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Facts
The assessee, Associated Techno Plastic P.Ltd., filed a NIL income return for AY 2008-09, later claiming a business loss. The Assessing Officer (AO) made a best judgment assessment under Section 144 due to the assessee's non-compliance, adding various amounts, and assessing income at INR 13,92,540/-. The CIT(A) dismissed the assessee's appeal for non-prosecution as the assessee failed to appear. The assessee then appealed to the ITAT.
Held
The Income Tax Appellate Tribunal (ITAT) noted the assessee's consistent non-compliance before the AO, CIT(A), and its own non-appearance during the ITAT hearing. The Tribunal found that the assessee failed to provide any evidence to contradict the AO's findings regarding the various additions and disallowances. Consequently, the ITAT affirmed the AO's order and dismissed the assessee's appeal.
Key Issues
1. Whether the CIT(A) was justified in dismissing the appeal for non-prosecution. 2. The correctness of additions/disallowances made by the AO concerning depletion in investment value, debit balances written off, disallowance under Section 40(a), disallowance under Section 14A, and addition of unsecured loans under Section 68. 3. The levy of interest under Sections 234B, 234D, and 244A.
Sections Cited
Section 14A of the Income Tax Act, 1961, Section 40(a) of the Income Tax Act, 1961, Section 68 of the Income Tax Act, 1961, Section 234B of the Income Tax Act, 1961, Section 234D of the Income Tax Act, 1961, Section 244A of the Income Tax Act, 1961, Section 143(1) of the Income Tax Act, 1961, Section 144 of the Income Tax Act, 1961, Section 143(3) of the Income Tax Act, 1961, Section 36(1)(vii) of the Income Tax Act, 1961, Section 36(2) of the Income Tax Act, 1961, Section 10(34) of the Income Tax Act, 1961, Section 10(38) of the Income Tax Act, 1961, Rule 8D of the Income Tax Rules, Section 271(1)(c) of the Income Tax Act, 1961, Section 274 of the Income Tax Act, 1961
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Income Tax Appellate Tribunal, DELHI “A” BENCH: NEW DELHI
Before: SHRI KUL BHARAT & SHRI BRAJESH KUMAR SINGH
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “A” BENCH: NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER & SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER ITA No.1890/Del/2014 [Assessment Year : 2008-09] Associated Techno Plastic P.Ltd., vs DCIT, Elegence Level-2, Mathura Road, Circle-2(1), Jasola, New Delhi-110025. New Delhi. PAN-AAACA2525K APPELLANT RESPONDENT Appellant by None Respondent by Shri Kanv Bali, Sr. DR Date of Hearing 08.05.2024 Date of Pronouncement 22.05.2024
ORDER PER KUL BHARAT, JM : The present appeal filed by the assessee is directed against the order of Ld. CIT(A)-V, New Delhi dated 12.11.2012 for the assessment year 2008-09. The assessee has raised following grounds of appeal:- 1. “That on the facts and circumstances of the case and in law, Ld CIT(A) -V, New Delhi erred in dismissing appellant's appeal. 2. That on the facts and circumstances of the case the appellant was prevented by reasonable cause in not attending the appellate proceedings before the Ld. CIT(A) –V, New Delhi. 3. That on facts and circumstances of the case the Ld. CIT(A) -V, New Delhi erred in deciding the appellant's appeal without discussing the merits of the case. 4. That the Ld. CIT (A) is not justified in confirming the disallowance of Rs.1,22,76,000/- on account of depletion in value of investments. 5. That the Ld. CIT (A) is not justified in confirming the disallowance of Rs.84,00,000/- on account of debit balances written off.
