Section 43(5)(e) (of Income Tax Act, 1961) 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.

The present appeal has been filed by the assessee against the order of the ld. CIT(A)-2 , New Delhi dated 22 .03.2019.

2. Following grounds have been raised by the assessee:

“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 had indulged in transactions o f speculative nature by short selling and dealing in derivatives ignoring the very fact that the National Spot Exchange limited (NSEL) was a spot exchange for trading in commodities and did no t 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 contract of simultaneous sale transaction. Bo th purchase and sale were delivery based business transactions as NSEL issued delivery allocation report for each purchase transaction by virtue of which the commodity purchased on behalf o f the purchaser (appellant) was 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 o f the purchase delivery o f exact speci fication lying in the warehouses on behalf o f the various participants including appellant. Such transactions o f purchase o f commodity and simultaneous sale for performance of delivery at a later date were supported by contract notes in the name of the appellant issued by brokers af filiated 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 notes 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 of ficer which is based on suspicion, conjectures, surmises without any substantive basis or cogent material .

6. In the facts and circumstances of the case learned Commissioner of Income Tax (Appeals) has erred in ignoring the fact that what has been written o ff by the appellant is the money advanced to the brokers o f NSEL which is in the nature o f trade debt, income/loss from which could be held as speculative but how can a write o ff of debt be treated as speculative loss.

7. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in not appreciating that the appellant having fulfilled all relevant conditions for claim of Bad Debts u/s. 36(1)(vii) (of Income Tax Act, 1961) r.w.s. 36(2) (of Income Tax Rules, 1962), its case was squarely covered by the ratio of the decision o f the Hon'ble SC in the case of TRF Ltd. and tire clear guidelines as laid down by the CBDT Circular No . 12/2016 dtd. 30-05-2016.”

3. Brie f facts of the case are that the assessee company is a Non-Banking Financial Company engaged in investment activities in shares and purchase & sale of units of various Mutual Funds. The assessee has been dealing in trading on the NSEL plat form and treated the receipts as income from business which has been assessed by the revenue under the head o f business income regularly and also in the assessment u/s 143(3) (of Income Tax Act, 1961) for the year 2013-14 , 2014-15. During the current year too the assesse has shown the income under the head “income from profits and gains of Business”. It was submitted that owing to the closer o f NSEL, the business could not be carried in the assessment year 2016-17 .

4. In this regard, the background of the NSEL is required to be looked into.

NSEL was incorpora ted in 2005 to of fer an electronic plat form for delivery- based spot contracts in various agricul tural and non- agricul tural commodi ties through the licensed members . In October 2008 , as many as six state governments issued licenses under the model Agricul tural Produce Market Commi ttees (APMC) Act to NSEL. NSEL's delivery-based system worked through members warehouses to stock such commodi ties as transacted between mul tiple par ties to trade , wi th underlying asset always been commodi ties. The basic idea of launching the bourse was to provide a place where farmers, traders , corpora tes, processors, planters , manu facturers , and importers can sell and buy their commodi ties at the best possible and competi tive ra tes.

5. During the AY 2015-16, the assessee was trading in commodity derivatives in the association which is National Spot Exchange Limited (NSEL). NSEL ran into regulatory hurdles and as such its operations are stopped by the regulators. The assessee forayed in commodity market since FY 2011-12 and availed services o f authorized NSEL agents namely M/s. Anand Rathi Commodities Ltd and M/s. Philips Commodities India Pvt Ltd for that purpose . As the business o f trading in NSEL platform was regular one and not in nature o f speculative transaction u/s 43(5) (of Income Tax Act, 1961), the Appellant always treated the trading business of NSEL as regular business and o ffered for taxation u/s 28 (of Income Tax Act, 1961). There has been no dispute on these facts since FY 2011- 12 and tax department has always accepted the same.

