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Facts
The assessee, Tutor Investment & Finance Pvt. Ltd., filed appeals against CIT(A)'s orders confirming additions made by the AO for AYs 2013-14 to 2017-18. The AO had reopened assessments based on information regarding cash credits and F&O losses, making additions under Section 68 and disallowing F&O losses. For later AYs, the issue revolved around the disallowance of bad debts.
Held
The Tribunal admitted additional evidence filed by the assessee, considering it crucial for a just decision, and remanded the issues related to AYs 2013-15 to the AO for fresh adjudication. For AYs 2016-17 and 2017-18, the Tribunal allowed the appeals, setting aside the additions and directing the AO to delete them, finding that the bad debts were written off in the ordinary course of business and met the conditions for deduction.
Key Issues
Whether additional evidence can be admitted at the appellate stage and whether the disallowance of bad debts/unexplained credits was justified.
Sections Cited
147, 143(3), 148, 68, 56(2)(viib), 36(2), 36(1)(vii), 37
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Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI PRABHASH SHANKAR
Appellant by : Shri Snehal Shah, CA Respondent by : Shri Hemanshu Joshi, (Sr. DR) Date of Hearing 12.03.2025 Date of Pronouncement 24.03.2025 आदेश / O R D E R PER BENCH :- The above captioned appeals have been filed by the assessee against the orders by the Learned Commissioner of Income-tax (Appeal) CIT(A) 54, Mumbai [hereinafter referred to as “CIT(A)”] of even date pertaining to the order passed u/s. 147/143(3)of the Income-tax Act, 1961 [hereinafter 290 &291/Mum/2025 A.Y. 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 Tutor Investment and Finance Pvt. Limited, Mumbai referred to as “Act”] for the Assessment Years [A.Y.] 2013-14 and 2014-15, 2015-16 & 2016-17 and the order passed u/s. 143(3) of the Act for the A.Y.2017-18. Since some of the issues are common and also the fact that appeals were heard together, they are being taken up together for adjudication vide this composite order for the sake of brevity.
Grounds of appeal for AYs 2013-14,2014-15 and 2015-16 are as below:
(A.Y. 2013-14) 1.The learned CIT (A) 54, Mumbai erred in confirming the Act of the Ld. AO of issuing notice u/s 148 of the IT Act, 1961 without appreciating the facts of the case in right perspective. 2.The Learned CIT (A) 54, Mumbai erred in confirming the addition of Rs.80,80,000/- u/s 68 of the Act, 1961 without appreciating the facts of the case in the right perspective.
(A.Y. 2014-15) 1.The learned CIT (A) 54, Mumbai erred in confirming the Act of the Ld. AO of issuing notice u/s 148 of the IT Act, 1961 without appreciating the facts of the case in right perspective.
2. The Learned CIT (A) 54, Mumbai Erred in confirming the addition of Rs.1,28,00,000/- u/s 68 of the Act, 1961 without appreciating the facts of the case in the right perspective. 3.The Learned CIT (A) 54, Mumbai Erred in confirming the addition of Rs.1,13,81,400/- on account of fictitious losses without appreciating the facts of the case in the right perspective. 4.The Learned CIT (A) 54, Mumbai Erred in confirming the addition Rs. 1,46,58,000/- on account of difference in valuation of shares u/s. 56(2)(viib) of the Act, 1961 without appreciating the facts of the case in the right perspective.
290 &291/Mum/2025 A.Y. 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 Tutor Investment and Finance Pvt. Limited, Mumbai (A.Y. 2015-16) 1.The learned CIT (A) 54, Mumbai erred in confirming the Act of the Ld. AO of issuing notice u/s 148 of the IT Act, 1961 without appreciating the facts of the case in right perspective. 2.The Learned CIT (A) 54, Mumbai erred in confirming the addition of Rs.74,84,295/- u/s 68 of the Act, 1961 without appreciating the facts of the case in the right perspective. 3.The Learned CIT (A) 54, Mumbai erred in confirming the addition of Rs. 1,65,00,000/- u/s 68 of the Act, 1961 without appreciating the facts of the case in the right perspective.
We take up appeals in and 289/Mum/2025 first, since issues involved are mostly identical. Facts of the case are that based on certain inputs from the Investigation unit of the Income Tax department w.r.t. cash credits in the bank account and also F&O losses, the AO reopened the assessments u/s 148 of the Act. Subsequently, after allowing opportunity of hearing to the assessee, he made additions on account of unexplained credit treating them to be accommodation entries only liable to be added u/s 68 of the Act. Likewise, F&O losses were also considered to be bogus and obtained through dubious intermediaries and were disallowed and added to the income. In the subsequent appeal before the ld.CIT(A), the assessee contested the reopening as also the 290 &291/Mum/2025 A.Y. 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 Tutor Investment and Finance Pvt. Limited, Mumbai additions and disallowance made and stated above. However, the appeals were dismissed upholding the action of the AO. It is also noticed from the contents of the assessment order as also the appellate order that the assessee did not submit relevant information requisitioned leading to the additions.
Before us, the ld.AR in the course of hearing, has made a written request dated 11.03.2025 under Rule 29 of ITAT Rules,1963 alongwith a paper book containing as many as 130 pages with a request to admit the same as they are relevant for judicious disposal of these appeals. It is admitted that such evidences were neither available at the time of assessment proceedings nor at the time of appeal proceedings since brokers and creditors were not responding at the relevant time in providing these evidences which are crucial for deciding the issues involved. 4.1 We have gone through the relevant additional evidences filed and find that they pertain to Unsecured loans treated as bogus by the AO, Broker memos, Share valuation certificates, Broker memos with respect to F&O losses as well. We have considered the submissions of both the parties and carefully gone through the materials available on record. In our opinion, the new 290 &291/Mum/2025 A.Y. 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 Tutor Investment and Finance Pvt. Limited, Mumbai evidences although furnished by the assessee for the first time before the Tribunal, are relevant and go to the root of the present controversy. The said documents were not available before the ld.AO and the ld.CIT(A) as admitted by the ld.AR. As per the provisions contained in Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963, the parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal. The provisions contained in the said rule are pari materia with the Order 41 of the Code of Civil Procedure, 1908, which also does not allow the party to the appeal to adduce any additional evidence unless and until such exceptional circumstances are set out. In the instant case, the assessee could not furnish these documents before the lower authorities. In our opinion, the mistake of the assessee was not deliberate or with malafide intention, therefore the new evidence now furnished as additional evidence shall be admitted keeping in view the principles of natural justice, but at the same time, opportunity is to be given for rebuttal to another party. As regards to the admission of the additional evidence, the Hon’ble Madras High Court in the case of Anaikar Trade and Estates (P) Ltd (No.2) vs. CIT, 186 ITR 313 has held as under: “The Tribunal has discretion to allow the production of additional evidence under Rule 29 of the ITAT Rules, 1963 if the Tribunal requires any document to be produced or affidavit to be filed to enable it to pass orders or for any other substantial cause, it may allow the document to be produced or the affidavits to be filed. Even if there was a 290 &291/Mum/2025 A.Y. 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 Tutor Investment and Finance Pvt. Limited, Mumbai failure to produce the documents before the ITO and the A.A.C, the Tribunal has the jurisdiction in the interests of justice to allow the production of such vital documents.” 4.2 In the present case also, the documents furnished by the assessee are vital which go to the root of the present controversy, so these are to be admitted in the interest of natural justice but these documents are required to be examined and considered at the level of the AO. We are satisfied that these additional evidences would help in arriving at the right conclusion. However, as stated earlier, the assessee admittedly did not furnish such documents and supporting evidences before the AO, in order to allow the authorities below for better appreciation of the facts and to arrive at a just and appropriate decision, based on the request of the ld.AR ,we remand back the entire issue to the ld.AO for proper adjudication of all the issues involved after taking due cognizance of the additional evidences filed before us. In view of the above, the impugned order of the ld. CIT(Appeals) are set aside and all the issues are remanded back to the file of the AO for fresh adjudication in accordance with law, after providing due and reasonable opportunity of being heard to the assessee. 4.3 Even though we are admitting the additional evidences filed before us, we deem it fit to impose a token cost of Rs 11,000/- for each of the above appeals on account of failure of the assessee to submit such 290 &291/Mum/2025 A.Y. 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 Tutor Investment and Finance Pvt. Limited, Mumbai evidences before the lower authorities during assessment and appellate proceedings, with a direction to deposit the same to the Income Tax Department within 15 days of this order.
Since we have set aside the impugned order passed by the ld. CIT(A) and case is remanded back to the AO, therefore, all the aforesaid grounds in and 289 of the assessee are allowed for statistical purposes only.
ITA No. 290/MUM/2025 (A.Y. 2016-17) 1.The Learned Assessing Officer has erred in disallowing an amount of Rs.1,19,02,269/- comprising without appreciating the fact that the same is clearly allowable under section 36(2) of the Income-tax Act, 1961 (‘Act’). 2.The learned CIT (A) 54, Mumbai erred in confirming the Act of the Ld. AO of issuing notice under section 148 of the Act, 1961 without appreciating the facts of the case in right perspective.
