Chowdry Associates, New Delhi V. ACIT, Circle-6(1), New Delhi

ITA 3298/DEL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3131 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 16-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SARAS KUMAR
• Keywords: Business income; Speculation loss; Wrong claim; Bad and doubtful debts; Speculative transactions; Set aside; Bogus
• Section: 263; 28; 143(3); 43(5); 195; 43; 73; 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SH. H. S. SIDHU, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 3298/DEL/2019 : ASSTT. YEAR : 2015-16 CHOWDRY ASSOCIATES, 4 TH FLOOR, PUNJABI BHAWAN, 10, ROUSE AVENUE, NEW DELHI-110002 VS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-6(1), NEW DELHI (APPELLANTT (RESPONDENT) PAN NO. AAACC0387R ASSESSEE BY : SH. M. P. RASTOGI, ADV. REVENUE BY : SH. SARAS KUMAR, SR. DR DATE OF HEARING: 17.02.2020 DATE OF PRONOUNCEMENT: 11.03.2020 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)-2, NEW DELHI DATED 22.0 3.2019. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE: 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF BUSINESS LOSS RS.5,56,24,659/- BEING THE AMOUNT OF UNRECOVERABLE BALANCES OF BROKERS M/S ANAND RATHI COMMODITIES SERVICES PVT. LTD. AND M/S PHILIP COMMODITIES INDIA PVT. LTD. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN HOLDING THAT THE APPELLANT H AD INDULGED IN TRANSACTIONS OF SPECULATIVE NATURE BY S HORT SELLING AND DEALING IN DERIVATIVES IGNORING THE VER Y FACT THAT THE NATIONAL SPOT EXCHANGE LIMITED (NSEL) WAS A SPOT EXCHANGE FOR TRADING IN COMMODITIES AND ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 2 DID NOT PERMIT ANY DERIVATIVE OR SPECULATIVE TRANSACTIONS. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN IGNORING THE FACT THAT EACH PURCHASE TRANSACTION WAS MATCHED BY A CROSS CONTRAC T OF SIMULTANEOUS SALE TRANSACTION. BOTH PURCHASE AND SALE WERE DELIVERY BASED BUSINESS TRANSACTIONS AS NSEL ISSUED DELIVERY ALLOCATION REPORT FOR EACH PURCHASE TRANSACTION BY VIRTUE OF WHICH THE COMMODI TY PURCHASED ON BEHALF OF THE PURCHASER (APPELLANT) WA S KEPT IN VARIOUS WAREHOUSES ON BEHALF OF THE PARTICIPANT ASSESSEE AND FURTHER THE OBLIGATION OF DELIVERY AT 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 APPELLANT. SUCH TRANSACTIONS OF PURCHASE OF COMMODI TY AND SIMULTANEOUS SALE FOR PERFORMANCE OF DELIVERY A T A LATER DATE WERE SUPPORTED BY CONTRACT NOTES IN THE NAME OF THE APPELLANT ISSUED BY BROKERS AFFILIATED TO NSEL. 4. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN IGNORING THAT THE ABOVE FACT WHICH IS CONCLUSIVELY EVIDENT FROM THE CONTRACT NOT ES WHEREIN EXCHANGE DELIVERY ALLOCATION CHARGES, VAT CHARGES, SERVICE TAX, AND CLEARING AND FORWARDING AGENT CHARGES HAVE BEEN LEVIED BY THE NSEL. 5. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF BUSINESS LOSS RS.5,56,24,659/- BY TREATING THE SAME TO BE A SPECULATIVE LOSS MADE BY THE ASSESSING OFFI CER WHICH IS BASED ON SUSPICION, CONJECTURES, SURMISES WITHOUT ANY SUBSTANTIVE BASIS OR COGENT MATERIAL. 6. IN THE FACTS AND CIRCUMSTANCES OF THE CASE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN IGNORING THE FACT THAT WHAT HAS BEEN WRITTEN OFF BY THE APPELLANT IS THE MONEY ADVANCED TO THE BROKERS OF NSEL WHICH IS IN THE NATURE OF TRADE DEBT, INCOME/L OSS FROM WHICH COULD BE HELD AS SPECULATIVE BUT HOW CAN A WRITE OFF OF DEBT BE TREATED AS SPECULATIVE LOSS. ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 3 7. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW AND ON FACTS IN NOT APPRECIA TING THAT THE APPELLANT HAVING FULFILLED ALL RELEVANT CONDITIONS FOR CLAIM OF BAD DEBTS U/S. 36(1)(VII) R .W.S. 36(2), ITS CASE WAS SQUARELY COVERED BY THE RATIO O F THE DECISION OF THE HON'BLE SC IN THE CASE OF TRF L TD. AND TIRE CLEAR GUIDELINES AS LAID DOWN BY THE CBDT CIRCULAR NO. 12/2016 DTD. 30-05-2016. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS A NON-BANKING FINANCIAL COMPANY ENGAGED IN INVESTMENT ACTIVITIES IN SHARES AND PURCHASE & SALE OF UNITS O F VARIOUS MUTUAL FUNDS. THE ASSESSEE HAS BEEN DEALING IN TRAD ING ON THE NSEL PLATFORM AND TREATED THE RECEIPTS AS INCOME FR OM BUSINESS WHICH HAS BEEN ASSESSED BY THE REVENUE UNDER THE HE AD OF BUSINESS INCOME REGULARLY AND ALSO IN THE ASSESSMEN T U/S 143(3) FOR THE YEAR 2013-14, 2014-15. DURING THE CU RRENT YEAR TOO THE ASSESSE HAS SHOWN THE INCOME UNDER THE HEAD INCOME FROM PROFITS AND GAINS OF BUSINESS. IT WAS SUBMIT TED THAT OWING TO THE CLOSER OF NSEL, THE BUSINESS COULD NOT BE CARRIED IN THE ASSESSMENT YEAR 2016-17. 4. IN THIS REGARD, THE BACKGROUND OF THE NSEL IS RE QUIRED TO BE LOOKED INTO. NSEL WAS INCORPORATED IN 2005 TO OFFER AN ELECTRONI C PLATFORM FOR DELIVERY- BASED SPOT CONTRACTS IN VARIOUS AGRICULTU RAL AND NON- AGRICULTURAL COMMODITIES THROUGH THE LICENSED MEMBE RS. IN OCTOBER 2008, AS MANY AS SIX STATE GOVERNMENTS ISSUED LICEN SES UNDER THE MODEL AGRICULTURAL PRODUCE MARKET COMMITTEES (APMC) ACT TO NSEL. NSEL'S DELIVERY-BASED SYSTEM WORKED THROUGH MEMBERS WAREHOUSES TO STOCK SUCH COMMODITIES AS TRANSACTED BETWEEN MULTIP LE PARTIES TO TRADE, WITH UNDERLYING ASSET ALWAYS BEEN COMMODITIE S. THE BASIC IDEA OF LAUNCHING THE BOURSE WAS TO PROVIDE A PLACE WHER E FARMERS, TRADERS, ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 4 CORPORATES, PROCESSORS, PLANTERS, MANUFACTURERS, AN D IMPORTERS CAN SELL AND BUY THEIR COMMODITIES AT THE BEST POSSIBLE AND COMPETITIVE RATES. 5. DURING THE AY 2015-16, THE ASSESSEE WAS TRADING IN COMMODITY DERIVATIVES IN THE ASSOCIATION WHICH IS N ATIONAL SPOT EXCHANGE LIMITED (NSEL). NSEL RAN INTO REGULATORY H URDLES AND AS SUCH ITS OPERATIONS ARE STOPPED BY THE REGULATOR S. THE ASSESSEE FORAYED IN COMMODITY MARKET SINCE FY 2011- 12 AND AVAILED SERVICES OF AUTHORIZED NSEL AGENTS NAMELY M /S. ANAND RATHI COMMODITIES LTD AND M/S. PHILIPS COMMODITIES INDIA PVT LTD FOR THAT PURPOSE. AS THE BUSINESS OF TRADING IN NSEL PLATFORM WAS REGULAR ONE AND NOT IN NATURE OF SPECU LATIVE TRANSACTION U/S 43(5), THE APPELLANT ALWAYS TREATED THE TRADING BUSINESS OF NSEL AS REGULAR BUSINESS AND OFFERED FO R TAXATION U/S 28. THERE HAS BEEN NO DISPUTE ON THESE FACTS SI NCE FY 2011- 12 AND TAX DEPARTMENT HAS ALWAYS ACCEPTED THE SAME. 6. IN THE INSTANT AY 2015-16, THE AO NOTICED THAT T HE APPELLANT HAS CLAIMED LOSS OF RS.5,56,24,659/- IN R ELATION TO TRADE OVER NSEL COUNTER OWING TO NON-RECOVERY OF TH E AMOUNTS FROM THE BROKERS AS THE OPERATIONS OF NSEL WERE CLO SED. PER THE AO, NSEL WAS FORMED TO BE ENGAGED IN SPOT TRADING B UT NSEL WAS CARRYING OUT FUTURES CONTRACT WHICH WAS SPECIFI CALLY PROHIBITED. THUS, THE AO CHALLENGED THE BASIC PREMI SE ABOUT THE OPERATIONS OF NSEL. THE AO HELD THAT THE NSEL IS SP OT EXCHANGE AND ONLY SPOT CONTRACTS CAN BE EXECUTED TH ROUGH NSEL, THEREFORE, THE CONTRACT HAS TO BE NECESSARILY SETTLED BY DELIVERY WITHIN A PERIOD NOT EXCEEDING 11 DAYS FROM THE DATE OF THE TRADE. ANY CONTRACT THAT DOES NOT GET SETTLED B Y DELIVERY WITHIN 11 DAYS CEASES TO BE A SPOT CONTRACT AND NOT COVERED BY FORWARDS CONTRACTS REGULATION ACT. THE AO HAS NOT D ISPUTED ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 5 THAT THE ASSESSEE HAS INVESTED IN NSEL THROUGH TWO BROKERS M/S ANAND RATHI COMMODITIES PVT. LTD. AND M/S PHILLIP C OMMODITIES PVT. LTD. THE ASSESSEE COMPANY TRADED ON THE EXCHAN GE DURING F.Y. 2011-12, 2012-13 AND 2013-14. THE AO ALSO HELD THAT THE ASSESSEE HAS TRADED THROUGH PAIRED CONTRACTS. PAIRE D CONTRACT MEANS THAT AN INVESTOR WOULD ENTER INTO TWO CONTRAC TS. A BUYER WOULD BUY THE COMMODITY FROM THE MARKET PAYING CASH FOR IT, AND STORE THE COMMODITY IN WAREHOUSES ACCREDITED TO NSEL. THE BUYER THEN USE THE WAREHOUSE RECEIPTS AS PROOF OF O WNERSHIP OF THE COMMODITY AND SELL THE COMMODITY TO FINANCIAL I NVESTORS AS STANDARD SHORT TERM CONTRACTS (T+2). IMMEDIATELY AF TER BUYING THE CONTRACT, THE INVESTOR WOULD PUT THE COMMODITY UP FOR SALE ON A T+26/T+35 BASIS. LOOKING AT THE TRANSACTIONS O F THE ASSESSEE, THE AO HELD THAT THE ASSESSEE HAS ENTERED INTO TWO CONTRACTS ON THE SAME DAY OF THE SAME COMMODITY AND THE SAME QUANTITY FOR BUYING AS WELL AS SELLING. HENCE, THE AO HELD THAT THE ASSESSEE IS ENTERED SPECULATION BUSINESS. 