6. In the instant AY 2015-16 , the AO noticed that the Appellant has claimed loss o f Rs.5 ,56,24 ,659/- in relation to trade over NSEL counter owing to non-recovery of the amounts from the brokers as the operations of NSEL were closed . Per the AO, NSEL was formed to be engaged in SPOT Trading but NSEL was carrying out futures contract which was speci fically prohibited. Thus, the AO challenged the basic premise about the operations of NSEL. The AO held that the NSEL is SPOT exchange and only SPOT contracts can be executed through NSEL, there fore, 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 by delivery within 11 days ceases to be a SPOT contract and not covered by Forwards Contracts Regulation Act. The AO has not disputed that the assessee has invested in NSEL through two brokers M/s Anand Rathi Commodi ties Pvt. Ltd. and M/s Phillip Commodities Pvt. Ltd. The assessee company traded on the exchange during F.Y. 2011-12 , 2012-13 and 2013-14. The AO also held that the assessee has traded through paired contracts. Paired contract means that an investor would enter into two contracts . 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 o f ownership o f the commodity and sell the commodity to financial investors as standard short term contracts (T+2). Immediately after buying the contract, the investor would put the commodity up for sale on a T+26/T+35 basis . Looking at the transactions of 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 that the NSEL is meant for spot dealings resulting in actual and physical delivery o f commodities in a specified time . But the appellant has indulged in transactions o f speculative nature by short selling and dealing in derivatives. These dealings do not result in physical delivery o f commodities but they involve transaction of value o f commodities only. The appellant has purchased and sold from and to the same party on the same date. The ld. CIT (A) also held that on many occasions, the commodities are sold the next minute after purchase. It was held that the appellant has sold even before the commodity is purchased. Short selling and dealing in derivatives are prohibited on NSEL, hence , the assessee has to be treated as dealing in business of speculation .

8. Having said that the ld. CIT (A) disallowed the claim o f business loss declared by the appellant in respect o f amount o f unrecoverable balances from brokers M/s. Anand Rathi Commodities Services Pvt. Ltd. and M/s . Philip commodities India Pvt. Ltd.

9. Before us, the ld. AR repeated the submissions taken up before the authorities below.

10. The ld. DR submitted his arguments in writing which are as under:

“During the course o f hearing of the case today, i .e. 18.12.2019, the Ld . Counsel for the assessee re ferred to the case of M/s Flair Exports Pv t. Ltd , New Delhi , claiming that the facts o f that case are similar to those o f this case .

1. In this connection, it i s submitted that the MD & CEO, National Spo t Exchange Ltd , has written a letter dated 23.01.2019 to the Pr. Chie f Commissioner o f Income Tax, Delhi , raising the issue o f bogus claim o f bad debts written of f by some assessees. He has speci fically mentioned the case of M/s Megh Sakariya International Pvt. Ltd . in which the Hon’ble ITAT, Chennai has allowed the assessee’s claim. He has requested the Department to look into the matter to ensure that bogus bad deb t claims being made by Members of NSEL are not allowed .

2. It i s further submitted that, on similar facts , the Hon’ble ITAT, Ahmadabad , vide its order dated 16.10 .2018 in ITA No. 2818/AHD/2017, has set aside the case o f Omni Lens Pvt. Ltd . to A.O for examining i t from the angle o f speculative loss and set o f f only against speculative in come.

3. Copies o f the above-men tioned letter dated 23/01/2019 from NSEL and order o f the Hon’ble ITAT Ahmadabad in ITA No. 2818/AHD/2017 in the case o f M/s Omni len s Pvt. Ltd for A .Y 2014- 15 are enclosed .

4. In view o f the above, the assessee’s appeal may kindly be dismissed. Alternatively, the matter may be set aside to A.O for re- examining it.”

11. He further attached the copy o f the MD & CEO of NSEL wherein the revenue was advised against claim o f bad debts. “Sub: Claim of Bad Debts by Members of NSEL and different treatments given to such claims by di f ferent Tribunals, leading to a loss o f revenue, po ssibly amounting to few thousands o f cro res in rupees to the Exchequer.