(A.Y. 2017-18) 1.The Learned CIT(A)-54 Mumbai has erred in confirming the addition of Rs. 1,19,02,269/- claimed as Bad Debts without confronting the appellant with the evidence gathered from Jurisdictional Learned AO of Shri Ashok Sudha Chatterji.
2. Without prejudice the above ground, the Learned CIT(A)-54 Mumbai has erred in confirming the Act of the Learned AO that in absence of the Insolvency Certificate as erroneously claimed by Learned AO, the appellant was deprived of deduction u/s 36(1)(vii) of the Income-tax Act 1961 ('Act').
Above two appeals having common issues involved are being taken up together. The assessee is a company engaged in the business of finance and hire purchase, leasing, business of lending loans and advance. Facts of the case are that the assessee advanced Rs 290 &291/Mum/2025 A.Y. 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 Tutor Investment and Finance Pvt. Limited, Mumbai 2,38,04,538/- to one Sri Ashok Chatterjee(Prop. Ashok Sudha Chatterjee). On account of non recovery of the amount, it was written off in the books of account for both the years. The AO disallowed the claim while the ld.CIT(A) upheld the action of the AO with an observation that the assessee failed to produce relevant evidences in support of recovery efforts made. He also disallowed the alternative claim of treating the said write off as a business loss u/s 37 of the Act.
In the course of the hearing before us, while the ld.DR relied on orders of lower authorities, the ld.AR in oral arguments followed up with a common written submission for both the years, submitted that in AY 2016-17,the assessee had advanced an advance of Rs 2.38 cr to one Sri Ashok Sudha Chatterjee and AC Corpn in the course of its money lending business. During the year as the advance had become irrecoverable, Rs 1,19,02,269/- was written off which included interest of Rs 58,28,768/-and in the AY 2016-17 and Rs 1,19,02,269/- in AY 2017-18.It is stated that this interest was already offered for taxation in previous years. However, the ld.AO disallowed the claim of deduction which was also upheld by the ld.CIT(A).The AR has submitted details of the interest disclosed from AYs 2010-11 to 2014-15 aggregating to Rs 58,78768/- as per written submission made. Copies of ledger accounts with relevant ITR copies of the borrower were also submitted. It is 290 &291/Mum/2025 A.Y. 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 Tutor Investment and Finance Pvt. Limited, Mumbai contented that as per the provisions of section 36(2) r.w section 36(1)(vii) of the Act ,any bad debt or part thereof representing money lent in the ordinary course of business of banking or money lending is allowable as deduction. The impugned debt was incidental to the business of the assessee and was also taken into account in computing assessable income, therefore could be written off in the accounts and claimed as deduction as Bad debt. The Ld. CIT(A) upheld the disallowance merely on the ground that the assessee did not possess documentary evidence to prove adequate recovery measures made by it. The ld.AR has drawn attention to the provisions of section 36(2) and 36(i)(vii) of the Act and also CBDT Circular no.12/2016 dated 30.05.2016 allowing such a claim. It is further stated that the said advance was not being paid by the borrower since 2011 March onwards though he agreed to pay in near future. It is further submitted that there was also an announcement in newspapers by Canara Bank and PNB to treat the borrower as NPA. In fact, PNB initiated auction of his properties as evident from news paper clipping submitted. The assessee also sent legal notice to him in March 2016 as final warning but the letter sent returned back unserved with the remark ‘Left’. It was therefore, considered prudent to write of the said loan. The ld.AR has placed reliance on the various Court decisions in the cases of CIT vs 290 &291/Mum/2025 A.Y. 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 Tutor Investment and Finance Pvt. Limited, Mumbai Star Chemicals(Bombay) P.Ltd 203 ITR 11(Bom),CIT vs Elgi Equipments 151 Taxmann.com 428(SC),TRF vs CIT , CIT vs Padma Bora in 54 Taxmann.com319(Bom), Pepsico India Holdings in Investment Ltd ITA No. 338/Kol/199,Suresh Gaggal vs ITO 222 CTR 96(HP).
