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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI ABY T VARKEY & SHRI AMARJIT SINGH
1 ACIT, Circle-15(1)(2) Vs. M/s D.A. Finvest Pvt Ltd. IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER (A.Y. 2015-16) ACIT, Circle-15(1)(2) Vs. M/s D.A. Finvest Pvt. Room No. 483, 4 th Floor, Ltd., 65, Mahavir Centre, Aayakar Bhavan, 4th Floor, Sector 17, DBC, M.K. Road, Vashi, Navi Mumbai Mumbai – 400 020 400 075 स्थायी लेखा सं./जीआइआर सं./ PAN/GIR No: AABCD0420B Appellant .. Respondent Appellant by : Smt. Mahita Nair Respondent by : None Date of Hearing 17.10.2022 Date of Pronouncement 21.10.2022 आदेश / O R D E R Per Amarjit Singh (AM):
The present appeal filed by the revenue is directed against the order passed by the ld. CIT(A)-24, Mumbai which in turn arises from the order passed by the A.O u/s 143(3) of the Act. The revenue has raised the following grounds before us:
1. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was erred in holding that AO expanded the scope of enquiry without seeking permission of the Pr. CIT when as per the case records and CASS reasons the then Assessing Officer has conducted its enquiry and made addition within the purview of CASS reasons?"
2 ACIT, Circle-15(1)(2) Vs. M/s D.A. Finvest Pvt Ltd.
2. Whether on the facts and circumstances of the case and in law, the Id. CIT(A) was right in not considering the fact that the case was selected for Limited Scrutiny for CASS reason 'MISMATCH IN PROFIT BEFORE TAX AS PER PROFIT AND LOSS ACCOUNT AND SCHEDULE BP OF RETURN (VERIFICATION OF MAT LIABILITY)' and such mismatch was because of the claim of bad debts written off by the assessee in the P&L A/c.?"
3. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was right in allowing the appeal on the issue of disallowance of bad debts u/s.36(1)(vii) of the Act without appreciating that the case laws relied upon are distinguishable on facts and also without appreciating the fact that the assessee has never discharged his onus before the AO with respect to establishing that the transaction which lead to bad debt was incidental to its business and also that such a amount has been offered to tax in earlier years?"
4. The appellant prays that the Order of the Ld. CIT(A) on the above grounds be set aside and that of the AO be restored.
The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary.”
This case was listed for hearing on five occasion but neither anyone from the side of the assessee has attended nor furnished any written submission during the course of appellate proceedings before us, therefore, the appeal of the revenue is adjudicating after hearing the ld. D.R and after considering the material on record.
Fact in brief is that return of income declaring loss of Rs.1,67,47,160/- was filed on 31.10.2015. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act was issued on 19.09.2016. During the course of assessment AO noticed that assessee had debited balance written off (net) of Rs.1,67,13,743/-. During the course of assessment the A.O asked the assessee to submit details of bad debt written off. In response the assessee submitted detail vide letter dated 27.11.2017. On perusal of the same the A.O noticed that assessee had netted of the debt balance written off of Rs.2,05,63,227/- with that of the credit balance written back of Rs. 38,49,484/-. Further in respect 3 ACIT, Circle-15(1)(2) Vs. M/s D.A. Finvest Pvt Ltd. of bad debt written off amounting to Rs.2,05,63,227/- pertaining to Welspun Project Ltd. and Grace Cars Pvt. Ltd, the assessee submitted that the Welspun Project Ltd. had not paid the amount as the company had given the same as fixed deposit as guarantee against the loan taken by Welspun Project Ltd. and it could also not get back the amount from Grace Cars Pvt. Ld. of Rs.15,00,000/- since 2006. However, A.O has not accepted the submission of the assessee stating that assessee has not submitted evidences to prove that such amount has been offered to tax in the earlier years. Therefore, bad debt written off of Rs.2,05,63,227/- was disallowed and added to the total income of the assessee.
The ld. CIT(A) has allowed the appeal of the assessee holding bad debt was not the subject matter a limited scrutiny and also allowed the same on merit. The relevant part of the decision of CIT(A) is reproduced as under:
5.14 The CBDT has prescribed the manner in which returns selected for scrutiny through CASS, 2015 are to be conducted vide its instruction no. 20/2015 dated 29.12.2015 It has been pointed out that the procedure for handling limited scrutiny cases would be as under a. In Limited Scrutiny cases, the reasons/issues shall be forthwith communicated to the assessee concerned. b. The Questionnaire under section 142(1) of the Act in 'Limited Scrutiny cases shall remain confined only to the specific reasons! issues for which case has been picked up for scrutiny Further, the scope of enquiry shall be restricted to the 'Limited Scrutiny' issues. c. These cases shall be completed expeditiously in a limited number of hearings d. During the course of assessment proceedings in Limited Scrutiny cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs. Five lakhs (for metro charges, the monetary limit shall be Rs. Ten lakhs) requiring substantial Verification on any other issue(s), then, the case may be taken up for Complete Scrutiny with the approval of the Pr. CIT/CIT concerned However, such an approval shall be accorded by the Pr.CIT/CIT in writing after being satisfied about merits of the 4 ACIT, Circle-15(1)(2) Vs. M/s D.A. Finvest Pvt Ltd. issues(s) necessitating Complete Scrutiny in that particular case. Such cases shall be monitored by the Range Head concerned. 5.1.5 The perusal of the assessment records reveals that before taking up complete scrutiny of the case the approval of the Pr. CIT was not taken it is also not evident from the assessment record that the case was monitored by the Range head. Thus, it appears that the AO expanded the scope of the limited scrutiny from “mismatch in profit before tax as per P&L account and schedule BP (verification of MAT liability)” to examination of bed debts without following the due procedure The Honorable ITAT has had occasion to consider a similar matter i.e extending the area of scrutiny beyond the items mentioned in the annual information return (AIR) without taking the approval of the Administrative Commissioner in this regard. In the case of M/s Nitin Killawala & Associates vs ITO in for the assessment year 2008-09, vide their order dated 16.09.2015, the Honorable ITAT Mumbai Bench held that action of the AO in widening the scope of enquiry without obtaining necessary permission as per the Board instruction was without jurisdiction and the same was accordingly set aside and consequently the addition made beyond the scope of AIR information were ordered to be deleted. In the case of Smt. Gurpreet Kaur vs ITO in ITA No.87/ASR/2016 vide their order dated 24 03 2016, the Honorable ITAT Amritsar Bench in dealing with the similar matter held "So the proper course for the AO before making this additional enquiry would have been to take approval from the administrative commissioner to widened this scrutiny. This however was not done and therefore the action of the AO is violative of the CBDT's instruction The Honorable ITAT went on to hold, it is held that since the assessment order passed ex-parte by the AO was in violation of the specific CBDT's instruction, the same is legally not sustainable. The same is accordingly reversed” 5.1.6 In view of finding fact that the AO expanded the scope of the enquiry without seeking permission of the Pr. CIT it is clear that he stepped beyond the permissible jurisdiction. Therefore, the addition made by him as result of such inquiry are not legally sustainable and are therefore liable to be deleted Therefore, the additions made by him on issue which were not the subject matter of the limited scrutiny, are deleted. Accordingly the ground of appeal is allowed. 5.2 Ground No.2 relates to disallowance of bad debts of Rs 2,05,63,227/- as claimed by the appellant 5.2.1 While it has already being held that the addition is not sustainable as the issue was not the subject matter of limited scrutiny on going through the facts and circumstances of the case, on merits it is also observed that the Hon’ble High Court of Delhi in a similar case of CIT vs Tulip Star Hotels Lid (2011) 339 ITR 0091 HC (DEL) has held that losses incurred on account of providing surety for loans taken by third party and defaulted are allowable as a bad debt, to such persons who have pledged their deposits as security in the course of the business of money lending at an interest The pledging of fixed deposits to the Bank on behalf of another party with the view of earning additional interest would also tantamount to money lending and therefore, losses made in this regard could be regarded as bad debts Furthermore, it is observed that the special bench of ITAT (Mum) in the case of DCIT vs Shreyas S Morakhia (2010) 131 TTJ 0641 (Mum)
5 ACIT, Circle-15(1)(2) Vs. M/s D.A. Finvest Pvt Ltd. (SB) have pointed out that in money lending business, since money constitutes the stock in trade it is not necessary to apply the test laid down in section 36(2)(i) Since the said debt going by the very nature of banking/money lending business is itself a trading debt, therefore an exemption has been provided in the second limb of section 36(2)() in respect of such business and therefore, adverse inference could not be drawn against the appellant if failed to prove that the debt had been taken into account in computing the income of the appellant. Finally, it is observed that after the 0 judgment of the Hon’ble Supreme Court in TRF Ltd. vs CIT Ranchi (2010) 323 TR 397 (SC), the law is quite clear that the appellant does not have to prove a bad debt. Merely writing the same off in his books of accounts will suffice. Thus on merits also the addition may not be sustainable. Accordingly, the ground of appeal is allowed.”
After considering the finding of the ld. CIT(A) that the case was selected for limited scrutiny and bad debt transactions were incidental to its business as elaborated supra we don’t find any substance in the appeal of the revenue, therefore, the same stand dismissed.