Dear Sir, National Spot Exchange Ltd , (NSEL) had brought to your kind atten tion in the year 2016 , bogus claims towards bad debts made by various Members who traded on the Exchange platform o f NSEL and the need fo r admitting only the legi timate claims of su ch Members towards bad debts , vide letter nos.:

i . Ref . No .: NSEI/16-47/002 dated Aug 17, 2016 {attached as Annex - A)

ii . Ref . Mo .: NSEL/CEO/16-17/0282 dated Sep 16, 2016 (attached as Annex - B)

iii . Ref . Non NSEL/CEO/16-17/044S dated Dec 15, 2016 (attached as Annex - C)

Recen tly, we have come across one case wherein di f ferent Courts are taking dif feren t views on such claims. Fo r instance, the order o f the Chennai ITAT in the case o f M/s Megh Sakariya International Pvt. Ltd . vs . DCIT, Circle 4(1), has allowed the claim of the appellant, disregarding the ground on whi ch the AO made the addition of income and whi ch was upheld by the Hon’ble CIT Appeal-(copy of the order attached as Annex – D).

In the above case, Section 36(2) (of Income Tax Act, 1961) o f the In come Tax Act, 1961 surprisingly has not been considered . We are not aware about other order bu t from the above, it appears that the addition o f in come 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 Ben ch o f ITAT in ITA No. 2818/AHD/2017 in the case o f Omni Lens Pvt. Ltd . Vs DCIT, Circle- 3(1)(2) has given a new dimension to the issue by stating that it should be examined from view o f speculative lo ss and set-o ff only against speculative income and set aside the file back to the AO for re-examination (Copy o f the order attached as Annex – E) .

We have brought this to the notice o f 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 for the instru ction s to come down , by when it may be too late fo r taking any corrective actions, we are bringing thi s to your kind attention for necessary action at your end.

Thus, it is requested that:

i . Where , the additions have been made in routine manner, it may kindly be defended by bringing out the factual position before the Appellate Authority.

ii . Where, the addi tions have no t been made, the same should be done now using the appropriate provisions o f the law , and also take into consideration the observations made by the Hon’ble Ahmadabad Tribunal.

iii . Necessary instru ction s may kindly be passed to the field formations , to take a unified stand at the Tribunals, so that there is no loss of revenue, due to di f ferent position taken by dif ferent Assessing Officers .

We once again request you to kindly look into the matter, to ensure that bogus bad deb t claims being made by Members of NSEL are not allowed , so that there is no lo ss o f 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 has been accepted by the revenue in all the earlier years.

2. The AO has taken a conscious decision to treat the transactions has speculative in nature during the current year only .

3. The AO held that since the contracts are paired there cannot be any loss to the assessee as sale and purchase 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 “commodity derivatives” and not commodities. (AO-para 5.14)

6. The AO held that the transactions of the assessee are speculative transactions as defined u/s 43(5) (of Income Tax Act, 1961).

7. The CEO/NSEL advised not to give bene fit o f bad debts 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 o f Rs.7000 crores has been secured against the claim o f Rs.5600 crores.

10. Hence , CEO/NSEL advised that since the amounts would be settled no provision for bad debts be allowed.

11. It is an undisputed fact that the assessee has given money to brokers namely, M/s Anand Rathi Commodities Pvt. Ltd. and Philips Commodities Pvt. Ltd. for conducting of their business.

12. It is also undisputed fact that the monies given above have not been received by the assessee.

13. The loss arrived out o f the non-receipt of the amount from the brokers is claimed to be a business loss by the assessee which has been rejected by the AO.

14. The assessee has also not disputed that the transactions are under paired transactions.

13. The ld. AR argued, reiterating the modus operandi the stockists of the commodities first deposited the commodity with the Exchange accredited warehouse and received a warehouse receipt which was deposited with NSEL for the purpose of transactions under the control and supervision of NSEL. The transactions in NSEL are made through members of NSEL, who are authorized brokers . The assessee has made the transactions under paired contracts. Under the paired contract, generally the purchases were made at T+2 cycle and sales were made at T+25 or T+35 cycle. Under these transactions, the assessee company made full payment for purchase immediately and delivery o f the commodity lying in the warehouse was assigned to it. The transactions were subjected to VAT , delivery charges, service tax. As far as sale is concerned, the assessee company immediately put a contract for sale on T+25 and T+35 and delivery was assigned from buyer to the seller. The amount is 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 profits or losses obtained, the same were duly disclosed in the profit & loss account and assessed as business income .

