Loss on purchase of commodities which was not delivered in actual would be treated as business loss

DCIT Vs Nirshilp Securities Pvt. Ltd. (ITAT Mumbai)

Conclusion: The loss arising on account of payment made towards purchase of commodities, which were never delivered to assessee, shall be allowable as regular business loss u/s 28 of the Act and the said loss cannot be considered as speculative.

Held: In present facts of the case, the AY 2014-15 is under consideration, wherein Revenue have challenged the deletion of disallowance u/s 14A of the Act read with Rule 8D(2) of the Rules, wherein Revenue have challenged the deletion of disallowance of business loss on account of National Spot Exchange Ltd (NSEL) and also treating the said loss as speculative loss.

NSEL is a national-level institutionalised, electronic, transparent spot trading platform for commodity. It commenced “Live” trading on October 15, 2008. It was operational in 16 states in India, providing delivery-based spot trading in around 52 commodities. NSEL provided the following functions for trading opportunities.

The assessee purchased and sold commodities on the exchange platform of NSEL by trading in the paired trader’s contracts offered by the NSEL through their broker. An independent auditor “SGS” was appointed to ascertain the discrepancy of the stocks lying in the warehouse after the NSEL scam broke out in public. As per the SGS Audit Report of the NSEL warehouses, it was revealed that commodities of the stated quantity were not stored in the NSEL designated warehouse. The assessee was given warehouse receipt after making payment for the purchase of commodities. Therefore, as stock of goods purchased was not found but following amounts would have been due and payable to assessee company by the NSEL on the various dates towards settlement of the trades had the goods were found in warehouse and sold by assessee in normal course of business. The assessee filed a complaint before Economic Offence Wing (EOW) jointly with other traders explaining the fraud committed by NSEL by not having the requisite quantity and quality of commodities at its accredited warehouses and a legal notice was also served on the NSEL for winding up of their Company under Section 434 of the Companies Act, 1956 in the capacity of one of the creditor. In response thereto, the assessee received a reply from the advocate of NSEL disowning their responsibility to make payment to the assessee. These details with supporting evidences were furnished before the lower authorities and are forming part of the records.

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