SHLOGAM AGRO PRIVATE LIMITED,MUMBAI vs. MUMBAI.DCIT13.2.2@INCOMETAX.GOV.IN, MUMBAI

PER OM PRAKASH KANT, AM

This appeal has been preferred by the assessee against the order dated 13.02.2025 passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi ["the ld. CIT(A)"] for the Assessment Year 2017-18, whereby the ld.

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CIT(A) upheld, inter alia, the disallowance of loss claimed on account of write-off of export incentives amounting to ₹3,86,35,698/- and the addition of ₹11,01,011/- made under section 68 of the Income-tax Act, 1961 ("the Act"). The assessee has raised the following grounds of appeal:

i. On the facts, and in circumstances of the case, and in law, your Appellant prays for condonation of delay of 316 days in filing the appeal. ii. On the facts, and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) erred in upholding action of the Assessing Officer in disallowing loss on account write off of export incentives amounting to RS. 3,86,35,698 without appreciating that, the write off of the incentives was made upon getting clarity that the incentives were not realizable anymore as the Government did not extend the expected date of realization. iii. On the facts, and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) erred in upholding action of the Assessing Officer in making addition of RS. 11,01,011 as unexplained cash credits under section 68 of the Income-tax Act 1961 without appreciating that the relevant details of loans taken from directors, repaid, opening and closing balances, and purpose of loans were furnished during the assessment proceedings. iv. Your Appellant craves leave to add to, amend, alter, modify, and / or delete any of the above grounds of appeal at or before final disposal of appeal. 2. At the outset, it was brought to our notice that the present appeal has been instituted with a delay of 316 days. The learned counsel for the assessee submitted that during the relevant period the assessee was simultaneously contesting appellate proceedings

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for Assessment Years 2012-13, 2016-17 and 2017-18. Owing to the multiplicity of proceedings conducted through the newly introduced Faceless Appeal Scheme, the disposal of the impugned appellate order inadvertently escaped the assessee's attention. It was submitted that non-compliance was purely on account of the circumstances beyond the control of the assessee and there was neither any deliberate inaction nor any mala-fide intention in filing the appeal belatedly. The explanation has been duly supported by an affidavit. Reliance was placed upon the celebrated judgment of the Hon'ble Supreme Court in Collector, Land Acquisition v. Mst. Katiji & Others (1987) 167 ITR 471 (SC), wherein the Court emphasized that the expression "sufficient cause" occurring in the law of limitation deserves a liberal and justice-oriented construction so that substantial justice prevails over technical considerations.

2.1 We have considered the explanation furnished by the assessee. The law relating to condonation of delay is no longer res integra. The expression "sufficient cause" must receive a liberal interpretation where the explanation offered is bona fide and does not disclose any deliberate inaction, negligence or lack of due diligence. Ordinarily, a litigant does not stand to benefit by approaching the Court belatedly, and procedural prescriptions should not be permitted to defeat adjudication on merits where substantial justice demands otherwise. Having regard to the explanation furnished, the affidavit placed on record, and there

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being nothing to indicate that the delay was intentional or actuated by mala fides, we are satisfied that the assessee was prevented by sufficient cause from preferring the appeal within the prescribed period. Accordingly, the delay of 316 days is condoned and the appeal is admitted for adjudication on merits.

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4.1 Insofar as the disallowance of prior period expenditure and income-tax payment was concerned, the assessee fairly conceded before the first appellate authority that such claims had been made inadvertently by the Chartered Accountant while preparing the return of income. It was submitted that, considering the substantial business loss already declared, the assessee had no conceivable tax advantage in making claims which were otherwise inadmissible. Accepting the position emerging from the record, the learned CIT(A) affirmed the disallowance of the aforesaid claims. The assessee has not pressed those issues before us.

4.2 The principal dispute before the learned CIT(A) related to the disallowance of the claim of ₹3,86,35,698/- representing the write- off of export incentive licences. The assessee explained that under the Foreign Trade Policy framed by the Government of India through the Ministry of Commerce and Industry, it had become entitled to incentives under the Agri Infrastructure Incentive Scheme (AIIS) and the Focus Product Scheme (FPS). The corresponding incentive licences were recognized as income in the respective years in accordance with the mercantile system of accounting, as the entitlement had accrued on fulfilment of the prescribed export obligations.

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4.2.1 It was submitted that the assessee had recognized the value of export incentive licences received under the ‘Agri Infra Incentive Scheme’ as income in the respective financial years in accordance with the mercantile system of accounting. The income so recognized amounted to ₹1,25,00,000/- in Financial Year 2012- 13, ₹2,17,35,244/- in Financial Year 2013-14 and ₹33,00,000/- in Financial Year 2014-15, aggregating to ₹3,75,35,244/-.

