This case review provides an in-depth analysis of the appeal filed by Boutique Hotels India Pvt. Ltd. against the order of the CIT(A), New Delhi, concerning the assessment year 2016-17. The appeal, lodged under ITA No. 1013/DEL/2020, was heard by the Income Tax Appellate Tribunal, Delhi “SMC” Bench on January 18, 2023, and the order was pronounced on January 31, 2023.
Boutique Hotels India Pvt. Ltd., the appellant, challenged the order dated August 23, 2019, issued by the Commissioner of Income Tax (Appeals), New Delhi. The central issues of the appeal were the disallowance of bad debts and the addition of interest-free advances given to associate companies.
The appeal was filed with a delay of 16 days. The appellant submitted a separate application requesting the condonation of this delay, citing personal reasons. After considering the facts presented, the Tribunal condoned the delay, allowing the appeal to be heard on its merits.
During the relevant assessment year, the assessee filed its return of income declaring NIL income on November 30, 2016. The case was selected for scrutiny, and the assessment was completed under section 143(3) on December 30, 2018. The Assessing Officer (AO) made the following disallowances:
The AO disallowed the bad debts on the grounds that no proof was submitted to show how the bad debts had been taken into taxable income in previous years, and no correspondence with the concerned parties was provided. The CIT(A) upheld the AO’s decision, leading the assessee to appeal before the Tribunal.
The appellant, represented by Shri Rohit Golecha, CA, contended that the disallowance of bad debts was unjustified as the amount was related to non-payment/short payment of service charges. He argued that if the amount was not allowable as bad debt, it should be allowable under section 37(1) of the Act as a business loss.
The Department, represented by Shri Om Parkash, Sr. DR, opposed these submissions, emphasizing that the assessee needed to produce supporting evidence.
The Tribunal found that while the assessee provided the ledger account of the parties, the AO did not make further inquiries. The Tribunal agreed that if the amount was not considered a bad debt, it should be allowable as a business expenditure under section 37(1). The Tribunal remanded the matter back to the AO for verification, directing the assessee to furnish complete details and information.
The AO disallowed the interest-free advances given to related parties, noting that the assessee claimed interest expenses against outstanding loans. The CIT(A) upheld this disallowance.
The appellant argued that the advances were made out of its own funds and not from interest-bearing loans. It was also contended that the majority of the advances were from earlier years and that the assessee had sufficient own funds.
The Department supported the findings of the CIT(A).
The Tribunal found that the CIT(A) did not adequately address the appellant’s submissions. The Tribunal remanded the issue back to the AO to verify the correctness of the claim, including whether the advances were made in earlier years and whether the assessee had sufficient own funds to make such advances.
The Tribunal allowed the appeal for statistical purposes, remanding both issues back to the AO for further verification. This decision underscores the importance of thorough verification and consideration of all relevant facts in cases involving disallowance of expenses and advances.
The order was pronounced in the open court on January 31, 2023, by Shri Kul Bharat, Judicial Member of the Delhi “SMC” Bench of the Income Tax Appellate Tribunal.
The final decision of the Tribunal in ITA No. 1013/DEL/2020 provides significant guidance on handling similar cases involving disallowance of bad debts and interest-free advances. It emphasizes the need for assessing officers to thoroughly verify claims and consider all relevant evidence before making disallowances.
ITA 1013/DEL/2020: Boutique Hotels India Pvt. Ltd. vs ACIT Circle-5(1), New Delhi for AY 2016-17
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