We have carefully considered all the relevant facts of the case, rival submissions and materials placed on record alongwith case laws relied upon by the assessee. Section 36(2)(i) of the Act, 1961 provides as under:
(i)[ no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;] [ Substituted by Act 4 of 1988, Section 11, for Clause (i) (w.e.f. 1.4.1989).] 9.1 Seen in the light of the admitted position that the assessee being engaged in the business of advancing loans and advances had given these loans in the ordinary course of its business and it was regularly reflecting the interest income thereon in the books of accounts. These facts are not disputed by the revenue in any manner. When the said loan became irrecoverable as enunciated in foregoing paras, as a prudent business measure, the entire amount inclusive of principal and interest was written off in the books of account and claimed as deduction u/s 290 &291/Mum/2025 A.Y. 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 Tutor Investment and Finance Pvt. Limited, Mumbai 36(1)(vii) r.w. section 36(2)(i) of the Act satisfying the conditions laid down. It is a settled law now that the bad debt is not required to be proved as irrecoverable as was the position in the pre-amendment period before 01.04.1989. If the assessee advances money in the course of its business and if the advance become bad, it should be allowed as a bad debt in terms of s. 36(1)(vii) r.w. 36(2)(i) of the Act. We have to look into the issue from the point of view of the assessee, whether assessee has advanced money and it became bad debt and same was written off in the books of accounts as bad debt. In the present case, assessee has advanced money in the ordinary course of carrying on business of the assessee and income earned from such business was offered to tax from year to year. Due to circumstances beyond the control of assessee, assessee was not able to recover the interest income on the impugned advance made to the borrower. As per the decision of Supreme Court in the case of TRF Ltd. v. CIT, 323 ITR 397, it is enough if the irrecoverable debt has been written off in the books of accounts of assessee which is advanced in the ordinary course of business of assessee. The Courts have also been taking this view consistently.
9.2 The Hon'ble High Court of Bombay in CIT vs Smt.Padma S. Bora in (2015) 54 Taxmann.com 319 has held as reproduced here under:
290 &291/Mum/2025 A.Y. 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 Tutor Investment and Finance Pvt. Limited, Mumbai
"5. Having perused this paragraph carefully, we find that the Tribunal may have committed a mistake in erroneous reproduction of the Commissioner's findings, but that does not mean that the Appeal would raise any substantial question of law. The allowability of bad debts was a claim considered in depth by the Commissioner and eventually granted in favour of the Assessee. The Assessee is engaged in the business of money lending. Merely because the Assessee does not have license to conduct this business, does not mean that the claim of bad debts should be denied. The Commissioner has in relation to this claim held in his order at paragraph 4.2 that the Tribunal's order in the case of B.N. Khandelwal v. ITO [2007] 16 SOT 343 (Mum.), would assist the Assessee inasmuch as the amount is lent in ordinary course of money lending business. It was written off after making efforts to recover. The effort was unsuccessful. In such circumstances, the Tribunal did not commit any error in reaffirming the conclusion of the Commissioner of Income Tax (Appeals) and which is to be found in paragraph no. 4.2 of the Commissioner's order. The present Appeal also is continuation of the attempt by the Revenue to question such findings. The findings being purely of fact, the same do not raise any substantial question of law. 9.3 In the case of CIT vs B.D.A.Ltd. Bombay in 213.ITXA- 201-2003.doc dated 23.02.2024,hon’ble Bombay high court has taken similar view as under: Section 36(1)(vii) of the Act, which at the relevant time, reads as under : "36(1) .........................(vii) Subject to provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the account of the assessee for the previous year." The above clause, before its amendment w.e.f. 1.4.1989 reads as under : "36(1) -Subject to the provisions of sub-section (2) the amount of any debt or part thereof which is established to have become a bad debt in the previous year." 7 Therefore, the position before the amendment was that assessee could claim deduction in respect of the bad debt or part thereof which is established to have become bad in the previous year relevant to the assessment year in which the claim is made, whereas the position after the amendment is that assessee is entitled to deduction in respect of the amount of bad debt or part thereof which is written off as irrecoverable in the account of assessee in the previous year. In our view, it is not necessary that assessee should establish that the debt has gone bad during the previous year relevant to the assessment year in question. If assessee could show that it bonafidely believed that the debt had gone bad and the claim could, it is to be allowed for the year in which it is written off in the books of accounts.
290 &291/Mum/2025 A.Y. 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 Tutor Investment and Finance Pvt. Limited, Mumbai 8 We also find that one of the reasons the Assessing Officer has disallowed the claim of assessee is that assessee is not a money lender and hence, it could not be said that the amount advanced had become bad. We agree with the ITAT that it is not necessary that every businessman should register himself under Money Lending Act and make the claim in relation to any advance made by it only in the capacity of carrying on money lending business. As per the balance sheet of assessee, the said M/s. Ganges Soaps Pvt. Ltd. was assessee's debtor because assessee had given advance loan to it. The ITAT has come to a factual finding that the money was advanced during the course of business.” 9.4 In the result, the orders of the ld.CIT(A) with regard to the additions made in AYs 2016-17 an d 2017-18 are set aside with a direction to the AO to delete the additions. Since we have already allowed the main ground of the assessee in both the above years, other legal grounds relating to reopening are academic only and do not require any adjudication. 9.5 In the result, appeals of the assessee in & 291/Mum/2025 are allowed.
Order pronounced in the open court on 24/03/2025.