AADHYA MOTOR CAR COMPANY PRIVATE LIMITED,MUMBAI vs. ITO, NFAC

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “A” MUMBAI

BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI ANIKESH BANERJEE (JUDICIAL MEMBER)

ITA No. 293/MUM/2026 Assessment Year: 2017-18

Aadhya Motor Car Company Deputy Commissioner of Income Private Limited, G21, Tax 4(1)(1), Aayakar Bhawan, Vs. Lokmanya Paz Bazar Maharshi Karve Marg, Mumbai – Association Somaiyaa Hospital 400020, Maharashtra. Road, Eastern Express Highway, Mumbai Sion, Mumbai - 400022. PAN NO. AAHCA 8967 G Appellant Respondent

Assessee by : Ms. Bhumika Salot (Virtually Appeared) : Shri. Surendra Mohan , (SR. DR) Revenue by

: 22/04/2026 Date of Hearing : 28/04/2026 Date of pronouncement ORDER PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against order dated 14.11.2025, passed by the Learned Commissioner of Income-Tax (Appeals) - National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for Assessment Year (in short ‘A.Y’) 2017-18, raising following grounds: -

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“1. On the facts and circumstances of the Appellant's case and in law, 1. On the facts and circumstances of the Appellant's case and in law, 1. On the facts and circumstances of the Appellant's case and in law, the Ld. CTT(A) has erred in confirming the action of the Ld. AO in the Ld. CTT(A) has erred in confirming the action of the Ld. AO in the Ld. CTT(A) has erred in confirming the action of the Ld. AO in completing the assessment under section 144, despite the fact that the completing the assessment under section 144, despite the fact that the completing the assessment under section 144, despite the fact that the assessee was never validly served and no reasonable or effective was never validly served and no reasonable or effective was never validly served and no reasonable or effective opportunity of being heard was granted. opportunity of being heard was granted. 2. On the facts and circumstances of the Appellant's case and in law, the 2. On the facts and circumstances of the Appellant's case and in law, the 2. On the facts and circumstances of the Appellant's case and in law, the Ld. CIT(A) has erred in confirming the action of the Ld. AO in disallowing Ld. CIT(A) has erred in confirming the action of the Ld. AO in disallowing Ld. CIT(A) has erred in confirming the action of the Ld. AO in disallowing a sum of Rs. 1,72,79,681/ . 1,72,79,681/-being reserve for doubtful debts claimed being reserve for doubtful debts claimed under the grouping "other expenses" as per para 4 of the impugned order under the grouping "other expenses" as per para 4 of the impugned order under the grouping "other expenses" as per para 4 of the impugned order 3. The appellant craves leave to add, amend, alter or delete any of the 3. The appellant craves leave to add, amend, alter or delete any of the 3. The appellant craves leave to add, amend, alter or delete any of the above grounds and all grounds are without prejudice to o above grounds and all grounds are without prejudice to one another. ne another.” 2. Briefly stated, facts of the case are that the assessee facts of the case are that the assessee facts of the case are that the assessee a private limited Company, filed its return of income on 30.10.2017 ed its return of income on 30.10.2017, declaring total loss of declaring total loss of Rs.9,36,23,623/- under the under the regular provisions of the Income ncome-tax Act, 1961 (in short, ‘the the Act’), and book profit of Rs.39,22,0 39,22,099/- under section 115JB of the Act. under section 115JB of the Act. The assessment under section 143(3) of the Act was completed on assessment under section 143(3) of the Act was completed on assessment under section 143(3) of the Act was completed on 25.12.2019 determining the total loss at 25.12.2019 determining the total loss at ₹7,24,23,620/ 7,24,23,620/- after making, inter alia, disallowances on account of diminutio , disallowances on account of diminutio , disallowances on account of diminution in the value of investments and certain commission and brokerage value of investments and certain commission and brokerage value of investments and certain commission and brokerage expenses.

2.1 Subsequently, the learned Principal Commissioner of Income Subsequently, the learned Principal Commissioner of Income Subsequently, the learned Principal Commissioner of Income Tax (PCIT), in exercise of revisional jurisdiction under section 263 of Tax (PCIT), in exercise of revisional jurisdiction under section 263 of Tax (PCIT), in exercise of revisional jurisdiction under section 263 of the Act, held the assessment order dated the Act, held the assessment order dated 25.12.2019 to be 25.12.2019 to be erroneous insofar as it was prejudicial to the interests of the erroneous insofar as it was prejudicial to the interests of the erroneous insofar as it was prejudicial to the interests of the Revenue, and directed the Assessing Officer to frame a fresh Revenue, and directed the Assessing Officer to frame a fresh Revenue, and directed the Assessing Officer to frame a fresh assessment. The said revisional order was upheld by the Coordinate assessment. The said revisional order was upheld by the Coordinate assessment. The said revisional order was upheld by the Coordinate Bench of this Tribunal Bench of this Tribunal vide order dated 06.01.2023. .