ITA No.1890/Del/2014 [Assessment Year : 2008-09] 6. That the Ld. CIT (A) is not justified in confirming the disallowance of Rs.92415/-on account of section 40(a) of Income Tax Act 1961. 7. That the Ld. CIT (A) is not justified in confirming the addition of Rs.1,09,630/- U/s 14A of the Income Tax Act 1961 whereas as per assessee has not incurred any expenditure for earning the income which do not form part of total income. 8. That the Ld. CIT (A) is not justified in confirming the addition of Rs.1,21,47,451/- on account of unsecured loans u/s 68 of the Income Tax Act 1961 without discussing on merits, whereas all the loans are taken through proper banking channel and verifiable. 9. That the Ld. CIT (A) is not justified in confirming the levy of interest u/s 234B, 234D and 244A of the Income tax Act 1961. 10. That the appellant prays for leave to add, alter, amend or vary from all or any of the grounds of appeal at or before the time of hearing of appeal.”
At the time of hearing, no one appeared on behalf of the assessee. It is seen from the records that there is no appearance on behalf of the assessee since 27.10.2010 despite various opportunities have been given to the assessee. The notices sent by the Registry have been returned back unserved with remark “left” by the Postal Authority. Even after giving sufficient opportunities to the assessee, there is no representation on behalf of the assessee. Therefore, the appeal of the assessee is taken up for hearing in the absence of the assessee and is being decided on the basis of material available on record.
Facts in brief of the case are that the assessee had filed its return of income, declaring NIL income on 22.09.2008. The same was processed u/s 143(1) of the Income Tax Act, 1961 (“the Act”) on 09.10.2009. It is recorded by Page | 2
ITA No.1890/Del/2014 [Assessment Year : 2008-09] the Assessing Officer (“AO”) that vide letter dated 21.09.2010, the assessee filed revised computation of income and claimed business loss of current assessment year by carrying forward to the tune of INR 1,89,21,306/-. Thereafter, the case was selected for scrutiny assessment. In response to the statutory notices, Ld. Authorized Representative (“AR”) of the assessee attended the assessment proceedings. During the course of assessment proceedings, the Assessing Authority sought certain information from the assessee but there was no compliance on behalf of the assessee. Therefore, the AO proceeded to make best judgement u/s 144 of the Act. It is noted by the AO that the books of account were not produced. Therefore, the AO made additions and assessed the income of the assessee at INR 13,92,540/- vide order dated 20.12.2010 u/s 144 r.w.s 143(3) of the Act.
Aggrieved against this, the assessee carried the matter before Ld.CIT(A), who after considering the submissions, dismissed the appeal of the assessee for want of non-prosecution.
Aggrieved against the order of Ld.CIT(A), the assessee is in appeal before this Tribunal.
Apropos to the grounds of appeal, Ld. Sr. DR for the Revenue supported the assessment order. Ld. Sr. DR vehemently argued that the assessee has been negligent throughout the proceedings. He did not submit its response to the query raised by the AO and even before Ld.CIT(A), there was no representation on behalf of the assessee. He further contended that in the absence of the supporting evidences, the AO was justified in disallowing the
ITA No.1890/Del/2014 [Assessment Year : 2008-09] claim of the assessee. He contended that the assessee claimed depletion in value of investment of INR 1,22,76,100/-. He contended that it was pointed out by the AO that Auditor of the assessee himself had clearly reported depletion in value of investment of INR 1,22,76,100/- as expenditure of capital in nature. Further, in respect of debit balance written off, he contended that such amount could not have been claimed as business loss and the Auditor has recorded it as a capital expenditure. Further, the AO has correctly made disallowance u/s 40(a) of the Act and also disallowance by invoking the provision of section 14A of the Act. He submitted that the assessee failed to rebut the findings of AO. He prayed that appeal of the assessee be dismissed with cost.
We have heard the Ld. Sr. DR for the Revenue and perused the material available on records. Undisputedly, there was no representation before Ld.CIT(A) on behalf of the assessee. He therefore, in the absence of any supporting evidences, dismissed the appeal of the assessee. By way of the present appeal, the assessee has challenged the correctness of the action of the lower authorities. But the assessee has failed to furnish the evidences contradicting the finding of AO. We find that the Assessing Authority has given a finding on impugned additions, same are reproduced herein for the sake of clarity:-
(i) Depletion in value of investment 4.2. “Assessee has claimed depletion in value of investment at Rs.1,22,76,100, as allowable deduction in it's computation of income filed on 21/09/2010, which can not be allowed due to the following reasons:
ITA No.1890/Del/2014 [Assessment Year : 2008-09] (a) Assessee itself has treated the same as not allowable in it's return of income filed. (b) Assessee has not given any reason for the claim of this deduction in spite off show cause given vide order sheet entry dated 03/11/2010 and various other opportunities given as discussed in para 2 and 3 above. (c) Assessee is claiming investments under the head capital gains, thus, it has no relation with business income. (d) It is merely a provision and for any provision to be allowable expenditure, it is necessary that liability should be crystallized as laid down In the case of M/s Bharat Earth Movers Vs. CIT (2000) 112 Taxman 61 (SC). (e) Tax auditor in his tax audit report in Form NO. 3CD filed during the course of assessment proceedings by assessee itself has clearly held depletion In value of investment of Rs.1,22,76,100/- as expenditure of capital in nature as per para no. 17(a) of his tax audit report. In view of the same, the claim of depletion in value of investment at Rs.1,22,76,100/- is disallowed and added to the taxable income of assessee. (ii) Debit balance written off 4.3. Assessee has claimed debit balances written off at Rs.84,00,000, as allowable deduction in it's computation of income filed on 21/09/2010, which can not be allowed. due to the following reasons: (a) Assessee itself has treated the same as not allowable in it's return of income filed. (b) Assessee has not given any reason for the claim of this deduction in spite off show cause given, vide order sheet entry dated 03/11/2010 and various other opportunities given as discussed in para 2 and 3 above.
ITA No.1890/Del/2014 [Assessment Year : 2008-09] (c) These debit balances written off can be either claimed as bad debt written off or business loss. The bad debts written off can be allowed as deduction within the meaning of provisions as laid down in section 36(1)(vii) r.w.s. 36(2) of the I.T. Act in case of assessee which pre-requisite the following two conditions: A It should be actually written off in the books of account of assessee during the previous year and ; B. The debt or part thereof should have been taken into account in computing the income of the assessee of the previous year in which it was written off or in any earlier previous year. Since the conditions of section 36(2) r.w.s. 36(1)(vii) written off r.w.s. 36(2) of the IT Act are not satisfied, the debit balances written off could not be claimed as bad debt written off. (d) The claimed debit balances of RS.84,00,000/- written off can also not be claimed as business loss in the facts and circumstances of the case, as assessee failed to prove that these debit balances were in ordinary course of business and are not of capital in nature. Advances made during ordinary course of business, which were not recoverable in spite off efforts made can be written off and claimed. For instance, advances made in ordinary course of business for supply of raw material is admissible as deduction while advances made by a lawyer to his clients for purchase of properties is not admissible as deduction. (e) Tax auditor ,in his tax audit report in Form NO. 3CD filed during the course of assessment proceedings by assessee itself has clearly held debit balances written off at Rs.84,00,000/- as expenditure of capital in nature as per para no. 17(a) of his tax audit report.
ITA No.1890/Del/2014 [Assessment Year : 2008-09] In view of the same, the claim of debit balances written off at RS.84,00,000/- is disallowed and added to the taxable income of assessee. (iii) Amount disallowable u/s 40(a) 4.4. Assessee has claimed amount disallowable u/s 40(a)(i)/(ia)/(iii) of the I.T. Act at Rs.92,415/-, as allowable deduction in it's computation of income filed on 21/09/2010 which can not be allowed due to the following reasons: (a) Assessee itself has treated the same as not allowable in it's return of income filed under the clear provisions of section 40(a)(i)/(ia)/(iii) of the I. T. Act on account of non-deduction of TDS. (b) Assessee has not given any reason for the claim of this deduction in spit off show cause given, vide order sheet entry dated 03/11/2010 and various other opportunities given as discussed in para 2 and 3 above. In view of the same, the claim of amount disallowable u/s 40(a)(i)/(ia)/(iii) of the I.T. Act at Rs.92,415/- is disallowed and added to the taxable income of assessee. 5. During the course of assessment proceedings, it has been observed that during the year, the assessee company has shown dividend income of Rs. 1,45,602/- and long term capital gain of Rs.1,80,42,199 which have been claimed exempt under section 10(34) and 10(38) of the I.T. Act. 5.1 The authorized representative of the assessee company was asked to show cause vide order sheet entry dated 03/11/2010 as to why disallowance u/s 14A of the IT Act r.w.r. 8D of the IT Rules should not be made for the expenditure incurred in relation to income which does not form part of total income. 5.2 In reply to the same, the assessee company has not submitted any reply as discussed in para 2 and 3 above.
