Case Law Details
Aamby Valley Limited Vs ACIT (ITAT Delhi)
No Section 14A Disallowance Because Assessee Earned No Exempt Income; Sundry Balances Written Off Allowed Because They Qualified as Business Losses or Business Expenditure; Customer Advances Not Taxable Under Section 68 Because Identity and Genuineness Were Established: ITAT Delhi.
The Delhi Income Tax Appellate Tribunal (ITAT) partly allowed the assessee’s appeal and dismissed the Revenue’s cross-appeal for Assessment Year 2014-15, dealing with multiple additions and disallowances arising from assessment proceedings under Section 143(3) of the Income-tax Act, 1961.
With regard to consultancy charges, the Tribunal upheld the disallowance of ₹1,47,764 where the assessee failed to produce supporting evidence relating to the service tax component and TDS compliance. However, it deleted the remaining disallowance relating to certain consultancy expenses after observing that the expenditure had crystallized during the relevant previous year and constituted a revenue-neutral situation.
On the issue of expenses allegedly not incurred in the assessee’s name, the Tribunal upheld the relief granted by the Commissioner (Appeals), relying on its earlier decision for the preceding assessment year involving similar facts. In respect of interest payments disallowed under Section 40(a)(ia) for non-deduction of TDS, the Tribunal sustained the disallowance relating to one payee where no evidence of compliance was available, while directing the Assessing Officer to verify whether the conditions under the second proviso to Section 40(a)(ia) and the first proviso to Section 201(1) had been satisfied regarding another payee.
The Tribunal allowed the assessee’s claim relating to sundry balances written off, including amounts pertaining to a real estate entity, excess stamp duty paid, and certain vendor balances. Although the lower authorities had treated these claims as inadmissible bad debts under Sections 36(1)(vii) and 36(2), the Tribunal followed its earlier decision and held that such write-offs could qualify either as business expenditure under Section 37(1) or as business losses under Section 28(1), subject to consequential computation by the Assessing Officer.
In the Revenue’s appeal, the Tribunal upheld the deletion of additions made under Section 68 in respect of advances received from customers after noting that the assessee had furnished details establishing identity, genuineness, and creditworthiness. The Tribunal also sustained the Commissioner (Appeals)’s deletion of a substantial Section 14A disallowance, observing that the assessee had not earned any exempt income during the relevant previous year. Relying on judicial precedent and its own earlier order, it held that disallowance under Section 14A could not be invoked in the absence of exempt income.
The Tribunal further upheld the deletion of additions relating to prior-period expenses, treating them as revenue-neutral. Importantly, it dismissed the Revenue’s challenge to the deletion of disallowance of electricity consumption charges amounting to ₹27,77,777. It observed that the electricity expenses were incurred in the ordinary course of the assessee’s business operations and constituted routine payments made to statutory authorities. The Tribunal held that such expenditure qualified as business expenditure incurred wholly and exclusively for the purposes of business under Section 37(1) of the Act.
Accordingly, the assessee’s appeal was partly allowed, while the Revenue’s cross-appeal was dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
These assessee’s as well as the Revenue’s cross appeals ITA 535 & 780/Del/2019; for assessment years 2014-15, arise against the Commissioner of Income Tax (Appeals)-23 [in short, the “CIT(A)”], New Delhi’s order No. 220/17-18, dated 27.11.2018 involving proceedings under section 143(3) of the Income-tax Act, 1961; hereinafter referred to as ‘the Act’.
Heard both the parties at length. Case files perused.
2. This assessee’s appeal ITA No. 535/Del/2019 raises the following substantive grounds:
“1. That the learned CIT(A) has erred in law and on facts and circumstances of the case in confirming the addition of Rs 1,47,764/- out of total addition of Rs. 1,09,02,065/-made by the Assessing Officer under the head Consultancy Charges.
2(a) That the learned CIT(A) has erred in law and on facts and circumstances of the case in confirming the addition of Rs. 24,71,024/- out of total addition of Rs. 1,07,34,202/-made by the Assessing Officer for alleged bills not in the name of the company.
(b) That the learned CIT(A) has erred in law as well on facts and circumstances of the case in not considering a sum of Rs. 77,762/- for which appeal was filed before him which comprises in total addition made by the Assessing Officer under the head Bills not in the name of company.
3. That the learned CIT(A) has erred in law and on facts and circumstances of the case in confirming the addition of Rs. 13,74,534/- out of the total addition of Rs.37,81,091/-made by the Assessing Officer for allegedly for non deduction of tax at source.
4. (a) That the learned CIT(A) has erred in law and on facts and circumstances of the case in confirming the addition of Rs. 54,88,74,888/- out of the total addition of Rs. 760,03,59,563/- made by the Assessing Officer under the head Sundry Balances Written off.
(b) That the Ld. CIT(A) has committed as arithmetical mistake, in as much as, the addition confirmed by him under the head Sundry Balances Written off, amounts to Rs.54,81,93,853/-, but after deducting the same from the total addition made the balance of addition remains at Rs.54,88,74,888/- which requires to be corrected.
(C) That the Ld. CIT(A) has failed to appreciate that recovery of a debt in the subsequent year which debt has been written off during the year, cannot be a ground for rejecting the claim of the appellant, which in the case of the appellant is a sum of Rs.54,81,12,000/- written of against the debt of Charita City Homes under the head Sundry Balances Written off.
5. That the appellant craves leaves to add, alter, amend, and withdraw any or all of the grounds of appeal on or before the date of hearing.”
3. The Revenue’s cross appeal ITA No. 780/Del/2019 canvasses the following substantive grounds:
“1. The order of Ld. CIT(A) is not correct in law and facts.
2. That on the facts and circumstances of the case, Ld. CIT(A) has erred in deleting addition of Rs. 5,14,74,293/-made by the AO u/s 68 on account of advances to customers for which assessee did not submit any evidence before the AO to establish its genuineness.
3. That on the facts and circumstances of the case, Ld. CIT(A) has erred in deleting addition of Rs. 5,99,760/- out of addition of Rs. 7,47,524/- on account of consultancy charges on the basis of evidence which was not produced before the AO.
4. That on the facts and circumstances of the case, Ld. CIT(A) has erred in deleting addition of Rs,. 236,28,14,032/-on account of disallowance u/s 14A of the Income Tax Act, 1961.
5. On the facts and circumstances of the case Ld. CIT(A) has erred in deleting addition of Rs. 3,38,699/- out of total addition of Rs. 3,66,725/- on account of prior period expenses, since the assessee was following mercantile system of accounting.
6. On the facts and circumstances of the case, Ld. CIT(A) has erred in deleting addition of Rs. 27,77,777/- on account of bills not being available and hence not supported with proper bills and vouchers.
7. On the facts and circumstances of the case Ld. CIT(A) has erred in deleting the addition of Rs. 1,05,58,865/- out of total additions of Rs. 1,07,34,202/- since, the bills were not in the name of the assessee company.
8. The appellant craves leave to add, amend, any/all the grounds of appeal before or during the course of hearing of the appeal. ”
4. We next notice that there arise same interconnected issues between the parties hereinabove as well. We thus proceed ground-wise for the sake of completeness and brevity.
5. Coming to the assessee’s appeal ITA No. 535/Del/2019, its first and foremost substantive ground seeks to reverse both the learned lower authorities’ respective findings disallowing consultancy charges of Rs. 7,47,524/- restricted to Rs. 1,47,764/-in the lower appellate discussion. The assessee’s case all along is that the same pertains to service tax component wherein no TDS was required to be deducted. We make it clear that both the learned lower authorities have invoked the impugned disallowance in its hands on account of non-compliance to the TDS deduction provisions at his behest. Learned CIT(DR) further takes us to the CIT(A)’s lower appellate discussion holding the assessee not to have filed any supportive evidence regarding its foregoing service tax plea as well. We thus find no reason to interfere with the impugned disallowance which stands upheld in very terms.
6. The assessee’s second and the Revenue’s seventh substantive grounds raise the identical issue of correctness of the Assessing Officer’s action disallowing various expenses totaling to Rs. 1,07,34,242/- which stands restricted to the extent of Rs. 1,75,337/- in the lower appellate discussion. The assessee first of all states very fairly that the correct amount in issue sought to be deleted at its behest is no more that of Rs. 24,71,024/- but Rs. 1,75,337/- only. The same admittedly involves the twin payees i.e., Miss Priya Ranade, Advocate and Shri Vikas Mehta, Advocate having charged the corresponding consultancy bills of Rs. 1,22,337/- and Rs. 53,000/-; respectively. Both the learned lower authorities hold in other words that these expenses as well as the invoices herein do not pertain to the relevant previous year F.Y. 2013-14. They have been held to be “prior period” expenditure in other words which results in a revenue neutral instance going by (2010) 328 ITR 17(Del) CIT vs Exxonmobil Lubricants Pvt Ltd. The assessee’s further plea that the impugned expenses got crystalized only in the relevant previous year has also gone unrebutted from the Revenue side. We thus find merit in its instant second substantive ground to delete the remaining disallowance of Rs. 1,75,337/- as well.
Coming to the Revenue’s seventh substantive ground learned CIT(DR) vehemently submits that the assessee is not entitled to claim the impugned expenditure since not booked in its name but for M/s Sahara India Commercial Corporation Limited only. We are informed in this factual backdrop that the earlier learned coordinate bench’s order in Revenue’s and the assessee’s cross appeals ITA No. 1352 & 1434/Del/2018 for A.Y. 2013-14 dated 16.04.2026 has already settled the very issue against the department involving the aforesaid company. We thus adopt judicial consistency to uphold the learned CIT(A)’s detailed discussion herein to the very effect. The Revenue fails in its seventh substantive ground therefore.
7. We advert to the assessee’s third substantive ground challenging both the learned Assessing Officer as well as the CIT(A) respective findings invoking section 40(a)(ia) disallowance of its interest payments amounting to Rs. 37,81,091/- on account of its failure to deduct TDS thereupon. We wish to clarify here that the assessee had indeed made the interest payments in issue to M/s Magma Finance and M/s SREI Equipment Finance Limited; totaling to Rs. 13,74,534/- forming the precise issue before us. Learned counsel submits that it had duly placed on record the aforesaid latter entity’s income tax return “ITR- V” of the relevant previous year itself that it had already accounted for the corresponding business income; and therefore, it is entitled for the consequential relief going by section 40(a)(ia) second proviso read with section 201(1) first proviso. There is no such compliance indicated from the aforesaid former payee M/s Magma Finance in its written synopsis as well. We thus uphold the impugned section 40(a)(ia) disallowance involving this former entity in very terms. We further deem it appropriate to direct the learned Assessing Officer to carry out finalize his necessary factual verification regarding the assessee’s compliance to section 40(a)(ia) second proviso r.w. s 201(1) first proviso as well in accordance with law. This assessee’s third substantive ground is partly accepted for statistical purposes.
8. The assessee’s fourth substantive ground seeks to claim write off sundry balances written off inter alia involving M/s Charita City Homes amounting to Rs. 54,50,00,000/-, excess payment of stamp duty made in favour of the Registrar, Lonavala amounting to Rs. 31.62 lakhs, M/s Adventure Products Limited of Rs. 7,49,698/- and old vendor’s debit balances of Rs. 9,51,317/-; respectively. Both the learned lower authorities’ respective assessment and the lower appellate findings quote section 36(1)(vii) r.w.s. 36(2) of the Act to treat the same as an instance of bad debts deduction not allowable for the reason that it had not recognized any of these heads as taxable income in the past.
9. That being the case, the assessee seeks to invited our attention to the Tribunal’s earlier order in A.Y. 2013-14(supra) quoting Harshad J. Choksi v. Commissioner of Income-Tax 2012 349 ITR 250 2019 as well as Jackie Shroff vs 2019 101 taxmann.com 455 (Mum.) that such write off claim, even if it is allowable as bad debts deduction, indeed qualifies for either regular business expenditure u/s 371(1) or an instance of business loss u/s 28(1) of the Act; as the case may be. We adopt the very reasoning herein as well going by judicial consistency to accept the assessee’s all instant claims in very terms. We further wish to emphasise here that both the learned lower authorities; be it the Assessing Officer or the CIT(A), nowhere alleged the assessee of not having filed all the relevant detailed evidence all along. We thus accept the assessee’s entire instant write off grievance in very terms subject to be followed by the Assessing Officer’s consequential computation. Its appeal ITA 535/Del/2019 partly succeeds therefore.
10. We next advert to the Revenue’s first and foremost substantive ground in its cross appeal ITA No. 780/Del/2019. Learned CIT(DR) vehemently submits that the CIT(A) herein has erred in law and on facts in deleting section 68 unexplained cash credits addition of Rs. 5,14,74,293/- made in the Assessing Officer’s assessment order; vide following lower appellate discussion :
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11.We have given our thoughtful consideration to the Revenue’s and the assessee’s vehement submissions reiterating their respective stands. We wish to make it clear that the assessee has indeed filed all the relevant details explaining identity, genuineness and creditworthiness of the impugned addition amount as coming from its regular business customers as advances whose details have all along been submitted in both the lower proceedings. We thus uphold the learned CIT(A) detailed discussion deleting the impugned business advances addition made by the Assessing Officers in the assessee’s hands. Rejected accordingly.
12. Learned CIT(DR) takes us to the Revenue’s second substantive ground that the CIT(A) has erred in law and on facts in partly reversing the Assessing Officer’s action disallowing the assessee’s consultancy charges of Rs. 7,47,524/- to the extent of Rs. 1,47,764/- only; vide following detailed discussion:
“7.1Vide ground no. 8, the appellant has challenged the addition of Rs. 7,47,524/-. The AO made addition of Rs. 5,84,010/- by disallowing the deduction of the equivalent amount paid to M/s Prakash Harsukh Lal Saha because it was paid without deduction of TDS and addition of Rs. 1,63,514/- has been made because no supporting documents were produced.
7.2 During the present appellate proceedings, the AR stated that there was an agreement appointing the above stated Sh. Prakash Harsukh Lal Saha on monthly payment of Rs. 5,25,000/- (per month). The AR also furnished a consultancy agreement dt. 11.02.2014 (effective from 01.06.2013 till 31.05.2014) evidencing the same. Total sum of Rs. 47,25,000/- was paid for nine months and TDS was duly deducted. However, later on it was discovered that amount of service tax will also have to be paid on the same. The said sum of Rs. 5,84,010/- was service tax payable on the same and no TDS was deductable on service tax component. The AR also submitted a copy of screen short showing entries of consultancy charge of Rs. 47,25,000/- and of service tax receivable of Rs. 5,84,010/-. The AR stated that the other payments were also related to similar liabilities under the Service Tax. The AR also furnished a chart showing entries of various amounts with the description, ‘direct consultancy expenses’ against which there is a mention (in remarks column), “service tax availed reversed as not allowed”. A copy of this char is enclosed as Annexure to this oruer. This ciart contains two entries of Rs. 44,227/- and Rs. 15,750/-against which names of M/s AVL Hotels and Resorts Ltd. and M/s Mittal Latika & Co., respectively, are mentioned.
7.3 There is no dispute over the proposition that TDS is not to be deducted on the Service Tax component. Therefore, the disallowance of Rs. 5,84,010/- is deleted subject to the verification at the end of the AO that this deduction is not hit by provisions of section 43B (the service tax was actually paid before the date of filing of return of income).
7.4 As per the chart submitted by the AR, the payment of Rs. 44,227/- to M/s AVL Hotels and Resorts Ltd. is not payment of Service Tax and no TDS has been deducted for the same, therefore, this disallowance is confirmed. Since, payment of Rs. 15,750/-made to M/s Mittal Latika & Co. is less than the limit specified under provisio to section 1 94J, and therefore, no TDS is deductable and hence this addition is deleted. Regarding, the balance amounts, although it has been claimed that there were Service Tax components, however, no supporting evidences were filed. Therefore, no fault can be found in the stand of the AO that deduction is disallowed for want of supporting documents. To summarize, out of addition of Rs. 1,63,514/-, the relief of Rs. 15,750/- is allowed and the balance addition of Rs. 1,47,764/- is confirmed.
7.5 In view of the above discussion, this ground of appeal (no. 8) is partly allowed.”
We notice herein as well that the assessee appears to have duly filed all the relevant details regarding its TDS compliance as well as service tax component involving herein (supra). We thus see no reason to interfere with the learned CIT(A)’s detailed discussion in deleting the impugned disallowance. Upheld in very terms.
13. Next comes the Revenue’s third substantive ground seeking to revive section 14A r.w. rule 8D disallowance of Rs. 2,36,28,14,032/- made in the assessment order and deleted in the lower appellate discussion. Suffice to say, the assessee had not have derived any except income in the relevant previous year. This Tribunal’s earlier order in A.Y. 2013-14 as well as case law Cheminvest Limited vs CIT (2015) 378 ITR 33 (Del) already hold that the impugned disallowance does not get attracted in absence of any exact income derived at the assessee’s behest. We thus uphold the learned CIT(A) detailed discussion in deleting the impugned disallowance in very terms.
14. The Revenue’s fifth substantive ground herein seeks to revive prior expenditure of disallowance of Rs. 3,38,669/- made in the assessment order and deleted in the CIT(A) detailed discussion. We quote Exxon Mobile Lubricant (P) Ltd (supra) herein as well to treat the same as a revenue neutral instance to uphold the CIT(A) detailed discussion in very terms.
15. The Revenue’s sixth substantive ground herein pleads that the CIT(A) has erred in law and on facts in deleting electricity bills expenditure payment disallowance of Rs. 27,77,777/- made in the assessment order. It could hardly dispute the assessee’s regular business activity or the fact that such electrical consumption charges are indeed routine business expenditure paid to the statutory bodies thereby qualifying as the one incurred wholly and exclusively for the purpose of business u/s 371(1) of the Act. We thus conclude that the CIT(A) detailed discussion deleting the impugned disallowance hardly warrants any interference on our part. Upheld accordingly.
No other ground or argument has been pressed before us.
16. This assessee’s appeal ITA No. 535/Del/2019 is partly allowed and the Revenue’s cross appeal ITA No. 780/Del/2019 is dismissed in above terms. A copy of this common order be placed in the respective case files.
Order pronounced in the open court on 03.06.2026.
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