7. THE LD. CIT (A) CONFIRMED THE ADDITION HOLDING T HAT THE NSEL IS MEANT FOR SPOT DEALINGS RESULTING IN ACTUAL AND PHYSICAL DELIVERY OF COMMODITIES IN A SPECIFIED TIME. BUT TH E APPELLANT HAS INDULGED IN TRANSACTIONS OF SPECULATIVE NATURE BY SHORT SELLING AND DEALING IN DERIVATIVES. THESE DEALINGS DO NOT RESULT IN PHYSICAL DELIVERY OF COMMODITIES BUT THEY INVOLV E TRANSACTION OF VALUE OF COMMODITIES ONLY. THE APPELLANT HAS PUR CHASED AND SOLD FROM AND TO THE SAME PARTY ON THE SAME DATE. T HE LD. CIT (A) ALSO HELD THAT ON MANY OCCASIONS, THE COMMODITI ES ARE SOLD THE NEXT MINUTE AFTER PURCHASE. IT WAS HELD THAT TH E APPELLANT HAS SOLD EVEN BEFORE THE COMMODITY IS PURCHASED. SH ORT SELLING AND DEALING IN DERIVATIVES ARE PROHIBITED ON NSEL, HENCE, THE ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 6 ASSESSEE HAS TO BE TREATED AS DEALING IN BUSINESS O F SPECULATION. 8. HAVING SAID THAT THE LD. CIT (A) DISALLOWED THE CLAIM OF BUSINESS LOSS DECLARED BY THE APPELLANT IN RESPECT OF AMOUNT OF UNRECOVERABLE BALANCES FROM BROKERS M/S. ANAND RATH I COMMODITIES SERVICES PVT. LTD. AND M/S. PHILIP COMM ODITIES INDIA PVT. LTD. 9. BEFORE US, THE LD. AR REPEATED THE SUBMISSIONS T AKEN UP BEFORE THE AUTHORITIES BELOW. 10. THE LD. DR SUBMITTED HIS ARGUMENTS IN WRITING W HICH ARE AS UNDER: DURING THE COURSE OF HEARING OF THE CASE TODAY, I.E . 18.12.2019, THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE CASE O F M/S FLAIR EXPORTS PVT. LTD, NEW DELHI, CLAIMING THAT THE FACTS OF THA T CASE ARE SIMILAR TO THOSE OF THIS CASE. 1. IN THIS CONNECTION, IT IS SUBMITTED THAT THE MD & CEO, NATIONAL SPOT EXCHANGE LTD, HAS WRITTEN A LETTER DATED 23.01 .2019 TO THE PR. CHIEF COMMISSIONER OF INCOME TAX, DELHI, RAISING TH E ISSUE OF BOGUS CLAIM OF BAD DEBTS WRITTEN OFF BY SOME ASSESSEES. H E HAS SPECIFICALLY MENTIONED THE CASE OF M/S MEGH SAKARIYA INTERNATION AL PVT. LTD. IN WHICH THE HONBLE ITAT, CHENNAI HAS ALLOWED THE ASS ESSEES CLAIM. HE HAS REQUESTED THE DEPARTMENT TO LOOK INTO THE MA TTER TO ENSURE THAT BOGUS BAD DEBT CLAIMS BEING MADE BY MEMBERS OF NSEL ARE NOT ALLOWED. 2. IT IS FURTHER SUBMITTED THAT, ON SIMILAR FACTS, THE HONBLE ITAT, AHMADABAD, VIDE ITS ORDER DATED 16.10.2018 IN ITA N O. 2818/AHD/2017, HAS SET ASIDE THE CASE OF OMNI LENS PVT. LTD. TO A.O FOR EXAMINING IT FROM THE ANGLE OF SPECULATIVE LOSS AND SET OFF ONLY AGAINST SPECULATIVE INCOME. ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 7 3. COPIES OF THE ABOVE-MENTIONED LETTER DATED 23/0 1/2019 FROM NSEL AND ORDER OF THE HONBLE ITAT AHMADABAD IN ITA NO. 2818/AHD/2017 IN THE CASE OF M/S OMNI LENS PVT. LTD FOR A.Y 2014- 15 ARE ENCLOSED. 4. IN VIEW OF THE ABOVE, THE ASSESSEES APPEAL MAY KINDLY BE DISMISSED. ALTERNATIVELY, THE MATTER MAY BE SET ASI DE TO A.O FOR RE- EXAMINING IT. 11. HE FURTHER ATTACHED THE COPY OF THE MD & CEO OF NSEL WHEREIN THE REVENUE WAS ADVISED AGAINST CLAIM OF BA D DEBTS. SUB: CLAIM OF BAD DEBTS BY MEMBERS OF NSEL AND DIF FERENT TREATMENTS GIVEN TO SUCH CLAIMS BY DIFFERENT TRIBUN ALS, LEADING TO A LOSS OF REVENUE, POSSIBLY AMOUNTING TO FEW THOUSAND S OF CRORES IN RUPEES TO THE EXCHEQUER DEAR SIR, NATIONAL SPOT EXCHANGE LTD, (NSEL) HAD BROUGHT TO Y OUR KIND ATTENTION IN THE YEAR 2016, BOGUS CLAIMS TOWARDS BA D DEBTS MADE BY VARIOUS MEMBERS WHO TRADED ON THE EXCHANGE PLATFORM OF NSEL AND THE NEED FOR ADMITTING ONLY THE LEGITIMATE CLAIMS O F SUCH MEMBERS TOWARDS BAD DEBTS, VIDE LETTER NOS.: I. REF. NO.: NSEI/16-47/002 DATED AUG 17, 2016 {AT TACHED AS ANNEX - A) II. REF. MO.: NSEL/CEO/16-17/0282 DATED SEP 16, 20 16 (ATTACHED AS ANNEX - B) III. REF. NON NSEL/CEO/16-17/044S DATED DEC 15, 2 016 (ATTACHED AS ANNEX - C) RECENTLY, WE HAVE COME ACROSS ONE CASE WHEREIN DIFF ERENT COURTS ARE TAKING DIFFERENT VIEWS ON SUCH CLAIMS. FOR INSTANCE , THE ORDER OF THE CHENNAI ITAT IN THE CASE OF M/S MEGH SAKARIYA INTER NATIONAL PVT. LTD. VS. DCIT, CIRCLE 4(1), HAS ALLOWED THE CLAIM O F THE APPELLANT, DISREGARDING THE GROUND ON WHICH THE AO MADE THE AD DITION OF ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 8 INCOME AND WHICH WAS UPHELD BY THE HONBLE CIT APPE AL-(COPY OF THE ORDER