KUDOS FINANCE AND INVESTMENTS PVT. LTD.,PUNE V. ITO, WARD-14 (2)(1), MUMBAI

ITA 3015/MUM/2024

AI Insights

The case involves Kudos Finance and Investments Pvt. Ltd., which filed appeals against the orders related to the Assessment Year 2019-2020 concerning the deductions claimed under Section 36(1)(viia) of the Income Tax Act, 1961. The Principal Commissioner of Income Tax had revised the initial assessment, leading to disputes over the deductions for 'Provision for bad and doubtful debts'. The Tribunal examined the legality of the revision proceedings and the merits of the deductions claimed, ultimately deciding to set aside the previous orders and remand the matter for a fresh assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 315865 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2019-2020
• Other Referred Cases: National Thermal Power Co. Ltd. Vs. CIT: 229 ITR 383, Collector, Land Acquisition v. Mst. Katiji [1987] 167 ITR 471
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ASSESSEE
• Keywords: Set aside; Opportunity of being heard; Bad and doubtful debts; Bonafide belief; Revision of order
• Section: 143(3); 263; 115JB

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 3075/MUM/2024 (Assessment Year: 2019-2020) Kudos Finance and Investments Pvt. Ltd. C/O EFC Limited, 7th Floor, East wing, Marisoft-3, Marigold Premises, Kalyani Nagar, Pune-411014. Maharashtra. [PAN:AADCK6462G] .…………. Appellant Principal Commissioner of Income Tax Room No. 501, 5th Floor, Aaykar Bhawan, Maharshi Karve Road, Mumbai-400020. Maharashtra Vs …………. Respondent & ITA No. 3015/MUM/2024 (Assessment Year: 2019-2020) Kudos Finance and Investments Pvt. Ltd. C/O EFC Limited, 7th Floor, East wing, Marisoft-3, Marigold Premises, Kalyani Nagar, Pune-411014. Maharashtra. [PAN:AADCK6462G] .…………. Appellant Vs ITO Ward 14(2)(1), Aaykar Bhawan, Maharshi Karve Road, Mumbai-400020. Maharashtra. …………. Respondent Appearance For the Appellant/Assessee For the Respondent/Department : : Shri Abhilash Hiran Shri Biswanath Das Date Conclusion of hearing Pronouncement of order : : 24.02.2025 14.05.2025 O R D E R [ Per Rahul Chaudhary, Judicial Member: 1. These are two appeals preferred by the Assessee against two separate orders pertaining to Assessment Year 2019-2020 passed by ITA No.3015 & 3075/Mum/2024 Assessment Year 2019-2020 2 the first appellate authority. Since identical grounds were raised in all the three appeals, the same were heard together, and are, therefore, being disposed off by way of a common order. ITA No. 3075/MUM/2024 2. We would first take up appeal preferred by the Assessee for the Assessment Year 2019-2020 which is directed against the order, 30/03/2023, passed by the Principal Commissioner of Income Tax, Mumbai [hereinafter referred to as „the PCIT‟] under Section 263 of the Income Tax Act, 1961 [hereinafter referred to as „ the Act‟] whereby the Ld. CIT(A) had disposed off the appeal against the Intimation Order, dated 28/04/2020, passed under Section 143(1) of the Act for the Assessment Year 2019-2020. 3. The Assessee has raised following grounds/additional grounds of appeal : “Based on the facts and in the circumstances of the case Kudos Finance and Investments Pvt. Ltd (hereinafter referred to as 'the Appellant') respectfully craves leave to prefer an appeal under section 253(1)(c) of the Act against the order dated 30 March 2024 passed by the Principal Commissioner of income-Tax, Mumbai (hereinafter referred to as 'the learned PCIT') under section 263 of the Act on the following grounds which are independent and without prejudice to each other. On the facts and circumstances of the case and in law, the learned PCIT has Grounds challenging the validity of revision proceedings Ground 1: Erred in invoking the revision proceedings under section 263 of the Act based on return of income filed without verifying the details of the same with the financials and hence the intimation cannot be regarded as 'erroneous‟ and prejudicial to the interest of the revenue for the purpose of initiating the proceedings under the said section. Ground 2: Erred in concluding that the actual bad debts were provision for bad and doubtful debts based on the return of income which was an inadvertent error without verifying the same with the financials which was a part of record and initiated the proceedings under section 263 of the Act on incorrect facts and in a mechanical manner. ITA No.3015 & 3075/Mum/2024 Assessment Year 2019-2020 3 Grounds challenging the merits of the case: Ground 3: Erred in concluding that the appellant has incurred provision for bad and doubtful debts instead of actual bad debts despite providing the party wise details of actual bad debts written off and accepting the error occurred while filing the return of income during the year under consideration In view of the above grounds and in the facts and circumstances of the case and in law, the Appellant prays your Honours to set aside order under section 263 of the Act and grant relief to the Appellant. Additional Grounds of Appeal Ground 4: The learned PCIT erred in invoking the revision proceedings against the intimation passed under section 143(1) of the Act as the