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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI B. R. BASKARAN, AM & MS. KAVITHA RAJAGOPAL, JM
O R D E R Per Kavitha Rajagopal, J. M.:
This appeal has been filed by the assessee, challenging the order of the learned Principal Commissioner of Income Tax (‘ld.PCIT’ for short), Mumbai, passed u/s.263 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2017-18.
The brief facts are that the assessee company is engaged in the business of authorized automobile dealer for Audi Cars India Ltd. and Motor Car Dealer and has authorized service centre from where the assessee company use to do the servicing, repair of audi vehicle. The assessee filed its return of income dated 30.10.2017, declaring total loss of (-) Rs.9,36,23,623/- and book profit at Rs.39,22,099/-. The assessee revised its return of income dated 16.11.2018 for the reason that it had erroneously considered profit on sale of fixed asset, amounting to Rs.23,72,59,181/- as ‘income from business and (A.Y. 2017-18) Aadya Motor Car Company Pvt. Ltd. vs. Pr. CIT profession’ instead of bringing it under the head ‘income from capital gain’. The assessee’s case was selected for complete scrutiny and assessment order dated 25.12.2019 was passed by the A.O., by making the disallowance of Rs.1,70,00,000/- claimed as ‘investment written off’ by the assessee in its profit and loss account, and determined the total income at (-) Rs.7,24,23,620/-, after making disallowance in respect of provision for diminution in the value of income tax, commission and brokerage expenses. It is observed that the ld. PCIT had invoked the provision of section 263 of the Act for the impugned year for the reason that the assessment order dated 25.12.2019 is erroneous insofar as it is prejudicial to the interest of the Revenue for the reason that the in the profit and loss account, the assessee had claimed deduction of Rs.1,72,79,681/- as reserve for doubtful debts which the A.O. has failed to examine that the said reserve is a provision and the same is not allowable to the assessee company, as it was not in the business of banking and financial institution. The ld. PCIT has invoked the provision of section 263 for the said reason that the A.O. has failed to make enquiries pertaining to the said claim of the assessee. The ld. PCIT held that the assessment order u/s. 143(3) dated 25.12.2019 was erroneous insofar as it is prejudicial to the interest of the Revenue and had set aside the said order and restored to the file of the A.O. for examining the assessee’s claim of deduction, amounting to Rs.1,72,79,681/- as being reserve for doubtful debts, which is claimed to be in the nature of write off of octroi deposits.
The assessee is in appeal before us, challenging the order of the ld. PCIT.
The ld. AR for the assessee contended that the ld. PCIT has invoked the provisions of section 263 and contended that the A.O. has made sufficient enquiry and has applied his mind while passing the assessment order. The ld. AR brought our attention to the (A.Y. 2017-18) Aadya Motor Car Company Pvt. Ltd. vs. Pr. CIT notice u/s. 142(1) of the Act issued by the A.O. which is enclosed at page no. 9 of the paper book, wherein item no. 6 reflects the impugned amount under the head ‘bad debt’.
The ld. AR also relied on page no. 10 of the paper book, which consists of the breakup of the impugned amount. When confronted with the ld. AR specified that page no. 2 of the paper book consisting of the reply of the assessee company for enquires raised by the A.O. has specified ‘wealth tax’, which was wrong nomenclature stated in assessee’s reply to the A.O. The ld. AR relied on page no. 10 of the paper book where the breakup of the impugned amount has specified that the same is towards octroi charges. The ld. AR relied on the order of the A.O. and stated that the A.O. has applied his mind and has taken one of the plausible view.
The ld. Departmental Representative (ld. DR for short), on the other hand, controverted the same by stating that the A.O. has failed to consider the reserve for doubtful debts, amounting to Rs.1,72,79,689/- and the same was not the subject matter of the assessment order. The ld. DR further stated that the A.O. has only considered the provision for diminution of the share value (amounting to Rs.1,70,00,000/-), which was disallowed and added to the total income of the assessee. The ld. DR contended that the A.O. has not made any enquiry pertaining to the assessee’s claim of deduction as reserve for doubtful debts and, hence, the invocation of the provision of section 263 of the Act by ld. PCIT was justifiable. The ld. DR relied on the order of the ld. PCIT.
We have heard the rival submissions and perused the materials available on record. It is pertinent to point out that the financial statement for the impugned year, the assessee along with the other expenses has debited reserve for doubtful debts of Rs.1,72,79,681/- and provision for diminution of share value of Rs.1,70,00,000/-, as per
(A.Y. 2017-18) Aadya Motor Car Company Pvt. Ltd. vs. Pr. CIT note number 27 of the financial statement of the assessee company. It is observed that the impugned assessment order dated 25.12.2019 has only dealt with the provision for diminution of share value, amounting to Rs.1,70,00,000/- and has disallowed the same and added it to the income of the assessee company. It is also observed that the assessee company is in appeal before the ld. PCIT as against the said disallowance. The assessee has stated that the reserve for doubtful debts, amounting to Rs.1,72,79,681/- are towards octroi deposits which according to the assessee is irrecoverable and has been written off by the assessee company. The ld. PCIT from the assessee’s submission has inferred that there has been change in the nomenclature of expenditures which is ‘written off’ and not ‘reserve’. The ld. PCIT has held that the octroi payments made to local authorities in the form of entry tax are covered by the provision of section 43B and the same cannot be written off without fulfillment of conditions prescribed by law. The ld. PCIT further held that as the assessee’s case was for complete scrutiny, the A.O. has failed to enquiry into the claim of the reserve for doubtful debts, amounting to Rs.1,72,79,681/-. The ld. PCIT further to this has relied on the decision of the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. vs. CIT [2000] 243 ITR 83 (SC) which held that the assessment order is erroneous if the A.O. has not applied his mind to the case. The ld. PCIT has invoked the provision of section 263 pertaining to the claim of reserve for doubtful debts, which is claimed to be in the nature of write off of octroi deposits as not being enquired by the A.O. resulting in the assessment order being erroneous insofar as it is prejudicial to the interest of the Revenue, as being a revenue loss which is otherwise payable by the assessee.
(A.Y. 2017-18) Aadya Motor Car Company Pvt. Ltd. vs. Pr. CIT 7. On a perusal of the assessment order, it is observed that the A.O. has only looked into the provision for diminution of share value amounting to Rs.1,70,00,000/- and has failed to consider the reserves for doubtful debts claimed by the assessee amounting to Rs.1.72 crores. The assessee’s contention that there is only change in the nomenclature and head of income, whereas the net effect of the gross total income remains the same is unacceptable in our view. In Malabar Industrial Co. Ltd. vs. CIT [2000] 243 ITR 83 (SC), the Hon'ble Apex Court held that if the A.O. has committed an error in the assessment without application of mind, thereby accepting the statement of accounts of the assessee without making an enquiry, the jurisdiction of Commissioner of Income Tax u/s. 263 was justified.
From the above facts and circumstances of the case, we are of the view that the A.O. has not enquired into the assessee’s claim pertaining to reserve for doubtful debts thereby not complied with the statutory requirement and that the invocation of the provisions of section 263 by the ld. PCIT is very much justifiable, in our considered opinion. From the above observation, we find no infirmity in the order of the order of the ld. PCIT.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on 06.01.2023