ITA No.1890/Del/2014 [Assessment Year : 2008-09] 5.3 The invocation of Section 14A is automatic and comes into operation. without any exception as soon as dividend income is claimed exempt. The possibility of incurring certain expenditure under the head administrative expenditure for earning dividend income cannot be ruled out. While allocating expenses relating to exempt income not only the direct expenses like receiving and depositing the dividend warrant has to be taken into consideration but also the indirect expenses including major managerial/ clerical expenses which are involved in making and implementing the decision are also to be disallowed. The disallowance of administrative expenses and interest expenses on earning of dividend income claimed exempt is also held/permitted by the Hon'ble Supreme Court in the case of CIT vs. United General Trust, 200 ITR 488 (SC). 5.4 Keeping in view the provisions of Section 14A of the Act as also the decision of the Hon'ble Supreme Court in the case of CIT Vs. United General Trust Ltd. (supra) and many other following decisions of the Coordinate Benches of the Hon'ble ITAT viz. (a) Southern Petro Chemicals Industries (2005), 93 TTJ 161 (b) Harish Krishnakanta Bhatt (2004), 91 ITD 311 (c) S.G. Investments and Industries Ltd. (2004), 89 ITD 44 (d) Everplus Securities & Finances Ltd. (2006), 285 ITR (AT) 112, It is held that all expenses connected with the exempt income have to be necessarily disallowed regardless of whether they are direct or indirect, fixed or variable, and managerial or financial in accordance with law. In this connection, the provisions of sub-section (2) and (3) of Section 14A of the Act inserted by the Finance Act 2006 deserve to be noted. 5.5 The procedure for computation of disallowance has now been provided in sub-section (2) and (3) of Section 14A of the Act. Substantive provisions are contained in sub-section (1) of Section 14A prohibiting deduction in respect of expenditure incurred in relation to exempt income while procedural provisions regarding computation of the Page | 8
ITA No.1890/Del/2014 [Assessment Year : 2008-09] aforesaid disallowance are contained in sub-sections (2) and (3) thereof. Sub-section (2) and (3) seek to achieve the underlying object of Section 14A(1) of the Act that any expenditure incurred in relation to exempt income should not be allowed deduction. It is also fairly well settled by a catena of decisions that procedural provisions apply to all pending matters and that the rule against retrospective does not hit them. Since, Rule 8D of the IT Rules which gives the method of determining amount of expenditure in relation to income which do not form part of total income is a procedural provision and it is effective from 24.03.2008, the same will be applicable in conditions provided in Sub-rule 1 of Rule 8D of the IT Rules. 5.6 I am also satisfied within the meaning of Rule 8D(1) of the IT Rules that the claim of the assessee company that it had not incurred any expenditure for earning the income which do not form part of the total income to the tune of Rs.1,81,87,801/- and having average investments value earning exempt income to the tune of Rs.2,19,25,938/- for earning the same, is not incorrect considering the facts and circumstances of the case. 5.7 Accordingly, the disallowance is worked out as per the provisions of Rule 8D (2) as under:- (All figures in Rs.) (i) Amount of expenditure directly Nil relating to income which does not form part of total income (ii) A Amount of interest by which is not Nil directing attributable to any particular income/receipt B Average value of investment related to exempt income -Opening Balance of Investments 2,81,42,078 -Closing Balance of assets 1,57,09,798 -Average value of above assets- 2,19,25,938 C Average of total assets- -Opening Balance of assets 11,70,41,016 -Closing Balance of assets 12,88,00,025 -Average value of above assets- 12,29,20,520 A x B/C=Nil x 2,19,25,938 Nil 12,29,20,520 (iii) Average value of investment -Opening Balance of Investments 2,81,42,078 Page | 9