14. Heard the arguments of both the parties and perused the material available on record.

15. From the entirety o f the events, we find that in the assessment year 2014-15, the assessee had made purchases in the middle or last week of June 2013 through M/s Anand Rathi Commodities Pvt. Ltd. and M/s Philips Commodities Pvt. Ltd. The NSEL failed to fulfill its commitments and ultimately the Government had prohibited NSEL to make any transactions after 1s t July 2013 . The de tails o f outstanding unsettled transactions of the assessee through bo th the brokers has also been 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 delivery in terms o f Section 43(5) (of Income Tax Act, 1961) o f the Act. The AO in the assessment order reproduced the relevant provisions o f Section 43(5) (of Income Tax Act, 1961) upto sub-Section (d) of 45(3). The AO stopped at short of sub- Section (d) without going further to sub-Section (e).

17. Reading further, sub-Section (e) which was introduced by the Finance Act, 2013 w.e . f. 1s t April 2014 reveals that in respect o f trading and commodity derivatives carried out in a recognized association shall not be a speculative transaction.

The relevant provisions o f Section 43(5)(e) (of Income Tax Act, 1961) 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 Chapter VII o f the Finance Act, 2013 (17 of 2013),]] sha ll not be deemed to be a speculative transaction:

18. Further, Explanation 2 for the purpose o f Clause (e) defines what constitutes “commodity derivative”. The meaning has been assigned as per Chapter VII o f the Finance Act, 2013 .

19. Chapter VII o f the Finance Act, 2013 at definitions mentioned at para 106(5)- Commodity derivative means –

(i) a contract for delivery of goods which is not a ready delivery contract; or

(ii) a contract for differences which derives its value from prices or indices o f 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 systems 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 provisions of the Forward Contracts (Regulation) Act, 1952 (74 o f 1952) and the rules, regulations or bye-laws made or directions issued under that Act on a recognized association; and

(B) which is supported by a time stamped contract note issued by such member or intermediary to every client indicating in the contract note , the unique client identity number allotted under the Act, rules , regulations or bye-laws referred to in sub-clause (A), unique trade number and permanent account number allotted under this Act;

21. The “recognized association” means "recognized association" means a recognized association as referred to in clause (j) of section 281 of the Forward Contracts (Regulation) Act, 1952 (74 o f 1952) and which fulfils such conditions as may be prescribed and is notified 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. and also carried out through computerized exchanged through electronic screen (NSEL) as per the details collected by the revenue.

23. We have also gone through the provisions o f the Act introduced vide Finance Bill 2005 in respect of measures to rationalize the tax treatment o f derivative transactions. The same is as under:

Under the existing provisions clause (5) of Section 43 (of Income Tax Act, 1961), a transaction for the purchase and sale of any commodity including sto cks and shares is deemed to be a “speculative transaction”. I f i t is settled otherwise than by actual delivery. However, certain categories of transactions are excluded from the purview of the said provision. Further the unabsorbed speculation losses are allowed to be carried forward for eight years for set-o f f against speculation profits in subsequent years . These restrictions were essentially designed as an anti-evasion measure to prevent claims o f artificially generated losses in the absence of an appropriate institutional infrastructure. Recent systemic and technological changes introduced by stock markets have resulted in sufficient transparency to prevent generating fictitious losses through artificial transactions or shifting o f incidence o f loss from one person to another. The screen based computerized trading proves for an excellent audit trail . There fore, 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 o f trading in derivatives in a recognized stock exchange shall not be deemed to be a speculative transaction. The proposed amendment also seeks to notify relevant rules etc . regarding condition s to be fulfilled by recognized exchanges in this regard . Further, it is also proposed to amend sub- section (4) of Section 73 (of Income Tax Act, 1961) so as to reduce the period o f carry forward of speculation losses from eight assessment years to four assessment years .