4.2.2 It was further submitted that the export incentive receivable under the Focus Product Scheme amounting to ₹11,00,454/- also remained incapable of realization, as the corresponding licence could not be sold within its validity period. Since the said incentive had already been recognized as income and offered to tax in the respective earlier financial years, the assessee wrote off the receivable during the year under consideration and claimed the resultant loss as deductible under the Act.

4.2.3 According to the assessee, although these licences ordinarily carried a validity period of eighteen months and were transferable in the market, it entertained a bona fide expectation that the Government would extend their validity, as had allegedly been done on earlier occasions. Since no such extension was ultimately granted and the licences became commercially incapable of realization, the assessee wrote off the outstanding receivables

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during the previous year relevant to the assessment year under consideration and claimed the amount as a business loss.

4.2.4 The Assessing Officer, while furnishing the remand report, observed that each licence had a specified validity period of eighteen months and had admittedly expired in earlier years. According to him, if the licences had become incapable of realization, the corresponding loss ought to have been recognized in the year in which the licences expired and not in the year under consideration.

4.2.5 Accepting the said reasoning, the learned CIT(A) held that the assessee, admittedly following the mercantile system of accounting, had failed to establish that the loss had crystallized during the relevant previous year. The appellate authority further observed that no material had been placed on record to demonstrate any supervening event or governmental action during the relevant year which postponed the crystallization of the loss. Consequently, the learned CIT(A) upheld the disallowance of ₹3,86,35,698/-, observing that the write-off pertained to earlier years and could not be allowed in the assessment year under consideration. The Ld. CIT(A) accordingly upheld the disallowance observing as under ;-

“Disallowance of Loss on Export Incentives (Rs.3,86,35,698/-)

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The AO disallowed the claim of loss on export incentives on the grounds that the appellant failed to substantiate the necessity of writing off these incentives in the year under appeal instead of earlier years.

The appellant contended that the incentives under the Agri Infra Incentive Scheme (AIIS) and Focus Product Scheme (FPS) were recognized as income in previous years and subsequently written off in the current year due to their inability to be sold.

The remand report confirmed that these incentive licenses had an expiry period of 18 months. Therefore, the write-off should have been reflected in the financials of AY 2015-16 or earlier instead of AY 2017- 18.

The fundamental principle of the mercantile system of accounting requires that income and expenses be accounted for in the period to which they relate. The appellant has not provided any convincing justification as to why the export incentives were not written off in the appropriate assessment year, even though they had already been accounted for as income in earlier years. The AO correctly observed that this delayed recognition distorts the financial position and does not align with sound accounting practices.

Additionally, the appellant has not furnished adequate supporting documents demonstrating any extraordinary circumstances preventing the realization of these incentives within the prescribed validity period. The absence of any official correspondence, confirmations, or regulatory constraints indicating why the incentives could not be utilized further weakens the appellant's case.

In CIT v. Excel Industries Ltd. [2013] 358 ITR 295 (SC), the Supreme Court reiterated that income accrues when there is a reasonable certainty of realization. Since the export incentives were recognized as income in earlier years, their subsequent write-off cannot be allowed in a later assessment year unless the appellant proves that such loss crystallized only in the relevant year, which has not been done in this case.

In view of the above, it is held that the appellant has failed to provide satisfactory evidence justifying the timing of the write-off. The AO's disallowance of Rs.3,86,35,698/- is upheld, and the appeal on this ground is dismissed.”

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4.2.6 . Assailing the impugned order, the learned counsel for the assessee invited our attention to the details of the export incentive licences placed on record, indicating the financial year in which the incentives were recognized as income, the licence numbers, dates of issue, dates of expiry and the corresponding period of validity. It was submitted that the export incentive receivables represented benefits accrued under the Agri Infrastructure Incentive Scheme (AIIS) and the Focus Product Scheme (FPS), which had been consistently offered to tax in the respective years when the entitlement accrued. The relevant particulars are reproduced below for ready reference:

F.Y. Amount Amount Scrip No Issue Expiry Expiry Booked Receivab Date Date FY based on le as per exports license made on issued an estimated basis 2012-13 1,25,00,00 0 2013-14 2,17,35,24 95,29,18 026728 16/09/2 10/03/2 2014- 4 8 5 013 015 15 2013-14 1,97,06, 026754 27/02/2 21/08/2 2015- 056 56 014 015 16 2014-15 33,00,000 30,59,78 026754 15/10/2 07/04/2 2016- 3 66 014 016 17 2015-16 21,55,06 026796 15/07/2 05/01/2 2016- 4 4 015 017 17 TOTAL 3,75,35,2 3,44,50 (A) 44 ,091 FPS (Focus Product Scheme)

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FPS 3,13,688 Receivabl e FPS 5,38,509 Receivabl e for F.Y. 12-13 FPS 2,48,257 Receivabl e for F.Y. 13-14 TOTAL 11,00,454 (B) Gross 3,86,35,69 Total 8 (A)+(B)

4.2.7 The learned counsel submitted that although the licences carried a stipulated validity period, the Government of India had, on earlier occasions, extended the period of validity of similar incentive scrips issued under the Foreign Trade Policy. According to him, the assessee was, therefore, under a bona fide and commercially reasonable expectation that similar extensions would be granted in respect of the licences in question. It was argued that only when no such extension was forthcoming did the assessee finally conclude that the receivables had become incapable of realization, whereupon the amount was written off during the relevant previous year. It was accordingly contended that the loss did not arise merely because the licences had technically expired; rather, it crystallized only when the possibility of realization had ceased altogether. The write-off, therefore, represented a genuine business loss incidental

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to the assessee's export business and was allowable in the year in which such loss actually crystallized. In support of the above proposition, Ld. Counsel relied upon the decision of the CIT vs. Excel Industries Ltd. [2013] 358 ITR 295(SC).

4.2.8 Per contra, the learned Departmental Representative strongly supported the orders of the authorities below. It was submitted that the incentive licences admittedly carried a fixed period of validity of eighteen months. Once the licences expired, the assessee's right to realize the incentive stood extinguished. Consequently, if any loss had arisen on account of non-realization of such incentives, the same necessarily pertained to the year in which the respective licences expired. According to the Revenue, the assessee could not postpone recognition of the loss merely on the basis of an assumed expectation that the Government might extend the validity period at some future point of time. The learned Departmental Representative further submitted that no contemporaneous documentary evidence had been produced either before the Assessing Officer, the learned CIT(A), or even before this Tribunal to establish that any official proposal for extension of validity was under consideration or that the assessee possessed any legally enforceable or commercially reasonable basis for entertaining such expectation.

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4.2.9 We have considered the rival submissions and examined the material available on record. There is no dispute with regard to the foundational facts. The export incentive receivables had admittedly been recognized as income by the assessee in the earlier assessment years upon accrual of the entitlement. Equally undisputed is the fact that the corresponding incentive licences carried a prescribed validity period and ultimately remained unrealized. The controversy, therefore, lies within a narrow compass, namely, whether the business loss arising on account of non-realization of the export incentive licences can be said to have crystallized during the previous year relevant to the assessment year under consideration or whether such loss had already crystallized in the earlier years when the respective licences expired. The answer to this issue necessarily depends upon the factual determination of the point of time when the possibility of realization finally ceased.

4.2.10 The learned counsel has sought to explain the timing of the write-off by contending that although the licences had technically expired earlier, the assessee continued to entertain a bona fide expectation that the Government of India would extend their validity, as had allegedly been done in earlier years under the Foreign Trade Policy. It is only upon abandonment of such expectation during the relevant previous year that the receivables were considered irrecoverable and consequently written off.

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4.2.11 The submission, in principle, cannot be rejected as legally untenable. Under the mercantile system of accounting, the allowability of a business loss is governed not merely by the date on which the underlying asset technically ceases to exist but by the point of time at which the loss can reasonably be said to have crystallized on commercial principles. The law is equally well settled that the question of crystallization is essentially one of fact and has to be determined having regard to the surrounding circumstances and the evidence available on record.

4.2.12 However, in the present case, we find that the assessee has not placed on record any contemporaneous material demonstrating that its expectation regarding extension of validity was founded upon any governmental notification, public notice, circular, policy decision, official correspondence or any other objective material. In the absence of such evidence, the plea that the loss crystallized only during the year under consideration remains unsupported. At the time of hearing, the learned counsel fairly submitted that the assessee is in a position to produce documentary evidence demonstrating that extensions of validity had been granted by the Government in the past and requested that one final opportunity be granted to place the relevant material on record. Having regard to the entirety of the facts and circumstances, we are of the considered opinion that the issue has not been examined on the basis of complete material. The

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authorities below have proceeded primarily on the premise that since the licences had expired earlier, the corresponding loss necessarily belonged to the earlier assessment years. Conversely, the assessee seeks to justify the timing of the write-off on the doctrine of crystallization by relying upon an alleged legitimate expectation arising from the Government's past practice of extending the validity of similar export incentive licences. This factual foundation, however, has neither been substantiated before the lower authorities nor adequately examined by them. Since the determination of the year of allowability depends upon verification of the factual basis underlying the assessee's claim, we consider it just and proper, in the interest of substantial justice, to afford one final opportunity to the assessee to substantiate its case by producing the relevant documentary evidence.

4.2.13 Accordingly, the issue relating to the allowability of the write-off of export incentive receivables amounting to ₹3,86,35,698/- is restored to the file of the Assessing Officer. The Assessing Officer shall examine afresh the documentary evidence that may be produced by the assessee, including material relating to the Government's policy regarding extension of validity of export incentive licences, and thereafter determine, in accordance with law, the assessment year in which the loss can legitimately be said to have crystallized. While undertaking such exercise, the Assessing Officer shall independently consider the principles governing

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accrual and crystallization of business losses, uninfluenced by any observations contained in the orders of the lower authorities, and shall pass a reasoned order after affording the assessee an adequate opportunity of being heard

4.3 The second issue relates to the addition of ₹11,01,011/- made by the Assessing Officer under section 68 of the Act on account of unexplained cash credits representing unsecured loans. The learned counsel for the assessee submitted that the addition came to be made principally because the requisite documentary evidence could not be furnished during the assessment proceedings. It was contended that the assessee possesses complete details regarding the identity of the lenders, confirmations, ledger accounts, opening and closing balances, movement of the loan accounts, mode of repayment and the purpose for which the loans were obtained. It was further submitted that these documents go to the root of the matter and are necessary for proper adjudication of the issue. Accordingly, a prayer was made for one final opportunity to place the relevant evidence before the Assessing Officer. The learned Departmental Representative, while supporting the orders of the authorities below, fairly left the issue to the discretion of the Bench should the Tribunal be inclined to restore the matter for fresh examination.

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4.3.1 We have heard rival submissions and perused the relevant material on record. It is evident from the assessment order that the impugned addition under section 68 has substantially resulted from the assessee's failure to furnish the requisite documentary evidence during the course of assessment proceedings. The addition, therefore, rests primarily upon the absence of satisfactory explanation rather than upon any independent investigation undertaken by the Assessing Officer regarding the genuineness of the loan transactions. It is equally well settled that an addition under section 68 entails examination of the explanation offered by the assessee with reference to the settled parameters relating to the identity of the creditor, creditworthiness of the creditor and genuineness of the transaction. Such examination necessarily requires consideration of the documentary evidence produced by the assessee. Where material evidence, having a direct bearing on the determination of the issue, is sought to be produced, the matter deserves to be examined on its own merits rather than being concluded on technical considerations alone. Since the assessee has expressed its readiness to furnish all supporting documents and has sought only one effective opportunity for substantiating its explanation, we are of the considered view that the ends of justice would be better served by permitting such evidence to be examined by the Assessing Officer.

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4.3.2 Accordingly, the addition of ₹11,01,011/- made under section 68 of the Act is also set aside to the file of the Assessing Officer for fresh adjudication. The Assessing Officer shall examine the documentary evidence that may be furnished by the assessee, carry out such enquiries as may be considered necessary, and thereafter decide the issue afresh by passing a speaking and reasoned order in accordance with law. Needless to observe, the assessee shall extend full cooperation in the remand proceedings and shall furnish all requisite details within the time stipulated by the Assessing Officer.

4.3.3 We deem it appropriate to clarify that our decision to restore the issues to the file of the Assessing Officer has been rendered solely with a view to ensure a comprehensive examination of the material facts and to advance the cause of substantial justice. We have not expressed any opinion on the merits of either of the additions challenged before us, and all questions of fact and law are expressly left open for consideration by the Assessing Officer. The Assessing Officer shall afford the assessee an adequate and effective opportunity of being heard, permit it to file all relevant documentary evidence in support of its claims, consider such evidence objectively, and thereafter dispose of the issues by a reasoned order in accordance with law. The assessee is also directed to cooperate fully in the remand proceedings and shall refrain from seeking unnecessary adjournments.

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Order pronounced in the open Court on 27/07/2026.

Sd/- Sd/- (PAWAN SINGH) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 27/07/2026 Z.U., P.S.

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

BY ORDER,

//True Copy// (Assistant Registrar) ITAT, Mumbai