2018 (12) TMI 625 - AT - Income Tax

Disallowance of preoperative expenses - AO disallowed the same as allowable expenditure and added back to the income of the assessee - CIT(A) confirmed the order of Ld.AO because the assessee had not furnished the complete break-up of the expenditure with supporting documents claimed as deduction - Held that - No merits in the arguments advanced by the Ld.AR. The assessee and its Ld.AR have grossly failed to furnish the details sought by the Revenue at the time of assessment proceedings as well as first appellate proceedings. This lethargic attitude of the assessee is not appreciable. However in the interest of justice, we hereby remit the matter back to the file of AO, thereby offering the assessee with one more opportunity to furnish the requisite materials to justify its stand before the Revenue. We also caution the assessee to cooperate promptly before the Revenue in their proceedings failing which the Ld.Revenue Authorities are at liberty to pass appropriate orders in accordance with merit and law based on the materials on record.

Summary

Issues:
1. Disallowance of bad debts by the Ld.CIT(A).
2. Addition of preoperative expenses by the Ld.CIT(A).

Issue 1: Disallowance of Bad Debts
The Revenue's appeal contested the direction by the Ld.CIT(A) to delete the disallowance of &8377; 42,11,673 towards bad debts made by the Ld.AO. The case involved a private limited company engaged in manufacturing copper and other cables. The return of income for the assessment year 2012-13 was initially processed under Section 143(1) and later selected for scrutiny under Section 143(2), leading to several additions by the Ld.AO under Section 143(3). The Revenue's appeal was challenged on the basis of Circular No.3/2018 issued by the CBDT, which set a monetary limit for appeals. As the tax effect in this case was less than &8377; 20 lakhs, the Tribunal dismissed the Revenue's appeal as not maintainable.

Issue 2: Addition of Preoperative Expenses
The Assessee's appeal contested the addition of &8377; 1,47,95,439 towards preoperative expenses confirmed by the Ld.CIT(A). The Ld.AO had disallowed this amount as allowable expenditure, adding it back to the income of the assessee due to insufficient documentation provided. The Assessee sought a remittal of the matter to the Ld.AO to furnish the required details for a proper conclusion. Despite objections from the Ld.DR, the Tribunal found no merit in the Assessee's arguments, criticizing the lack of cooperation and documentation provided. However, in the interest of justice, the matter was remitted back to the Ld.AO, granting the Assessee another opportunity to provide the necessary materials. The Assessee was cautioned to cooperate promptly with the Revenue, with a warning that appropriate orders would be passed based on the available records if cooperation was lacking.

In conclusion, the Tribunal dismissed the Revenue's appeal due to the monetary limit set by the CBDT and allowed the Assessee's appeal for statistical purposes, remitting the issue of preoperative expenses back to the Ld.AO for further examination. The judgment aimed to ensure proper documentation and cooperation from the Assessee in tax proceedings, emphasizing the importance of providing necessary details to support claims and justifications.