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2.2 Pursuant thereto, the Assessing Officer issued statutory Pursuant thereto, the Assessing Officer issued statutory Pursuant thereto, the Assessing Officer issued statutory notices; however, the assessee failed to furnish requisite details or notices; however, the assessee failed to furnish requisite details or notices; however, the assessee failed to furnish requisite details or comply with the same. Consequently, the Assessing Officer passed a comply with the same. Consequently, the Assessing Officer passed a comply with the same. Consequently, the Assessing Officer passed a fresh assessment order dated 22.03.2023 under section 144 of the fresh assessment order dated 22.03.2023 under sectio fresh assessment order dated 22.03.2023 under sectio Act, making, inter alia, a disallowance of ₹1,72,79,681/ Act, making, inter alia, a disallowance of 1,72,79,681/- claimed under the head “reserve for doubtful debts”. under the head “reserve for doubtful debts”.

2.3 The case of the assessee, as projected, was that the said The case of the assessee, as projected, was that the said The case of the assessee, as projected, was that the said amount represented octroi deposits made with the local authorities amount represented octroi deposits made with the local authorities amount represented octroi deposits made with the local authorities in the course of its business as an automobile dealer, and upon the course of its business as an automobile dealer, and upon the course of its business as an automobile dealer, and upon cessation of business, the same became irrecoverable and was cessation of business, the same became irrecoverable and was cessation of business, the same became irrecoverable and was accordingly written off. The Assessing Officer, however, rejected the accordingly written off. The Assessing Officer, however, rejected the accordingly written off. The Assessing Officer, however, rejected the claim on the ground that the assessee failed to substantiate the claim on the ground that the assessee failed to substantiate the claim on the ground that the assessee failed to substantiate the same with cogent documentary evidence and further observed that same with cogent documentary evidence and further observed that same with cogent documentary evidence and further observed that the claim was neither admissible as a provision nor as a write-off in the claim was neither admissible as a provision nor as a write the claim was neither admissible as a provision nor as a write the absence of fulfillment of statutory conditions. The relevant the absence of fulfillment of statutory conditions. the absence of fulfillment of statutory conditions. observation of the AO is reproduced as under: observation of the AO is reproduced as under:-

“5.1. As per assessee's submission filed during the course of revision per assessee's submission filed during the course of revision per assessee's submission filed during the course of revision proceedings it was stated that the Reserve for doubtful debts' claimed at proceedings it was stated that the Reserve for doubtful debts' claimed at proceedings it was stated that the Reserve for doubtful debts' claimed at Rs. 1,72,79,681/- were actually 'octroi deposits which the assessee was were actually 'octroi deposits which the assessee was were actually 'octroi deposits which the assessee was not able to recover and therefore it was written not able to recover and therefore it was written-off. Thus when the off. Thus when the assessee came to know that the expenses claimed under the head assessee came to know that the expenses claimed under the head assessee came to know that the expenses claimed under the head 'Reserve for doubtful debts' cannot be allowed, it totally changed the 'Reserve for doubtful debts' cannot be allowed, it totally changed the 'Reserve for doubtful debts' cannot be allowed, it totally changed the nomenclature of expenses debited to profit and loss account from nomenclature of expenses debited to profit and loss account from nomenclature of expenses debited to profit and loss account from 'reserve" to 'write off. 'reserve" to 'write off. 5.2 Since the assessee neither responded to the notices issued u/s 142(1) the assessee neither responded to the notices issued u/s 142(1) the assessee neither responded to the notices issued u/s 142(1) of the Act nor furnished any details/documents to the show cause notice of the Act nor furnished any details/documents to the show cause notice of the Act nor furnished any details/documents to the show cause notice dated 16.03.2023, the claim of the assessee company regarding the dated 16.03.2023, the claim of the assessee company regarding the dated 16.03.2023, the claim of the assessee company regarding the deduction of Rs. 1,72,79,681/ deduction of Rs. 1,72,79,681/- as 'reserve for doubtful debts cannot be l debts cannot be allowed as the assessee company is not in the business of Banks and allowed as the assessee company is not in the business of Banks and allowed as the assessee company is not in the business of Banks and Financial Institutions. Financial Institutions.

