Tirupati Microtech Private Limited Vs DCIT (ITAT Jodhpur)
Jodhpur ITAT: NSEL Trading Loss Written Off as Bad Debt Allowable-Possibility of Future Recovery No Ground for Disallowance
In Tirupati Microtech Pvt. Ltd. v. DCIT, the Jodhpur ITAT dealt with the assessee’s appeals for AYs 2015-16 and 2017-18, principally concerning bad debts arising from commodity transactions on the National Spot Exchange Limited (NSEL) platform and deduction under section 80IA in respect of windmill operations.
The assessee had carried on commodity trading through NSEL and had approximately ₹16.19 crore receivable on the platform. Due to defaults by parties, it wrote off ₹1.64 crore in AY 2015-16 and ₹5.86 crore in AY 2017-18 as bad debts. The AO disallowed the claim on the grounds that the amount represented a capital investment and that recovery remained possible because assets of the defaulters were being attached and auctioned. The CIT(A), while confirming the disallowance, additionally characterised the transactions as speculative.
The Tribunal deleted the disallowance. It observed that the assessee had actually undertaken commodity trading on the NSEL platform and that the AO had not disputed compliance with the requirements of section 36(1)(vii). Once the debt had been written off in the books and the corresponding amount had been offered as income earlier, the deduction could not be denied merely because there remained a possibility that some amount might subsequently be recovered.
Importantly, the ITAT clarified that if any portion of the bad debt is subsequently recovered, it must be offered to tax in the year of recovery. Thus, the possibility of future recovery does not postpone or defeat an otherwise valid bad-debt deduction.
On the separate section 80IA windmill deduction, the AO had proportionately allocated head-office expenses and depreciation on common assets to the eligible windmill units, thereby reducing the deduction. The assessee contended that the entire operation, maintenance and management of its windmills had been outsourced to Suzlon Global Services Ltd. on a turnkey basis and therefore no head-office expenditure or depreciation on common assets was attributable to them.
The Tribunal found that the necessary factual material—including the outsourcing agreement, extent of control retained by the assessee and details regarding common assets and depreciation—was not available on record. It therefore restored the section 80IA issue to the AO for fresh adjudication after examining the relevant facts and giving the assessee reasonable opportunity of hearing. The appeals were accordingly partly allowed.
FULL TEXT OF THE ORDER OF ITAT JODHPUR
The present appeals by the assessee arise out of two separate orders passed by National Faceless Appeal Centre, NFAC, Delhi for the Assessment Years 2015-16 and 2017-18.
2. The first common issue arising in the appeals relates to disallowance of claim of bad debts on account of amount not recoverable from Nationals Spot Exchange Limited (NSEL).
3. Briefly the facts relating to this issue are, the assessee is a resident corporate entity stated to be engaged in the following activities:
(i) Manufacturing of Zircon Powder, sales, purchase & Jobwork.
(ii) Generation of electricity through windmill.
(iii) Trading of commodities of NSEL.
4. For the assessment years under dispute, assessee had filed its return of income in regular course. Assessee’s case for both the assessment years were selected for scrutiny.
5. In course of assessment proceedings, the Assessing Officer noticed that the assessee had claimed write off of bad debts of Rs. 1,64,41,075/- in A.Y. 2015-16 and amount of Rs. 5,85,81,044/- in A.Y. 2017-18. On further verification, he found that bad debts written off were claimed on account of investment with NSEL. Thus, he observed that the investment made being in the nature of capital investment cannot be allowed as deduction.
6. Without prejudice, he observed that it will be premature to allow assessee’s claim as there is chance of recovery of the amount in future. Accordingly, he disallowed assessee’s claim in both the assessment years under dispute. Assessee contested the disallowances before the First Appellate Authority. After considering the submissions of the assessee, the First Appellate Authority confirmed the disallowances stating that the bad debts cannot be allowed as the nature of business carried on by the assessee is speculative.
