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2025 (4) TMI 48 - HC - Income TaxAddition on account of advances written off - claim made by the assessee was not admissible in terms of section 36(1)(vii) as these amounts were originally offered to tax and did not partake the character of debt - ITAT deleted addition - HELD THAT - These are advances to more than 50 parties against which either the advances are not recoverable or the respondent-assessee has not received any services. The amount ranges from Rs.200 to Rs.3 lakh major amounts being in few thousands. The DRP has not considered this letter and therefore observations made by the DRP that the claim is without evidence is incorrect. Tribunal has correctly considered the details filed along with letter dated 4 March 2014 and allowed the claim. It is also relevant to note that the total income declared by the respondent-assessee is more than Rs.30 crore and the net balance written off is only Rs.7, 66, 713/-. This comparison is only to show when the income offered is more than Rs.30 crore small amounts write off would constitute reasonableness and moreso looking at the nature of the write off detailed in enclosure to letter dated 4 March 2014. Therefore Tribunal was justified in allowing the claim of the respondent-assessee. Deduction u/s 10B with respect to its Goa unit and Ambarnath unit - DRP denied the deduction under section 10b on Site Transfer Income on the ground that same does not represent the income derived from the business of eligible unit - HELD THAT - Tribunal has merely stated that after hearing both the parties and perusing the orders and judgments the Site Transfer Income is eligible for deduction under Section 10B of the Act. In our view this does not amount to reasons for coming to the conclusion. The tribunal ought to have given the reasons as to how Site Transfer Income constitutes the income derived from the business of the undertaking. The said reasoning is totally absent. The operative part is only the conclusion but before coming to the conclusion the Tribunal ought to have given its reasons moreso since it is the case of reversal of the order passed by the AO and DRP and the Tribunal being the final fact authority and first appellate authority in this case was expected to give the reasons before coming to the conclusion which are absent in the present case. In Union of India Vs Mohan Lal Capoor 1973 (9) TMI 99 - SUPREME COURT the Hon ble Supreme Court explained that reasons are the links between the materials on which certain conclusions are based and the actual conclusions. They should reveal a rational nexus between the facts considered and the conclusions reached. We therefore remand the matter back to the Tribunal for deciding the ground of deduction under Section 10B qua Site Transfer Income. Tribunal would give opportunity of hearing to both the parties and thereafter pass a reasoned order keeping in mind the guidelines laid down in the case of Santosh Hazari 2001 (2) TMI 131 - SUPREME COURT and other decisions which are reproduced above.
ISSUES PRESENTED and CONSIDERED
The High Court considered the following substantial questions of law in the appeal: (i) Whether the ITAT was justified in deleting the addition of Rs. 11,37,802/- on account of advances written off, without appreciating that the claim was not admissible under Section 36(1)(vii) of the Income-tax Act, 1961, as these amounts did not partake the character of debt. (ii) Whether the ITAT was justified in allowing Site Transfer Income of Rs. 19,61,98,000/- eligible for computing deduction under Section 10B, without appreciating that the expenses were not on account of export of goods out of India. (iii) Whether the ITAT order lacked reasons, thereby making it liable to be set aside. ISSUE-WISE DETAILED ANALYSIS Question No. (i): Advances Written Off The legal framework involves Section 36(1)(vii) of the Income-tax Act, 1961, which pertains to deductions for bad debts written off in the accounts. The Tribunal allowed the write-off claim, noting the advances' genuineness was not doubted, and the accounts were audited. The Tribunal set off the credit balances, allowing a net balance write-off of Rs. 7,66,713/-. The Court found that the Dispute Resolution Panel (DRP) had incorrectly disallowed the claim due to a lack of evidence. The Tribunal correctly considered the details provided in the letter dated 4 March 2014, which the DRP had overlooked. The Court emphasized the reasonableness of the write-off relative to the total income declared by the respondent-assessee, which was over Rs. 30 crore. The Court concluded that the Tribunal was justified in allowing the claim. Question Nos. (ii) & (iii): Site Transfer Income and Lack of Reasons These questions were addressed together. The legal issue centered on whether Site Transfer Income qualifies for deduction under Section 10B, which is applicable to income derived from the export of goods. The DRP denied the deduction, arguing that the income was not derived from the business of the eligible unit. The Tribunal allowed the deduction, but the Court found the Tribunal's reasoning insufficient. The Tribunal merely concluded that the Site Transfer Income was part of business income eligible for deduction without providing detailed reasoning or addressing the reversal of the AO and DRP's findings. The Court highlighted the necessity of providing reasons in judicial decisions, referencing Supreme Court decisions emphasizing that reasons are essential to ensure transparency and fairness. The Court noted that the Tribunal's order lacked the requisite reasoning and failed to explain how the Site Transfer Income was derived from the business of the undertaking. The Court remanded the matter back to the Tribunal, instructing it to provide a reasoned order after hearing both parties, in line with guidelines from the Supreme Court, particularly the case of Santosh Hazari. SIGNIFICANT HOLDINGS For Question No. (i), the Court upheld the Tribunal's decision to allow the write-off of advances, finding the Tribunal's reasoning sound and the DRP's disallowance incorrect due to a lack of evidence consideration. For Questions No. (ii) and (iii), the Court found the Tribunal's order deficient in reasoning. The Court emphasized the importance of reasoned judgments, stating that "the duty to give reasons in support of adverse orders is a facet of the principles of natural justice and fair play." The Court remanded the issue of Site Transfer Income back to the Tribunal for a detailed and reasoned decision. The appeal was allowed in terms of the remand, with no order as to costs.
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