Loading judgment…
Facts
The assessee's appeal concerns additions made to its income, specifically regarding a disallowed write-off of Rs. 90,61,282/-, and interest income of Rs. 28,28,014/-. The Assessing Officer (AO) disallowed the write-off based on provisions of Section 36(1)(vii) and 36(2) of the Income Tax Act, stating that the assessee failed to prove the bad debts were offered for tax in previous years. The AO also added back the interest income, stating it was not offered for tax by the assessee. The CIT(A) dismissed the appeal without adjudicating on merit due to non-compliance.
Held
The Tribunal held that the CIT(A) did not provide adequate opportunity of hearing to the assessee, as evidenced by the short notice periods for hearings. Therefore, the case is restored to the CIT(A) to decide the appeal afresh on its merits after providing a proper opportunity of hearing to the assessee.
Key Issues
Whether the CIT(A) erred in dismissing the appeal without adjudicating on merit and whether adequate opportunity of hearing was provided to the assessee.
Sections Cited
36(1)(vii), 36(2), 270A, 143(3), 250(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI AMARJIT SINGH & SHRI RAHUL CHAUDHARY,
P a g e | 1 Capiqal Consultancy Service Pvt. Ltd. Vs. DCIT
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER & SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER, Capiqal Consultancy Vs. DCIT, Service Private Limited, Panvel, 1107, Post Sai Village, Mumbai - 410206 Bhomnagar Taluka Panvel, District Raigarh Palghar, Mumbai-410206 "थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAACM4143K Appellant .. Respondent
Appellant by : None Respondent by : H.M. Bhatt
Date of Hearing 28.05.2024 Date of Pronouncement 08.07.2024 आदेश / O R D E R Per Amarjit Singh (AM):
The present appeal filed by the assessee is directed against the order of ld. CIT(NFAC) of the Income Tax Act, 1961 for A.Y. 2011-12. The assessee has raised the following grounds before us:
“1. The Learned Commissioner of Income Tax Appeal has erred in law and in fact in making addition of "Sundry Balance Written Off" is disallowed and amounting to Rs.90,61,282/- Your appellant prays that the addition of Rs.90,61,282/ shall be deleted. 2. The Learned Commissioner of Income Tax-Appeal has erred in law and in fact in making addition of Interest received amounting to Rs.28,28,014/ Your appellant prays that addition of Rs.28,28,014/ made on account of interest on loans shall be deleted.
P a g e | 2 Capiqal Consultancy Service Pvt. Ltd. Vs. DCIT
On the facts and the circumstances of the case, the learned Assessing Officer erred in initiating the penalty proceedings under section 270A of the Act." Your appellant prays that the initiation of penalty proceedings under section 270A of the Act made by learned AO shall be dropped. 4. Your Appellant craves leave to add, amend, alter, change or cancel any of the above grounds of appeal on or before the date of hearing.”
Fact in brief is that return of income declaring loss of Rs.52,56,007/- was filed on 25.03.2018. The case was subject to scrutiny assessment and notice u/s 143(2) of the Ac was issued on 22.09.2019. During the course of assessment from the detail filed by the assessee the assessing officer noticed that loan to the amount of Rs.19,10,66,322/- and Rs.79,00,000/- were given and repaid respectively to M/s Nisha Enterprises, on which interest to the amount of Rs.40,56,322/- was received by M/s Nisha Enterprises. The assessee was asked to explain why TDS was not deducted u/s 40(a) of the Income Tax Act. It was also asked to provide complete ITR detail of M/s Nisha Enterprises and also the business expediency with M/s Nisha Enterprises and also asked to provide ledger account along with bank statement in respect of loan advanced and loan taken.
The AO further noticed that assessee has advanced loan of Rs.2,53,07,191/- to Mr. Ajay Mittal and assessee was asked to furnish detail regarding business expediency with Mr. Ajay Mittal. On further examination of details filed by the assessee the AO also noticed that assessee has claimed balance written off to the amount of Rs.90,61,282/-. The AO noticed that this balance written off was comprised an amount of Rs.88,61,283/- pertained to the loan and advances made to Shri Sharad K. Shah and an amount of Rs.1,60,000/- was pertained to sundry creditor related to Antony Pecora and further an amount of Rs.3,60,000/- of sundry balance written off was pertained
P a g e | 3 Capiqal Consultancy Service Pvt. Ltd. Vs. DCIT
to Mega Fin India Ltd. In response to the assessee vide letter dated 13.04.2021 made the following submission:-
"This is with reference to your captioned Notice issued in connection with the assessment proceedings of the Assessment Year 2018-19 In this connection, we Laxmipati Management Services Private Limited ('the Company or the assessee") furnish herewith the details as called in by your goodself in the order of the said notice as under- Point No. 1 With respect to point no 1, we would like to state that interest of Rs.40,56,322/- is received from Nisha Enterprises and the same is shown as Income in the current Assessment Year. As the same is income, so TDS is not required to be deducted by the Assessee Point No. 2 With respect to point no. 2, ITR Copy of Nisha Enterprises is attached herewith vide Annexure B to B2. Point No. 3 With respect to point no. 3, Bank Statements for the FY 2017-18 relevant to AY 2018- 19 are attached with vide Annexure B and in respect of Ledger of Loans advanced, the same is attached herewith vide Annexure C AND Ledger Copy of Loans Taken is attached herewith vide Annexure C1. Point No. 4
With respect to paint no. 4. kindly note that out of total Loan of Rs. 2,53.07.191.16 to Mr Ajay Mittal an amount of Rs. 2,00,00,000/- has been received during the year only Point No. 5. With respect to point no. 5, details of Written Off amounting to Rs. 90,61,282/- is as follows:-
No. Particulars Nature Amount 1. Sharad K Shah Loans & Advances 88,61,283 (Assets) 2. Antony Pecora Sundry Creditors 1,60,000 3. Mega Fin (India) Ltd. Investment in Quoted 3,60,000 Shares 90,61,283/-
With regards to Sharad K Shah the Loan of Rs. 88,61,283/- is not recoverable to Management has decided to written off the same during the year.
With regards to Antoni Pecora we would like to state that the Professional Fee Rs. 1,60,000/- has been written back.
P a g e | 4 Capiqal Consultancy Service Pvt. Ltd. Vs. DCIT
With regards to Investment in mega Fin (India) Limited, the same is written off as the Equity Shares are suspended from trading in Bombay Stock Exchange. Point No. 6
With respect to point no. 6, we would like to state that there is difference in balance of Dhaval Multi Dedhia (HUF), Kulji Narpar Dedhia (HUF), Narpar maya Dedhia (HUF) The same is due to interest provision booked by the parties, but assessee is not aware bout the same, so we have shown as income in FY 2018- 2019 and 2019-2020 based on the confirmed received.
Further, we hereby attach Ledger of Interest Received and Financials of FY. 2018- 2019 vide Annexure D1 and D2. In FY 2019-2020, interest is booked under prior period items, we are attaching Ledger of Prior Period items and Financials of FY. 2019-2020 vide Annexure D3 and D4 respectively.
As the same is already shown as income in FY. 2018-2019 & FY 2019-2020, so the same should not be added back to total income.”
However, the AO has not agreed with the submission of the assessee, after referring the provision of Sec.36(2) the AO stated that as per the procedure for writing off any bad debt, the assessee company has to first debit the provisions towards the said expenses in its profit and loss account of the previous year. The assessing officer has also referred the provision of Sec. 36(1)(viii) r.w.s 36(2) of the Act as under:
“36(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28. (vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause.
Explanation - For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee;
As per the provisions of section 36(2) states as below. 36 (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply: -
P a g e | 5 Capiqal Consultancy Service Pvt. Ltd. Vs. DCIT
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 2. If the amount ultimately recovered on any such debt or part of debt is less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made 3. Amy such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earliest assessment 3 year), but the Assessing Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year, 4. Where any such debt or part of debt is written off as irrecoverable in the accounts of the previous year (being a previous year relevant to assessment year commencing on the 1st day of April, 1988 or any earlier assessment year) and the AO is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub-section (6) of section 155 shall apply: 5. Where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the provision or bad and doubtful debts account made under that clause.”
After referring the aforesaid provision the AO stated that as per provision of Section 36(2)(viia) no debt will be allowed to be written off in the current financial years unless the provisions were made in the previous financial year in regard to the said debt to be written off. Further as per Sec. 36(1)(vii) of the Act the assesse was only allowed to claim those bad debts which were written off in the books of account.
The AO further stated that assessee had failed to prove that such bad debt were offered for tax in the previous years. The assessing officer further observed that during the year the assessee company had made transactions with the persons to whom balance were written off. Such P a g e | 6 Capiqal Consultancy Service Pvt. Ltd. Vs. DCIT
transactions reported by the assessing officer in the assessment order are as under:
“I Shri Sharad K Shah During the year under consideration, the company has repaid Rs.1.50 Crore to Mr. Sharad K Shah leaving Rs.6 Cr. as Closing Balance. ii. Shri Antoni Pecora During the year, the company has paid Professional Expenses to the tune of Rs.17,16,000/- to Mr. Antoni Pecora. On payment of Rs.17,16,000/-. ⅲ. Mega Fin (India) Limited On examination of Grouping of Long Term Borrowings, an amount of Rs.1,76,79,338/-is t 1,76,79,338/-is being shown.”
In view of the above observation the assessing officer has disallowed the claim of sundry balance written off of Rs.90,61,282/- and same was added to the total income of the assessee.
Further during the course of assessment the assessing officer has asked the assessee to provide copy of confirmation of the following loan transaction (loan given):
i. Dhaval Multi Dedhia (HUF) ii. Mulji Narpar Dedhia (HUF) iii. Narpar Maya Dedhia (HUF)
In response the assessee submitted that there was difference in balance of Dhaval Multi Dedhia (HUF), Mulji Narpar Dedhia (HUF), Narpar Maya Dedhia (HUF) and the same was due to interest provision booked by these parties and the assessee was not awared about the same, therefore, the same was shown as income in F.Y. 2018-19 and 2019-20 based on the confirmation received.
After perusal of the confirmation received from the assessee the assessing officer stated that assessee company had not offered the interest income earned from the following loan advances given by it.
“Narpar Maya Dedhia (HUF) Rs. 6,20,548/- Narpar Maya Dedhia (HUF) Rs.11,25,000/- Mulji Napar Dedhia (HUF) Rs. 6,92,877/- Mulji Napar Dedhia (HUF) Rs. 3,89,589/-
P a g e | 7 Capiqal Consultancy Service Pvt. Ltd. Vs. DCIT
Therefore, the assessing officer has added back the interest amount of Rs.28,28,014/- to the total income of the assessee.
After making the aforesaid additions the assessment order u/s 143(3) of the Act was finalised on 20.04.2021. 11. The assessee filed the appeal before the ld. CIT(A). However, the ld. CIT(A) has dismissed the appeal of the assessee without adjudicating on merit on the ground that assessee has not made compliance during the course of appellate proceedings at the level of CIT(A).
Heard the ld. D.R and perused the material on record. We have perused the order of ld. CIT(A) and noticed that during the course of appellate proceedings the ld. CIT(A) has issued following two notices for making compliance during the course of appellate proceedings before him.
Date of notice Deadline of hearing/submission Outcome fixed as per the notice 29.12.2023 04.01.2024 No compliance nor any request for adjournment 05.01.2024 11.01.2024 No compliance nor any request for adjournment
It is evident from the detail of the notices that ld. First appellate authority has issued the first notice of hearing to the assessee on 29.12.2023 fixing the date of hearing on 04.01.2024 less than 7 days from the date of issuing of notice and immediately second notice was issued on 05.01.2024 again fixing the hearing on 11.01.2024 again less than 7 days from issuing of the notice which demonstrate that adequate opportunity of hearing has not been provided to the assessee. As contemplated in section 250(6) of the Act, the ld. CIT(A) is required to adjudicate the appeal filed by the assessee on merit, and to provide reasoning to the decision after considering the material placed on the record. Looking to the above facts and finding we restore this case to P a g e | 8 Capiqal Consultancy Service Pvt. Ltd. Vs. DCIT
the file of the ld. CIT(A) for deciding afresh on merit after providing adequate opportunity to the assessee. The assessee is also directed to make compliance before the ld. CIT(A) without any failure. The appeal of the assessee is allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 08.07.2024 (Rahul Chaudhary) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 08.07.2024 Rohit: PS
आदेश की "ितिलिप अ"ेिषत/Copy of the Order forwarded to : अपीलाथ" / The Appellant 1. ""थ" / The Respondent. 2. आयकर आयु" / CIT 3. िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण DR, ITAT, 4. Mumbai गाड" फाईल / Guard file. 5. स"ािपत "ित //// आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt.