DCIT Vs M.M. Healthcare Limited (ITAT Delhi)
CPC Can’t Sit in Judgment on Capital vs Revenue at 143(1) Stage: Delhi ITAT Dismisses Revenue Appeal on ₹7.30 Cr Bad Debt Adjustment
Delhi ITAT dismissed the Revenue’s appeal and upheld the order of the Addl./JCIT(A) quashing the CPC’s adjustment made u/s 143(1), holding that CPC exceeded its limited jurisdiction by disallowing a debatable bad-debt claim treating it as capital in nature.
The Assessee had written off ₹7.30 crore advanced to JMD Oil Pvt. Ltd. for a proposed joint-venture manufacturing unit for generic medicines, which later went into liquidation. CPC, while processing the return u/s 143(1), disallowed the bad-debt claim treating it as capital advance and also disallowed minor patient receivables.
The Addl./JCIT(A) held that although the ₹7.30 crore advance may not be allowable as bad debt u/s 36(1)(vii) on merits (being capital in nature), such disallowance could not be made at the 143(1) processing stage, as it did not fall within any of the six permissible adjustments under section 143(1)(a). Accordingly, the entire CPC adjustment of ₹7.32 crore was deleted, leaving liberty to the AO to proceed as per law in regular assessment.
Before the Tribunal, the Revenue argued that the claim was an “incorrect claim apparent from return” u/s 143(1)(a)(ii). Rejecting this contention, the ITAT held that nothing in the return or accompanying records conclusively showed the claim to be capital expenditure, and such determination involved debatable issues requiring detailed examination.
Relying on strict interpretation of taxing statutes (SC in Dilip Kumar & Co.) and multiple precedents, the Tribunal ruled that CPC cannot adjudicate complex issues like capital vs revenue or applicability of section 36(1)(vii) at the intimation stage.
Accordingly, Revenue’s appeal was dismissed and the Assessee’s cross-objection was held infructuous.
FULL TEXT OF THE ORDER OF ITAT DELHI
