2020 (7) TMI 519 - AT - Income Tax

Disallowance u/s 43B the entire amount of VAT and Tax payable - closing balance as brought forward to the year under considerationrought - HELD THAT - As is discernible from Schedule 3 i.e. details of disallowance of unpaid expenditure u/s 43B for the year under consideration, therein forming part of the revised statement of income , the current year expenditure towards VAT and Excise duty was not paid by the assessee up to the due date of filing of its return of income under sub-section (1) of Sec. 139 for the year under consideration. Amount of VAT Excise duty formed part of the suo motto disallowance made by the assessee u/s 43B of the Act. We are in agreement with the claim of the ld. A.R that as the balance amount was the closing balance of the earlier years that was brought forward to the year under consideration, the same could not have been disallowed u/s 43B. Accordingly, we set aside the order of the CIT(A) in context of the issue under consideration and vacate the disallowance made by the A.O u/s 43B - Decided in favour of assessee. Disallowance of foreign exchange loss - addition as assessee failed to place requisite documents in support of its claim - HELD THAT - On a perusal of the orders of the lower authorities, we find that the assessee despite specific directions had failed to place on record the requisite documents in support of its claim of having suffered the foreign exchange fluctuation loss viz. copies of bank statements, ledger accounts and the rate of foreign exchange payments made or received.Though there is no infirmity in the declining of the unsubstantiated claim of the assessee by the lower authorities, but then, a perusal of the Foreign exchange fluctuation gain/loss ledger accounts filed by the assessee does inspire some confidence as regards the veracity of such claim. Restore the matter to the file of the A.O for fresh adjudication. In case the assessee is able to substantiate its claim for foreign exchange fluctuation loss to the satisfaction of the A.O, then the latter shall allow the deduction of the same. Assessee's Ground is allowed for statistical purposes. Disallowance of bad debts/advances w/off and sundry balances w/off - HELD THAT - Additional evidence filed by the assessee was forwarded by the CIT(A) to the A.O for his comments. In reply, it was submitted by the A.O, that in the course of the remand proceedings the assessee on being called upon to justify its claim for deduction of bad debts/write off of the aforesaid amounts, had only submitted the list of the parties and claimed that the copies of bills, invoices and other documents were not available with it, as the same had been destroyed pursuant to closure of the factory in July, 2012. As such, the A.O reverted back to the CIT(A), therein stating that the aforesaid claim of deduction raised by the assessee was not verifiable for want of documentary evidence. As per the CBDT Circular No. 12/2016, dated 30.05.2016, claim for deduction of any debt or part thereof in any previous year shall be admissible u/s 36(1)(vii) if inter alia it fulfilled the conditions stipulated in sub-section (2) of Sec. 36 CIT(A) called upon the assessee to demonstrate satisfaction of the said mandatory condition. Assessee in the absence of the requisite documents stated that it was not possible for it demonstrate the fulfilment of the conditions stipulated in sub-section (2) of Sec. 36. CIT(A) not finding any infirmity in the declining of the assessee s claim for deduction u/s 36(1)(vii) by the A.O, therein upheld his order to the said extent. Disallowance u/s 36(1)(vii) - Addition of bad debts - HELD THAT - A.O observing that neither the advances written off by the assessee during the year were ever taken into account by the assessee in computing of its income, nor the same represented money lent by the assessee in the ordinary course of business of banking or money lending, thus, it did not satisfy either of the conditions contemplated in Sec. 36(2) of the Act. Although, we concur with the view taken by the lower authorities that the advances written off by the assessee would not qualify for deduction u/s 36(1)(vii) r.w Sec. 36(2), but then, the same on the said standalone basis cannot jeopardise its entitlement towards claim for deduction of the same as a business loss u/s 37. Hon ble High Court of Bombay in the case of Harshad J. Choksi Vs. CIT 2012 (8) TMI 710 - BOMBAY HIGH COURT had an occasion to deal with the issue, that where an amount is held to be not deductible as a bad debt in view of noncompliance of the conditions precedent as provided u/s 36(2), then could the same be considered as an allowable business loss. High Court while answering the said issue, had observed that non-satisfaction of the conditions for claim of bad debts, would not prevent the assessee from claiming deduction of the same as a business loss incurred in the course of carrying on of business as that of a share broker. assessee s claim that the amount of advances written off during the year was in the nature of a business loss requires to be adjudicated upon by the A.O. On a similar footing, the claim of the assessee that the sundry balances written off during the year were also a loss incidental to its business, on the same terms requires to be visited by the A.O. As principally in agreement with the contention of the ld. A.R, that the assessee s claim for deduction of the advances paid to customers, which were written off by it during the year under consideration were supposed to be looked into u/s 37 Accordingly, we herein direct the A.O to adjudicate upon the claim of the assessee as regards allowability of its claim for deduction of, viz. (i) the amounts advanced to suppliers written off during the year AND the sundry balances written off as a business loss within the meaning of Sec. 37 of the Act. Addition of Unsecured loans as an unexplained cash credit u/s 68 - HELD THAT - On a perusal of the respective returns of income, we find that during the year under consideration viz. A.Y 2013-14, the directors viz. S/sh. Shyam Ghia and Mukund Dalal had returned an income respectively. As regards the source of advancing of the respective loans, both of them had deposed in their respective affidavits that the same was out of their past savings. To sum up, the aforesaid directors viz. S/sh. Shyam Ghia and Mukund Dalal, after providing their respective income-tax credentials, had admitted of having advanced loans to the assessee company during the year under consideration. However, as the aforesaid documents viz. copies of the returns of income, and also their respective affidavits had been filed before us as additional evidence, and the same were not there before the lower authorities, therefore, in all fairness we restore the matter to the file of the A.O for readjudication. LTCG on transfer of the land - powers of the Tribunal to entertain an additional ground - HELD THAT - Assessee had assailed the assessing of the LTCG on the impugned transfer of land and subjecting of the same to tax, as the MOU, dated 19.12.2012 i.e the agreement to sell , was thereafter cancelled vide a deed of cancellation, dated 28.09.2017. As such, the said ground raised by the assessee was not available at the time of filing of the return of income, and in fact had became available on account of change of circumstances in the course of hearing of the appeal before the CIT(A). Accordingly, in our considered view, the assessee remaining well within its right had validly assailed the assessing of the LTCG on the impugned transfer of land before the CIT(A). Maintainability of the claim of the assessee that in the absence of transfer of the land under consideration - As decided BALBIR SINGH MAINI, CS ATWAL 2017 (10) TMI 323 - SUPREME COURT in order to qualify as a transfer of a capital asset under Section 2(47)(v) of the Act, there must be a contract which can be enforced in law under Section 53A of the Transfer of Property Act - in terms of Sec. 2(47)(v) of the Act, transfer of any immovable property in part performance of a contract of the nature referred in Sec. 53A of the Transfer of Property Act, 1882, will be completed only when the agreement under Sec. 53A of the Transfer of Property Act is registered under the Indian Registration Act. In the case before us, as the assessee by way of an unregistered MOU, dated 19.12.2012 had though sought to transfer the land under consideration to the purported buyer viz. M/s Golden Star Promoters Pvt. Ltd., but then, the very fact that the possession of the land was never parted with/delivered to by the assessee to the other party, on the said count itself would render the provisions of Sec. 2(47)(v) of the Act r.w.s 53A of the Transfer of Property Act, 1882, as inapplicable. As the instrument of transfer was an unregistered MOU, dated 19.12.2012, the same in the backdrop of the aforesaid judicial pronouncements would exclude the applicability of Sec. 2(47)(v) of the Act r.w Sec. 53A of the Transfer of Property Act. In so far the provisions of sec. 2(47)(vi) are concerned, we find that the assessee who had not even parted with the possession of the land in favour of the purported buyer, had not entered into any arrangement or acted in any other manner, which had the effect of transferring, or enabling the enjoyment of the property under consideration to the purported buyer. Rather, the fact that the MOU, dated 19.12.2012 was subsequently cancelled vide a deed of cancellation, dated 28.09.2017, therein proves to the hilt that the impugned sale transaction had never crystallized. As a matter of fact, the lower authorities had failed to place on record any material which would rebut the aforesaid claim of the assessee. In fact, it is not even the case of the revenue that the deed of cancellation, dated 28.09.2017 is a sham or a fabricated document. In fact, the subsequent sale of part of the land by the assessee in the period relevant to A.Y 2018-19 and A.Y 2019-20, further fortifies the veracity of the aforesaid claim of the assessee. As decided in MR. FARDEEN KHAN 2018 (8) TMI 134 - BOMBAY HIGH COURT where the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account . On the basis of our aforesaid observations, we are unable to persuade ourselves to concur with the view taken by the lower authorities, and therein vacate the addition towards LTCG made by them, on the basis of the MOU. - Decided in favour of assessee. Capital loss for the purpose of set off against the income of the assessee/carry forward to the subsequent years - HELD THAT - As the assessee had failed to substantiate the basis for allocation of the sale consideration to the individual assets, and also its inventory, the A.O had for the said reason disallowed its claim for Short Term Capital Loss. In our considered view, the matter in all fairness requires to be revisited by the A.O, for allowing an opportunity to the assessee to substantiate its claim of Short Term Capital Loss so raised in its return of income. Accordingly, we herein restore the matter to the file of the A.O with a direction to re-adjudicate the same. At the same time, the assessee is directed to substantiate its claim of Short Term Capital Loss, as raised in its return of income, by justifying the basis for allocation of sale consideration qua the depreciable assets and its inventory. Ground allowed for statistical purposes. Rectification of mistake u/s 154 - CIT-A erred in confirming the action of A.O in not setting off Unabsorbed Depreciation brought forward from earlier years, disallowance of Bad Debts/Advances written off and Sundry Balances written off AND disallowance of Short Term Capital Loss on sale of depreciable assets. - HELD THAT - Application for rectification under Sec. 154 are not free from doubts and debate, and would involve a long drawn process of reasoning, the same would thus not fall within the realm of rectification within the meaning of Sec. 154 of the Act. As such, finding no infirmity in the view taken by the lower authorities, who in our considered view had rightly rejected the application filed by the assessee under Sec. 154, we uphold the same.

