PENNAR INDUSTRIES LIMITED,HYDERABAD vs. DCIT., CIRCLE-5(1),, HYDERABAD

3. The learned Principal CIT erred in assuming that the AO has not properly/thoroughly verified the information available in this case without mentioning which of the document submitted before the AO had not properly verified and what sort of enquiries should have been made to assume the order as prejudicial to the interest of Revenue. Therefore, erred in setting aside the assessment order made by the AO NFAC.

4. The learned Principal CIT has not proved that how the order u/s 143(3) r.w.s 144B is erroneous and prejudicial to the interests of revenue, as the observation of the Pr.CIT is only on surmises and conjectures, without brining any fresh material on record in respect of assuming the order as prejudicial and erroneous. Therefore, erred in setting aside the assessment order made by the AO NFAC.

5. The learned Principal Commissioner ought to have appreciated that lack of enquiry cannot be presumed, where the Assessing Officer accepted the accounts, which have been subjected Tax Audited and was supported by quantity account, therefore, erred in setting aside the issues raised with direction to verify further, therefore, the order u/s 263 is to be held bad in law.

6. The learned Principal Commissioner has not stated in what manner he considered the order of the Assessing Officer was erroneous and prejudicial to the interest of the revenue and what was 3 Pennar Industries Limited vs. DCIT the basis of such conclusion, in the absence of such a finding the order of the learned Pr. CIT is to be held as null and void.

7. The learned Pr.Commissioner ought to have appreciated that the assessee has furnished the requisite information and the Assessing Officer had completed the assessment after considering all the facts, however, the learned Pr.CIT, passed the order u/s 263 on the ground that the AO has not made proper enquiries, therefore, the revision u/s 263 is to be held unjustified.

8. The learned Pr.CIT erred in directing the AO to re-examine the amount of Rs.2,36,20,000/- debited under the head reversal of provision for Onerous Contract, whereas, in the order u/s 143(3) the issue was accepted after obtaining the relevant information from the assessee, therefore, the revision u/s 263 is to be held unjustified.

9. The learned Pr.CIT ought to have appreciated that in respect of claim of credit of Rs.10,00,000/- towards reversal of provision for Onerous Contract was accepted by the AO after considering the submissions made by the assessee, therefore, the revision u/s 263 is to be held unjustified.

10. The learned Pr.CIT ought to have appreciated that the bad debts written off aggregating to Rs.27,82,33,342/- is allowed after considering the details submitted and also after examining the requirement of section 36(vii) of the IT Act, therefore, the revision u/s 263 of the IT Act is to be held as unwarranted.

11. The learned Pr.CIT ought to have appreciated that the assessee paid the tax u/s 115QA on buy back of its shares numbering 6615000 for a consideration of Rs.20,48,00,000/- and the issue is accepted after verifying the transaction therefore, the learned CIT erred in directing the AO to verify the allowability of bad debts claimed by the assessee.”

6 Pennar Industries Limited vs. DCIT CIT under Section 263 of the Act, dated 28/02/2025, by filing an appeal with the Tribunal. The Ld. AR submitted that the accountant of the assessee company contacted him on 05/05/2025, and, thereafter, as per his advice, the appeal was filed with the Tribunal on 13/05/2025, which, however, involved a delay of 15 days. The Ld. AR to support his contention had drawn our attention to the application filed by the assessee company dated 02/12/2025 alongwith a supporting “affidavit”, dated 02/12/2025 of Shri. Aditya Narsing Rao, Managing Director of the assessee company, wherein the aforesaid facts leading to the delay in filing the appeal were deposed. The Ld. AR submitted that as the delay in filing the appeal had crept in because of bona fide reasons and on account of any lackadaisical conduct of the assessee company, therefore, the same, in all fairness and interest of justice be condoned.

12. Coming to the respective issues based on which the Ld. Pr. CIT had revised the order passed by the AO under section 143(3) r.w.s. 144B of the Act, dated 20.09.2022, the Ld. AR submitted that the AO vide his notice u/s 142(1) of the Act, dated 20/02/2022, had specifically directed the assessee company to furnish complete details of the debts that were written off during the year under consideration, i.e., details of the debts alongwith names, PAN, amount of interest paid, and copies of the corresponding ledger account. The Ld. AR submitted that the assessee had filed with the AO the complete details of bad debts of Rs. 27.82 crores (supra), which, he had, after necessary deliberations, accepted. The Ld. AR submitted that the assessee company had written off the bad debts in its books of accounts. Elaborating further on his contention, the Ld. AR submitted that after the amendment to Section 36(1)(vii) with effect from 01.04.1989, it is sufficient if the bad debt is 10 Pennar Industries Limited vs. DCIT written off as irrecoverable in the accounts of the assessee, and the requirement of establishing that the debt has become irrecoverable is no longer necessary. The Ld. AR to support his contention had relied on the judgment of the Hon’ble Supreme Court in TRF Ltd. v. CIT (2010) 323 ITR 397 (SC). Apart from that, the Ld. AR submitted that the Pr. CIT’s observation that the AO ought to have examined whether such bad debts were admitted as income in the debtor’s books of account was not relevant for the allowability of the assessee’s claim for deduction of bad debts. The Ld. AR had, under Rule 10 of the Appellate Tribunal Rules, 1963, placed on record an “affidavit”, dated 05/02/2026 of Shri. Aditya Narsing Rao, Managing Director of the assessee company, wherein he had deposed that the assessee company in the course of the assessment proceedings had furnished with the AO the complete details of the “bad debts” of Rs. 27.82 crores (supra), and had provided to him a list of customer wise bad debts with details such as job number, name of the party and amount involved. Apart from that, it is deposed that the bad debts of Rs. 27,82,33,342/- were taken into account by the assessee company while computing its income in the earlier years. The Ld. AR submitted that though the claim of the assessee company for deduction of bad debts was after necessary verifications accepted by the AO while framing the assessment, but, even otherwise, the Ld. Pr. CIT had failed to point out in his order u/s 263 of the Act, dated 28/02/2025, as to how the said 11 Pennar Industries Limited vs. DCIT claim of deduction of the assessee company was, as per the mandate of law, erroneous. Also, the Ld. AR stated that in case any amount of the subject debt is subsequently recovered by the assessee company in the succeeding years, then, the same, as per the mandate of Section 36(2)(ii) of the Act, will be offered for tax in the said year of receipt. Apropos the Ld. Pr. CIT’s observation that the tax under Section 115QA was not paid on buy-back of shares amounting to Rs. 20,48,00,000/-, the Ld. AR rebutted the same and stated that the said observation was factually incorrect. The Ld. AR had drawn our attention to the details of the buy back of shares by the assessee company from the shareholders on the basis of the stock exchange route method, and the calculation of tax on the same, supported with the copies of the challans, Page Nos. 62 to 89 of APB. Coming to the Ld. Pr. CIT observation that the assessee company had failed to produce the ICDS workings of “Amortization Charge as per Ind AS 116” of Rs. 4,20,41,563/-, and had directed the AO to examine the allowability of “Amortization Charge as per Ind AS 116” claimed at Rs. 4,20,41,563/- vis-a-vis workings as per ICDS and decide accordingly, the Ld. AR submitted that the assessee company had adopted Ind AS 116 with effect from 01.04.2019. The Ld. AR submitted that, as per the accounting treatment, right-of-use assets and corresponding lease liabilities were recognized. The Ld. AR submitted that the finance cost on lease liability was debited to the profit and loss account, and the amortization of right-of-use assets was 12 Pennar Industries Limited vs. DCIT claimed as a deduction. Elaborating further on his contention, the Ld. AR submitted that the assessee company, in its computation of income, had added back finance cost and claimed lease rentals as a deduction in accordance with the provisions of the Act. It was submitted by him that the amortization of Rs. 4,20,41,563/- claimed represents depreciation on right-of-use asset. It was further submitted by him that the allowability of the assessee’s claim for deduction under the Act has to be tested independently of accounting standards. Carrying his contention further, the Ld. AR submitted that if lease rentals are revenue in nature, the same are allowable under Section 37(1) of the Act. Also, it was submitted by him that if the right-of-use asset qualified as a depreciable asset under Section 32 of the Act, then depreciation is allowable as per the prescribed rates. The Ld. AR submitted that the revenue has not established that either the assessee company has claimed double deduction or that the said claim of deduction is contrary to statutory provisions. Apropos the observation of the Pr. CIT wherein he had directed the AO to examine the amount of Rs. 2,36,20,000/- deducted under the head “Reversal of Provisions for Onerous Contract” in the computation of income vis-à-vis the nature of such debit and decide accordingly, the Ld. AR submitted that out of Rs. 2,36,20,000/-, a substantial portion represented reversal of provision, which had been disallowed/added back by the assessee company while computing its income for the preceding year. The Ld. AR submitted that if a provision 13 Pennar Industries Limited vs. DCIT is disallowed in an earlier year and subsequently reversed, the corresponding credit cannot again be taxed, nor can its reduction from income be disallowed, as it would amount to double taxation. Coming to the amount of Rs. 10,00,000/- credited to profit and loss account on reversal of provision, the Ld. AR submitted that the same was reduced in computation on the ground that it was merely a reversal of a provision and not real income. Elaborating on his contention, the Ld. AR submitted that, as the original provision was not allowed as a deduction in the earlier year, its reversal will not give rise to any taxable income during the subject year.