ATTACHED AS ANNEX D). IN THE ABOVE CASE, SECTION 36(2) OF THE INCOME TAX ACT, 1961 SURPRISINGLY HAS NOT BEEN CONSIDERED. WE ARE NOT AW ARE ABOUT OTHER ORDER BUT FROM THE ABOVE, IT APPEARS THAT THE ADDIT ION OF INCOME HAS BEEN MADE IN ROUTINE MANNER WITHOUT DISCUSSING THE FACTS AND THUS THE ASSESSEE HAS GOT RELIEF FROM THE TRIBUNAL. IN A SIMILAR CASE, THE AHMADABAD BENCH OF ITAT IN I TA NO. 2818/AHD/2017 IN THE CASE OF OMNI LENS PVT. LTD. VS DCIT, CIRCLE- 3(1)(2) HAS GIVEN A NEW DIMENSION TO THE ISSUE BY S TATING THAT IT SHOULD BE EXAMINED FROM VIEW OF SPECULATIVE LOSS AN D SET-OFF ONLY AGAINST SPECULATIVE INCOME AND SET ASIDE THE FILE B ACK TO THE AO FOR RE-EXAMINATION (COPY OF THE ORDER ATTACHED AS ANNEX E). WE HAVE BROUGHT THIS TO THE NOTICE OF THE CBDT VIDE OUR LETTER REF. NO.: NSEL/MD&CE0/18-19/0278 DATED DECEMBER 05, 2018 (ATTACHED AS ANNEX - F). HOWEVER, AS IT MAY TAKE SOME TIME FO R THE INSTRUCTIONS TO COME DOWN, BY WHEN IT MAY BE TOO LA TE FOR TAKING ANY CORRECTIVE ACTIONS, WE ARE BRINGING THIS TO YOUR KI ND ATTENTION FOR NECESSARY ACTION AT YOUR END. THUS, IT IS REQUESTED THAT: I. WHERE, THE ADDITIONS HAVE BEEN MADE IN ROUTINE M ANNER, IT MAY KINDLY BE DEFENDED BY BRINGING OUT THE FACTUAL POSI TION BEFORE THE APPELLATE AUTHORITY. II. WHERE, THE ADDITIONS HAVE NOT BEEN MADE, THE SA ME SHOULD BE DONE NOW USING THE APPROPRIATE PROVISIONS OF THE LA W, AND ALSO TAKE INTO CONSIDERATION THE OBSERVATIONS MADE BY THE HON BLE AHMADABAD TRIBUNAL. III. NECESSARY INSTRUCTIONS MAY KINDLY BE PASSED TO THE FIELD FORMATIONS, TO TAKE A UNIFIED STAND AT THE TRIBUNAL S, SO THAT THERE IS ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 9 NO LOSS OF REVENUE, DUE TO DIFFERENT POSITION TAKEN BY DIFFERENT ASSESSING OFFICERS. WE ONCE AGAIN REQUEST YOU TO KINDLY LOOK INTO THE M ATTER, TO ENSURE THAT BOGUS BAD DEBT CLAIMS BEING MADE BY MEMBERS OF NSEL ARE NOT ALLOWED, SO THAT THERE IS NO LOSS OF REVENUE TO THE EXCHEQUER. 12. FROM THE ABOVE EVENTS AND THE ARGUMENTS OF THE LD. DR, THE FOLLOWING POINTS ARE FLAGGED: 1. THE ASSESSEE HAS BEEN CLAIMING THE TRANSACTIONS OF TRADING ON NSEL PLATFORM AS BUSINESS INCOME WHICH H AS BEEN ACCEPTED BY THE REVENUE IN ALL THE EARLIER YEA RS. 2. THE AO HAS TAKEN A CONSCIOUS DECISION TO TREAT THE TRANSACTIONS HAS SPECULATIVE IN NATURE DURING THE C URRENT YEAR ONLY. 3. THE AO HELD THAT SINCE THE CONTRACTS ARE PAIRED THE RE CANNOT BE ANY LOSS TO THE ASSESSEE AS SALE AND PURC HASE HAVE BEEN TAKEN SIMULTANEOUSLY WITH THE SAME PERSON . 4. THE AO HELD THAT THE SPOT CONTRACTS HAVE TO BE NECESSARILY SETTLED BY DELIVERY WITHIN A PERIOD OF 11 DAYS. 5. THE AO HELD THAT THE ASSESSEE IS DEALING IN COMMOD ITY DERIVATIVES AND NOT COMMODITIES. (AO-PARA 5.14) 6. THE AO HELD THAT THE TRANSACTIONS OF THE ASSESSEE A RE SPECULATIVE TRANSACTIONS AS DEFINED U/S 43(5). 7. THE CEO/NSEL ADVISED NOT TO GIVE BENEFIT OF BAD DEB TS CLAIMED. 8. THE CEO/NSEL ADVISED THAT IT IS PREMATURE TO ALLOW THE BAD DEBTS OWING TO UNSETTLING OF AMOUNT OF RS.5600 CRORES. 9. THE CEO/NSEL ADVISED THAT AN AMOUNT OF RS.7000 CROR ES HAS BEEN SECURED AGAINST THE CLAIM OF RS.5600 CRORE S. ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 10 10. HENCE, CEO/NSEL ADVISED THAT SINCE THE AMOUNTS WOUL D BE SETTLED NO PROVISION FOR BAD DEBTS BE ALLOWED. 11. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS GIVE N MONEY TO BROKERS NAMELY, M/S ANAND RATHI COMMODITIE S PVT. LTD. AND PHILIPS COMMODITIES PVT. LTD. FOR CON DUCTING OF THEIR BUSINESS. 12. IT IS ALSO UNDISPUTED FACT THAT THE MONIES GIVEN AB OVE HAVE NOT BEEN RECEIVED BY THE ASSESSEE. 13. THE LOSS ARRIVED OUT OF THE NON-RECEIPT OF THE AMOU NT FROM THE BROKERS IS CLAIMED TO BE A BUSINESS LOSS B Y THE ASSESSEE WHICH HAS BEEN REJECTED BY THE AO. 14. THE ASSESSEE HAS ALSO NOT DISPUTED THAT THE TRANSAC TIONS ARE UNDER PAIRED TRANSACTIONS. 