RKC INFRABUILT PRIVATE LIMITED,AHMEDABAD vs. INCOME TAX OFFICER WARD 3(1)(1), AHMEDABAD

ITA 2105/AHD/2026Status: DisposedITAT Ahmedabad12 October 2026AY 2020-2115 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the disallowance of bad debts amounting to INR 36,95,988 was incorrect on facts and law. The assessee had provided sufficient documentary evidence, including ledger accounts and certification from the Executive Engineer, confirming the forfeiture of these amounts. The Tribunal noted that under the amended Section 36(1)(vii), writing off a debt as irrecoverable in the accounts is sufficient for claiming a deduction, and the assessee is not required to prove it became bad in a particular year. The CIT(A)'s finding that the appellant failed to furnish adequate evidence was deemed incorrect. Therefore, grounds of appeal 2 to 5 concerning bad debts were allowed, and the disallowance was deleted. Regarding rent payments of INR 4,80,000, the Tribunal found that the AO and CIT(A) had not brought any evidence on record to establish that the expenditure was excessive or unreasonable with reference to fair market value, as required by Section 40A(2)(b). Merely suspecting that the transaction was not revenue neutral was insufficient to disallow the entire expenditure. The assessee had provided evidence that the recipient companies had their own income, and the rent was accounted for as 'other income'. Thus, grounds of appeal 6, 7, and 8 were allowed, and the disallowance was deleted. Ground of appeal 9, challenging the initiation of penalty proceedings under Section 270A, was dismissed as premature. Grounds 10, 11, and 12, relating to interest under Sections 234A, 234B, and 234C, were dismissed as infructuous in view of the decision on merits. Ground 1 was general and required no adjudication. The appeal was partly allowed.

What were the facts?

The assessee, RKC Infrabuilt Private Limited, filed an appeal before the Income Tax Appellate Tribunal (ITAT) against the order of the Commissioner of Income Tax (Appeals) - National Faceless Appeal Centre (NFAC), Delhi, dated March 18, 2026. This order pertained to Assessment Year 2020-21 and arose from an assessment order passed under Section 143(3) read with Section 144B of the Income Tax Act, 1961. The appeal challenged disallowances made by the Assessing Officer (AO) and confirmed by the CIT(A) concerning bad debts amounting to INR 36,95,988 and rent payments amounting to INR 4,80,000. The assessee also challenged the initiation of penalty proceedings under Section 270A and the levy of interest under Sections 234A, 234B, and 234C.

What were the issues?

The Tribunal had to decide the following issues: 1. Whether the CIT(A) erred in upholding the disallowance of bad debts amounting to INR 36,95,988 without granting the Appellant an opportunity of hearing through video conferencing, thereby violating principles of natural justice (Section 250). 2. Whether the CIT(A) erred in upholding the disallowance of bad debts amounting to INR 36,95,988 by alleging the Appellant failed to substantiate the write-off in its books of account, despite providing explanations and evidence (Section 36(1)(vii)). 3. Whether the CIT(A) erred in upholding the disallowance of bad debts amounting to INR 36,95,988 by alleging the Appellant failed to satisfy the conditions of Section 36(2) regarding offering such debts to tax in earlier years. 4. Whether the CIT(A) erred in upholding the disallowance of bad debts amounting to INR 36,95,988 without considering customer confirmation and other evidence establishing irrecoverability. 5. Whether the CIT(A) erred in upholding the disallowance of bad debts amounting to INR 36,95,988 on the ground that the Appellant had not established sufficient efforts to recover the amounts, when write-off in books is sufficient as per T.R.F Ltd vs CIT [2010] 323 ITR 397 (Supreme Court) (Section 36(1)(vii)). 6. Whether the CIT(A) erred in confirming the disallowance of rent amounting to INR 4,80,000 due to alleged lack of genuineness, commercial expediency, and arm's length nature, despite the premises being used for business and rent being reasonable. 7. Whether the CIT(A) erred in upholding the disallowance of rent expenses of INR 4,80,000 under Section 40A(2)(b) by alleging the arrangement was made to reduce the group's tax liability, when the parties had opted for the Section 115BAA tax regime, making the transaction tax neutral. 8. Whether the CIT(A) erred in confirming the disallowance of rent expenses of INR 4,80,000 under Section 40A(2)(b) by relying on irrelevant factors like the lessors' head of income or scale of business activity. 9. Whether the CIT(A) erred in confirming the initiation of penalty proceedings under Section 270A. 10. Whether the CIT(A) erred in confirming the levy of interest under Section 234A. 11. Whether the CIT(A) erred in confirming the levy of interest under Section 234B. 12. Whether the CIT(A) erred in confirming the levy of interest under Section 234C. Assessee's Contentions: - Violation of natural justice due to denial of video conferencing hearing. - Bad debts were substantiated with ledger accounts, certified by the Executive Engineer, and confirmed as forfeited by the R&B Division. - Debts were offered to tax in earlier years. - Write-off in books of account is sufficient for deduction under Section 36(1)(vii), citing T.R.F Ltd vs CIT. - Rent payments were for business premises, reasonable, and the recipient companies had significant income, making the transaction tax neutral under Section 115BAA. - Disallowance of rent under Section 40A(2)(b) was unsustainable due to lack of evidence of excessiveness or unreasonableness. - Initiation of penalty and levy of interest were unsustainable. Revenue's Contentions: - Supported the CIT(A)'s order, contending that disallowance under Section 40A(2)(b) was justified due to related parties.

Which sections of the Income-tax Act were involved?

Section 250,Section 143(3),Section 144B,Section 36(1)(vii),Section 36(2),Section 40A(2)(b),Section 270A,Section 234A,Section 234B,Section 234C,Section 115BAA,Section 30

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH

Before: Shri Narendra Prasad Sinha & Shri Tapas Ram Misra

For Appellant: Ms. Amrin Pathan, A.R
For Respondent: Shri Amit Pratap Singh, Sr. D.R

PER TAPAS RAM MISRA, JUDICIAL MEMBER:

The present appeal has been filed by the Assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi (hereinafter referred to as “CIT(A)”), dated 18.03.2026 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2020-21. 2. The assessee has raised the following Grounds of Appeal: “The Appellant, being

The order continues below.

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