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Further, the assessee could not furnish any supporting document 5.3 Further, the assessee could not furnish any supporting Further, the assessee could not furnish any supporting regarding the claimed change in nomenclature of expenses debited to regarding the claimed change in nomenclature of expenses debited to regarding the claimed change in nomenclature of expenses debited to profit and loss account from reserve" to write off. Since the octroi loss account from reserve" to write off. Since the octroi loss account from reserve" to write off. Since the octroi payments are made to local authorities in the form of entry tax therefore payments are made to local authorities in the form of entry tax therefore payments are made to local authorities in the form of entry tax therefore the same are covered by provisions of section 43B of the Act. Even if the the same are covered by provisions of section 43B of the Act. Even if the the same are covered by provisions of section 43B of the Act. Even if the deposits have been written off, the claim of writ deposits have been written off, the claim of write off is allowable only on e off is allowable only on fulfillment of certain conditions as per law. The write off can only be fulfillment of certain conditions as per law. The write off can only be fulfillment of certain conditions as per law. The write off can only be allowed after examining the terms and conditions of the agreement with allowed after examining the terms and conditions of the agreement with allowed after examining the terms and conditions of the agreement with the local authorities for such octroi deposits. The assessee might also be the local authorities for such octroi deposits. The assessee might also be the local authorities for such octroi deposits. The assessee might also be required to justify as to how it became disentitle for recovering/claiming justify as to how it became disentitle for recovering/claiming justify as to how it became disentitle for recovering/claiming such deposits from a Govt. Authority. Also even if the 'octroi deposits' such deposits from a Govt. Authority. Also even if the 'octroi deposits' such deposits from a Govt. Authority. Also even if the 'octroi deposits' might have been made by the assessee during the course of his business, might have been made by the assessee during the course of his business, might have been made by the assessee during the course of his business, the same can only be held to be 'Capital' in na the same can only be held to be 'Capital' in nature and not in the nature ture and not in the nature of 'Revenue. Further the claim made by the assessee during the revision of 'Revenue. Further the claim made by the assessee during the revision of 'Revenue. Further the claim made by the assessee during the revision proceedings also remains unsubstantiated in the absence of proper proceedings also remains unsubstantiated in the absence of proper proceedings also remains unsubstantiated in the absence of proper documentary evidence or correspondence with the said authority. documentary evidence or correspondence with the said authority. documentary evidence or correspondence with the said authority. Accordingly claim made by t Accordingly claim made by the assessee during the revision proceedings he assessee during the revision proceedings that 'Reserve for doub that 'Reserve for doubtful debts' claimed at Rs. 1,72,79, tful debts' claimed at Rs. 1,72,79,681/- are actually 'octroi deposits' which are eligible for write off, also cannot be actually 'octroi deposits' which are eligible for write off, also cannot be actually 'octroi deposits' which are eligible for write off, also cannot be accepted. 5.4 Therefore, in the absence of proper submissions to the 5.4 Therefore, in the absence of proper submissions to the various notices various notices issued u/s 142(1) of the Act, the amount of Rs. 1,72,79,681/-claimed issued u/s 142(1) of the Act, the amount of Rs. 1,72,79,681/ issued u/s 142(1) of the Act, the amount of Rs. 1,72,79,681/ under the head 'Reserve for doubtful debts' is disallowed as per Show under the head 'Reserve for doubtful debts' is disallowed as per Show under the head 'Reserve for doubtful debts' is disallowed as per Show Cause Notice dated 16.03.2023 and added to the income assessee.” Cause Notice dated 16.03.2023 and added to the income assessee. Cause Notice dated 16.03.2023 and added to the income assessee. 2.4 The Ld. CIT(A), on appeal, affir The Ld. CIT(A), on appeal, affirmed the action of the Assessing med the action of the Assessing Officer, primarily on the ground that the assessee failed to adduce Officer, primarily on the ground that the assessee failed to adduce Officer, primarily on the ground that the assessee failed to adduce any documentary evidence even at the appellate stage to any documentary evidence even at the appellate stage to any documentary evidence even at the appellate stage to substantiate its claim. substantiate its claim. The relevant finding of the decision of the Ld. The relevant finding of the decision of the Ld. CIT(A) is reproduced as unde CIT(A) is reproduced as under:-

“Grounds of appeal no. 1 to 5: These grounds of appeal relate to an Grounds of appeal no. 1 to 5: These grounds of appeal relate to an Grounds of appeal no. 1 to 5: These grounds of appeal relate to an addition of Rs. 1,72,79,681/ addition of Rs. 1,72,79,681/- made by the AO by adding back the made by the AO by adding back the Reserve for Doubtful Debts shown by the assessee in his Profit/loss Reserve for Doubtful Debts shown by the assessee in his Profit/loss Reserve for Doubtful Debts shown by the assessee in his Profit/loss account. In the appellate proceedings the assessee s account. In the appellate proceedings the assessee submitted that this ubmitted that this payment relates to an amount paid as "Octroi duty to permit the cars of payment relates to an amount paid as "Octroi duty to permit the cars of payment relates to an amount paid as "Octroi duty to permit the cars of the assessee to be brought into Mumbai for display in the showrooms the assessee to be brought into Mumbai for display in the showrooms the assessee to be brought into Mumbai for display in the showrooms and that this was a refundable deposit. However, as the company had and that this was a refundable deposit. However, as the company had and that this was a refundable deposit. However, as the company had gone into bankruptcy this amo gone into bankruptcy this amount could not be recovered and was written unt could not be recovered and was written off and claimed as a loss. The assessee has not submitted any off and claimed as a loss. The assessee has not submitted any off and claimed as a loss. The assessee has not submitted any documents in the appellate proceeding to substantiate his claim. The documents in the appellate proceeding to substantiate his claim. The documents in the appellate proceeding to substantiate his claim. The appeal of the assessee is hereby dismissed. appeal of the assessee is hereby dismissed.

