BOUTIQUE HOTELS INDIA PVT. LTD.,NEW DELHI vs. ACIT CIRCLE-5(1), NEW DELHI

The present appeal filed by the assessee for the assessment year 2016- 17 is directed against the order of Ld. CIT(A)-2, New Delhi dated 23.08.2019.

The assessee has raised following grounds of appeal:- 1. “On the facts and circumstances of the case as well as in law the Ld. CIT(A) erred in confirming action of the Learned AO in making disallowance of bad debts amounting to Rs. 13,68,235/-. Reasons assigned by him for doing the same are wrong and insufficient.

Ld. Sr. DR opposed this submission in this regard.

However, considering the submissions made in the application of condonation of delay and respectfully following the judgement of Hon’ble Supreme Court in the case of Collector of Land Acquisition vs Mst . Katiji & Ors. 167 ITR 471 and to subserve the principal of natural justice, I condone the delay of 16 days in filing of the appeal.

Facts giving rise to the present appeal are that assessee company filed its return of income declaring income at NIL on 30.11.2016. The case of the assessee was picked up for scrutiny assessment and the assessment u/s 143(3) of the Income Tax Act, 1961 (“the Act”) was framed vide order dated Page | 2 30.12.2018. The Assessing Officer (“AO”) made disallowance of bad debt amounting to Rs. 13,68,235/- and disallowance on account of interest free advances amounting to Rs.8,75,075/-. Thus, the AO assessed the income at Rs.22,43,310/-. The basis for disallowance of bad debt by AO is stated that no proof was submitted as to how the bad debts have been taken into taxable income in previous year. The assessee also did not provide correspondence with the concerned parties whose bad debts have been returned off. In respect of disallowance, the AO observed that interest free loan of Rs.8,75,075/- was given to the related parties. However, the assessee has claimed interest payment of Rs.5,19,80,136/- against the outstanding loan of Rs.3,08,712/-.

Aggrieved against the findings of AO, the assessee carried the matter before Ld.CIT(A) who after considering the submissions, sustained the addition.

Aggrieved against the order of Ld.CIT(A), the assessee is in appeal before this Tribunal.

Ld. Counsel for the assessee submitted that the authorities below grossly erred in making the disallowance as bad debt, is related to the business of the assessee. It is in respect of non-payment/short payment of the service charges. He contended that if the amount is not allowable as bad debt, it would certainly be allowable u/s 37 of the Act as the business loss. He further contended that both the Authorities below failed to appreciate the fact in right perspective and in arbitrary manner, disallowed the claim of the assessee.

Ld. Sr. DR opposed these submissions and supported the orders of the Authorities below. He further contended that it was incumbent upon the assessee to produce the supporting evidences if he was claiming it to be a business loss on account of non-payment of service charges by the customers considering the deficiency in services.

I have heard Ld. Authorized Representatives of the parties and perused the material available on record and gone through the orders of the authorities below. I find that it is not in dispute that the assessee provided the ledger account of the parties but the AO without making further inquiry, disallowed the claim of the assessee. It is also stated that the amount if it is not considered to be bad debt, even than it is allowable u/s 37(1) of the Act since the expenditure has been incurred for the purpose of business. I am in agreement with the contention of the Ld. Sr. DR that the assessee is required to support its claim regarding business expenditure or the business loss. In the present case, the assessee has treated the amount as bad debt. However, except ledger accounts of the parties, there is no other supporting evidences. Considering the totality of the facts and the finding of the Ld.CIT(A), I deem it proper that the matter be restored to the Assessing Authority for verifying the correctness of the claim of the assessee that the amounting in question was related to the non-payment by the customers who had availed the services of the assessee. The assessee is therefore, directed to furnish the complete details and information regarding the services availed by the customers who did not pay charges on account of any services despite related to the quality of services rendered by the assessee. Thus, Ground Nos. 1 &2 raised by the assessee are allowed for statistical purposes.

Now, coming to Ground Nos.3 & 4 raised by the assessee are against the sustaining of addition in respect of the interest free advances given to the Associate Companies.

Ld. Counsel for the assessee submitted that the amount was given out of the own funds. No interest bearing fund was utilized for giving such funds. The AO has made the impugned addition purely on the basis of conjectures and merely, because the assessee has claimed interest expenditure which was incurred for business, cannot be the reason for making disallowance u/s 36(1)(iii) of the Act.

Ld. Sr. DR opposed these submissions and submitted that the Authorities below were justified in making and sustaining the addition.

In re-joinder, Ld. Counsel for the assessee submitted that it was brought to the notice of the Authorities below that out of the total amount of Rs.8,75,027/-, an amount of Rs.8,38,765/- was outstanding since earlier years and only amount of Rs.36,262/- was advanced during the year. Moreover, the assessee has sufficient own funds to make such advances.

I have heard Ld. Authorized Representatives of the parties and perused the material available on record and gone through the orders of the authorities below. I find that Ld. CIT(A) has decided the issue by observing as under:-

The above finding of Ld.CIT(A) is non-speaking and has not adverted to the submission of the assessee. It is stated by the Ld. Counsel for the assessee that the assessee is having sufficient own funds to make interest free advances. Further, the majority of the advances related to the earlier years. I therefore, considering the totality of the facts, set aside the orders of the Authorities below and restore this issue to the file of AO to verify the correctness of the claim of the assessee that majority of the advances were made in the earlier years and also to verify whether the assessee was having sufficient own funds to make such advances and if it is found correct, the AO would delete the disallowance. Thus, Ground Nos.3 & 4 raised by the assessee are allowed for statistical purposes.

In the result, the appeal of the assessee is allowed for statistical purposes.