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Facts
The revenue has appealed against the order of the CIT(A) who deleted certain additions made by the AO. The assessee is a housing finance company. The AO made additions for interest on NPA, bogus payments to suppliers, unexplained expenditure, and disallowance of deduction under section 80M.
Held
The Tribunal held that the deletion of disallowance of interest on NPA was justified as the issue was covered by previous decisions of the Tribunal and High Court. The deletion of disallowance for bogus payments to suppliers was also upheld as the AO failed to provide sufficient evidence. The addition for unexplained expenditure was set aside and remitted to the AO for further investigation. The disallowance of deduction under section 80M was deleted as the AO's basis for disallowance was found to be incorrect.
Key Issues
Whether the CIT(A) was correct in deleting the additions made by the AO concerning interest on NPA, bogus payments, unexplained expenditure, and disallowance of deduction under section 80M.
Sections Cited
43D, 6EA, 80M, 69C, 115BBE, 194H, 143(3), 144B, 250, 133(6), 142(1), 143(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI ANIKESH BANERJEE & SHRI GAGAN GOYAL
PER ANIKESH BANERJEE, J.M:
Instant appeal of the revenue is preferred against the order of theNational Faceless Appeal Centre, Delhi [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2021-22, date of order 30.01.2024.The impugned order was emanated from the order of the Ld.National e-Assessment Centre, Delhi(in short, ‘the A.O.’) passed under section 143(3)read with section 144B of the Act date of order30/12/2018.
2 ITA No.1297 /Mum/2024 IIFL Home Finance Limited 2. The Revenue has taken the following grounds of appeal: -
1) Whether on the facts and circumstances of the case, the Ld. CIT(A)/NFAC is right in deleting the disallowance of Ks.20,32,407/ -towards Interest on NPA u/s 43D r. w. r 6EA of the IT Rules?
2) Whether on the facts and circumstances of the case, the Ld CIT(A)/ NFAC is right in deleting the disallowance of Rs. 18,658/~ on account of Payments made to suppliers treated as bogus?
3) Whether on the facts and circumstances of the case, the Ld CIT(A)/NFAC is right in deleting the disallowance of Rs. 4.07,13,516/- u/s 80M of the Act without appreciating the fact that from the audited accounts of the assessee it is seen that the assessee has inter corporate dividend of Rs. 4,07,73.5J6/- and credit in the P&L Account but there is no information available in the audited P&L Account and Balance Sheet that the assessee has declared any dividend and also distributed dividend as per the provisions of the Act?
4) Whether on the facts and circumstances of the case, the Ld CIT (A)/ NFAC is right in deleting the disallowance of Rs.3,41,786/ on account of unexplained expenditure u/s 69C r.w.s. 115BBE?
5) The appellant craves leave to add, amend, alter and/or wiry any of the grounds of appeal before or at the. time of hearing.”
The brief facts of the case are that the assessee is a limited company engaged in the business of housing finance and has received certificate of registration from National Housing Bank to carry on the business of housing
3 ITA No.1297 /Mum/2024 IIFL Home Finance Limited finance. The assesseeprovides loans loan, mortgage loan to the customer and worked as housing finance company. The assessment is framed with an addition of Rs.4,31,06,367/- on account of interest on NPA (Non-Performing Assets) under rule 6EA of I.T Rules, 1962 (in short, ‘the Rules’), payment made to suppliers treated as bogusexpenditure amount to Rs.18,658/-, unexplained expenditure under section 69C Rs.3,41,786/- and disallowance of deduction under section 80M Rs.4,07,13,516/-. Aggrieved, assessee filed an appeal before the ld. CIT(A). The Ld.CIT(A), after considering the submission of the assessee deleted the additions and allowed the appeal. Being aggrieved on appeal order, the revenue has filed an appeal before us.
The Ld.DR argued vehemently and fully relied on the order of the Ld.AO.
