Loading judgment…
Facts
The assessee filed an appeal with a delay of 670 days, seeking condonation of delay citing the Vivad Se Vishwas Scheme and relying on judicial precedents for a liberal approach. The assessee had claimed bad debts against loans extended to relatives, which was disallowed by the AO and CIT(A) as not being in the ordinary course of business and lacking supporting material.
Held
The Tribunal allowed the condonation of delay, stating that the delay was unintentional and bona fide, and that denying condonation would defeat the purpose of the VSV Scheme. The Tribunal held that the CIT(A) failed to adequately consider the judicial precedents cited by the assessee and directed a fresh adjudication.
Key Issues
Whether the delay in filing the appeal should be condoned, and if the CIT(A) adequately considered judicial precedents while deciding the claim for bad debt deduction on loans to relatives.
Sections Cited
250(6), 57(iii), 37(i)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH: BANGALORE
Before: SHRI WASEEM AHMED & SHRI PRAKASH CHAND YADAV
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the NFAC, Delhi dated 20/02/2023 vide DIN No. ITBA/NFAC/S/250/2022-23/1049934628(1) for the assessment year 2016-17.
The present appeal has been filed by the assessee before us with the delay 670 days. The assessee has also filed a separate Application for Condonation of Delay supported by the affidavit, stating that the delay in filing the appeal was unintentional and caused due to bona fide reasons. The assessee has contended that he intends to settle the dispute under the Vivad Se Vishwas (VSV) Scheme 2024 introduced by the Government of India and, therefore, seeks condonation of the delay for admission of the appeal.
The assessee has placed reliance on various judicial precedents, including the decision of the Hon'ble Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji & Ors. (1987) 167 ITR 471 (SC), wherein it was held that when substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred. Further, it has been held that a liberal approach should be adopted while considering applications for condonation of delay, especially when the delay is not due to mala-fide intent.
The Learned Departmental Representative (Ld. DR) opposed the condonation of delay.
We have heard the rival contentions of both the parties and perusal the materials available on record. In view of the overall facts and circumstances, we find that the delay in filing the appeal is satisfactorily explained and does not appear to be deliberate or due to negligence. The purpose of the VSV Scheme is to reduce litigation and promote ease of settlement. Denying condonation of delay would defeat the objective of the Scheme and cause undue hardship to the assessee. Thus considering the submissions of both parties and the principles laid down in judicial precedents, we are of the opinion that the delay in filing the appeal deserves to be condoned. Accordingly, we allow the condonation of delay and admit the appeal for adjudication.
Page 3 of 5 Merit of the Case:
The assessee has reported interest income on loans extended to relatives in the return of income. Against this interest income, the assessee has claimed bad debts corresponding the amounts of loans advanced. However, the Assessing Officer (AO) disallowed the claim of bad debts on the grounds that there was no supporting material indicating that such debts were actually written off in the books of accounts. Furthermore, the AO noted that the assessee failed to provide any plausible reason for writing off these bad debts. Thus, the AO added the same to the total income of the assessee.
Upon appeal before the Learned Commissioner of Income Tax (Appeals) [CIT(A)], the assessee submitted a detailed explanation, substantiated by various judicial precedents, in support of the bad debts claim. However, the CIT(A) dismissed the appeal with the following observations:
“Upon a careful consideration of the facts and circumstances of the case, the case laws adduced by the appellant and submissions made by appellant, it is found that the appellant was given, loans to his relatives out of sale proceeds of the immovable property and savings. Such advances cannot constitute the business of money lending. The appellant has stated that he has received interest of Rs. 10.000/-on loan of Rs. 85,00,000/-. This is 0.1% interest. The appellant has stated that he has received Rs 20,230/- as interest on loan of 1,00.00,000/-. This is 0.2% interest. He has stated that he has received Rs. 30,000/- on loan of 20,00,000/-. This amounts to 1.5% interest. He has stated that he has received Rs.25,000/- on loan of Rs.22,75,930/-. This amounts to 1.09%. He has stated that he has received Rs. 10,000/- on loan of Rs. 12,50,000/-. This amounts to 0.8%. He has received no interest on loan of Rs. 10,00,000/- given to Ramesh. It is at once clear from the above that these loans and advances given to relatives are not as per normal rates of business. Nor can it be stated .
Page 4 of 5 that these loans have been given to generate interest income. Anyone who generates interest income will not settle for interest rate of no interest, 0.1%, 0.2%, 0.8%, 1.09%, 1.5% on such huge sums of money, So clearly, money lent is neither in the ordinary course of money lending nor have these loans been given with the intention of generating interest income. These are thus, loans and advances to relatives and friends. The colour and character of these loans are in the nature of personal loans. Claiming deduction of bad debts against such loans is clearly a sham. Accordingly, such claim of bad debts cannot be allowed as deduction either under section 57(iii) or 37(i).”
Being aggrieved by the order of the CIT(A), the assessee has now preferred an appeal before this Tribunal.
The Learned Authorized Representative (AR) appearing for the assessee contended that a comprehensive submission was made before the ld. CIT(A), supported by judicial pronouncements. However, the ld. CIT(A), without adequately considering the legal precedents and without providing a reasoned discussion on the judgments relied upon, summarily dismissed the appeal. In light of this, the learned AR prayed for the restoration of the issue to the CIT(A) for fresh adjudication.
Conversely, the Learned Departmental Representative (DR) argued that the CIT(A) had provided a detailed and reasoned finding in a speaking order after considering the assessee’s submissions. As such, the DR contended that there was no justification for setting aside the CIT(A)'s order for fresh adjudication under the provisions of the Income Tax Act.
We have heard the contentions of both parties and carefully examined the material available on record. Upon perusal of the order of . the CIT(A), we observe that while the CIT(A) has provided a detailed discussion in his order, there is no explicit reference to the judgments relied upon by the assessee. This omission raises concerns regarding the adequacy of judicial consideration in the decision-making process.
11.1 In this regard, the provisions of section 250(6) of the Income Tax Act emphasize the necessity of proper adjudication and reasoned findings. Considering the circumstances and in the interest of justice, we find it appropriate to restore the matter to the file of the CIT(A) for fresh adjudication. The CIT(A) is directed to reconsider the assessee’s submissions in light of relevant judicial precedents and provide a reasoned order addressing all legal aspects. Hence the ground of appeal of the assessee is allowed for statistical purposes.