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 Tribunal confirmed AO's disallowance under Section 36(1)(viia) based on established precedent requiring provision for bad debts in account books for claiming deduction. However, the OTS-interest waiver issue was remitted back to CIT(A) for proper adjudication since assessee contested it before Tribunal but not before CIT(A). Appeal was partly allowed for statistical purposes.

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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.

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