On the other hand, the Ld.AR of the assessee filed a written submission, which is kept in the record (in short APB). The Ld.AR vehemently argued and fully relied on the appeal order. The Ld.AR is carrying over the argument which is as follows: -
Ground No. 1 of the revenue: -
As per ground no. 1, the addition was related to interest on NPA under section 43B read with rule 6EA of the Rule in accordance with the applicable RBI guidelines and directions. The assessee does not accrue any interest income on NPA, that is loan to customers, who have defaulted in repaying the loan amount in excess of 90 days. Accordingly, during the impugned assessment year, the assessee has not accounted any interest income amount to Rs.20,32,047/- towards the customers, who have defaulted for more than 90 days and less than
4 ITA No.1297 /Mum/2024 IIFL Home Finance Limited 180 days. The Ld.AO has made the addition amount of Rs.20,32,047/- being interest income from loan to customers, who are in default for more than 90 days, but less than 180 days may not be treated as NPA under section 43B r.w.r. 6EA. The Ld.AR pressed that the issue is squarely covered by the order of the Coordinate bench of ITAT, Mumbai Bench, which has considered by the Ld.CIT(A). The Ld.AR drawn our attention in appeal order paras 4.4 and 4.5 which are reproduced as below: -
“4.4 As regards, ground relating to appreciation that provision of section 43D of the Income Tax Act has to be read in line with the guidelines issued by the RBI in relation to such debts is concerned the INCOME TAX APPELLATE TRIBUNAL “G” BENCH, I.T.A. No. 3033/Mum/2019 (A.Y. 2015-16) I.T.A. No. 2873/Mum/2019 (A.Y. 2015-16) DCIT-2(2)(1), Mumbai Vs. M/s State Bank of India (Successor to State Bank of Bikaner & Jaipur) held as below:
The ground No. 1 of the appeal of the assessee relates to addition of Rs. 3,86,10,180/- in respect of unrealized interest on borrower accounts classified as non-performing accounts under RBI directions. The Ld. Counsel of the assessee submitted that this is one of the recurring issue in the case of the assessee and it has been decided in favour of the assessee by the Tribunal for A.Y.2008-09 vide order dated 03/02/2020 in ITA No. 3644 and 4563/Mum/2016. The Ld. Departmental Representative on the other hand relied on the order of the lower authorities. 5. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The Ld. A.O. held that since the assessee is maintaining its books of accounts on accrual basis, the income in respect of bad and doubtful debt was required to be taxed on accrual basis except for the exceptions provided under rule 6EA of Income-Tax rules, 1962 read with Section 43D of the Act. The Ld. A.O. rejected the claim of the assessee that exceptions should be provided as per RBI guidelines and accordingly he added the
5 ITA No.1297 /Mum/2024 IIFL Home Finance Limited amount of Rs.3,86,10,180/-being the interest on NPA/NPI not recognized by the assessee as income in view of RBI guidelines ignoring the provision of section 43D read with rule 6 EA of rules. The Ld. CIT(A) following the decision of his predecessor in the case of the assessee for A.Y.2014-15 confirmed the addition. State Bank of India ITA No. 3033/2873/Mum/2019 6 5.1 We find that identical issue has been adjudicated by the Tribunal(supra) in the case of the assessee for A.Y. 2008-09, observing as under: We have gone through the case law in American Express Bank Ltd. vs. Addl. CIT [2012] 25 taxmann.com 572 (Mumbai), wherein the Mumbai Tribunal was considering a case where the loans on which interest/principal remained unpaid for 90 days were classified as no-accrual loans. The unpaid interest in respect of such loans was reversed to an account called Reserve for Doubtful Interest (RFDI) account. All subsequent interest accruals of such loans were credited to RFDI account and not to the profit and loss account. The assessee offered to tax the net amount credited to the RFDI account i.e. the interest accruals in the RFDI account net of recoveries. However, it was argued that such tax treatment leads to offering interest on nonaccrual loans to tax on accrual basis, even if the same is not credited to the profit and loss account. The Mumbai Tribunal held that where the AO has not contested that the policy adopted by the assessee is not in accordance with RBI guidelines, the incidence of taxation of interest on bad and doubtful debts will be either when the same is credited to the profit and loss account for the year or in the year in which it is actually received. Mere crediting of the interest to a reserve cannot be said to be an incidence by which the said interest could be charged to tax. The aforesaid decision has been affirmed by the Bombay High Court in the case of DIT vs. American Express Bank Ltd [2015] 235 Taxman 85 (Bombay). In the present case the assessee argued that there is no credit entry in the books of the account in respect of the interest on such NPAs and, accordingly, the addition made cannot be sustained.
