2022 (9) TMI 238 - AT - Income Tax

Reversal of lease rent and higher purchase interest - assessee company is essentially a non-banking finance company and one of the major source of income is from lease rentals - HELD THAT - This ground was not pressed by the assessee on the condition that the same would not result in to double addition in the year in which the income was already offered by the assessee. Therefore, naturally the claim of the assessee is that that the ground in this year may not be pressed, if the same is directed to be excluded in the assessment of the year in which it has been offered as income. As similar direction has been given by the coordinate bench in the earlier year, respectfully following the decision of the coordinate bench, we also give the similar direction as contained in paragraph number 12 of the order of the ITAT - Accordingly, this ground of appeal with respect to the addition is dismissed. Disallowance of claim of right in respect of interest on securities offered for tax in the earlier year on the ground that the genuineness of transactions remain to be proved - HELD THAT - The claim of the assessee that the purchases were accepted in the earlier years and the income was offered for taxation in the earlier year and therefore it should have been accepted, this ground also deserves to be rejected for the reason that assessee has failed to produce any evidence with respect to the sale of the securities. Accordingly, all the grounds with respect to the disallowance are dismissed. Disallowance of bad debts - HELD THAT - Assessee is engaged in the business of money lending, it is also proved that the above amount could not be recovered, therefore according to us it satisfies all the conditions of allowability of bad debt in case of finance business. Merely certain deficiencies in the documents cannot be used to deny the claim of bad debt. In view of this we direct the learned assessing officer to delete the disallowance of amount of bad debt claim - We also direct the learned AO to look into the amount which is been claimed by the assessee, disallowed by the learned AO, raised in grounds of appeal before the learned CIT A and amount of written by CIT A in his order. Therefore, the correct amount deserves to be identified and to be allowed. These grounds of appeal with respect to the bad debts are allowed. Disallowance of depreciation - ground raised by the assessee challenges the direction of the learned CIT A of confirming the disallowance of depreciation for the only reason that in the earlier year the disallowance was made but in this year it was confirmed without independently examining allowability of depreciation for this year - HELD THAT - Order the orders for assessment year 1992 1993 and 93 94 one referred to and the matters were restored back to the file of the AO to decide it in accordance with the decision of ITAT. For assessment year 1998 99, the coordinate bench directed the AO to allow the depreciation. We find that the direction of the coordinate bench, which followed the decision of the other assessment years where the issue was set aside to the file of the AO, is not in conformity with those orders of ITAT. Accordingly we set-aside this issue back to the file of the learned assessing officer with a direction to decide the issue afresh in the light of orders of the ITAT. This ground of appeal is allowed accordingly to that extent. Rejection of change in the method of accounting - HELD THAT - The coordinate bench for assessment year 1998 1999 held that assessee has been following method of accounting of revenue as per reserve bank of India Prudential norms on actual realization basis, or when there was a reasonable certainty of realization of such income. Therefore, the above decision judicially binds us. Accordingly, we allow these grounds of appeal of the assessee with respect to the change in method of accounting and direct the learned AO deleted the addition Disallowance of reversal of lease rent made on the basis of Prudential norms issued by the reserve bank of India - This issue has been decided by us in assessment year 1990 2000 by following the order of the coordinate bench in assessment year 98 99 - Therefore respectfully following the same, ground number 1(a) to 1(d) are dismissed with a direction to the assessee to exclude and not to tax these incomes in the year and which assessee has offered them. Disallowance from two different parties where the borrowers have defaulted in payment towards the bill discounting and lease charges and further the information with the assessee was that these companies have closed their operation - HELD THAT - AO disallowed the same is no details of steps taken to recover the above amount were shown. The facts clearly show that this amount has been written off by the assessee in its books of account and claimed as bad debt. The undisputed facts also show that assessee in the business of loans and advances and financing of assets through hire purchase. Identical issue arose in the case of the assessee for assessment year 99 2000 wherein we have allowed the claim of such bad debts as per ground number 5. Therefore, we allow the claim of that that the assessee reversing the orders of the lower authorities. Disallowance of depreciation - HELD THAT - We have dealt with this issue in the appeal of the assessee for assessment year 99 2000 wherein we have set-aside the whole issue back to the file of the learned assessing officer in accordance with the order of the coordinate bench in earlier years in assessee s own case. Therefore, according to that ground number 4 is restored back to the file of the learned assessing officer. Rejection of method of accounting followed by the assessee - HELD THAT - We find that the method of accounting change by the assessee frequently is the main reason for not accepting the same by the revenue authorities. However for assessment year 1998-1999 the coordinate bench has taken a view that the method of accounting adopted by the assessee in this year is bona fide and in accordance with the reserve bank of India norms. Therefore respectfully following the decision of the coordinate bench in assessee s own case for assessment year 1998 1999 we also reject the orders of the lower authorities rejecting the change in the method of accounting and hence the addition is deleted. Accordingly, ground number five of the appeal of the assessee is allowed. Disallowance of interest in respect of advances given to sift court travel private limited - HELD THAT - The fact shows that there is no such addition made by the learned assessing officer with respect to the advances given to CIFCO travel private limited. Therefore, ground number 1 of the appeal is not arising out of the order of the learned CIT A hence dismissed. Disallowance of amount as written off by the assessee - HELD THAT - We find that in the current present case and a sum of ₹ 519,222/ is interest and brokerage income already offered in earlier years and now written off. Further, a sum of ₹ 1,503,135 is the hire purchase installment of lease charges receivable from the various parties, which could not be recovered, and draft. With respect to these two items, we direct the learned assessing officer to delete the disallowance. With respect to other items, there are no evidences available and therefore the disallowance of the balance sum is confirmed. Accordingly, the assessee gets relief with respect to the sum of ₹ 1,503,135/ being outstanding hire charges receivable and a sum of ₹ 519,222/ being interest and brokerage income already offered for taxation in the earlier years. The ground number 4 of the appeal is partly allowed. Penalty u/s 271 (1) (C) - inaccurate particulars of income with respect to claim of bad debts - HELD THAT - No doubt the claim of the bad debt could not be explained by the assessee, however such explanation cannot be said to be inaccurate. It is not the case of the revenue authorities that the facts stated by the assessee are incorrect. The claim could have been allowed to the assessee with respect to the provisions of Section 29 of the act. However, assessee failed to substantiate the same either u/s 36 or u/s 28-29 in absence of adequate details. Therefore, it cannot be said that claim of the assessee is inaccurate. Order passed by the Learned AO u/s 271 (1) (C) of the act levied the penalty for the reason that assessee has furnished inaccurate particulars of income with respect to claim of bad debts - CIT-A on appeal also confirmed the same. On carefully looking at the facts of the case we find that merely because, the addition has been confirmed by the appellate authorities, it cannot be said that the assessee has furnished inaccurate particulars of income. On the merits, the claim of the assessee is rejected. Merely because of the same, when the claim is not found to be unsustainable in law, the penalty deserves to be deleted. Accordingly, we direct the learned assessing officer to delete the penalty. Disallowance of interest - assessee has advanced interest free loan to 1 of its entities wherein the AO disallowed interest - HELD THAT - Identical issue arose in the case of the assessee in earlier years wherein we have held that this amount is pertaining to outstanding interest receivable from that party. It is not the advance which is been given out of interest-bearing funds available with the assessee. The interest receivable has already been offered for taxation in the earlier years. There is no provision in the agreement either oral or written to charge interest on outstanding interest. In nutshell, the assessee has not advanced interest-bearing funds to that party i.e. Arcadia investment Ltd. Accordingly, for the reason given by us in earlier years, the interest disallowance Deserves to be deleted, accordingly reversing the orders of the lower authorities, ground number 1 of the appeal is allowed. Reopening of assessment u/s 147 - accrual of interest on lease and hire purchase - HELD THAT - Change in method of accounting made by the assessee and thereafter making substantial addition on that account in the original assessment. However, he did not made addition with respect to the accrued income. There is no tangible material available with the assessing officer to reopen the assessment except the same set of facts on which he has already applied his mind. Further, there is no failure on part of the assessee to disclose any material facts necessary for computation of its income. Further the objections raised by the assessee were not disposed of separately but in the assessment order itself that also makes the reassessment not sustainable. In view of this, the first ground of appeal raised by assessee against the validity of reopening is allowed. Therefore, we quash the reassessment order passed by the learned AO. Allowance of claim of the assessee u/s 36 (1) holding that same is bad debt arising in the course of the leasing and hire purchase business of the assessee. Claim not made in ROI - rejection of claim of the assessee that the amount written back relating to waiver of capital amount due to the state bank of India was not taxable on the ground that no such claim was made in the return of income - HELD THAT - As no fresh claim was made before the appellate authorities either by letter or by any other mode. Therefore in fact there is no claim before the learned CIT A. The only issue before the CIT appeal was that AO has erred; we find that there is no error in the part of the AO. Therefore, ground number 5 of the appeal is dismissed.

