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Facts
For AY 2015-16, the AO disallowed bad debts and added unrecognised interest income. The CIT(A) deleted the bad debt disallowance but refused to admit additional grounds from the assessee regarding other bad debt claims (Rs. 88.17 Cr interest and Rs. 2.19 Cr NPA) which arose from a Section 263 order for AY 2014-15. The CIT(A) held that these additional grounds did not originate from the assessment order for the current year.
Held
The ITAT held that the CIT(A) erred in rejecting the admission of additional grounds, citing various Supreme Court and High Court judgments allowing appellate authorities to entertain fresh claims. Since the additional grounds require factual verification related to the Section 263 order for AY 2014-15, the matter was restored to the file of the AO for fresh examination and decision.
Key Issues
Whether the CIT(A) was justified in refusing to admit additional grounds of appeal concerning bad debt claims that arose from a Section 263 order for an earlier assessment year, and if an appellate authority can entertain fresh claims not directly from the assessment order.
Sections Cited
250, 143(2), 142(1), 143(3), 263
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Income Tax Appellate Tribunal, COCHIN
Before: SHRI INTURI RAMA RAO & SHRI SANDEEP SINGH KARHAIL
The assessee has filed the present appeal against the impugned order dated 29/12/2023, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals)-3, Kochi, [“learned CIT(A)”], for the assessment year 2015-16.
When the present appeal was called for hearing, none appeared on behalf of the assessee, nor was any application seeking adjournment filed. From the perusal of the record, we find that even in the previous hearings also no one appeared on behalf of the assessee. Therefore, we proceed to decide the present appeal considering the material available on record and the submissions of the learned Departmental Representative (“learned DR”).
The solitary grievance of the assessee, in the present appeal, pertains to non-adjudication of the additional grounds of appeal filed by the assessee before the learned CIT(A).
4. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a non-banking financial company. For the year under consideration, the assessee filed its return of income on 29/09/2015, declaring a total income of Rs. 410,84,99,820. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. Vide order dated 12/12/2017 passed under section 143(3) of the Act, the Assessing Officer (“AO”) assessed the total income of the assessee at Rs. 511,95,39,820, after disallowing the claim of bad debts written off amounting to Rs. 23,71,40,000 and adding the interest income amounting to Rs. 77.39 crore not recognised by the assessee in its total income.
In its appeal before the learned CIT(A), apart from raising the grounds challenging the addition/disallowance made by the AO, the assessee also raised the following additional grounds of appeal: -
“A. It is respectfully submitted that the sum of Rs.88.17 Cr. being interest accrued, but became irrecoverable and since written off in the books of accounts should be allowed as bad debt in the computation of assessable income for the Assessment Year 2015- 16 in as much as both the principal amount as well as the interest accrued thereon have become irrevocable and hence liable to be written off as bad debts for the Assessment Year 2015-16. It is humbly prayed accordingly. B. In so far as the amount of Rs.2,19,55,978/- is concerned, the said amount has become NPA in the Financial Year 2014-15 and hence in accordance with settled principles of accounting and law, the above sum of Rs.2,19,55,978/- also has become bad debt irrecoverable and liable to be allowed as bad debt written off for the Assessment Year 2015-16. C. It is respectfully submitted that the above sum has actually been written off from the books of accounts for the Financial Year 2014-15 by passing necessary journal entries to that effect.”
The learned CIT(A), vide impugned order,deleted the addition made by the AO on account of the disallowance of bad debts written off. Further, the addition in respect of unrecognised interest income was confirmed by the learned CIT(A), as the assessee withdrew the ground pertaining to the same. As regards the additional ground filed by the assessee, the learned CIT(A) refused to entertain the same on the basis that the said ground does not arise out of the assessment order. The relevant findings of the learned CIT(A), in this regard, are reproduced as follows: – “11. I have perused the ground raised by the appellant. In this regard, it needs to be stated that this issue was never a subject matter of the assessment order passed by the AO for the AY under consideration (AY 2015-16). Apparently, this issue was also not raised by the appellant during the course of the assessment proceedings. The Commissioner of Income Tax (Appeals) can decide on an issue arising out of an assessment order appealed against. In the instant case, this is not so. Hence, the ground raised by the appellant cannot be entertained at this stage. Accordingly, the same is rejected.” Being aggrieved, the assessee is in appeal before us.
We have considered the submissions of the learnedDR and perused the material available on record. We find that the assessee sought admission of the additional grounds of appeal
before the learned CIT(A) on the following basis: – “2. Subsequent to the filing of the above Appeal for the Assessment Year 2015-16, the Principal Commissioner of Income Tax, Thrissur vide order dated December 11, 2018 has passed order u/s 263 for the Assessment Year 2014-15. The Principal Commissioner found that for the Financial Year 2013-14 relevant to the Assessment Year 2014-15, the Appellant-Company is following mercantile system of accounting and that interest accrued on gold loans, to the extent of Rs.88.17 Cr. had not been recognized as accrued income on gold loans, given in the profits declared. It was found that non-accounting of accrued interest for income tax purposes has resulted in escapement of income for Rs. 88.17 Cr. Secondly, in the assessment, the assessee made provision for Non Performing Assets amounting to Rs.2,19,50,000/-included in Other Expenses and debited to P&L Account which was allowed as a deduction in the Order passed by the Assistant Commissioner Provision for NPA is not allowable in respect of NBFC for the relevant assessment year. Accordingly, after affording opportunity to the assessee-appellant to explain its case, the Principal Commissioner issued Order u/s 263 of the Act by holding that the Assessee should have offered interest income aggregating to Rs. 88.17 Cr. for the 2014-15 assessment. It was also held that the amount of Rs.2,19,50,000/- allowed as a deduction by way of provision for NPA is also erroneous and prejudicial to the interest of the Revenue. Therefore, the above two sums were directed to be added to for the Assessment Year 2014-15 as per Order u/s 263 dated Dec 11, 2018.
3. Pursuant to the above order, the Assessing Officer has passed consequential Order dt. March 06, 2019 u/s 143(3) r.w.s.263. So much so, the income for the Assessment Year 2014-
15 stood enhanced to the extent of Rs.90,46,50,000/- as per the order dt. March 06, 2019 giving effect. The correct amount to be taken as per the Order of the Principal Commissioner is Rs 90,36,50,000/- le, Rs 2,19,50,000/- + Rs 88,17,00,000/-, but mistakenly it is taken as Rs 90,46,50,000/-ie, Rs 2,19,50,000/- Rs 88,27,00,000/- 4. The above two amounts assessed are actually bad debts written off in the Assessment Year 2015-16 and this is a real loss to be considered while computing the assessable income. The Order passed u/s 263 by the Principal Commissioner is also given effect as per modified order dated March 06, 2019 of the Assistant Commissioner. It has therefore become necessary for the Company to file additional grounds of appeal making claim for deduction of the above two sums as bad and irrecoverable debts which are considered for assessment for the Assessment Year 2014-15 by virtue of the order u/s 263. In such circumstances we are advised to take the following additional grounds in the Appeal already filed and pending before the Commissioner of Income Tax (A), Thrissur. It is therefore prayed that the CIT(A), Thrissur may kindly be pleased to admit the following additional grounds of Appeal for the Assessment Year 2015-16 and adjudicate the same on merits and render justice.”
8. However, as evident from the perusal of the impugned order, the learned CIT(A) rejected the assessee’s request on the basis that these issues were never a subject matter of the assessment order for the year under consideration and the assessee did not raise these issues during the assessment proceedings. At the outset, it is pertinent to note that the Hon'ble Supreme Court in Goetze India Ltd. vs. CIT, reported in [2006] 284 ITR 323 (SC) and the Hon'ble Bombay High Court in CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd., reported in [2012] 349 ITR 336 (Bom.),have held that the appellate authority can entertain a fresh claim made by the assessee.We find that similar findings have been rendered by the Hon’ble Madras High Court in CIT vs. Abhinitha Foundation (P.) Ltd., reported in [2017] 396 ITR 251 (Madras). Therefore, we are of the considered view that the learned CIT(A) erred in rejecting the prayer of the assessee for the admission of additional grounds of appeal.
From the perusal of the assessee’s submissions in support of the additional grounds of appeal, we find that the assessee claimed that the interest accrued on gold loans amounting to Rs. 88.17 crore has become irrecoverable, and therefore, the write-off of the same should be allowed as bad debt. Further, the assessee has claimed thatthe amount of Rs. 2,19,55,978 has become NPA in the financial year 2014-15, and therefore, the same has also become irrecoverable bad debt. We find that the assessee raised these fresh claims pursuant to the order dated 11/12/2018 passed by the learned PCIT under section 263 of the Act, whereby on the aforesaid issues, the assessment order passed for the assessment year 2014-15 was considered as erroneous and prejudicial to the interest of the Revenue. Therefore, it is necessary to examine the factual details of the aforesaid claims. Accordingly, respectfully following the decisions cited supra, we admit issues raised by way of additional grounds before the learned CIT(A). Further, since the same requires factual verification, we restore the same to the file of the AO for necessary examination and decision as per law, after providing reasonable opportunity of hearing to the assessee. With the above directions, the impugned order on this issue is set aside, and the grounds raised by the assessee are allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on 27-05-2025 by way of proper mentioning on the Notice Board