7. We have considered rival submissions and perused the materials on record, it is not in dispute that the assessee indeed had carried out transactions on the platform of NSEL. In fact, the Assessing Officer based on information received from NSEL has recorded a finding of fact that the assessee had a balance of Rs. 16.19 crores as receivable on the platform of NSEL. However, the Assessing Officer has disallowed assessee’s claim primarily for two reasons. Firstly, it is a capital investment and secondly, there is chance of recovery of the amount from the defaulters, as the Hon’ble High Court has directed the investigating agency to attach and auction the assets of the defaulters.
8. The first Appellate Authority has given a new dimension to the issue by stating that the transaction is speculative in nature. Fact remains that the assessee has undertaken commodity trading activities on the platform of NSEL for which it has deposited an amount of Rs. 16.19 crores. However, due to default in making payment by certain parties, the assesee had failed to recover certain amount in both the assessment years. The Assessing Officer has not made any adverse comment regarding the fulfilment of conditions of Section 36(1)(vii) of the Act. The only apprehension of the Assessing Officer is that there is chance of recovery of the amount by the assessee in future. In our considered opinion, this cannot be a reason for disallowing assessee’s claim. As per the conditions of Section 36(1)(vii) of the Act, the amount claimed as deduction must have been written off in the books of account and it should have been offered as income earlier. Assessing Officer has not expressed any doubt on these two aspects. That being the case, deduction u/s 36(1)(vii) has to be allowed.
9. However, we make it clear, in the event of assessee receiving any part of the bad debt in future, the amount has to be offered as income in the assessment year wherein it is received. With the aforesaid observations, the addition made is deleted.
10. The next common issue relates to part disallowance of deduction claimed u/s 80IA of the Act. Briefly stated, as discussed earlier, the assessee is also in business of windmill operation. While examining assessee’s claim of deduction u/s 80IA of the Act. On profit derived from windmill, the Assessing Officer noticed that certain expenditure allocable to the eligible units, such as, head office expenses and depreciation on common assets have not been allocated.
11. Being of the view that such common expenditure has to be allocated on proportionate basis, the Assessing Officer proceeded to work out the expenditure which is attributable to the eligible unit and accordingly reduced the deduction claimed u/s 80IA of the Act to that extent. While deciding the issue in appeals, the First Appellate Authority confirmed the decision of the Assessing Officer.
12. Before us, Ld. Counsel appearing for the assessee submitted that the assessee operates three windmill power plants situated at Jaisalmer, Karnataka and Barmer. He submitted, the entire operation, maintenance and management of windmills have been outsourced on a turnkey basis to Suzlon Global Services Ltd. Hence, the assessee claimed deduction u/s 80IA of the Act on the profits on the eligible units after debititng only the direct expenses relatable to those units without apportioning any head office expenses or depreciation on common assets. Thus, he submitted, since no part of head office expense and depreciation on common assets, relate to operation of windmills, allocation of such expenses cannot be made for determining profit of windmills. Whereas, Ld. Departmental representative relied on the observations of the Assessing Officer and First Appellate Authority.
13. We have considered rival submissions and perused materials on record. From the observations of the Assessing Officer, it appears that certain services and amenities used by the windmill units for day to day functioning and financial managemental related activities are dependent upon the head office. However, constituents of the head office expense are not available before us. Further, it is the case of the assessee that it had outsourced the entire operation, maintenance and management of the windmills to Suzlon Global Services Limited on a turnkey basis. The terms and conditions on which the management, operation and maintenance of windmills has been handed over to Suzlon Global Services Ltd. are not available before us. Therefore, it is difficult to record a factual finding on the extent of control exercised by Suzlon Global on day to day operation and management of the windmills without analysing the terms of the agreement, if any between the assessee and Suzlon. It is difficult on our part to record a conclusive finding of fact whether the assessee has retained some control and management of the windmills so as to appreciate whether the part of the HO expenses can be allocated to the windmills. Further in so far as allocation of depreciation, to windmills, it is necessary to find out the assets on which depreciation was claimed and their utility in operation of the windmills no details relating to such assets are available with us. Even the factual details relating to claim of depreciation are absent in the orders of the Departmental Authorities.
14. In view of the aforesaid, we are inclined to restore this issue to the Assessing Officer for fresh adjudication after examining all the factual details and after providing reasonable opportunity of being heard to the assessee.
15. In the result, appeals are partly allowed.
Order pronounced in the open court on 07/08/2026.
