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Facts
The appellant is aggrieved by additions made by the CPC under Section 143(1) and confirmed by the CIT(A), including disallowance of advance gratuity, deemed income, disallowance of bad debts, and carry forward of loss. The appellant contended that these additions were debatable and made without proper opportunity.
Held
The Tribunal held that the reliance on older case laws was not applicable due to changes in the law. While CPC did not provide an opportunity for all issues, the CIT(A) did, and the principle of natural justice could be supplied later. The appeals were remitted back to the AO for verification and potential allowance.
Key Issues
Whether additions made under Section 143(1) by CPC are debatable and require proper opportunity for the assessee, and whether the principles of natural justice were violated.
Sections Cited
143(1), 41, 43B, 154
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Income Tax Appellate Tribunal, Mumbai “E” Bench, Mumbai.
Before: Shri Sandeep Gosain (JM) & Shri Omkareshwar Chidara (AM)
The appellant company during appeal proceedings before the ITAT has contended that the above four additions cannot made under section 143(1) as they are debatable. Second legal ground taken by the appellant company is that, with respect to 3rd and 4th issues (“c” and “d” above), the CPC made disallowances without giving any opportunity and the order of CPC under section 143(1) should be quashed. For these arguments, the Ld. AR of the appellant relied on certain cases-law.
The Ld. DR relied on the orders of Ld. CPC and Ld. CIT(A).
2 4. To start with, the Bench decided to adjudicate the above two legal grounds taken up by the appellant company. From the paper book filed by the Ld. AR of the appellant, it is observed that reliance is placed on the Hon'ble Jurisdictional High Court decision of Bajaj Auto Finance Ltd. Vs. Ld. CIT(A) Pune (93 taxman.con 63)(Bombay) A.Y. 1993-94. Similarly, reliance was placed on the decision of Khatau Jankar Ltd. (196 ITR 55) (Bombay) and CIT Vs. GVK Industries Ltd. (147 taxman.com 281)(Telangana) for the proposition that on debatable issues, additions under section 143(1)(a) cannot made. But, the impugned case, relates to A.Y. 2021-22 and from 1.4.2008, the section 143(1)(a) itself is replaced and section 143(1) was introduced and under section 143(1), the additions are made by CPC in this year. Section 143(1)(a)(ii) and (iv) says adjustments/additions can be made if there is incorrect claim and, if such incorrect claim is apparent from any information in the Return of Income and disallowance of expenditure indicated in audit report but not taken into account in computing the total income in the Return of Income. In view of the change in law, the cases-law cited and relied on by appellant are not applicable. The second argument of appellant company is that if opportunity is not given the additions made should be quashed. It is a fact that CPC gave an opportunity on first two issues and did not give an opportunity on subsequent two issues before making addition. Not giving an opportunity will not make the order invalid and to be quashed. The principles of natural justice can be supplied at any time. The Ld. CIT(A) gave opportunity of hearing and confirmed the addition. In fact, in several cases, this Bench has restored the matter to the Department with a direction to give an opportunity to appellant, wherever opportunity is not given to the appellant but assessment order was not quashed on this ground. In several such cases, the ITAT has only remanded the case back to the Department, where appellant has not appeared/not responded, but the additions made were never confirmed on the premise that appellant has not responded. On the same yardstick, if Department has not given an opportunity, directions were given to give opportunity to appellant and make additions. Thus, the Order of Ld. CPC cannot be quashed on the 3 ground that CPC has not granted opportunity especially when Ld. CIT(A), at appellate stage has given an opportunity and adjudicated the matter. Moreover, statute gave a remedy to the appellant to file an application under section 154 to rectify the mistake, to CPC. It is not clear from the order whether the appellant filed an application for rectification under section 154 of the I.T. Act and it was rejected by CPC. Even though, the words used are “shall”, the courts have held that depending on the context, the same may be treated as “may” also. Hence, the order of CPC cannot be quashed.
Now, the adjudication of issues, is being done on merits and as per law as follows : a) The first issue relates to disallowance of advance payment of gratuity. The facts are not coming out properly either from the order of CPC nor from the order of Additional Ld. CIT(A) which is cryptic. If the amount was actually not paid, then only provisions under section 43B can be involved. From the Orders of lower authorities, it is not clear, whether gratuity payment was done within due date or not. If the gratuity payment is done within due date, the amount should be allowed as expenditure under section 43B of the Act. The Ld. AO is directed to get the proof of payment within the due date and if paid by appellant, deduction under section 43B should be allowed. The Ld. AO is directed to verify and take action accordingly. b) The second addition made by the CPC relates to “Deemed income under section 41 of the Act”. The Ld. AR of the appellant states that the amount is already offered in Income Tax Return. The Ld. AO is directed to verify the same and if already offered as income, the addition should be deleted as it amounts to double deduction. c) Disallowance of bad debts written off. The Ld. AO is directed to examine whether these bad debts are written off in the books of account and if so, the amount should be allowed as deduction, as laid down in the case of TRF Ltd. (323 ITR 399)(SC).
4 d) The last issue to be decided relates to carry forward loss. The claim of appellant is that the loss was not carried forward without assigning reasons. The Ld. AO is directed to verify whether these carry forward losses are as per earlier years Return of Income and if so, the same may be allowed. Here again, in the written submissions, the Ld. AR of appellant relied on the CBDT Circular dated 4.4.1989, which relates to section 143(1)(a) of the Act, whereas all these disallowances/additions are made under section 143(1) of the Act. Hence the CBDT Circular is not applicable to the facts of case. This circular in fact, says if an addition is made, the appellant is entitled to file an application under section 154 of the IT Act. But, it does not say that the additions made are invalid and to be quashed.
To sum up, the issues are remitted back to the file of JAO for verification and to be allowed. Prima facie, the contentions of Ld. AR of the appellant appears to be correct, but the verification part is to be done by Ld. AO.
The appellant’s appeal is allowed for statistical purposes. Order pronounced in the open Court on 02/05/2025.