These amendments will take effect from 1st April , 2006 and will , accordingly, apply in relation to assessment year 2006-07 and subsequent years .

24. The revenue has clearly held that the assessee is in the trading of commodity derivatives. Revenue, having said that failed to give the benefit o f provisions of Section 43(5)(e) (of Income Tax Act, 1961). 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 o f assessee for the earlier years. The amount kept with M/s Anand Rathi Commodities Pvt. Ltd. was Rs .1 .30 crores for the year 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. Similarly, the amount kept with M/s Philips Commodities India Pvt. Ltd. was Rs.4 .33 crores for the year ending 31 .03 .2014 and Rs.14 .95 crores for the ending 31 .03.2013 . During the year, the assessee could not recover the amounts from these two brokers owing to suspension of operations by the NSEL which was given as a part of the business transaction for purchase of commodities in the conduct of regular business operations . Hence , the amount advanced made to purchase the commodity during the course o f the business is a business loss allowable u/s 28 (of Income Tax Act, 1961) o f the Act.

26. We have also perused the notice of PCIT , Central , New Delhi issued under the provisions o f Section 263 (of Income Tax Act, 1961) proposing to withdraw the bad debts claimed by the assessee and accepted by the Assessing Officer. We categorically refrain from adjudicating on the strength o f the notice , however, we observe that the said notice also dealt with the issue o f bad debts claimed u/s 36(1)(vii) (of Income Tax Act, 1961) by that assessee.

27. We have also perused the order of the Chennai Tribunal in the case o f MeghSakariya International Pvt. Ltd. in ITA No. 59/Chennai/2018 wherein the bad debts have been allowed by the Tribunal u/s 36(1)(vii) (of Income Tax Act, 1961). In that case too , the revenue has also brought to the notice regarding the information received from NSEL that trading on that platform was topped since 31.07 .2014 and the NSEL was in the process of settling the outstanding dues o f its traders and auctioning its assets for the said purpose . The revenue claimed that the claim o f bad debts was premature . However, the ITAT has allowed the claim o f the assessee based on the judgment of the Hon’ble Apex Court in the case of TRF Ltd. Vs CIT 320 ITR 397 wherein it was held that after 1s t April, 1989, it was not necessary for the assessee to establish that the debt has become irrecoverable and it was enough if the debt was written off as irrecoverable in the books . Further, the CBDT vide Circular No . 12/2016 clarified regarding the claim o f 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 Depar tment of Revenue Central Board of Direct Taxes

New Delhi , Dated 30 th May, 2016

Sub ject: – Admissibili ty of claim o f deduction of Bad Debt under section 36(1)(vii) (of Income Tax Act, 1961) read wi th section 36(2) (of Income Tax Act, 1961) o f the Income-Tax A ct , 1961— reg.

Proposals have been received by the Central Board of Direct Taxes regarding filing o f appeals/pursuing litigation on the issue of allowability of bad debt that are written of f as irrecoverable in the accounts of the assessee. The disputerela testo cases involving failure on the par t o f assessee to establish that the deb t is irrecoverable .

2 . Direct Tax Laws (Amendment) Act , 1987 amended the provisions of sections 36(1)(vii) and 36(2) of the Income Tax Act 1961, (herea fter referred to as the A ct) to rationalize the provisions regarding allowability of bad debt with e ffect from the April , 1989 .

3 . The legi sla tive intention behind the amendment was to elimina te li tigation on the i ssue of the allowabili ty o f the bad debt by doing away wi th the requi rement for the assessee to establi sh that the debt , has in fact , become irrecoverable . However, despi te the amendment , disputes on the issue o f allowabili ty continue , mostly for the reason that the deb t has not been established to be irrecoverable . The Hon’ble Supreme Cour t in the case of TRF Ltd. in CA Nos . 5292 to 5294 o f 2003 vide judgment da ted 9 .2 .2010 , has stated tha t the po si tion o f law is well settled. “After 1.4 .1989 , for allowing deduction for the amount o f any bad debt or par t thereof under section 36(1)(vii) (of Income Tax Act, 1961) , i t is not necessary for assessee to establish that the debt , in fact has become irrecoverable; i t is enough i f bad deb t is wri tten o f f as irrecoverable in the books of accounts of assessee.”