same does not constitute an order hence the revision proceedings is without jurisdiction. Ground 5: Without prejudice to the above ground, even if the intimation is considered as an order for the purpose of section 263, the scope of additions should be restricted to adjustments proposed under section 143(1)(a)(i-vi). Hence no addition can be made on issues which are debatable or require further verification of evidences. Ground 6: Without prejudice to Ground 4, the learned PCIT erred in law in setting aside the intimation passed under section 143(1) of the Act by giving directions to the teamed AD for making an enquiry with respect to claim made under section 36(1)(via of the Act violating the scope of Section 143(1) of the Act where only apparent inconsistencies as evident on the face of the return and connected material warrant adjustments. Ground 7: Without prejudice to the above grounds, even if the further verification of bad debts is considered within the scope of section 143(1), the appellant has satisfied the conditions for claiming bad debts specified under section 36(1)(vii) read with section 36(2) of the Act, hence the deduction claimed on bad debts may be allowed.” 4. Having considered the rival submission on admission of additional ground and on perusal of the additional grounds (Ground No. 4 to 7 above), we are of the view that the additional ground raised by the Assessee are legal grounds which can be adjudicated after taking into consideration material on record without inquiring into new ITA No.3015 & 3075/Mum/2024 Assessment Year 2019-2020 4 facts. Therefore, the additional grounds raised by the Assessee are admitted in view of the judgment of the Hon‟ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT: 229 ITR 383. Accordingly, we proceed to adjudicate the grounds/additional grounds raised by the Assessee in the present appeal. 5. The relevant facts in brief are that Assessee had filed return of income for the Assessment Year 2019-2020 on 31/10/2019 declaring total loss of INR.2,06,090/- under normal provisions of the Act and income of INR.1,23,006/- under Section 115JB of the Act. The return of income filed by the Assessee was processed under Section 143(1) of the Act on 28/04/2020 and returned loss of INR.2,06,090/- was accepted. Subsequently, the Learned PCIT, on examination of the of the record, noticed that in the return of income the Assessee had claimed deduction of INR.1,07,35,497/- in respect of provision of „Provision for bad and doubtful debts‟ under Section 36(1)(viia) of the Act. As per Section 36(1)(viia) of the Act a Non-Banking Finance Company, such as the Assessee, is allowed to claim deduction in respect of „Provision for bad and doubtful debts‟ for an amount not exceeding 5% of the total income. Since, in the present case Assessee had returned loss, the Assessee was not eligible to claim deduction under Section 36(1)(viia) of the Act. However, while processing the return of income the deduction claimed by the Assessee under Section 36(1)(viia) of the Act in the return of income was allowed and Intimation Order, dated 28/04/2020, was issued under Section 143(1) of the Act. Therefore, notice under Section 263(1) of the Act was issued to the Assessee requiring the Assessee to show cause why the Intimation Order, dated 28/04/2020, passed/issued under Section 143(1) of the Act should not be treated as erroneous and prejudicial in the interest of Revenue. In response the Assessee furnished reply along with a list of the loans written-off. In the said reply it was explained by the Assessee that out of amount of INR.1,07,35,497/- claimed as ITA No.3015 & 3075/Mum/2024 Assessment Year 2019-2020 5 deduction under Section 36(1)(viia) of the Act in the return of income, amount of INR.1,05,71,051/- was the actual bad debts incurred by the Assessee which was written off in the books of accounts and the balance amount of INR.1,64,482/- represented „Provision for bad and doubtful debts‟. In support the Assessee filed copy of the audited financial statement and referred to „Note No.16 Other Expenses‟. The Learned PCIT, after taking into consideration the reply filed by the Assessee, proceeded to set aside the Intimation Order, dated 28/04/2021, issued under Section 143(1) of the Act by placing reliance to Explanation 2 to Section 263 of the Act. According to the Learned PCIT, the Assessing Officer had passed Intimation Order, dated 28/04/2020, issued under Section 143(1) of the Act without making any enquiry or verification which should have been made in respect of allowability of deduction under Section 36(1)(viia) of the Act. 6. Being aggrieved, the Assessee has preferred the present appeal before the Tribunal. 7. When the appeal was taken up for hearing, Learned Departmental Representative pointed out that the appeal was time barred by 372 days. Explaining the reason for delay in filing the present appeal the Learned Authorized Representative invited our attention to the affidavit of (a) managing director of the Assessee-Company and (b) erstwhile tax consultant. It was explained that the delay in filing the present appeal was primarily on the account of incorrect legal advice received from the erstwhile tax consultant. The erstwhile tax consultant has, by way of a sworn affidavit, deposed as under: “1. I say that I was appointed by my Client for representation before the learned Principal Commissioner of Income Tax -6, Mumbai ('the learned PCIT\") in connection with the revision proceedings under section 263 of the Act for AY 2019-20. 2. I say that the learned PCIT passed an Order dated 30 March ITA No.3015 & 3075/Mum/2024 Assessment Year 2019-2020 6 2023 in my Client's case, directing the learned AO that the claim of provision for bad and doubtful debt should be verified after providing an opportunity of being heard and should be disallowed/allowed in the light of the provisions of section 36(1)(viia) of the Act. 3. I say that post the above order was passed, the Client had approached me seeking consultation with respect to the future course of action. 4. I say that I advised the Client that the Order passed under section 263 of the Act has set aside the intimation passed under section 143(1) of the Act and hence, the matter can be pursued further by filing an appeal before the Commissioner of Income-tax (Appeals) [the learned CIT(A)]. 5. I say that I was under a bonafide belief that the jurisdictional issues concerning the validity of revision proceedings can also be challenged before the learned CIT(A) against the consequential order passed under section 143(1) read with section 263 of the Act since the concluding para of the Order u/s 263 had set-aside the matter for afresh consideration of the Assessing Officer. 6. Accordingly, the Client filed an appeal on 30 April 2024 before the learned CIT(A) and did not contest the matter separately before the Hon'ble Income Tax Appellate Tribunal. Hence, I say that under my advice the Client did not prefer an appeal before the Hon'ble Income tax Appellate Tribunal, Mumbai. 7. I say after the CIT(A) passed the Order u/s 250 of the Act on 27 May 2024 (received on 27 May 2024), I consulted CA xxx xxx for representation before the Hon'ble Income Tax Appellate Tribunal. It is then that it was brought to my notice that even the Order passed by the learned PCIT under section 263 of the Act should have been challenged before the Hon‟ble Tribunal by filing a separate appeal against such order.” On the basis of above, it was vehemently contended on behalf of the Assessee that the Assessee had acted in a bonafide manner on the basis of legal advice received from the erstwhile tax consultant which was found to be incorrect and therefore, remedial action of filing the present appeal before the Tribunal was taken up by the Assessee-Company. The Hon‟ble Supreme Court has, in the case of ITA No.3015 & 3075/Mum/2024 Assessment Year 2019-2020 7 Collector, Land Acquisition v. Mst. Katiji [1987] 167 ITR 471, held that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. Although there is no general proposition that mistake of counsel by itself is always a sufficient ground. However, mistake of counsel may in certain circumstances be taken into account for condoning the delay in filing the appeal. It is the case of the Assessee that the Assessee had acted honestly on the basis of legal advice received and in a bonafide manner. There is nothing on record to persuade us to take a different view of the matter. Therefore, keeping in view of the facts and circumstances of the present case, we are of the view that the delay in filing the present appeal was not deliberate. We hold that the Assessee was prevented by the sufficient cause from filing the present appeal before the Tribunal within the prescribed time. Accordingly, delay of 372 days in filing the present appeal is condoned. Accordingly, we proceed to adjudicate the grounds/additional grounds raised by the Assessee in the present appeal. 8. It is admitted position that the Assessee had returned loss for the Assessment Year 2019-2020. It has not been disputed by the Assessee that as per Section 36(1)(viia) of the Act deduction for „Provision for bad and doubtful debts‟ could have been claimed for an amount not exceeding specified percentage of the total income. It has been contended on behalf of the Assessee that Assessee had not claimed deduction in respect of „Provision for bad and doubtful debts‟ amounting to INR.1,07,35,497/- and the claim for deduction for „Provision for bad and doubtful debts‟ was only to the extent of INR.1,64,482/-. Even if the aforesaid contention of the Assessee is accepted for the sake of arguments, while processing return of income the deduction claimed by the Assessee for „Provision for bad and doubtful debts‟ was allowed in contravention of the provisions contained in Section 36(1)(viia) of the Act. ITA No.3015 & 3075/Mum/2024 Assessment Year 2019-2020 8 9. Section 143(1) of the Act as applicable to the relevant assessment year was introduced by way of substitution of the earlier Section 143(1) by the new Section 143(1) by the Finance Act, 2008. The new Section 143(1) provided for computation of total income after making the adjustments to the returned income, inter alia, for an incorrect claim, if such incorrect claim is apparent from any information in the return. The expression „incorrect claim apparent from any information in the return‟, has been defined under Explanation to Section 143(1) of the Act to means a claim, on the basis of an entry, in the return, (i) of an item, which is inconsistent with another entry of the same or some other item in such return; (ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or (iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction. 10. The claim for deduction for the „Provision for bad & doubtful debts‟ allowed by way of Intimation Order, dated 28/04/2020, in the case of the Assessee constitutes an incorrect claim apparent from information in the return since the deduction allowed under Section 36(1)(viia) of the Act exceeded the specified statutory limit (expressed as percentage of total income). Therefore, adjustment for the aforesaid incorrect claim could have been made under Section 143(1) of the Act. 11. Explanation 2 to Section 263 of the Act provides that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as prejudicial to the interest of Revenue if in the opinion of specified Commissioner such order has been passed without making inquiries or verification which should have been made or such order is passed allowing any relief without inquiring into the claim. In the ITA No.3015 & 3075/Mum/2024 Assessment Year 2019-2020 9 present case the claim for provision for bad and doubtful debts was allowed by the Assessing Officer while issuing Intimation Order, dated 28/04/2020, without carrying out any inquiry or verification even though the deduction claimed exceeded the specified statutory limit expressed as percentage of the total income under Section 36(1)(viia) of the Act. 12. During the course of hearing it was contended on behalf of the Assessee that Intimation Order issued under Section 143(1) of the Act is not an order which can be subjected to revision under Section 263 of the Act. We have already noted that Section 143(1) of the Act (as applicable to the relevant assessment year) was introduced by way the Finance Act, 2008 and the same provided for computation of total income after making the specified adjustments to the returned income. We note that the First Proviso to Section 143(1) mandates that „no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode‟. The Assessing Officer was, therefore, also required to intimate the Assessee and carry out necessary verification/inquiry before making the adjustment and passing the Intimation Order under Section 143(1) of the Act. Thus, the Intimation Order issued under Section 143(1) of the Act is in the nature of an order (as opposed to a mere intimation). This becomes clear on perusal of Section 246A of the Act. As per Section 246A(1)(a) of the Act an intimation issued under Section 143(1) of the Act passed under Section 143(3) of the Act is an order appealable before the CIT(A). Further, bare perusal of Section 263 of the Act shows that the scope of revision under the said section is not limited only to an order passed under Section 143(3) of the Act. Section 263(1) of the Act provides for revision of an order passed by the Assessing Officer in any proceedings under the Act. Thus, there is no doubt that the specified commissioner can invoke the provisions of Section 263 of the Act to revise the intimation/order ITA No.3015 & 3075/Mum/2024 Assessment Year 2019-2020 10 passed under Section 143(1) of the Act. However, while exercising powers of revision under Section 263 of the Act the specified commission cannot enhance the scope of the assessment beyond the provisions contained in Section 143(1) of the Act as originally available to the Assessing Officer. In the present case, the Learned PCIT has directed the Assessing Officer to carry out inquiry in the matter of claim of deduction of INR.1,07,35,497/- under Section 36(1)(viia) of the Act and to reassess the income after granting the Assessee a reasonable opportunity of being heard. It is clarified that the scope of the aforesaid verification/inquiry shall be restricted to the provision contained in Section 143(1) of the Act. Accordingly, the order passed by the Learned PCIT stands clarified/modified as aforesaid and scope of inquiry/verification in respect of deduction claimed for „Provision for bad and doubtful debts‟ under Section 36(1)(viia) of the Act in the set aside proceedings is restricted to the provisions of Section 143(1) of the Act. In case the Assessee is able to establish in the set aside proceedings that the amount of INR.1,05,71,051/- represented the actual bad debts incurred by the Assessee which have been written off in the books of accounts, no disallowance shall be made in respect of the same. The Assessing Officer is directed to pass assessment order afresh in terms of the aforesaid directions. Thus, Ground No.1, 2, 3, and 4 raised by the Assessee are dismissed and Ground No.5, 6 and 7 raised by the Assessee are partly allowed. ITA No. 3015/MUM/2024 13. Now we will take up appeal preferred by the Assessee for the Assessment Year 2019-2020 which is directed against the Order, dated 27/05/2024, passed by the Additional/Joint Commissioner of Income Tax (Appeals)-2, Chennai [hereinafter referred to as the „CIT(A)’], under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟], whereby the Ld. CIT(A) had ITA No.3015 & 3075/Mum/2024 Assessment Year 2019-2020 11 dismissed the appeal of the Assessee against the Assessment Order, dated 31/03/2024, passed under Section 263 read with Section 143(1) of the Act, for the Assessment Year 2019-2020. 14. The Assessee has raised the following grounds/additional grounds in the present appeal: ““Based on the facts and in the circumstances of the case Kudos Finance and Investments Pvt Ltd (hereinafter referred to as 'the Appellant') respectfully craves leave to prefer an appeal under section 253(1)(a) of the Act against the order dated 27 May 2024 passed by the ADDL/JCIT(A)-2 (hereinafter referred to as the learned JCIT(A)') under section 250 of the Act on the following grounds which are independent and without prejudice to each other. On the facts and circumstances of the case and in law, the learned JCIT(A) has: Grounds challenging the merits of the case: Ground 1: Erred in concluding that the actual bad debts were provision for bad and doubtful debts based on the return of income which was an inadvertent error without verifying the same with the financials and detailed submission made by the appellant. Hence the provisions of section 36(1) (viia) are not applicable to the facts of the case Ground 2: Erred in concluding that the appellant has incurred provision for bad and doubtful debts instead of actual bad debts despite providing the party wise details of actual bad debts written off and accepting the error occurred while filing the return of income during the year under consideration. Ground 3: Erred in concluding that there is no jurisdiction of the JCIT(A) against the order passed under section 263 read with section 143(1) of the Act and hence the appeal is not maintainable without appreciating the provision of section 246(1) of the Act. In view of the above grounds and in the facts and circumstances of the case and in law, the Appellant prays your Honours to set aside order under section 263 of the Act and grant relief to the Appellant. Additional Grounds of Appeal Ground 4: The learned CIT(A) and the learned AO erred in exceeding ITA No.3015 & 3075/Mum/2024 Assessment Year 2019-2020 12 the jurisdiction under section 263 which categorically directed to make an enquiry with respect to deduction claimed under section 36(1) (viia) of the Act. The learned AO and learned CIT(A) erred in law in verifying the claim of bad debts written off during the year which was against the direction pursuant to order passed under section 263 of the Act Ground 5: The learned CIT(A) and the learned AO erred in exceeding the jurisdiction of section 143(1) of the Act where only apparent inconsistencies as evident on the face of the return and connected material warrant adjustments. The learned CIT(A) and learned AO erred in law in performing detailed verification of the claim of bad debts which was outside the scope of section 263 and section 143(1) of the Act and should have been done by conducting a regular assessment by issuing a notice under section 143(2) of the Act. Ground 6: Without prejudice to the above grounds, the appellant has satisfied the conditions for claiming bad debts specified under section 36(1)(vii) read with section 36(2) of the Act, hence the deduction claimed on bad debts may be allowed.” 15. We have heard both the sides and have perused the material on record. 16. Pursuant to order of revision passed by the PCIT on 30/03/2023, the Assessing Officer had passed the Assessment Order, dated 31/03/2024, under Section 263 read with Section 143(1) of the Act. The appeal preferred by the Assessee before the CIT(A) against the same was dismissed by way of impugned order. Being aggrieved, the Assessee has preferred the present appeal. 17. In appeal preferred by the Assessee against the Order, dated 30/03/2023, passed under Section 263 of the Act, we have issued directions in Paragraph 12 above to Assessing Officer, inter alia, to pass Assessment Order afresh by restricting the scope of inquiry/verification in the set aside proceedings to the provisions contained in Section 143(1) of the Act. Therefore, the Assessment ITA No.3015 & 3075/Mum/2024 Assessment Year 2019-2020 13 Order, dated 31/03/2024, passed under Section 143(1) read with Section 263 of the Act and also the impugned order, dated 27/05/2024, passed by the CIT(A) are set aside. 18. In terms of paragraph 17 above, Ground No.1 raised by the Assessee is allowed for statistical purposes, and Ground No.2 & 3 are dismissed as having been rendered infructuous. In view of the aforesaid, the occasion to consider the additional grounds raised by the Assessee does not arise and the same are, therefore, dismissed. 19. In terms of the aforesaid, both the appeals preferred by the Assessee are treated as partly allowed. Order pronounced on 14.05.2025. Sd/- Sd/- (Om Prakash Kant) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated :14.05.2025 Milan,LDC ITA No.3015 & 3075/Mum/2024 Assessment Year 2019-2020 14 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध ,आयकर अपीलीय अदधकरण ,म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, म ुंबई / ITAT, Mumbai "