14 Pennar Industries Limited vs. DCIT On merits, the Ld. CIT-DR submitted that though the case of the assessee company was selected for complete scrutiny under CASS, inter alia, for verifying its claim for deduction of the substantial amount of bad debts of Rs. 27.82 crores (supra), but the AO, without thoroughly examining the same, had summarily allowed the claim of deduction raised by the assessee company. The Ld. CIT-DR submitted that the Ld. Pr. CIT has rightly set aside the issue to the file of the AO with a direction to verify the claim for deduction of bad debts raised by the assessee company. As regards the issue of taxability of “buy back of shares” in the hands of the assessee company, the Ld. CIT-DR candidly submitted that the assessee company had filed the challans evidencing the aforesaid payment. Apropos the observation of the Pr. CIT regarding the claim of deduction of amortisation charges as per Ind AS 116 of Rs. 4,20,41,563/-, the Ld CIT-DR supported the Pr. CIT order, and submitted that as the assessee company had already factored in the changes to its profit & loss account in view of adoption of Ind AS 116 in the computation of income, therefore, a separate deduction through “Amortization charge as per Ind AS 116” for Rs. 4,20,41,563/- was not allowable. The Ld. CIT-DR submitted that the Ld. Pr. CIT has rightly set aside the assessment order with a direction to the AO to examine the issue of allowability of the amortization charges as per Ind AS 116 claimed at Rs. 4,20,41,563/- vis-à-vis working as per ICDS and decide accordingly. Coming to the issue of allowability of the assessee’s 15 Pennar Industries Limited vs. DCIT claim for deduction of an amount of Rs. 2,36,20,000/- from its business income in the “computation of income” for the subject year, the Ld. CIT- DR submitted that though it was the claim of the assessee company that as the amount of Rs. 2,26,00,000/- debited as “Reversal of provision of UBR”, was added to the income for AY 2019-20, thus, the same was reversed now, but no supporting material to substantiate the said claim was filed by the assessee company. Also, the Ld. CIT-DR submitted that the assessee company under the head “Provisions for loss on onerous contract” had a closing balance of Rs. 20 lac on 31/03/2019, which was reversed to the extent of Rs. 10 lac during the subject year and was disclosed under the head “Other income” in its profit & loss account, but was reduced from its business income while making income tax adjustments. The Ld. CIT-DR submitted that though the assessee company had reversed an amount of Rs. 10,00,000/-, but deducted an amount of Rs. 10,20,000/- in its computation of income. The Ld. CIT-DR submitted that as the AO, while framing the assessment, had failed to verify the aforesaid deduction under the head “Reversal of provisions for onerous contracts” in its computation of income of Rs. 2,36,20,000/- claimed by the assessee company, thus, the ld. Pr. CIT had rightly directed him to examine the same and decide accordingly. The Ld. CIT-DR submitted that as the Ld. Pr. CIT has rightly set aside the assessment order with specific directions to the AO to frame a fresh assessment after affording an opportunity of being 16 Pennar Industries Limited vs. DCIT heard o the assessee company, thus, the present appeal, being devoid and bereft of any substance, is liable to be dismissed.

(2007) 295 ITR 282 (SC), the Hon’ble Supreme Court has reiterated that when two views are possible, and the AO has taken one view, then Section 263 cannot be invoked merely because the CIT prefers another view. It is equally well settled that where the AO has made enquiries, elicited replies, and applied his mind to an issue, the CIT cannot assume jurisdiction under Section 263 merely on the ground that the enquiry was inadequate. The Hon’ble High Court of Delhi in CIT v.

17 Pennar Industries Limited vs. DCIT Sunbeam Auto Ltd. (2011) 332 ITR 167 (Delhi) has held that there is a distinction between “lack of enquiry” and “inadequate enquiry”. If there was enquiry, even if inadequate, the Commissioner has no jurisdiction under Section 263 of the Act. Further, the Hon’ble High Court of Telangana in Spectra Shares & Scrips Pvt. Ltd. v. CIT (2013) 354 ITR 35 has summarized the principles governing Section 263 of the Act and held that once a query is raised during scrutiny and answered to the satisfaction of the AO, the order cannot be revised merely because the query and reply are not reflected in the assessment order.

(A). Reversal of provision for onerous contract – Rs. 2,36,20,000/- 18 Pennar Industries Limited vs. DCIT 17. We find on a perusal of the record that the AO in the course of the assessment proceedings had neither raised any specific query nor carried out any verification regarding the amount of Rs. 2,36,20,000/- that was deducted by the assessee company under the head “Reversal of Provisions for Onerous Contract” in its computation of income. We, thus, are of a firm conviction that the Ld. Pr. CIT, remaining well within his jurisdiction, had rightly directed the AO to examine the amount of Rs. 2,36,20,000/- deducted by the assessee company under the head “Reversal of Provisions for Onerous Contract” in its computation of income. Apart from that, we are of the view that the AO while framing the assessment had failed to take cognizance of the fact that the assessee company which had a closing balance of Rs. 20,00,000/- as on 31/03/2019 for “Provisions for loss on Onerous Contracts” had though reversed the said provision to the tune of Rs. 10,00,000/- and admitted the same as its income in its Profit & Loss account, but had deducted an amount of Rs. 10,20,000/- in its computation of income. We, thus, in the backdrop of the aforesaid facts, are of the view that as the AO, while framing the assessment, had failed to verify the aforesaid claim of deduction of the assessee company, therefore, the Ld. Pr. CIT, principally remaining well within his jurisdiction, had set aside the assessment order with a direction to the AO to verify the same.

17.1. On merits, we find that it is the Ld. AR’s claim that out of Rs. 2,36,20,000/-, a substantial portion represented a reversal of provision, 19 Pennar Industries Limited vs. DCIT which had been disallowed/added back by the assessee company while computing its income for the preceding year. In our view, it is a settled principle that if a provision is disallowed in an earlier year and subsequently reversed, then the corresponding credit cannot again be taxed, nor can its reduction from income be disallowed, as it would amount to double taxation. However, as the claim of the Ld. AR that the substantial portion represented a reversal of provision, which was disallowed/added back by the assessee company while computing its income for the preceding year, in the absence of the relevant details/record before us, cannot be verified, we direct the AO to verify the same. In case the aforesaid claim of the Ld. AR is found to be order, then the AO to the extent the reversal of provision was disallowed in the preceding year shall, to the said extent, not make any addition of the same in the hands of the assessee company during the year under consideration. Accordingly, the order of the Ld. Pr. CIT under Section 263 of the Act, dated 28/02/2025, is modified in terms of our aforesaid observations.

17.2. Coming to the amount of Rs. 10,00,000/- credited to the Profit and loss account of the assessee company during the subject year, we find that it is the Ld. AR’s claim that, as the same was a reversal of a provision and not real income, it was reduced in the “computation of income”. In our view, if the original provision was not allowed as a deduction in the earlier year, its reversal will not give rise to taxable 20 Pennar Industries Limited vs. DCIT income during the year under consideration. Conversely, if deduction had been allowed earlier, its reversal would be taxable under Section 41(1) of the Act. However, as the relevant material to adjudicate the subject issue in the backdrop of our aforesaid observations is neither discernible from the record nor available before us, we direct the AO to verify the factual position and adjudicate the same in terms of our aforesaid observations. Accordingly, the order of the Ld. Pr. CIT under Section 263 of the Act, dated 28/02/2025, is modified in terms of our aforesaid observations.

(B). Bad debts written off – Rs.27,82,33,342/-

18.2. Ostensibly, the record reveals that the issue of bad debts was specifically part of the selection of the case of the assessee company for complete scrutiny under CASS. The AO had issued notice under Section 142(1) of the Act, dated 20/02/2022, wherein the assessee company was called upon to furnish the requisite details on the subject issue. In compliance, the assessee company had furnished the complete details of the parties/Job that were written off in its books of account. The Ld. Pr. CIT had observed that the AO had failed to verify the identity, genuineness and creditworthiness of the debtors, and whether the amounts were offered as income in the debtor’s books of 22 Pennar Industries Limited vs. DCIT account. However, such reasoning overlooks the settled position of law governing deduction under Section 36(1)(vii) of the Act. The Hon’ble Supreme Court in TRF Ltd. v. CIT (2010) 323 ITR 397 (SC) has categorically held that after the amendment to Section 36(1)(vii) with effect from 01.04.1989, it is not necessary for the assessee to establish that the debt has become irrecoverable. It is sufficient if the bad debt is written off as irrecoverable in the books of account of the assessee. The ratio laid down by the Hon’ble Supreme Court in TRF Ltd. Vs. CIT (supra) makes it clear that once the assessee writes off the debt in its books of account, then the condition under Section 36(1)(vii) stands satisfied, subject to Section 36(2) of the Act and the Revenue cannot insist upon further proof of irrecoverability. For the sake of clarity, we deem it apposite to cull out the observations of the Hon’ble Apex Court in TRF Ltd. Vs. CIT (Supra), as under:

“ In these appeals, we are concerned with Assessment Year 1990-1991 and Assessment Year 1993-1994. Prior to 1st April, 1989, every assessee had to establish, as a matter of fact, that the debt advanced by the assessee had, in fact, become irrecoverable. That position got altered by deletion of the word "established", which earlier existed in Section 36(1)(vii) of the Income Tax Act, 1961 [`Act', for short]. For the sake of clarity, we re-produce hereinbelow provisions of Section 36(1)(vii) of the Act, both prior to 1st April, 1989 and post-1st April, 1989: "Pre-1st April, 1989: Other deductions. 36.(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-- (i) to (vi) xxxx xxxx xxxx 23 Pennar Industries Limited vs. DCIT (vii) subject to the provisions of sub-section (2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year. Post-1st April, 1989: Other deductions. 36.(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-- (i) to (vi) xxxx xxxx xxxx (vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year." This position in law is well-settled. After 1st April, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee.” (emphasis supplied by us)

In the present case before us, the assessee company has written off the debts in its books of account and furnished the necessary details. The Pr. CIT has not brought any material on record to show that the debts were not taken into account in computing income in earlier years, which is the requirement under Section 36(2) of the Act. In the absence of such finding, the deduction cannot be denied.

18.3. Apropos the observation of the Ld. Pr. CIT that the AO has not verified the identity, genuineness, and creditworthiness of the debtors, we are unable to comprehend how the verification of the aforesaid aspects would have any bearing on the allowability of the claim of the assessee company for deduction of bad debts. In our view, the Ld. Pr. CIT has inadvertently misread the aforesaid pre-conditions relevant for 24 Pennar Industries Limited vs. DCIT making an addition u/s 68 of the Act, while considering the claim of the assessee company for deduction of bad debts. Apart from that, the observation of the Ld. Pr. CIT that the AO had erred in not examining the fact that whether the subject bad debts were admitted as income in the debtor’s books of account, the same, in our view, is not relevant for considering the allowability of the claim of deduction of bad debt raised by the assessee company. As observed by us hereinabove, after the amendment to Section 36(1)(vii) of the Act with effect from 01.04.1989, it is sufficient if the bad debt is written off as irrecoverable in the accounts of the assessee, and the requirement of establishing that the debt has become irrecoverable is no longer necessary. Accordingly, as there is no pre-condition contemplated under law that the claim of an assessee for bad debt is to be allowed subject to the condition that the said amount has been offered as income in the debtor’s books of account, we are unable to concur with the aforesaid observation of the Ld. Pr. CIT. Therefore, in view of our aforesaid observations, we find no infirmity in the view taken by the AO who after necessary verifications had allowed the claim of the assessee company for deduction of bad debts. Consequently, the assessment order allowing the claim of deduction of bad debt cannot be said to be erroneous in law. Also, we may herein observe that the assessee company in the course of hearing of the appeal had placed on our record an “affidavit”, dated 05/02/26, of Shri. Aditya Narsing Rao, Managing Director of the 25 Pennar Industries Limited vs. DCIT assessee company, wherein he has deposed that the “bad debts” of Rs. 27,82,33,342/- (supra) were taken into account by the assessee company in the earlier years by crediting the same in its Profit & Loss account of the said respective preceding year. Also, it is stated by him that in case any amount of the debt is recovered in the succeeding years, then the same, as per the mandate of Section 36(2)(ii) of the Act, will be offered for tax in the said year of receipt. We, thus, in terms of our aforesaid observations, are unable to persuade ourselves to concur with the view taken by the Ld. Pr. CIT to the extent he had set aside the assessment order on the aforementioned issue. We, thus, in terms of our aforesaid observations, set aside the order passed u/s 263 of the Act, dated 28/02/2025 by the Ld. Pr. CIT and restore the order of the AO.

(C). Buy-back of shares – Section 115QA

26 Pennar Industries Limited vs. DCIT 19.1. We find that the assessee company had, in the course of the proceedings before the Ld. Pr. CIT rebutted his allegation that tax under Section 115QA was not paid on buy-back of 6615000 shares for total consideration of Rs. 20,48,00,000/-, and had furnished the complete details alongwith copies of the challans evidencing payment of tax, Pages 62 to 89 of APB. In our view, the Ld. Pr. CIT, based on the claim of the assessee company that tax under section 115QA was paid on buy-back of 6615000 shares for a total consideration Rs. 20,48,00,000/- , and the copies of challans evidencing the same that were filed before him, ought to have considered the same instead of setting aside the matter to the file of the AO. If tax has been duly discharged under Section 115QA, no further demand can be raised in the hands of the company. The Revenue has not disputed the genuineness of the challans nor brought any material to show short payment. The Ld. CIT- DR fairly submitted that as the assessee company had under section 115QA of the Act paid tax on the buy-back of 6615000 shares for a total consideration of Rs. 20,48,00,000/-, and had furnished the complete details alongwith copies of challans, therefore, to the said extent the contention of the Ld. AR is not being objected. We, thus, in the backdrop of the aforesaid facts, set aside the order passed u/s 263 of the Act on the aforesaid issue by the Pr. CIT.

(D). Ind AS 116 adjustments – amortization and lease payments 27 Pennar Industries Limited vs. DCIT 20. Apropos the Ld. Pr. CIT observation that the assessee company had failed to produce the ICDS workings of “Amortization Charge as per Ind AS 116” of Rs. 4,20,41,563/-, and had directed the AO to examine the allowability of “Amortization Charge as per Ind AS 116” claimed at Rs. 4,20,41,563/- vis-a-vis workings as per ICDS and decide accordingly, we are of the view that though the AO while framing the assessment had observed that the assessee company had complied with the ICDS standards in respect of method of accounting and computed the income accordingly, but he had not specifically verified the allowability of the claim of deduction of the assessee company of “Amortization Charges as per Ind AS 116”. We, thus, are unable to persuade ourselves to concur with the Ld. AR that the Ld. Pr. CIT had exceeded his jurisdiction, and in the exercise of his revisional jurisdiction, had sought to substitute the view taken on the said issue by the AO.

20.1. On merits, we find that it is the claim of the Ld. AR that the assessee company had adopted Ind AS 116 with effect from 01.04.2019. It is further stated that, as per accounting treatment, right- of-use assets and corresponding lease liabilities were recognized. Also, the finance cost on lease liability was debited to the profit and loss account, and amortization of right-of-use assets was claimed. In the computation of income, the assessee company has added back finance cost and claimed lease rentals as a deduction in accordance with the 28 Pennar Industries Limited vs. DCIT provisions of the Act. The amortization of Rs.4,20,41,563/- claimed represents depreciation on right-of-use asset.

20.2. In our view, the allowability under the Act has to be tested independently of accounting standards. If lease rentals are revenue in nature, the same are allowable under Section 37(1). If right-of-use asset qualifies as a depreciable asset under Section 32, then depreciation is allowable as per the prescribed rates. We find that the revenue has not established that the assessee company has claimed double deduction or that the claim is contrary to the statutory provisions. The observation of the Ld. Pr. CIT that a separate deduction is not allowable merely because Ind AS adjustments were factored in accounts is not sufficient to disallow the claim, unless it is demonstrated that the computation violates specific provisions of the Act. However, we find that no such finding has been recorded. As observed by us hereinabove, the AO, while framing the assessment, had not specifically verified the allowability of the claim of deduction of the assessee company of “Amortization Charges as per Ind AS 116”. We, thus, are of a firm conviction that the matter, in all fairness, requires to be set aside to the file of the AO for fresh adjudication, in terms of our aforesaid observations. Accordingly, the order of the Ld. Pr. CIT under Section 263 of the Act, dated 28/02/2025, on the subject issue is modified in terms of our aforesaid observations.

29 Pennar Industries Limited vs. DCIT 21. Resultantly, the order of the Ld. Pr. CIT under Section 263 of the Act dated 28/02/2025 is partly set aside in terms of our aforesaid observations.