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Ground no. 6. This pertains to a wrong Ground no. 6. This pertains to a wrong calculation made by the AO for calculation made by the AO for the purpose of computing book profit u/s 115JB. However, the assessee the purpose of computing book profit u/s 115JB. However, the assessee the purpose of computing book profit u/s 115JB. However, the assessee has already moved a rectification application u/s 154which is pending has already moved a rectification application u/s 154which is pending has already moved a rectification application u/s 154which is pending before the AO. Hence, this issue is outside the purview of this appeal. before the AO. Hence, this issue is outside the purview of this appeal. before the AO. Hence, this issue is outside the purview of this appeal. The assessee's appeal in dismissed,” assessee's appeal in dismissed,” 3. We have carefully considered the rival submissions and We have carefully considered the rival submissions and We have carefully considered the rival submissions and perused the material available on record. Before us, the learned perused the material available on record. Before us, the learned perused the material available on record. Before us, the learned counsel for the assessee has prayed for one final opportunity to counsel for the assessee has prayed for one final opportunity to counsel for the assessee has prayed for one final opportunity to place on record the necessary docum place on record the necessary documentary evidence in support of entary evidence in support of its claim. 3.1 Having regard to the totality of facts and circumstances, and Having regard to the totality of facts and circumstances, and Having regard to the totality of facts and circumstances, and bearing in mind the paramount consideration of rendering bearing in mind the paramount consideration of rendering bearing in mind the paramount consideration of rendering substantial justice, we are of the considered opinion that the matter substantial justice, we are of the considered opinion that the matter substantial justice, we are of the considered opinion that the matter deserves to be restor deserves to be restored to the file of the Ld. CIT(A) for fresh ed to the file of the Ld. CIT(A) for fresh adjudication. It is well settled that a litigant should not be denied adjudication. It is well settled that a litigant should not be denied adjudication. It is well settled that a litigant should not be denied an opportunity of being heard on merits, particularly when the an opportunity of being heard on merits, particularly when the an opportunity of being heard on merits, particularly when the dispute hinges upon verification of factual evidence. dispute hinges upon verification of factual evidence. dispute hinges upon verification of factual evidence. 3.2 Accordingly, the impu Accordingly, the impugned order of the Ld. CIT(A) is set aside gned order of the Ld. CIT(A) is set aside and the matter is restored to his file with a direction to adjudicate and the matter is restored to his file with a direction to adjudicate and the matter is restored to his file with a direction to adjudicate the issue afresh, after duly considering the documentary evidence the issue afresh, after duly considering the documentary evidence the issue afresh, after duly considering the documentary evidence that may be furnished by the assessee. The Ld. CIT(A) shall afford that may be furnished by the assessee. The Ld. CIT(A) shall afford that may be furnished by the assessee. The Ld. CIT(A) shall afford adequate opportunity of being heard to both the assessee and the portunity of being heard to both the assessee and the portunity of being heard to both the assessee and the Assessing Officer and thereafter pass a reasoned and speaking Assessing Officer and thereafter pass a reasoned and speaking Assessing Officer and thereafter pass a reasoned and speaking order in accordance with law. The assessee is also directed to order in accordance with law. The assessee is also directed to order in accordance with law. The assessee is also directed to

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extend full cooperation and promptly furnish all requisite evidences extend full cooperation and promptly furnish all requisite evidences extend full cooperation and promptly furnish all requisite evidences to facilitate expeditious disposal of the matter. itate expeditious disposal of the matter.

3.3 The ground No. 1 of The ground No. 1 of the appeal of the assessee the appeal of the assessee is allowed. Since we have restored the matter back, the ground on merit is Since we have restored the matter back, the ground on merit is Since we have restored the matter back, the ground on merit is rendered as academic. rendered as academic.

Order pronounced in the open Court on ounced in the open Court on 28/04/2026. /04/2026.

Sd/- Sd/ Sd/- (ANIKESH BANERJEE ANIKESH BANERJEE) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER

Mumbai; Dated: 28/04/2026 M. Ranganath Vittal , Sr. P.S. M. Ranganath Vittal , Sr. P.S.

Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai