHT OF SOME SAMPLE CON TRACT NOTES, SUBMITTED THAT THE ASSESSEE ENTERED INTO A PURCHASE CONTRACT OF VARIOUS QUANTITIES OF DIFFERENT COMMODITIES FROM TIME-TO-TI ME AND ALSO SIMULTANEOUSLY SOLD EXACT COMMODITIES OF IDENTICAL SPECIFICATION ON THE SAME DAY OF RESPECTIVE PURCHASE AND THEREFORE, AT A GIVEN POINT OF TIME WHILE THE PURCHASE AND SALE THEREOF WERE MADE ON SPOT, THE DELIVERY TOWARDS PURCHASE OF COMMODITIES EFFECTED W AS RETAINED IN THE WAREHOUSES TO THE CREDIT OF PARTICIPANT ASSESSEE AT THE COMMAND OF THE SPOT EXCHANGE AND THE DELIVERY WERE HANDED OVER TO OPPOSITE BUYER AT A FUTURE DATE AS CONTRACTED AGAINST THE REALIZATION OF SALE PROCEEDS. REFERRING TO THE LEDGER ACCOUNT, THE LEARNED AR POI NTED OUT NEXT THAT THE DEBTS DUE FROM THE RESPECTIVE BROKERS HAVE BEEN DULY WRITTEN OFF IN THE BOOKS OF ACCOUNT. ADVERTING TO THE DELIVERY NO TES, THE LEARNED AR POINTED OUT THAT THE RECEIPT OF DELIVERY ON PURCHAS E IS BACKED BY WAREHOUSE RECEIPTS ALLOCATED IN FAVOUR OF THE ASSES SEE REPRESENTING THE ITA NO. 2818/AHD/17 [M/S. OMNI LENS PVT. LTD. VS. DCIT] AY 2014-15 - 8 - CUSTODY OF VARIOUS QUANTITIES OF DIFFERENT COMMODIT IES AS PER THE CONTRACT ON BEHALF OF THE ASSESSEE. IN THE LIGHT O F ALL THESE FACTS, THE LEARNED AR STRONGLY PROFESSED THAT THE REVENUE AUTH ORITIES HAVE MISDIRECTED THEMSELVES IN LAW AND ON FACTS IN DENYI NG THE LEGITIMATE CLAIM OF BAD DEBTS BEFALL UPON THE ASSESSEE. THE L EARNED AR ACCORDINGLY SOUGHT SUITABLE RELIEF IN THE MATTER AS URGED IN ITS GROUNDS OF APPEAL. 8. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDERS OF THE AO AND CIT(A). THE LEARNED DR SUBMITTED THAT THE D EBT WAS IN THE PROCESS OF BEING REALIZED AND CERTAIN ALLOCATIONS W ERE ALSO MADE BY THE SPOT EXCHANGE TO THE RESPECTIVE PARTICIPANTS (T HROUGH THEIR AFFILIATED BROKERS) EVEN AFTER THE FINANCIAL ACCOUN TS FOR AY 2013-14 WERE DRAWN AND AUDITED. IN SUCH A SITUATION, WHERE THE RECOVERY PROCESS HAD COMMENCED FROM THE SPOT EXCHANGE AND WA S IN MOTION, THE ACTION OF THE ASSESSEE TO WRITE OFF THE ENTIRE DEBT IN A HURRIED MANNER IS CLEARLY PREMATURE AND NOT BEFITTING WITH THE FACTS OF THE CASE. THE LEARNED DR SUBMITTED THAT THE DEBT IS RE QUIRED TO BE ACTUALLY BAD FOR IT TO BE WRITTEN OFF AND A GOOD OR DOUBTFUL DEBT CANNOT BE COMPARED WITH BAD DEBT CONTEMPLATED UNDER S.36(1 )(VII) OF THE ACT. THE LEARNED DR ACCORDINGLY SUBMITTED THAT THE RATIO OF THE DECISION OF HONBLE SUPREME COURT IN TRF LTD. (SUPRA) IS BASED ON ITS OWN SET OF FACTS AND CLEARLY DOES NOT APPLY TO THE CIRCUMSTANC ES NARRATED HEREINABOVE. SIMILARLY, IT WAS CONTENDED THAT CBDT CIRCULAR DOES NOT GIVE LICENSE TO AN ASSESSEE TO CLAIM ANY DEBT AS BA D DEBT. THE LEARNED DR ACCORDINGLY CONTENDED STEAD-FASTLY THAT NO INTER FERENCE WITH THE CONCLUSION DRAWN BY THE CIT(A) IS CALLED FOR. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO PERUSED THE MATERIAL PLACED BEFORE US AND REFERRED TO IN THE COURSE OF H EARING. THE SOLE ITA NO. 2818/AHD/17 [M/S. OMNI LENS PVT. LTD. VS. DCIT] AY 2014-15 - 9 - CONTROVERSY IN THE CAPTIONED APPEAL RELATES TO MAIN TAINABILITY OF CLAIM OF BAD DEBTS ARISING FROM TRANSACTIONS EXECUTED ON THE PLATFORM OF NSEL. IT IS THE CASE OF THE ASSESSEE THAT THE BAD DEBT HAS ARISEN IN THE COURSE OF COMMODITY TRADING ACTIVITY DUE TO NON-REC EIPT OF MONEY AGAINST THE SALE PART OF THE INTEGRATED CONTRACTS O F BOTH PURCHASE AND SALE OF COMMODITY ISSUED BY THE COMMODITY BROKERS A FFILIATED TO NATIONAL SPOT EXCHANGE. IT IS FURTHER CASE OF THE ASSESSEE THAT IT IS A MATTER OF RECORD THAT A NEFARIOUS SCAM BROKE OUT IN JULY 2013 WHEREBY THE COMMODITY TRADING ACTIVITY ON THE PLATFORM OF T HE NATIONAL SPOT EXCHANGE WAS PERENNIALLY SUSPENDED UNDER THE DIRECT IONS OF GOVERNMENT OF INDIA. THE NATIONAL SPOT EXCHANGE CO ULD NOT RECOVER MONEY OF THE PARTICIPANTS FROM THE CORRESPONDING BO RROWERS (BUYERS OF COMMODITY) AND ONLY A MINISCULE FRACTION OF MONEY C OULD BE RECOVERED TILL THE DATE OF FINALIZATION OF ACCOUNTS . UNDER THE CIRCUMSTANCES, THE DEBT OUTSTANDING FROM THE RESPEC TIVE BROKERS WAS RIGHTLY WRITTEN OFF IN THE ACCOUNTS AS BAD DEBT. 10. IT IS THE CASE OF THE ASSESSEE THAT IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD.(SUPRA ) AS WELL AS IN THE LIGHT OF CBDT CIRCULAR, THE REQUIREMENT TO ESTA BLISH TO THE SATISFACTION OF THE AO THAT THE DEBT HAD, IN FACT, BECOME BAD IS NO LONGER THE REQUISITE OF LAW. IT IS FURTHER CASE OF THE ASSESSEE THAT IN VIEW OF THE EXPRESS MANDATE AVAILABLE UNDER S.36(1) (VII) OF THE ACT THERE IS NO LEGAL IMPEDIMENT IN WRITING OFF THE DEB T IN THE YEAR OF TRANSACTION ITSELF ON THE ASSESSEE FORMING AN OPINI ON THAT SUCH DEBT HAS TURNED IRRECOVERABLE. IT IS THUS THE CASE OF T HE ASSESSEE THAT THE CLAIM OF BAD DEBT CANNOT BE DENIED ON THE GROUND TH AT RECOVERY PROCESS IS IN PLACE AND THE CLAIM IS PURPORTEDLY PR EMATURE. 11. WE FIND OURSELVES IN AGREEMENT WITH THIS PIVOTA L CONTENTION ON BEHALF OF THE ASSESSEE THAT IT IS NOT NECESSARY FOR THE TAX PAYER TO ITA NO. 2818/AHD/17 [M/S. OMNI LENS PVT. LTD. VS. DCIT] AY 2014-15 - 10 - ESTABLISH THAT THE DEBT HAS BECOME IRRECOVERABLE FO R ALLOWANCE OF DEDUCTION. IT IS AN ADMITTED POSITION THAT THE DEB T HAS ARISEN IN COURSE OF COMMODITY TRADE AND SUCH DEBT OR A PART THEREOF HAS BEEN TAKEN INTO ACCOUNT WHILE COMPUTING THE CHARGEABLE INCOME OF TH E ASSESSEE. THE AMOUNT OUTSTANDING FROM THE RESPECTIVE BROKERS HAS BEEN SHOWN TO BE DULY WRITTEN OFF IN THE BOOKS OF ACCOUNTS. THEREFO RE, THERE IS A GOOD DEAL OF FORCE IN THE POINT OF VIEW EXPRESSED ON BEH ALF OF ASSESSEE THAT THE CLAIM OF BAD DEBT BECOMES ALLOWABLE AS PER THE SCHEME OF THE ACT HAVING REGARD TO THE DECISION OF THE HONBLE SUPREM E COURT IN TRF LTD. ALLOWED BY AND CBDT CIRCULAR (SUPRA). 12. HOWEVER, THE MATTER DOES NOT END HERE. THERE I S ANOTHER CRUCIAL ASPECT THAT REQUIRES TO BE NECESSARILY LOOKED INTO. FACTUAL MATRIX PLACED BEFORE US COMPELS US TO DO SO. A BARE PERUS AL OF THE CONTRACT NOTES PLACED BEFORE US BRINGS OUT THAT THE PURCHASE OF COMMODITY AND SALE THEREOF GIVING RISE TO THE OUTSTANDING DEBT IN QUESTION HAS BEEN RECORDED IN THE ONE AND SAME CONTRACT. WHILE THE P URCHASE HAS BEEN MADE AT SAY X-DATE, A SIMULTANEOUS CORRESPONDING SA LE OF SAME QUANTITY AND PRODUCT HAS BEEN INSTANTLY MADE AT THE SAME TIME AND DATE OF PURCHASE ITSELF. THUS EVERY PURCHASE OF COM MODITY WITH DELIVERY IS SIMULTANEOUSLY SQUARED OFF BY CROSS CON TRACT OF CORRESPONDING SALE MARKED WITH DELIVERY. THE DELIV ERY AGAINST PURCHASE IS STATEDLY OBTAINED BY THE EXCHANGE ON BE HALF OF THE RESPECTIVE PARTICIPANTS ON SPOT AGAINST PAYMENTS BY THE PARTICIPANTS AND IS RE-DELIVERED ON BEHALF OF THE PARTICIPANTS A GAINST SALE AT A FUTURE DATE (GAP OF PREFIXED 25/36 DAYS) AND SALE CONSIDER ATION IS RECEIVED ON DELIVERY OF SUCH COMMODITY. SIMPLY PUT, A PARTICIP ANT INVESTS MONEY IN THE SPOT EXCHANGE AGAINST THE PURCHASE OF COMMOD ITY, THE DELIVERY OF WHICH IS KEPT IN THE COMMAND OF THE SPOT EXCHANG E. THE DELIVERY SO OBTAINED AGAINST THE PURCHASE IS RETURNED AT THE TIME OF SALE AT A FUTURE DATE FOR WHICH THE CONTRACT OF FUTURE SALE I S ALREADY EXECUTED AT ITA NO. 2818/AHD/17 [M/S. OMNI LENS PVT. LTD. VS. DCIT] AY 2014-15 - 11 - THE TIME OF PURCHASE ITSELF. THE MOOT QUESTION THE REFORE ARISES IN THESE FACTS IS TO KNOW AS TO WHAT HAS HAPPENED TO T HE DELIVERY OF THE GOODS PURPORTEDLY OBTAINED ON PURCHASE AS PER THE C ONTRACT NOTE WHICH HAS GIVEN RISE TO THE PRESENT UNREALIZED DEBT IN QU ESTION. ONCE A DEBT IS BACKED AND SECURED BY THE DELIVERY OF GOODS OF E QUIVALENT AMOUNT OR NEAR THERETO, ONE CANNOT OUTRIGHTLY SAY THAT DEB T IS NOT RECOVERABLE OR REALIZABLE AT ALL. THEREFORE, TO DECIDE THE QUE STION ON ALLOWABILITY OF BAD DEBT ON SUCH TRANSACTIONS, THE INTEGRAL ASPE CT ABOUT THE FATE OF DELIVERY OF COMMODITY ACQUIRED AND RETAINED IN THE WAREHOUSES BY THE INTERMEDIATORIES PURPORTEDLY ON BEHALF OF THE ASSES SEE IS REQUIRED TO BE NECESSARILY EXAMINED. A PERUSAL OF THE ORDER OF THE LOWER AUTHORITIES GIVES AN INFALLIBLE IMPRESSION THAT SUC H CRUCIAL ASPECT HAS NOT BEEN ADDRESSED. WITHOUT UNDERSTANDING THE FATE OF THE GOODS PURCHASED PURPORTEDLY IN THE CUSTODY OF OR ON BEHAL F OF THE ASSESSEE, IT WILL NOT BE POSSIBLE TO DETERMINE THE ISSUE. WHERE THE PURCHASE WITH DELIVERY IS SETTLED BY CROSS CONTRACT OF SALE WITH DELIVERY AT FUTURE DATE AGAINST SALE PROCEEDS, THE ENTIRE DEBT TURNING BAD IS RATHER INNOCUOUS. 13. WE THEREFORE CONSIDER IT EXPEDIENT TO REMIT THE MATTER BACK TO THE FILE OF THE AO TO ASCERTAIN AS TO WHETHER THE T RANSACTION OF PURCHASE AND SALE WERE BACKED BY ACTUAL DELIVERY AS CLAIMED OR NOT AND A FAIR VALUE OF STOCK LYING UNDELIVERED AGAINST UNREALIZED SALE IS THUS REQUIRED TO DEDUCTED FROM THE QUANTUM OF DEBT. IN CASE, IT IS FOUND THAT THE ASSESSEE OR OTHER INTERMEDIATORIES H AVE NOT OBTAINED THE POSSESSION OF GOODS PURCHASED AS CONTRACTED AND DEM ONSTRATED BY WAY OF WAREHOUSING RECEIPTS AND THE PURCHASE AND SALE C ONTRACTS ARE SETTLED OTHERWISE THAN BY ACTUAL DELIVERY OF GOODS, IT WILL NATURALLY BE A CASE OF BUSINESS TRANSACTIONS OF SPECULATIVE NATURE IN T ERMS OF SECTION 43(5) OF THE ACT. NOTABLY, THE LOSS/BAD DEBT ARISI NG FROM TRANSACTIONS OF SPECULATIVE NATURE WITHOUT ACTUAL DELIVERY OF GO ODS UNDER CONTRACT CARRY DIFFERENTIAL TREATMENT UNDER THE SCHEME OF TH E ACT. IT MAY BE ITA NO. 2818/AHD/17 [M/S. OMNI LENS PVT. LTD. VS. DCIT] AY 2014-15 - 12 - PERTINENT TO TAKE NOTE OF RELEVANT STATUTORY PROVIS IONS IN THIS REGARD AS FOLLOWS: SECTION 43(5) OF THE ACT DEFINES SPECULATION TRANS ACTION WHICH MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODIC ALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TR ANSFER OF THE COMMODITY OR SCRIPTS. EXPLANATION 2 TO SECTION 28 OF THE ACT PROVIDES THAT WHERE SPECULATIVE TRANSACTIONS CARRIED ON BY A N ASSESSEE ARE OF SUCH A NATURE AS TO CONSTITUTE A BUSINESS, THE BUSI NESS, I.E., THE SPECULATION BUSINESS SHALL BE DEEMED TO BE DISTINCT AND SEPARATE FROM ANY OTHER BUSINESS. SECTION 73(1) PROVIDES THAT ANY LOSS, COMPUTED IN R ESPECT OF A SPECULATIVE BUSINESS CARRIED ON BY THE ASSESSEE, SH ALL NOT BE SET OFF EXCEPT AGAINST PROFITS AND GAINS, IF ANY OF ANOTHER SPECULATION BUSINESS. 14. THE BAD DEBT ARISING FROM SPECULATIVE TRANSACTI ON IN SUCH AN EVENT WOULD BE DEEMED TO BE SPECULATIVE LOSS AS P ER THE RATIO OF THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF RA JPUTANA TRADING CO. LTD. VS. CIT (1969) 72 ITR 286 (SC). ALL THESE ASPECTS REQUIRE FACTUAL VERIFICATION AT THE END OF THE AO TO DETERM INE THE NATURE AS WELL AS QUANTIFICATION OF BAD DEBT HAVING REGARD TO SECURITY OF COMMODITY. ACCORDINGLY, AS DISCUSSED ABOVE, THE MA TTER IS RESTORED TO THE FILE OF THE AO FOR RE-DETERMINATION OF THE ISSU E IN ACCORDANCE WITH LAW IN THE LIGHT OF OBSERVATIONS NOTED ABOVE. NEED LESS TO SAY, A REASONABLE OPPORTUNITY SHALL BE GIVEN TO THE ASSESS EE WHILE DETERMINING THE ISSUE. 