ITA No.1890/Del/2014 [Assessment Year : 2008-09] -Closing Balance of Investments 1,57,09,798 -Average value of above investment 2,19,25,938 -1/2% of average value of investment 1,09,630 Disallowance u/s 14A of the Act i.e. 1,09,630 aggregate of (i), (ii) and (iii) 5.8 Hence, an amount of Rs. 1,09,630/- is disallowed u/s 14A of the I.T. Act and added to the total taxable income. (Addition Rs. 1,09,630/-) Unsecured loans 6. During the course of assessment proceedings while examining the balance sheet and profit and loss account, it has been observed that during the assessment year under consideration, unsecured loans of assessee has been increased at Rs.1,21,47,451/- (Rs.1,60,73,535 Rs.39,26,084/-). Assessee was asked to file confirmations from the parties on account of which additions were made to the unsecured loans during the financial year under consideration vide order sheet entry dated 03.11.2010. Assessee was also required to give complete name, address, ITR acknowledgment and copy of relevant pages of bank account statement of the parties from whom the loans were taken. However, as discussed in para 2 and 3 of this order above, assessee failed to submit the details, evidences and confirmations as required. In view of the same, the claimed addition to the unsecured loans amounting to Rs.1,21,47,451/- during the previous year under consideration is added to the total income of the assessee u/s 68-of the I.T. Act being unexplained cash credits in the books of accounts of assessee. (Addition Rs.1,21,47,451/-) 7. Having regard to the nature of additions an disallowances made to the declared income, of the assessee herein above on account of disallowance u/s 14A of the I.T. Act, depletion in value of investments, debit balances written off, disallowance u/s 40(a) of the I.T. Act and unsecured loans, I am satisfied that the assessee company has
ITA No.1890/Del/2014 [Assessment Year : 2008-09] furnished inaccurate particulars of such income, rendering itself liable for initiation of penal proceedings under section 271(1)(c) read. with section 274 of the IT Act, 1961. The same is being initiated separately. 8. In view of the above, the income of the assessee company is computed as under: (All figures in Rs.) Total Income/loss (As per computation of (-)1,89,21,306 income filed on 21/09/2010) Add: i) Addition on account of rejection of revised (+)2,07,68,515 return of income and/or on merits (As discussed in para 4 and para 4.1 to para 4.4 of the order above) Depletion in value of investment Rs. 1,22,76,100 Debit Balances written off Rs.84,00,000 ✓ Disallowance u/s 40(a) Rs.92,415 ii). Disallowance u/s 14A of the I.T. Act (As discussed in para 5 of the order above) (+)1,09,630 iii) Unsecured loans u/s 68 of the I.T. Act (As discussed in para 6 of the order above) (+)1.21,47,451 Gross Total Income 1,41,04,290 Less: Brought forward business losses and Unabsorbed depreciation set off (As per return of income) (-)1,27,11,752 Total Income 13,92,538 Rounded off 13,92,540 Assessed at an income of Rs. 13,92,540/-. Interest u/s 234B, 234C and 234D of the Income Tax Act, 1961 is charged as per provisions of the I.T. Act. Penalty proceedings u/s 271(1) (c) of the I.T. Act have been initiated separately. Necessary forms are issued.” 8. The assessee has not brought any material contradicting the finding of the AO. Even it is found that Auditor of the assessee himself recorded about the depletion in value of investment being capital in nature, debit balance
ITA No.1890/Del/2014 [Assessment Year : 2008-09] being capital in nature and disallowance made u/s 40(a) of the Act and disallowance made u/s 14A of the Act. The assessee grossly failed to bring on records material evidence, contradicting the findings of AO on impugned additions. In the absence of any contrary material filed by the assessee and the assessee, failed to get confirmation of the unsecured loan taken from the concerned parties, we do not see any reason to interfere in the findings of AO, the same is hereby affirmed. Grounds raised by the assessee are accordingly, rejected.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court on 22nd May, 2024.
Sd/- Sd/-
(BRAJESH KUMAR SINGH) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER * Amit Kumar * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI