Matrix Clothing Pvt. Ltd. vs Addl. CIT: Dispute Over Business Loss and Bad Debt Claims for AY 2014-15

Case Summary: Matrix Clothing Pvt. Ltd. vs Addl. CIT, Special Range-6, New Delhi

Case Number: ITA 6072/DEL/2019
Appellant: Matrix Clothing Pvt. Ltd., Gurgaon
Respondent: Addl. CIT, Special Range-6, New Delhi
Assessment Year: 2014-15
Case Filed On: 17th July 2019
Order Type: Final Tribunal Order
Date of Order: 13th September 2023
Pronounced On: 13th September 2023

Introduction

This case involves an appeal by Matrix Clothing Pvt. Ltd., a Gurgaon-based company engaged in garment manufacturing, against the Additional Commissioner of Income Tax (Addl. CIT), Special Range-6, New Delhi. The dispute revolves around the disallowance of a business loss and bad debt claims for the assessment year (AY) 2014-15.

Background of the Case

Matrix Clothing Pvt. Ltd. had e-filed its return for AY 2014-15, declaring an income of Rs. 16,58,88,120/-. During the scrutiny assessment, the Assessing Officer (AO) disallowed certain expenses, including a business loss of Rs. 57,19,947/- and a bad debt claim of Rs. 5,61,999/-. The disallowed amounts were related to loans and advances written off, which the company argued were incurred during the normal course of business.

Aggrieved by the disallowances, Matrix Clothing Pvt. Ltd. appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the AO’s decision. The CIT(A) based the decision on a previous ITAT ruling for AY 2012-13 in the appellant’s own case, where similar claims were disallowed.

Grounds of Appeal

Matrix Clothing Pvt. Ltd. raised the following grounds of appeal before the ITAT for AY 2014-15:

1. The CIT(A) erred in sustaining the disallowance of Rs. 57,19,947/-, which was claimed as a business loss due to an advance written off that was given to a joint venture company in previous assessment years. The appellant argued that this expenditure should be allowed under Section 28 or 37 of the Income Tax Act, 1961.
2. The CIT(A) also erred in sustaining the disallowance of Rs. 5,61,999/-, related to loans to employees and debit balances of suppliers written off. The appellant argued that these expenditures were incurred during the normal course of business and should be allowed as a business loss.

Arguments by the Appellant

The appellant, represented by legal counsel, argued that the disallowances were unjustified. The company asserted that the expenses were not claimed under Section 36(2) of the Act but were instead legitimate business expenditures allowable under Sections 28 or 37. The appellant emphasized that the genuineness of the expenditures was not disputed, and therefore, they should be allowed as deductions.

The appellant also pointed out that the ITAT’s ruling for AY 2012-13, which was relied upon by the CIT(A), was currently under appeal before the Hon’ble Delhi High Court. The appellant cited judgments from the Supreme Court and Delhi High Court to support the contention that the previous ITAT ruling should not be followed in this case.

Tribunal’s Analysis and Findings

The ITAT, comprising Shri Shamim Yahya (Accountant Member) and Ms. Astha Chandra (Judicial Member), carefully considered the submissions and reviewed the records. The tribunal noted that the loans and advances in question were given by the appellant in the ordinary course of business and became irrecoverable, leading to their write-off in the books of accounts.

The ITAT observed that neither the AO nor the CIT(A) had questioned the genuineness of the amounts written off. The tribunal further noted that the CIT(A) had relied on the ITAT’s ruling for AY 2012-13 without considering the appellant’s submissions or the legal precedents cited. Given that the matter was sub judice before the Hon’ble Delhi High Court, the tribunal found it appropriate to remand the case back to the AO for fresh consideration.

Conclusion and Order

The ITAT set aside the order of the CIT(A) for both AY 2014-15 and AY 2015-16, directing the AO to reconsider the disallowances in light of the appellant’s submissions and the legal precedents. The tribunal also directed the AO to allow the appellant a reasonable opportunity to present its case before making a final decision.

The appeal was allowed for statistical purposes, subject to the directions contained in the tribunal’s order.

Order Pronounced in Open Court: 13th September 2023

Accountant Member: Shri Shamim Yahya
Judicial Member: Ms. Astha Chandra

Assistant Registrar: ITAT, New Delhi

Matrix Clothing Pvt. Ltd. vs Addl. CIT: Dispute Over Business Loss and Bad Debt Claims for AY 2014-15