13. THE LD. AR ARGUED, REITERATING THE MODUS OPERAN DI THE STOCKISTS OF THE COMMODITIES FIRST DEPOSITED THE CO MMODITY WITH THE EXCHANGE ACCREDITED WAREHOUSE AND RECEIVED A WA REHOUSE RECEIPT WHICH WAS DEPOSITED WITH NSEL FOR THE PURPO SE OF TRANSACTIONS UNDER THE CONTROL AND SUPERVISION OF N SEL. THE TRANSACTIONS IN NSEL ARE MADE THROUGH MEMBERS OF NS EL, WHO ARE AUTHORIZED BROKERS. THE ASSESSEE HAS MADE THE T RANSACTIONS UNDER PAIRED CONTRACTS. UNDER THE PAIRED CONTRACT, GENERALLY THE PURCHASES WERE MADE AT T+2 CYCLE AND SALES WERE MAD E AT T+25 OR T+35 CYCLE. UNDER THESE TRANSACTIONS, THE A SSESSEE COMPANY MADE FULL PAYMENT FOR PURCHASE IMMEDIATELY AND DELIVERY OF THE COMMODITY LYING IN THE WAREHOUSE WA S ASSIGNED TO IT. THE TRANSACTIONS WERE SUBJECTED TO VAT, DELI VERY CHARGES, SERVICE TAX. AS FAR AS SALE IS CONCERNED, THE ASSES SEE COMPANY IMMEDIATELY PUT A CONTRACT FOR SALE ON T+25 AND T+3 5 AND DELIVERY WAS ASSIGNED FROM BUYER TO THE SELLER. THE AMOUNT IS ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 11 RECEIVED AS AND WHEN THE TRANSACTION IS COMPLETED. IN THE ASSESSMENT YEARS 2013-14 AND 2014-15, WHATEVER THE TRANSACTIONS WERE MADE ON NSEL, WHATEVER THE PROFIT S OR LOSSES OBTAINED, THE SAME WERE DULY DISCLOSED IN THE PROFI T & LOSS ACCOUNT AND ASSESSED AS BUSINESS INCOME. 14. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. 15. FROM THE ENTIRETY OF THE EVENTS, WE FIND THAT I N THE ASSESSMENT YEAR 2014-15, THE ASSESSEE HAD MADE PURC HASES IN THE MIDDLE OR LAST WEEK OF JUNE 2013 THROUGH M/S AN AND RATHI COMMODITIES PVT. LTD. AND M/S PHILIPS COMMODITIES P VT. LTD. THE NSEL FAILED TO FULFILL ITS COMMITMENTS AND ULTI MATELY THE GOVERNMENT HAD PROHIBITED NSEL TO MAKE ANY TRANSACT IONS AFTER 1 ST JULY 2013. THE DETAILS OF OUTSTANDING UNSETTLED T RANSACTIONS OF THE ASSESSEE THROUGH BOTH THE BROKERS HAS ALSO B EEN FURNISHED TO THE REVENUE AUTHORITIES BY THE NSEL. 16. THE AO DISALLOWED THE LOSSES AS CLAIMED BY THE ASSESSEE ON THE GROUND THAT TRANSACTIONS HAS CARRIED OUT BY THE ASSESSEE ARE SPECULATIVE TRANSACTIONS SETTLED WITHOUT THE DE LIVERY IN TERMS OF SECTION 43(5) OF THE ACT. THE AO IN THE AS SESSMENT ORDER REPRODUCED THE RELEVANT PROVISIONS OF SECTION 43(5) UPTO SUB-SECTION (D) OF 45(3). THE AO STOPPED AT SHORT O F SUB- SECTION (D) WITHOUT GOING FURTHER TO SUB-SECTION (E ). 17. READING FURTHER, SUB-SECTION (E) WHICH WAS INTR ODUCED BY THE FINANCE ACT, 2013 W.E.F. 1 ST APRIL 2014 REVEALS THAT IN RESPECT OF TRADING AND COMMODITY DERIVATIVES CARRIE D OUT IN A RECOGNIZED ASSOCIATION SHALL NOT BE A SPECULATIVE T RANSACTION. ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 12 THE RELEVANT PROVISIONS OF SECTION 43(5)(E) ARE AS DETAILED BELOW. [(E) AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN COMMODITY DERIVATIVES CARRIED OUT IN A RECOGNISED ASSOCIATION [, WHICH IS CHARGEABLE TO COMMODITIES TRANSACTION TAX UNDER CHA PTER VII OF THE FINANCE ACT, 2013 (17 OF 2013),]] SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION: 18. FURTHER, EXPLANATION 2 FOR THE PURPOSE OF CLAUS E (E) DEFINES WHAT CONSTITUTES COMMODITY DERIVATIVE. TH E MEANING HAS BEEN ASSIGNED AS PER CHAPTER VII OF THE FINANCE ACT, 2013. 19. CHAPTER VII OF THE FINANCE ACT, 2013 AT DEFINIT IONS MENTIONED AT PARA 106(5)- COMMODITY DERIVATIVE MEAN S (I) A CONTRACT FOR DELIVERY OF GOODS WHICH IS NOT A REA DY DELIVERY CONTRACT; OR (II) A CONTRACT FOR DIFFERENCES WHICH DERIVES ITS VALUE FROM PRICES OR INDICES OF PRICES- (A) OF SUCH UNDERLYING GOODS; OR (B) OF RELATED SERVICES AND RIGHTS, SUCH AS WAREHOUSING AND FREIGHT; OR (C) WITH REFERENCE TO WEATHER AND SIMILAR EVENTS AND ACTIVITIES. 20. THE ELIGIBLE TRANSACTIONS MEANS (A) CARRIED OUT ELECTRONICALLY ON SCREEN-BASED SYST EMS THROUGH MEMBER OR AN INTERMEDIARY, REGISTERED UNDER THE BYE -LAWS, RULES AND REGULATIONS OF THE RECOGNIZED ASSOCIATION FOR TRADING IN COMMODITY DERIVATIVE IN ACCORDANCE WITH THE PROV ISIONS OF THE FORWARD CONTRACTS (REGULATION) ACT, 1952 (74 OF 195 2) AND THE RULES, REGULATIONS OR BYE-LAWS MADE OR DIRECTIONS I SSUED UNDER THAT ACT ON A RECOGNIZED ASSOCIATION; AND ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 13 (B) WHICH IS SUPPORTED BY A TIME STAMPED CONTRACT N OTE ISSUED BY SUCH MEMBER OR INTERMEDIARY TO EVERY CLIENT INDI CATING IN THE CONTRACT NOTE, THE UNIQUE CLIENT IDENTITY NUMBER AL LOTTED UNDER THE ACT, RULES, REGULATIONS OR BYE-LAWS REFERRED TO IN SUB-CLAUSE (A), UNIQUE TRADE NUMBER AND PERMANENT ACCOUNT NUMB ER ALLOTTED UNDER THIS ACT; 21. THE RECOGNIZED ASSOCIATION MEANS 'RECOGNIZED ASSOCIATION' MEANS A RECOGNIZED ASSOCIA TION AS REFERRED TO IN CLAUSE (J) OF SECTION 281 OF THE FOR WARD CONTRACTS (REGULATION) ACT, 1952 (74 OF 1952) AND WHICH FULFI LS SUCH CONDITIONS AS MAY BE PRESCRIBED82 AND IS NOTIFIED83 BY THE CENTRAL GOVERNMENT FOR THIS PURPOSE;] 22. WE ALSO FIND THAT ALL THE TRANSACTIONS MADE BY THE ASSESSEE ARE EVIDENCING THE CLIENT ID AND PA NO. AN D ALSO CARRIED OUT THROUGH COMPUTERIZED EXCHANGED THROUGH ELECTRONIC SCREEN (NSEL) AS PER THE DETAILS COLLECTED BY THE R EVENUE. 23. WE HAVE ALSO GONE THROUGH THE PROVISIONS OF THE ACT INTRODUCED VIDE FINANCE BILL 2005 IN RESPECT OF MEA SURES TO RATIONALIZE THE TAX TREATMENT OF DERIVATIVE TRANSAC TIONS. THE SAME IS AS UNDER: UNDER THE EXISTING PROVISIONS CLAUSE (5) OF SECTION 43, A TRANSACTION FOR THE PURCHASE AND SALE OF ANY COMMODITY INCLUDIN G STOCKS AND SHARES IS DEEMED TO BE A SPECULATIVE TRANSACTION. IF IT IS SETTLED OTHERWISE THAN BY ACTUAL DELIVERY. HOWEVER, CERTAIN CATEGORIES OF TRANSACTIONS ARE EXCLUDED FROM THE PURVIEW OF THE S AID PROVISION. FURTHER THE UNABSORBED SPECULATION LOSSES ARE ALLOW ED TO BE CARRIED FORWARD FOR EIGHT YEARS FOR SET-OFF AGAINST SPECULA TION PROFITS IN SUBSEQUENT YEARS. THESE RESTRICTIONS WERE ESSENTIAL LY DESIGNED AS AN ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 14 ANTI-EVASION MEASURE TO PREVENT CLAIMS OF ARTIFICIA LLY GENERATED LOSSES IN THE ABSENCE OF AN APPROPRIATE INSTITUTION AL INFRASTRUCTURE. RECENT SYSTEMIC AND TECHNOLOGICAL CHANGES INTRODUCE D BY STOCK MARKETS HAVE RESULTED IN SUFFICIENT TRANSPARENCY TO PREVENT GENERATING FICTITIOUS LOSSES THROUGH ARTIFICIAL TRA NSACTIONS OR SHIFTING OF INCIDENCE OF LOSS FROM ONE PERSON TO ANOTHER. TH E SCREEN BASED COMPUTERIZED TRADING PROVES FOR AN EXCELLENT AUDIT TRAIL. THEREFORE, THE PRESENT DISTINCTION BETWEEN SPECULATIVE AND NON -SPECULATIVE TRANSACTIONS, PARTICULARLY RELATING TO DERIVATIVES IS NO MORE REQUIRED. THE PROPOSED AMENDMENT, THEREFORE, SEEKS TO PROVIDE THAT AN ELIGIBLE TRANSACTION CARRIED OUT IN RESPECT OF TRAD ING IN DERIVATIVES IN A RECOGNIZED STOCK EXCHANGE SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. THE PROPOSED AMENDMENT ALSO SEEKS TO N OTIFY RELEVANT RULES ETC. REGARDING CONDITIONS TO BE FULFILLED BY RECOGNIZED EXCHANGES IN THIS REGARD. FURTHER, IT IS ALSO PROPO SED TO AMEND SUB- SECTION (4) OF SECTION 73 SO AS TO REDUCE THE PERIO D OF CARRY FORWARD OF SPECULATION LOSSES FROM EIGHT ASSESSMENT YEARS T O FOUR ASSESSMENT YEARS. THESE AMENDMENTS WILL TAKE EFFECT FROM 1 ST APRIL, 2006AND WILL, ACCORDINGLY, APPLY IN RELATION TO ASSESSMENT YEAR 2 006-07 AND SUBSEQUENT YEARS. 24. THE REVENUE HAS CLEARLY HELD THAT THE ASSESSEE IS IN THE TRADING OF COMMODITY DERIVATIVES. REVENUE, HAVING S AID THAT FAILED TO GIVE THE BENEFIT OF PROVISIONS OF SECTION 43(5)(E). HENCE, THE TRANSACTIONS DONE BY THE ASSESSEE SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION IN TERMS OF THE PROVISIONS OF THE ACT. 25. WE HAVE ALSO GONE THROUGH THE ACCOUNTS OF ASSES SEE FOR THE EARLIER YEARS. THE AMOUNT KEPT WITH M/S ANAND R ATHI ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 15 COMMODITIES PVT. LTD. WAS RS.1.30 CRORES FOR THE YE AR ENDING 31.03.2014 AND RS.4.60 CRORES FOR THE ENDING 31.03. 2013 AND RS.2.95 CRORES FOR THE YEAR ENDING 31.03.3012. SIMI LARLY, THE AMOUNT KEPT WITH M/S PHILIPS COMMODITIES INDIA PVT. LTD. WAS RS.4.33 CRORES FOR THE YEAR ENDING 31.03.2014 AND R S.14.95 CRORES FOR THE ENDING 31.03.2013. DURING THE YEAR , THE ASSESSEE COULD NOT RECOVER THE AMOUNTS FROM THESE TWO BROKER S OWING TO SUSPENSION OF OPERATIONS BY THE NSEL WHICH WAS GIVE N AS A PART OF THE BUSINESS TRANSACTION FOR PURCHASE OF COMMODI TIES IN THE CONDUCT OF REGULAR BUSINESS OPERATIONS. HENCE, THE AMOUNT ADVANCED MADE TO PURCHASE THE COMMODITY DURING THE COURSE OF THE BUSINESS IS A BUSINESS LOSS ALLOWABLE U/S 28 OF THE ACT. 26. WE HAVE ALSO PERUSED THE NOTICE OF PCIT, CENTRA L, NEW DELHI ISSUED UNDER THE PROVISIONS OF SECTION 263 OF THE ACT PROPOSING TO WITHDRAW THE BAD DEBTS CLAIMED BY THE ASSESSEE AND ACCEPTED BY THE ASSESSING OFFICER. WE CATEGORIC ALLY REFRAIN FROM ADJUDICATING ON THE STRENGTH OF THE NOTICE, HO WEVER, WE OBSERVE THAT THE SAID NOTICE ALSO DEALT WITH THE IS SUE OF BAD DEBTS CLAIMED U/S 36(1)(VII) BY THAT ASSESSEE. 27. WE HAVE ALSO PERUSED THE ORDER OF THE CHENNAI T RIBUNAL IN THE CASE OF MEGH SAKARIYA INTERNATIONAL PVT. LTD. I N ITA NO. 59/CHENNAI/2018 WHEREIN THE BAD DEBTS HAVE BEEN ALL OWED BY THE TRIBUNAL U/S 36(1)(VII) OF THE INCOME TAX ACT, 1961. IN THAT CASE TOO, THE REVENUE HAS ALSO BROUGHT TO THE NOTIC E REGARDING THE INFORMATION RECEIVED FROM NSEL THAT TRADING ON THAT PLATFORM WAS TOPPED SINCE 31.07.2014 AND THE NSEL W AS IN THE PROCESS OF SETTLING THE OUTSTANDING DUES OF ITS TRA DERS AND AUCTIONING ITS ASSETS FOR THE SAID PURPOSE. THE REV ENUE CLAIMED ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 16 THAT THE CLAIM OF BAD DEBTS WAS PREMATURE. HOWEVER, THE ITAT HAS ALLOWED THE CLAIM OF THE ASSESSEE BASED ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF TRF LTD. VS C IT 320 ITR 397 WHEREIN IT WAS HELD THAT AFTER 1 ST APRIL, 1989, IT WAS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT HAS BECOME IRRECOVERABLE AND IT WAS ENOUGH IF THE DEBT WAS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS. FURTHER, THE CBD T VIDE CIRCULAR NO. 12/2016 CLARIFIED REGARDING THE CLAIM OF THE BAD DEBTS, THE SAME IS REPRODUCED AS UNDER: CIRCULAR NO. 12/2016 F.NO.279/MISC./140/2015-ITJ GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES NEW DELHI, DATED 30TH MAY, 2016 SUBJECT: ADMISSIBILITY OF CLAIM OF DEDUCTION OF B AD DEBT UNDER SECTION 36(1) (VII) READ WITH SECTION 36(2) OF THE INCOME-TAX ACT, 1961 REG. PROPOSALS HAVE BEEN RECEIVED BY THE CENTRAL BOARD O F DIRECT TAXES REGARDING FILING OF APPEALS/PURSUING LITIGATION ON THE ISSUE OF ALLOWABILITY OF BAD DEBT THAT ARE WRITTEN OFF AS IR RECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. THE DISPUTE RELATES TO CA SES INVOLVING FAILURE ON THE PART OF ASSESSEE TO ESTABLISH THAT T HE DEBT IS IRRECOVERABLE. 2. DIRECT TAX LAWS (AMENDMENT) ACT, 1987 AMENDED TH E PROVISIONS OF SECTIONS 36(1)(VII) AND 36(2) OF THE INCOME TAX ACT 1961, (HEREAFTER REFERRED TO AS THE ACT) TO RATIONALIZE T HE PROVISIONS REGARDING ALLOWABILITY OF BAD DEBT WITH EFFECT FROM THE APRIL, 1989. 3. THE LEGISLATIVE INTENTION BEHIND THE AMENDMENT W AS TO ELIMINATE LITIGATION ON THE ISSUE OF THE ALLOWABILITY OF THE BAD DEBT BY DOING AWAY WITH THE REQUIREMENT FOR THE ASSESSEE TO ESTAB LISH THAT THE DEBT, HAS IN FACT, BECOME IRRECOVERABLE. HOWEVER, D ESPITE THE AMENDMENT, DISPUTES ON THE ISSUE OF ALLOWABILITY CO NTINUE, MOSTLY FOR THE REASON THAT THE DEBT HAS NOT BEEN ESTABLISH ED TO BE IRRECOVERABLE. THE HONBLE SUPREME COURT IN THE CAS E OF TRF LTD. IN CA NOS. 5292 TO 5294 OF 2003 VIDE JUDGMENT DATED 9. 2.2010, HAS STATED THAT THE POSITION OF LAW IS WELL SETTLED. A FTER 1.4.1989, FOR ALLOWING DEDUCTION FOR THE AMOUNT OF ANY BAD DEBT O R PART THEREOF ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 17 UNDER SECTION 36(1)(VII) OF THE ACT, IT IS NOT NECE SSARY FOR ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT HAS BECOME IRRE COVERABLE; IT IS ENOUGH IF BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNTS OF ASSESSEE. 4. IN VIEW OF THE ABOVE, CLAIM FOR ANY DEBT OR PART THEREOF IN ANY PREVIOUS YEAR SHALL BE ADMISSIBLE UNDER SECTION 36( 1)(VII) OF THE ACT, IF IT IS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE FOR THAT PREVIOUS YEAR AND IT FULFILLS THE CONDITIONS STIPULATED IN SUB SECTION (2) OF SUB-SECTION 36(2) OF THE ACT. 5. ACCORDINGLY, NO APPEALS MAY HENCEFORTH BE FILED ON THIS GROUND AND APPEALS ALREADY FILED, IF ANY, ON THIS ISSUE BE FORE VARIOUS COURTS/TRIBUNALS MAY BE WITHDRAWN/NOT PRESSED UPON. 6. THIS MAY BE BROUGHT TO THE NOTICE OF ALL CONCERN ED. (SADHANA PANWAR) DCIT (OSD) (ITJ), CBDT, NEW DELHI. 