6 ITA No.1297 /Mum/2024 IIFL Home Finance Limited Hence according to assessee the issue stood covered by the first proposition in terms of the Bombay High Court in assessee'sfavour and hence, no further submissions were made on other two propositions. We noted that this issue is squarely covered by the decision of Hon'ble Bombay High Court in the case of American Express Bank Ltd (supra), wherein it is held that there is no credit entry in the books of the account in respect of the interest on such NPAs, no addition can be made. Further, even the Mumbai Tribunal in the case State Bank of India ITA No. 3033/2873/Mum/2019 7 of American Express Bank Ltd. (supra) has considered this issue and held that where the AO has not contested that the policy adopted by the assessee is not in accordance with RBI guidelines, the incidence of taxation of interest on bad and doubtful debts will be either when the same is credited to the profit and loss account for the year or in the year in which it is actually received. Mere crediting of the interest to a reserve cannot be said to be an incidence by which the said interest could be charged to tax. Hence, we delete the addition of interest income and allow this issue of assessee's appeal. 5.2 Since the issue-in-dispute before us of taxability of interest on Non- peforming assets/Account is exactly identical to what has been decided by the Tribunal (supra). Therefore, respectfully following the finding of the Tribunal, being a binding precedent, the finding of the Ld. CIT(A) on the issue-in-dispute is set aside and the Ld. A.O. is directed to delete the addition-indispute. The ground No. 1 of the appeal of the assessee is accordingly allowed. 4.5 In view of the above finding since the jurisdictional ITAT has decided this issue in favour of the appellant, respectfully following them it is held that mere crediting of the interest to a reserve cannot be said to be an incidence by which the said interest could be charged to tax. The ground of appeal is allowed.”
We heard the rival submissions, considered the documents available in the record. The addition was made of the interest in NPA which is squarely covered
7 ITA No.1297 /Mum/2024 IIFL Home Finance Limited by the order of the co-ordinate bench. We fully relied on the order of the co- ordinate bench and the addition is not sustained.
Accordingly, the appeal order on this ground is sustained and ground no. 1 of the revenue is dismissed.
Ground No- 2 of the revenue: -
The Ld.AR argued that the addition was made on the basis of a transaction made with the party amount to Rs.18,658/- to M/s Regeneris India Pvt Ltd during this impugned assessment year. But the assessee has denied the transaction with this party. The Ld.AO was not able to put any such evidence in relation to this transaction in both the parties. The Ld.AR drawn our attention in appeal order point 6, Page 9 which is reproduced as below: -
“6. As regards, ground relating to payment of Rs. 18,658/- to M/s Regenersis (India) Pvt. Ltd during the relevant year is concerned. The AO has mentioned in the assessment order As per information available, the assessee has made payment to its suppliers, Regenersis (India) Pvt Ltd, PAN: AABCD3215E of Rs. 18,658/-. However, as per information received in response to notice issued u/s 133(6) of the Act dated 10.12.2022 from the said party it has been gathered that the said party has not entered into any transactions with the assessee. However, the assessee has not furnished any response in respect this party. The assessee has also not participated in the personal hearing through V.C provided on 15.12.2022 from 2:30 to 3:00 p.m. 3.3.3 In view of the above, claim of expenses of Rs.18,658/- is treated as bogus and added to the total income of the assessee for the previous year relevant to A.Y.2021- 22
6.1 The assessing officer has not explained the nature of payment of Rs. 18,658/- to M/s Regenersis (India) Pvt. Ltd and has made addition solely on the basis of
8 ITA No.1297 /Mum/2024 IIFL Home Finance Limited noncompliance to 133(6) notice. The AO noted in the assessment order, that he had issued notice under section 133 (6) of the Act to the concerned party, however, he did not receive any replies. Therefore, as the assessee did not furnish the necessary evidence, the AO made the addition. Nothing contrary has been mentioned by AO in the assessment order, except that the notice u/s 133(6) has not been complied. In absence of any contrary finding about expenditure specially when the appellant has sufficient income, expenditure cannot be treated as unexplained without any reason or evidence. In view of the same the ground is allowed.”
