2022 (11) TMI 1463 - AT - Income Tax

CIT(A) must render independent findings as first appellate authority, not follow Section 263 directions blindly

ITAT Chennai held that CIT(A) erred by following Section 263 directions instead of rendering independent findings as first appellate authority. The ... Revision u/s 263 - revision was done with a view to withdraw excess deduction allowed to the assessee u/s 36(1)(viia) and to examine the assessee’s claim on issue of OTS-interest waiver with reference to the records of the assessee - HELD THAT:- We are of the considered opinion that the order passed by Ld. AO was an appealable order before Ld. CIT(A). Accordingly, as first appellate authority, independent findings should have been rendered by Ld. CIT(A) by way of speaking order considering all the aspects. However, Ld. CIT(A) has chosen to follow the directions given in Sec.263 which is not the correct approach. Be that as the case may be, remitting the matter back to the file of Ld. CIT(A) would not serve much useful purpose considering the fact the issue of deduction u/s 36(1)(viia) has already been decided by Tribunal in assessee’s own case [2021 (4) TMI 1374 - ITAT CHENNAI] AY 2014-15 wherein as clear ratio laid down that to claim deduction making of provision for bad and doubtful debt equivalent to an amount claimed as a deduction in account books is necessary for claiming deduction u/s. 36(1)(viia) of the Act. Thus we confirm the disallowance made by Ld. AO u/s 36(1)(viia). The corresponding ground stand dismissed. The issue of OTS-interest waiver has apparently been not contested by the assessee before Ld. CIT(A) and therefore, no findings have been rendered in the impugned order in that respect. Since, the assessee has contested this issue before us, we admit the issue and restore this issue back to the file of Ld. CIT(A) for adjudication by way of speaking order. The grounds thus raised stand allowed for statistical purposes. Appeal stand partly allowed for statistical purposes. Issues Involved:1. Condonation of delay in filing the appeal.2. Validity of CIT(A)'s dismissal of the appeal based on directions under Section 263.3. Interpretation and application of Section 36(1)(viia) regarding deduction for bad and doubtful debts.4. Treatment of OTS-Interest Waiver as bad debt.Issue-wise Detailed Analysis:1. Condonation of Delay in Filing the Appeal:The registry noted a delay of 114 days in filing the appeal. The appellant sought condonation of this delay, citing the lockdown situation due to the Covid-19 Pandemic. The Tribunal condoned the delay and admitted the appeal for adjudication on merits.2. Validity of CIT(A)'s Dismissal of the Appeal Based on Directions under Section 263:The CIT(A) dismissed the appeal, holding that there was no scope to sit on the judgment of the Principal Commissioner of Income Tax (PCIT) in his order under Section 263. The Tribunal noted that the CIT(A) should have rendered independent findings instead of merely following the directions given under Section 263. The Tribunal emphasized that the order passed by the Assessing Officer (AO) was appealable before the CIT(A), and a speaking order considering all aspects should have been issued by the CIT(A).3. Interpretation and Application of Section 36(1)(viia) Regarding Deduction for Bad and Doubtful Debts:The AO disallowed the excess deduction claimed by the assessee under Section 36(1)(viia) because the actual provision for bad and doubtful debts made in the Profit and Loss account was only Rs. 1.04 Lacs, whereas the assessee claimed Rs. 888.48 Lacs. The AO relied on CBDT Instruction No. 17/2008, which restricts the deduction to the provision actually created in the books or the amount calculated as per Section 36(1)(viia), whichever is less. The Tribunal upheld the AO's decision, citing precedents from the Hon'ble Punjab & Haryana High Court and previous Tribunal decisions, which clarified that making a provision equal to the amount claimed as a deduction in the account books is necessary for claiming the deduction under Section 36(1)(viia).4. Treatment of OTS-Interest Waiver as Bad Debt:The AO disallowed the claim of Rs. 90.85 Lacs related to OTS-Interest Waiver, treating it as a bad debt. The AO noted that as per RBI circulars, any interest not realized should be credited to the overdue interest reserve account, and the assessee had created such an account. The Tribunal observed that this issue was not contested before the CIT(A), and thus, no findings were rendered in the impugned order. The Tribunal admitted the issue and restored it to the file of the CIT(A) for adjudication by way of a speaking order.Conclusion:The appeal was partly allowed for statistical purposes. The Tribunal confirmed the disallowance made by the AO under Section 36(1)(viia) and restored the issue of OTS-Interest Waiver to the CIT(A) for fresh adjudication. The order was pronounced on 04th November 2022.