15. AT THIS JUNCTURE, WE MAY HASTEN TO ADD THAT SEC TION 254 OF THE ACT DEFINES THE POWERS OF THE TRIBUNAL IN WIDEST PO SSIBLE TERMS. ITA NO. 2818/AHD/17 [M/S. OMNI LENS PVT. LTD. VS. DCIT] AY 2014-15 - 13 - WHERE IT IS FOUND THAT A NON-TAXABLE ITEM IS TAXED OR A PERMISSIBLE DEDUCTION IS DENIED, THERE IS NO REASON TO PREVENT ASSESSEE FROM RAISING GRIEVANCE BEFORE THE TRIBUNAL IN THIS REGAR D. IN THE SIMILAR VAIN, THE ITAT IS UNDER SOLEMN DUTY TO SET THE FACT S RIGHT AND IN PERSPECTIVE TO DETERMINE THE CORRECT POSITION OF TA XABILITY ON A GIVEN ISSUE. THE ASPECT OF DELIVERY OF GOODS AGAINST THE DEBT IS INTEGRAL TO DETERMINE THE QUANTIFICATION OF DEBT RENDERED UNREC OVERABLE AS WELL AS THE REAL NATURE OF BAD DEBT. THE ITAT CAN VENTURE INTO EXAMINATION OF SUCH AN INTEGRALLY CONNECTED CRITICAL ASPECT OF THE MATTER TO DETERMINE THE CHARACTER OF TRANSACTIONS AS WELL AS QUANTIFICA TION OF LOSS. THIS VIEW IS FORTIFIED BY THE DECISION OF THE HONBLE KA RNATAKA HIGH COURT IN THE CASE OF FIDELITY BUSINESS SERVICES INDIA PVT . LTD. VS. ACIT (2018) 95 TAXMANN.COM 253 (KAR.). SIMILAR VIEW HAS BEEN EXPRESSED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. JANSAMPARK ADVERTISING AND MARKETING PVT. LTD. (2015) 56 TAXMA NN.COM 286 (DEL.). THE HONBLE DELHI HIGH COURT IN THIS CASE OBSERVED THAT WHERE THE AO FAILED TO DISCHARGE ITS OBLIGATION TO CONDUCT A PROPER INQUIRY TO TAKE THE MATTER TO LOGICAL CONCLUSION, I T IS ALSO THE OBLIGATION OF THE FIRST APPELLATE AUTHORITY AND IND EED THAT OF ITAT TO HAVE ENSURED THAT EFFECTIVE INQUIRY IS CARRIED OUT ON THE SUBJECT MATTER OF APPEAL. LIKEWISE, THE HONBLE BOMBAY HIGH COURT IN ITO (TDS) VS. THYROCARE TECHNOLOGY LTD. (BOM) INCOME TAX APPE AL NO.53 OF 2016 & ORS. JUDGMENT DATED 11.09.2017 ALSO SIMILARL Y OBSERVED THAT ONCE THE TRIBUNAL WAS OBLIGED IN LAW TO EXAMINE THE MATTER AND RE- APPRECIATE ALL THE FACTUAL MATERIALS, THEN IT SHOUL D HAVE PERFORMED THAT DUTY SATISFACTORILY AND IN TERMS OF POWERS CONFERRE D BY LAW. THE AURANGABAD BENCH OF THE HONBLE BOMBAY HIGH COURT I N THE CASE OF CIT VS. CHALISGAON PEOPLES CO-OP. BANK LTD. (TAX A PPEAL NO. 31 OF 2005 & ORS. JUDGMENT DATED 23.03.2015) HAS ALSO UND ERLINED THE NEED FOR APPROPRIATE ENQUIRY ON THE FACTUAL ASPECTS TO D ETERMINE THE ISSUE. IT OBSERVED THAT IT WAS OBLIGATORY ON THE PART OF F ACT FINDING ITA NO. 2818/AHD/17 [M/S. OMNI LENS PVT. LTD. VS. DCIT] AY 2014-15 - 14 - AUTHORITIES TO MAKE INQUIRY AND ARRIVE AT A FINDING . THUS, THE SOLEMN DUTY REQUIRES US TO DIRECT THE AO TO EXAMINE THE IS SUE AFTER TAKING NOTE OF CRUCIAL ASPECT OF ACTUAL DELIVERY OF COMMOD ITY, 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 G OODS PURCHASED. THE MATTER IS REMANDED BACK TO THE FILE OF AO ACCOR DINGLY. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 16/10/2018 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 16/10/201 8