The Ld.DR vehemently argued and fully relied on the assessment order.
We heard the submission and considered the documents available on the record. The issue is agitated by the assessee before the appellate authority and as per the finding of the appellate authority, there is no such corroborative evidence to prove that there is a transaction in between the party and the assessee. The Ld.DR was silent on this issue. Accordingly, we sustain the findings of the appellate authority in groundno.2.
In the result, ground No.2 of the revenue is dismissed.
Ground 3 of the revenue: -
The Ld.DR argued and pressed that the assessee received the inter- corporate dividend amount to Rs.4,07,13,516/- which is also credited in the P&L Account. But there is no such information available in the audited P&L Account and Balance-sheet. But due to lack of evidence, the income is treated as Income from other sources and added with the total income of the assessee. The Ld.DR
9 ITA No.1297 /Mum/2024 IIFL Home Finance Limited drawn our attention in assessment order paras 3.4.4 to 3.4.6 which are reproduced as below: -
“3.4.4 Although the assessee has furnished copy of Form-1 ODA in respect of claim of deduction u/s 80JJAA, the assessee has failed to furnish evidence in support of declaration of dividend made by the assessee company. It is seen from the audited account that the assessee has received inter-corporate dividend of Rs. 4,07,13,5167- and also credit in the P&L account. However, there is no information available in the audited P&L account and Balance sheet that the assessee has declared any dividend and also distributed as per provisions of the Act. The assessee has also informed that it has not received any intimation. However, this appear to be incorrect as the said intimation has been issued to the assessee vide DIN: CPC/2122/A6/245510875 dated 22.09.2022. Therefore, the assessee failed to furnish evidence in support of claim of deduction u/s 80M of the Act.
3.4.5 On the basis of assessee's option personal hearing through video conferencing was provided to the assessee on 15.12.2022 from 02:30 pm to 03:00 pm, in order to discuss all issue involved in this case which were requisitioned u/s 142(1) and by issue of SCN. However,'theassessee has not participated in the Video conferencing.
3.4.6 In view of the fact that there is no mention of the claim of deduction claimed u/s 80M in the tax audit report as well as failure on the part of the assessee to furnish evidence in support of declaration and distribution of dividend as per provisions of the Act, deduction claimed u/s 80M of Rs. 4,07,13,5167- is disallowed while computing total income of the assessee for the previous year relevant to A.Y. 2021-22.
[Disallowance of deduction under chapter -VIA: Rs. 4,07,13,5167-]” 11. The Ld.AR fully relied on the appeal order and has drawn our attention in para 7 & 7.1 which is reproduced as below:-
“7. As regards ground relating to deduction u/s 80M is concerned, the appellant explains that Assessing Officer erred in stating that the assessee has received
10 ITA No.1297 /Mum/2024 IIFL Home Finance Limited copy of intimation u/s 143(1). The Assessing Officer failed to appreciate that as on date of passing order, the status of processing return u/s 143(1) of the Appellant in respect of A.Y.2021-2022 on the income tax portal is showing as - Under Processing. There is no question of the Appellant receiving copy of intimation u/s 143(1) under this circumstance. 7.1 I have gone through the record available in the system and seen that there is no demand u/s 156 through processing u/s 143(1)(a) or disallowance u/s 80M through processing u/s 143(1)(a), in this background the plea taken by AO in the assessment order that It is also seen that the amount of deduction u/s 80M is disallowed u/s 143(1) of the Act by the CPC, is not correct. In view of the same the disallowance u/s 80M is without any basis and hence deleted. The ground of appeal is allowed.” 12. We heard the rival submission and considered the documents available in the record. The Ld.CIT(A) has pointed out that there is no such show cause in relation to addition of inter-corporate dividend. The Ld.AR further mentioned that the assessee, on the other hand, issued dividend amount to Rs.52 crores and claimed the exemption under section 80M of the Act amount of Rs.4,07,13,516/- related receiving of dividend. The showcause issued by the Ld.AO is annexed in APB pages 39-44. In this showcause, there is no mention of any deduction claimed under section 80M of the Act. We are not interfering in the appeal order. Accordingly, groundno. 3 of the revenue is dismissed.
Ground 4 of the revenue:
The Ld.DR argued vehemently and invited our attention in assessment order para 3.2 which is reproduced as below: -
“3.2 Regarding payment to deductees on which TDS has been made u/s 194H: 3.2.1 As per information available with the department, the assessee has paid commissions to persons who have not filed returns of income for the relevant A.Y.2021-22. The information has
11 ITA No.1297 /Mum/2024 IIFL Home Finance Limited been generated in the system on the basis of TDS return filed by the assessee. Based on the information, a SCN was issued to the assessee on 07.12.2022 as under:
"[3.3 194H: Regarding payment to deductees on which TDS has been made u/s 194H i) As per information available, the assessee has paid commission to persons who have not filed returns of income for the relevant A. Y.2021-22. List of such cases is enclosed here under which were also provided to the assessee in the notice issued on 22.11.2022.
12 ITA No.1297 /Mum/2024 IIFL Home Finance Limited 14. The Ld.AR argued and placed that the Ld.AO has issued the show cause. There is no name or PAN of the parties from where the assessee can understand identity of the parties to whom the commissions were paid. The amount of Rs.3,41,786/- is added back fully in arbitrary way and bad in law. The ld.AR relied on the appeal order paragraphs 5 & 5.1 which are reproduced as below:-
“5. As regards to the next ground relating to providing the basic details eg. Name, address, PAN, TAN of the 13 parties for which information was sought by the officer is concerned the AO mentioned in the assessment order that why Rs. 3,41,786/- should not be treated as unexplained expenditure in absence of proof of source of payment.
5.1 I have gone through the show cause notice dated 07.12.2022 wherein the AO has not given the name, address and PAN of the people, whose information was asked by the AO. In absence of complete information in the show cause notice, it is not justified for the AO to make an addition of the amount shown in show cause notice. Secondly, the appellant has sufficient income in the relevant year hence treating the payment as unexplained without any reasonable reason/document is not justifiable. Hence, the addition made by AO in this regard is deleted.”
We heard the rival submissions and considered the documents available in the record. On perusal of the assessment order, we see that only the information description and information source and amount is mentioned related to payment of commission. It is not possible for the assessee to ascertain the identity of the parties. The ld. CIT(A) has also not taken the pain to ascertain the correct identity of the parties as asked by the ld. AO. There is a lack of investigation on part revenue and non-cooperation on part of the assessee. We direct to remit back the matter to the file of the ld. AO. The ld. AO is directed to share proper data with the assessee to identify the parties and to pass a speaking order. The assessee is also directed to share the ledger copies of the parties and cooperate
13 ITA No.1297 /Mum/2024 IIFL Home Finance Limited with the ld. AO in set aside proceeding. Accordingly, we set aside the appeal order related to ground No.4.
In the result, ground no. 4 of the revenue is allowed for statistical purposes.
Ground 5 is general in nature.
In the result, appeal in ITA 1297/Mum/2024 is partly allowed for statistical purposes. Order pronounced in the open court on 21st day of June 2024. Sd/- sd/- (GAGAN GOYAL) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,दिन ांक/Dated: 21/06/2024 Pavanan Copy of the Order forwarded to: अपील र्थी/The Appellant , 1. प्रदिव िी/ The Respondent. 2. आयकरआयुक्त CIT 3. दवभ गीयप्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, 4. Mumbai ग र्डफ इल/Guard file. 5.
BY ORDER, //True Copy// (Asstt. Registrar), ITAT, Mumbai
14 ITA No.1297 /Mum/2024 IIFL Home Finance Limited