28. THUS, WE FIND THAT THE CBDT HAS UNEQUIVOCALLY A LLOWED THE CLAIM OF BAD DEBTS ONCE THE SAME IS WRITTEN OFF IN THE BOOKS OF ACCOUNTS AS IRRECOVERABLE. THUS, THE ARGUMENT OF T HE LD. DR THAT THE BAD DEBTS SHOULD NOT BE ALLOWED WHICH IS B ASED ON THE LETTER ISSUED BY THE NSEL THAT NSEL IS IN THE PROCE SS OF SETTLING THE AMOUNTS IN VIEW OF THE SUFFICIENCY OF THE ASSET S AND NOT TO ALLOW BAD DEBTS AS THE CLAIM IS PRE-MATURE. 29. WE ALSO HOLD THAT, IF IN ANY PREVIOUS YEAR, TH E DEBT HAS BEEN WRITTEN OFF AS BAD AND THE RELEVANT DEDUCTION HAS ALSO BEEN CLAIMED BUT LATER ON THE SAME DEBT IS RECOVERE D IN FULL OR PART, THEN THE AMOUNT SO RECOVERED WILL BE INCLUDED AS INCOME OF THE FINANCIAL YEAR IN WHICH SUCH AMOUNT HAS RECO VERED. OWING TO TAXABILITY OF THE AMOUNTS RECOVERED, THE REVENUE WOULD AT LIBERTY TO TAX THE AMOUNT AS AND WHEN RECEIVED IN A CCORDANCE WITH THE PROVISIONS OF THE ACT. THE DEPARTMENT MUST OBTAIN THE INFORMATION PERTAINING TO PAYMENT BY THE NSEL TO ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 18 BROKERS/TRADERS ON REAL TIME BASIS AND BRING THESE AMOUNTS TO TAX NET. HENCE, THE ADVISORY OF THE NSEL NOT TO ALL OW THE BAD DEBTS CLAIM WOULD BE LEGALLY UNTENABLE OWING TO THE PROVISIONS OF THE ACT, CIRCULAR OF THE CBDT AND RULING OF THE HONBLE APEX COURT IN THE CASE OF TRF LTD. VS CIT (323 ITR 397) . 30. FURTHER, WE HAVE ALSO PERUSED THE ORDER IN THE CASE OF M/S OMNI LENS PVT. LTD. IN ITA NO. 2818/AHD./2010 WHERE IN THE MATTER WAS REFERRED BACK TO THE FILE OF THE AO TO E XAMINE THE ISSUE OF SPECULATION/NON-SPECULATION BUSINESS AFTER TAKING NOTE OF CRUCIAL ASPECT OF ACTUAL DELIVERY OF THE COMMODI TY, 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 TH IS ASPECT. 31. THE MATTER BEFORE US DEALS WITH THE NON-RECOVER Y OF THE ADVANCES GIVEN TO THE BROKERS. THE AO, FOR THE INST ANT YEAR HELD THAT THE ASSESSEE IS DEALING IN SPECULATIVE TRANSAC TIONS AND INVOKED PROVISIONS SECTION 43(5) OF THE ACT. THE AO HAS ALSO HELD THAT THE ASSESSEE HAS BEEN CARRYING TRADE IN C OMMODITY DERIVATIVES. SECTION 43(5)(E) CONSIDERS AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN COMMODITY DERIVATIVES CARRIED OUT IN A RECOGNIZED ASSOCIATION SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. HENCE, WE HOLD THAT THE TRANSACTIONS O F THE ASSESSEE SHALL NOT BE DEEMED TO BE SPECULATIVE TRAN SACTIONS. CHAPTER VII OF THE FINANCE ACT, 2013 W.E.F. 01.04.2 014, DETAILS AS TO WHAT IS A COMMODITY DERIVATIVE IN THE COMMODI TIES TRANSACTION TAX (CTT). AS PER THE CTT COMMODITY DER IVATIVE MEANS A CONTRACT FOR DELIVERY OF GOODS WHICH IS NOT A READY DELIVERY CONTRACT OR A CONTRACT FOR DIFFERENCES WHI CH DERIVES ITS ITA NO. 3298/DEL/2019 CHOWDRY ASSOCIATES 19 VALUE FROM THE PRICES OF SUCH UNDERLYING GOODS. THU S, WE FIND THAT THE ASSESSEE IS IN THE BUSINESS OF COMMODITY D ERIVATIVES BUT NOT IN THE SPECULATION TRANSACTION AS HELD BY T HE AO. THE REVENUE HAS ALSO ACCEPTED THE INCOME FROM THE TRANS ACTIONS OF THE ASSESSEE AS BUSINESS INCOME BUT NOT AS INCOME F ROM SPECULATION FOR ALL THE EARLIER YEARS. (OWING TO CO LLAPSE OF THE NSEL, NO FURTHER TRADING COULD BE CONDUCTED BY THE ASSESSEE IN THE LATTER YEARS). IT IS ALSO AN UNDISPUTED FACT TH AT THE TRADE ADVANCES GIVEN BY THE ASSESSEE STANDS IRRECOVERABLE . 32. IN CONCLUSION, KEEPING IN VIEW THE FACTS OF THE CASE, A TAX HISTORY OF THE ASSESSEE , TREATMENT GIVEN BY THE RE VENUE TO THE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE, FINDING OF THE AO THAT THE ASSESSEE IS INTO COMMODITY DERIVATIVES, PROVISI ONS OF THE SECTION 43(5) INVOKED BY THE AO, PROVISIONS OF SECT ION 43(5)(E) RELIED UPON BY THE LD. AR, EXPLANATION (2) OF SECTI ON 43 AS TO WHAT CONSTITUTES COMMODITY DERIVATIVES, PARA 5 OF C HAPTER VII OF FINANCE ACT, 2013, CBDT CIRCULAR NO. 3/2006 DATE D 27.02.2006, ORDERS OF THE CO-ORDINATE BENCH OF ITAT IN MEGH SAKARIYA INTERNATIONAL (SUPRA), OMNI LENS PVT. LTD. (SUPRA), JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF T RF LTD. (SUPRA), WE HEREBY HOLD THAT THE BUSINESS LOSS CLAI MED BY THE ASSESSEE IS ALLOWABLE U/S 28 OF THE ACT. 33. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11/03/2020. SD/- SD/- (H. S. SIDHU) (DR. B . R. R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11/03/2020 *SUBODH*