2025 (9) TMI 564 - AT - Income Tax

Remand for reassessment of write-off of non-refundable ticket booking advances as business expense; assessee allowed to submit evidence

TC Tours Limited Versus Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi

ITAT, Mumbai remanded the issue to the file of the AO, holding that the write-off provision for doubtful debts arose from non-refundable advances for ... Write off provision for doubtful debts - AO found that in the return of income (ROI), the assessee claimed this deduction in Schedule “BP” under the head, “Any other amount allowable as deduction” - HELD THAT:- Assessee had claimed the expenses in prior years as provisions for doubtful debts. These expenses pertain to the assessee’s business activities and are linked to the loss of funds invested during the ticket booking process in earlier years. We note that the expenses in question are non-refundable bad debts arising from advances given to airlines for ticket bookings. Assessee had erroneously claimed the income under an incorrect head in the Return of Income (ROI), which was not accepted by the Ld. AO. Considering the nature of the expenses, we find that there is a clear nexus between the expenses and the assessee’s business activities. In the interest of justice, we believe the assessee should be given another opportunity to substantiate these expenses before the Ld. AO with relevant evidence and supporting documentation. Both parties have agreed to remand the matter to the file of the ld. AO. ISSUES PRESENTED AND CONSIDERED 1. Whether the assessment order passed under section 143(3) read with section 144B is invalid for failure to issue a draft order as mandated under the E-assessment Scheme, 2019 (ground not pressed by appellant). 2. Whether write-back/consideration as bad debt of provision for doubtful debts of Rs. 4,32,37,204 claimed in the impugned assessment year is allowable where provision for the same amount was deducted as a provision in the prior year and subsequently written off as non-recoverable advances to airlines. 3. Whether penalty proceedings under section 270A can be sustained on the conclusion that the assessee furnished inaccurate particulars of income (raised below and remitted to the AO for rehearing of substantive issue). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of assessment for non-issuance of draft order under the E-assessment Scheme Legal framework: The E-assessment Scheme prescribes procedural steps including issuance of a draft order where applicable before finalisation of assessment under section 143(3) read with scheme rules. Precedent treatment: The ground was raised by the assessee but was expressly not pressed before the Tribunal; Tribunal therefore dismissed the ground as not pressed and did not decide on its merits. Interpretation and reasoning: Because the appellant withdrew/declined to press this ground at hearing, the Tribunal did not engage in an adjudication of whether non-issuance of draft order invalidated the assessment; procedural challenge therefore falls away by reason of not being pressed. Ratio vs. Obiter: The Tribunal's treatment is procedural (non-adjudicatory) and therefore not a ratio on the validity of the E-assessment Scheme compliance; it is a case-management outcome. Conclusion: Ground on invalidity of assessment for failure to issue a draft order dismissed as not pressed; no decision on substantive validity rendered. Issue 2 - Allowability of write-back/claim as bad debt of provision for doubtful debts previously allowed as provision Legal framework: Income-tax principles distinguishing provisions (charged to profit & loss) and actual bad debts written off; tax treatment depends on whether an amount has earlier been allowed as an expense (provision) and later becomes irrecoverable, permitting deduction as bad debt in the year of writedown subject to proof and nexus to business. Precedent treatment: The order does not cite controlling precedents; Revenue authorities disallowed the claimed deduction when returned under an incorrect head and upheld on appeal below. Tribunal did not follow or distinguish specific case law but applied principle of nexus and year of allowance. Interpretation and reasoning: Tribunal found facts show the amounts were provisioned in the prior year (debited to P&L as provision for doubtful debts), and in the impugned year a part of that provision was written off as non-recoverable advances to airlines arising from the ticketing business. The Tribunal noted a clear nexus between the expense and the business of air ticketing (IATA operations and deposits to airlines). The Tribunal also observed the assessee had mischaracterised the claim under an incorrect ROI schedule, which led to AO's disallowance. Considering the substance - that the write-off represents a genuine business loss of non-recoverable advances - the Tribunal concluded the assessee ought to be given an opportunity to substantiate the claim with documentary evidence before the AO. Ratio vs. Obiter: Ratio - where an expense earlier taken as a provision becomes irrecoverable in a subsequent year, and there is a nexus to business, the assessee may claim the write-off as a bad debt in the year it becomes irrecoverable, subject to evidence and correct classification; procedural requirement of opportunity to be heard before AO is part of the binding outcome. Obiter - observations about incorrect head of claim and characterisation are factual findings specific to record. Conclusion: Matter remitted to the AO for rehearing; assessee granted opportunity to produce evidence and substantiate the write-off; AO directed to admit and consider any explanations on merits and adjudicate in accordance with law. The appeal allowed for statistical purposes to facilitate remand and fresh consideration. Issue 3 - Initiation of penalty under section 270A for furnishing inaccurate particulars of income Legal framework: Penalty under section 270A depends on finding that the assessee furnished inaccurate particulars of income; penal consequences typically follow a concluded finding of inaccuracy after proper opportunity and adjudication. Precedent treatment: The Tribunal did not finally adjudicate on the penalty point; it remitted the substantive income issue to the AO for reconsideration with directions to admit evidence, implying penalty proceedings cannot be sustained without resolution of the primary issue. Interpretation and reasoning: Since the correctness of the claimed deduction (and the fact-matrix of prior provisioning and subsequent write-off) remained undecided, the Tribunal held that penalty cannot be finally imposed without first allowing the assessee to substantiate the course of transactions and classification of the claimed amounts. The remand requires the AO to consider evidence and explanations before proceeding further, which necessarily affects any determination on inaccuracy. Ratio vs. Obiter: Ratio - penalty findings premised on alleged inaccurate particulars should not be sustained when the underlying substantive income determination is remitted for fresh consideration and the assessee has not yet been afforded full opportunity to substantiate its claim. Obiter - none separate. Conclusion: Penalty direction under section 270A cannot stand at this stage; it is ancillary to the remitted substantive issue and must be reconsidered by the AO after fresh adjudication of the write-off claim and receipt/consideration of evidence. Cross-reference The conclusions on Issue 2 directly inform Issue 3: remand and opportunity to substantiate the write-off (Issue 2) necessarily require re-examination of any penalty allegation (Issue 3) arising from an asserted inaccuracy in reporting that same amount.