Summary

Issues Involved:
1. Disallowance of reversal of lease rentals.
2. Disallowance of interest on securities.
3. Disallowance of short-term capital gains.
4. Disallowance of bad debts.
5. Disallowance of interest on advances.
6. Disallowance of depreciation.
7. Rejection of change in method of accounting.
8. Disallowance under Section 43B.
9. Penalty under Section 271(1)(c).
10. Validity of reassessment proceedings.
11. Chargeability of interest under Sections 234B and 234C.

Detailed Analysis:

1. Disallowance of Reversal of Lease Rentals:
The assessee challenged the disallowance of Rs. 1,730,586 made on the basis of the Prudential norms issued by the Reserve Bank of India (RBI). The Tribunal noted that the assessee, a non-banking finance company, reversed lease rental income based on RBI guidelines. The AO disallowed the reversal, arguing that the assessee was not registered as an NBFC and thus the guidelines did not apply. The Tribunal directed the AO to ensure no double taxation occurs, following a similar direction given in the earlier year.

2. Disallowance of Interest on Securities:
The assessee claimed a write-off of Rs. 279,794 as interest on securities, which was disallowed by the AO due to lack of evidence. The Tribunal upheld the disallowance, noting that the sale of securities was unsubstantiated, and no supporting documents were provided.

3. Disallowance of Short-term Capital Gains:
The Tribunal did not specifically address this issue in the provided text, but it follows the same rationale as the disallowance of interest on securities, requiring proper substantiation for claims.

4. Disallowance of Bad Debts:
The assessee claimed bad debts amounting to Rs. 444,757, which the AO disallowed due to doubts about the transactions' genuineness. The Tribunal allowed the claim, stating that the assessee, engaged in finance business, satisfied the conditions for bad debt allowance, and deficiencies in documentation should not deny the claim.

5. Disallowance of Interest on Advances:
The AO disallowed interest on advances given to CIFCO Travel Pvt Ltd. The Tribunal noted that there was no disallowance on this count during the year and dismissed the ground as not pressed.

6. Disallowance of Depreciation:
Depreciation was disallowed by the AO based on earlier years' findings that certain assets did not exist or were not used for business. The Tribunal set aside the issue back to the AO to decide afresh in light of the ITAT's orders.

7. Rejection of Change in Method of Accounting:
The AO rejected the change in the method of accounting from accrual to cash basis, resulting in an addition of Rs. 10,536,566. The Tribunal, following its earlier decision, accepted the change in method as bona fide and in accordance with RBI norms, directing the AO to delete the addition.

8. Disallowance under Section 43B:
The AO disallowed Rs. 3 lakhs under Section 43B for unpaid interest tax. The Tribunal noted that this ground was not pressed by the assessee and dismissed it.

9. Penalty under Section 271(1)(c):
The AO levied penalties under Section 271(1)(c) for various disallowances. The Tribunal deleted the penalties corresponding to the disallowances that were deleted in the quantum proceedings, noting that the claims were not found to be unsustainable in law.

10. Validity of Reassessment Proceedings:
The Tribunal quashed the reassessment proceedings for the year 2004-05, noting that the AO reopened the assessment based on reappreciation of the same facts without any tangible new material, constituting a change of opinion.

11. Chargeability of Interest under Sections 234B and 234C:
The Tribunal noted that the chargeability of interest under Sections 234B and 234C is consequential and dismissed the grounds where no specific arguments were advanced.

Conclusion:
The Tribunal allowed the appeals partly, directing the AO to re-examine certain disallowances and deletions in accordance with earlier ITAT orders and legal principles. The Tribunal emphasized the need for proper substantiation of claims and adherence to RBI guidelines where applicable.