Summary

Issues Involved:
1. Disallowance under Section 43B.
2. Disallowance of Bank Commission expenses.
3. Disallowance of Foreign exchange loss.
4. Disallowance of Bad Debts / Advances written off and Sundry Balances written off.
5. Additions on account of cessation of liabilities under Section 41(1)(a).
6. Disallowance of Audit fees.
7. Authenticity of Deed of cancellation related to Long Term Capital Gains on sale of land.
8. Additions of Unsecured loans as unexplained cash credit under Section 68.
9. Non-setting off of Unabsorbed Depreciation against Capital Gain.
10. Admission of additional grounds of appeal and additional evidence.

Detailed Analysis:

1. Disallowance under Section 43B:
The assessee challenged the disallowance of ?36,66,290/- under Section 43B. The Tribunal found that the VAT & Tax payable of ?1,47,08,432/- included closing balances from previous years. The current year VAT and Excise duty, totaling ?1,79,305/- and ?1,08,62,837/- respectively, were already disallowed by the assessee. The Tribunal concluded that the balance amount of ?36,66,290/- related to previous years and should not have been disallowed under Section 43B. The disallowance was vacated.

2. Disallowance of Bank Commission expenses:
The assessee did not press this ground of appeal, and it was dismissed as not pressed.

3. Disallowance of Foreign exchange loss:
The assessee's claim of ?2,20,50,511/- as foreign exchange loss was disallowed for lack of substantiation. The Tribunal found that the assessee failed to provide necessary documents like bank statements and ledger accounts. The matter was remanded back to the Assessing Officer (A.O) for fresh adjudication, allowing the assessee to substantiate its claim with fresh evidence.

4. Disallowance of Bad Debts / Advances written off and Sundry Balances written off:
The Tribunal found that the assessee partially substantiated its claim for bad debts related to three divisions by providing sales details from previous years, satisfying Section 36(2). The issue was remanded back to the A.O for fresh adjudication. For advances written off and sundry balances written off, the Tribunal directed the A.O to reassess these claims under Section 37 as business losses, allowing the assessee to provide additional evidence.

5. Additions on account of cessation of liabilities under Section 41(1)(a):
The assessee did not press this ground of appeal, and it was dismissed as not pressed.

6. Disallowance of Audit fees:
The assessee did not press this ground of appeal, and it was dismissed as not pressed.

7. Authenticity of Deed of cancellation related to Long Term Capital Gains on sale of land:
The Tribunal addressed the assessee's claim that the MOU dated 19.12.2012 for the sale of land was canceled by a deed dated 28.09.2017. The Tribunal found that the MOU was unregistered and the possession of the land was not transferred, thus not constituting a transfer under Section 2(47)(v) & (vi). The Tribunal vacated the addition towards LTCG made by the lower authorities, agreeing that no capital gain should be assessed.

8. Additions of Unsecured loans as unexplained cash credit under Section 68:
The Tribunal found that the assessee provided additional evidence, including income tax returns and affidavits of the directors who provided the loans. The matter was remanded back to the A.O for fresh adjudication, considering the new evidence.

9. Non-setting off of Unabsorbed Depreciation against Capital Gain:
The assessee did not press this ground of appeal, and it was dismissed as not pressed.

10. Admission of additional grounds of appeal and additional evidence:
The Tribunal admitted the additional grounds of appeal and additional evidence, finding that they were based on facts already on record and did not require fresh investigation. The Tribunal allowed the additional grounds and directed the A.O to consider the new evidence in the reassessment.

Conclusion:
The Tribunal partially allowed the appeal, remanding several issues back to the A.O for fresh adjudication with directions to consider additional evidence and reassess claims. The appeal related to the order under Section 154 was dismissed as the issues raised were beyond the scope of rectification permissible under Section 154.