TaxTMI 
TaxTMI 
2026 (10) TMI 1273
X X X X Extracts X X X X
X X X X Extracts X X X X
...., arising from the assessment order passed under section 143(3) read with section 144B of the Act for AY 2020-21, hereby prefers an appeal before Your Honour on the following grounds, which are without prejudice to one another: 1. The Ld. CIT(A) erred both in facts and in law in upholding the disallowances made by the Ld. AO without granting the Appellant an opportunity of hearing through video conferencing despite a specific request, thereby violating the principles of natural justice. Consequently, the order passed by the Hon'ble CIT(A) is liable to be quashed as null and void. It be so held now. Disallowance of Bad Debts amounting to INR 36,95,988/-. 2. The Ld. CIT(A) erred both in facts and in law in upholding the disallowance of bad debts amounting to INR 36,95,988 made by the Ld. AO by alleging that the Appellant failed to substantiate the actual writeoff of such debts in the books of account, despite sufficient explanations and documentary evidence furnished by the Appellant. The said disallowance, being contrary to section 36(1)(vii) of the Act, deserves to be deleted. It be so held now. 3. The Ld. CIT(A) erred in facts and in law in upho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al. It is submitted that the Appellant and the related persons to whom rent was paid have opted tax regime u/s 115BAA and liable to tax at same rate of tax and thus there arise no scope of reduction in tax liability at group level and transaction is tax neutral, rendering disallowance untenable. It be so held now. 8. The Ld. CIT(A) erred in confirming the disallowance of rent expenses of INR 4,80,000 u/s 40A(2)(b) by relying on the head of income under which lessors offered such rental income, scale of business activity, and deductions claimed by lessors, which are factually incorrect and also irrelevant for determining the allowability of rent under section 30 in the hands of the Appellant. It be so held now. 9. The Ld. CIT(A) erred in facts and in law in confirming the action of the Ld. AO in initiating penalty proceedings under section 270A of the Act. It is prayed that such initiation be held as unsustainable in law in view of the facts of the case and law and the Ld. AO be accordingly directed to drop the penalty proceedings so initiated. It be so held now. 10. The Ld. CIT(A) erred in facts and in law in confirming the action of Ld. AO in assessment ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mit expense) as well as the receivable accounts viz. Time Deposit, Security deposit, Misc. Deposit. As per the request of Assessee Company, the Video Conference was conducted on 13/09/2022. During the course of personal hearing, the Authorized Representative of the assessee company explained the submissions filed by it in response to show cause notice dt. 21/03/2022. In response, the undersigned pointed out that the document provided by it does not have any date on it vide Annexure 13 in its submission dt. 21/02/2022 from the R&B division claiming that the R&B division has credited this amount to Revenue and has offered to tax to the Government of Gujarat. In this respect, the assessee company was requested to provide the requisite documents with date belonging to Financial Year 2019-20 relevant to A Y 2020-21 under consideration.. The detailed discussion is available in the recordings of the Video conference in ITBA conducted successfully on 13/09/2022 by the undersigned with the Authorized Representatives of the assessee company. However, no such document is furnished by the assessee so far. Further submissions were made by the assessee company in this respect on 12/09/2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p Singh emphasized that the assessee had not proven that the income was offered in the relevant years. The facts relating to this claim of bad debts and the accounting for the amounts retained by the Government have been explained in detail in the written submission filed by the assessee before the Ld. CIT(A). For the sake of convenience, we reproduce the said submission, which has been relied upon by the Ld. A.R., hereunder: "2.9. We wish to submit that during the year under consideration (i.e., FY 2019-20), the Appellant undertook an exercise to follow up for the old receivables and identify amount not recoverable from the respective customers. In this regard, multiple physical visits were conducted to the office of R&B division (one of the customers of the Appellant) to follow up for recovering the amount under consideration (INR 36,95,988). 2.10. During said follows ups, the Appellant was informed that the R&B division had decided to not pay the retention money receivable by the Appellant and issued a document (Form 53-Instruction for passing a journal entry) wherein it was clearly mentioned that the amount of contract revenue withheld by the R&B division (whi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e termed as fine or penalty. Further, even if it is in the nature of fine or penalty, the same is towards breach of terms or conditions of contractual agreement which is allowable under section 37(1) of the Act. 2.16. In view of above, we respectfully wish to submit before your Honour that any loss or expenditure on account of breach of contractual terms and conditions is nothing, but an expenditure incurred wholly and exclusively in connection with the business and ought to allow the same as deductible expense. Also, this expense cannot be disallowed under section 37 of the Act or Explanation thereof as the same has not been incurred towards the breach of any law or regulations for the time being in force. Hence, contentions of Ld. AO that amount not received from R&B division is a fine imposed on the Appellant and therefore not allowable as deduction is not tenable having regard to the facts of the case. 2.17. Further, with respect to the contention of Ld. AO that amount under consideration has not been offered to tax in the earlier assessment years and therefore conditions laid down under section 36(1)(vii) read with section 36(2) of the Act have not been satis....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 8, for your ready reference. 2.21. From perusal of the above ledgers, your Honour would appreciate that the customer had withheld the money in the form of deposit, in order to ensure the performance obligations of the Appellant. Further, upon perusal of the said ledgers, it is also clear that the Appellant had recorded gross amount receivable from its customer as a revenue and money retained by the customer has been parked a side separately as receivable item in the balance sheet. 2.22. We also submit before your Honour that the presentation of retention money under the head 'deposit' in the balance sheet of the Appellant would not alter the fact that the said amount was already recorded as an income in the financial statements of the earlier years and has also been offered to tax. For the ready reference of your Honour and to substantiate that amount under consideration has already been offered to tax as an income, we wish to explain the accounting treatment in respect of retention money by following illustration: Particulars Amount (in INR) Remarks Government work receipt account 1000 This represents gross revenue receivable by the Com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of projects. For its accounting purposes, the assessee included the entire invoice amount as its income and the amount retained was taken to balance sheet as a receivable. Subsequently, when the R&B Division decided to forfeit the amount so retained on account of delay in completion of the projects, the assessee appears to have continued negotiation for release of the said amount with the recoverable amount being shown in balance sheet. Finally, in Financial Year 2019-20 relevant to the Asst. Year under appeal, the assessee has written off this recoverable amount of Rs.36,95,988/-. From the above, two things which are evident from records are, that the assessee had accounted for the receivable in the different years to which the invoices pertained, and finally it has claimed deduction as bad debt in the year the same was actually written off in the accounts. The statutory provision as applicable after amendment to section 36(1)(vii) by the Direct Tax Laws (Amendment) Act, 1987 with effect from 01-04-1989, the assessee is no longer required to establish that the debt has become bad in any particular previous year. Simply the writing off the debt as irrecoverable in the accounts f....