4 . In view o f the above , claim for any deb t or par thereof in any previous year shall be admissible under section 36(1)(vii) of the A ct, i f i t is written off as irrecoverable in the books o f accounts of the assessee for that previous year and i t fulfills the conditions stipulated in sub section (2) of sub-section 36(2) (of Income Tax Act, 1961) o f the Act .

5 . Accordingly , no appeals may hence for the be filed on this ground and appeals already filed , i f any, on this issue before various Courts/Tribunal s may be withdrawn/not pressed upon .

6 . This may be brought to the notice of all concerned. (Sadhana Panwar) DCIT (OSD) (ITJ) ,CBDT , New Delhi .

28. Thus, we find that the CBDT has unequivocally allowed the claim o f bad debts once the same is written of f in the books o f accounts as irrecoverable. Thus, the argument of the ld. DR that the bad debts should not be allowed which is based on the letter issued by the NSEL that NSEL is in the process of settling the amounts in view o f the sufficiency of the assets and not to allow bad debts as the claim is pre-mature .

29. We also hold that, if in any previous year, the debt has been written o ff as bad and the relevant deduction has also been claimed but later on the same debt is recovered in full or part, then the amount so recovered will be included as income of the financial year in which such amount has recovered. Owing to taxability of the amounts recovered, the revenue would at liberty to tax the amount as and when received in accordance with the provisions o f the Act. The department must obtain the information pertaining to payment by the NSEL to brokers/traders on real time basis and bring these amounts to tax net. Hence , the advisory o f the NSEL not to allow the bad debts claim would be legally untenable owing to the provisions of the Act, Circular o f the CBDT and ruling o f the Hon’ble 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 wherein the matter was re ferred back to the file of the AO to examine the issue o f speculation/non-speculation business after taking note of crucial aspect of actual delivery of the commodity , 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 this aspect.

31. The matter be fore us deals with the non-recovery of the advances given to the brokers. The AO, for the instant year held that the assessee is dealing in speculative transactions and invoked provisions Section 43(5) (of Income Tax Act, 1961). The AO has also held that the assessee has been carrying trade in commodity derivatives. Section 43(5)(e) (of Income Tax Act, 1961) 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 of the assessee shall not be deemed to be speculative transactions. Chapter VII o f the Finance Act, 2013 w.e .f. 01 .04 .2014, details as to what is a commodity derivative in the Commodities Transaction Tax (CTT). As per the CTT commodity derivative means a contract for delivery o f goods which is no t a ready delivery contract or a contract for dif ferences which derives its value from the prices o f such underlying goods . Thus, we find that the assessee is in the business o f commodity derivatives but not in the speculation transaction as held by the AO. The revenue has also accepted the income from the transactions o f the assessee as business income but not as income from speculation for all the earlier years . (Owing to collapse of the NSEL, no further trading could be conducted by the assessee in the latter years). It is also an undisputed fact that the trade advances given by the assessee stands irrecoverable.

32. In conclusion, keeping in view the facts o f the case, a tax history of the assessee , treatment given by the revenue to the transactions undertaken by the assessee, finding of the AO that the assessee is into commodity derivatives, provisions o f the Section 43(5) (of Income Tax Act, 1961) invoked by the AO, provisions o f Section 43(5)(e) (of Income Tax Act, 1961) relied upon by the ld. AR, Explanation (2) of Section 43 (of Income Tax Act, 1961) as to what constitutes commodity derivatives , Para 5 of Chapter VII of Finance Act, 2013, CBDT Circular No. 3/2006 dated 27.02.2006, orders o f the Co-ordinate Bench o f ITAT in Megh Sakariya International (supra), Omni Lens Pvt. Ltd. (supra), judgment of the Hon’ble Apex Court in the case of TRF Ltd. (supra), we hereby hold that the business loss claimed by the assessee is allowable u/s 28 (of Income Tax Act, 1961).

33. In the result, the appeal of the assessee is allowed.

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