PSB PAPERS PRIVATE LIMITED,U.S. NAGAR vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX , BAREILLY

The only effective issue to be decided in this appeal is as to whether the learned Principal Commission of Income Tax (PCIT) was justified in invoking revisionary jurisdiction under section 263 of the Income-tax Act, 1961 (in short ‘the Act’) in the facts and circumstances of the instant case.

We have heard the rival submissions and perused the materials available on record. The return of income was filed by the assessee company for the assessment year 2016-17 electronically on 08.09.2016 declaring total income of Rs.1,58,06,880/-. The assessment was completed under section 143(3) of the Act on 28.06.2018 determining the total income of the assessee at Rs.1,62,15,717/- after making disallowance on account of packing expenses in the sum of Rs.4,08,837/-. In the said assessment order, learned Assessing Officer had mentioned the fact that along with notice under section 142(1) of the Act, questionnaire was issued to the assessee on various dates calling for various details, which were duly complied by the assessee. This assessment was sought to be revised by learned PCIT by invoking jurisdiction under section 263 of the Act by treating the order passed by the learned Assessing Officer as erroneous, inasmuch as, it is prejudicial to the interest of the Revenue on the ground that no examination was carried out by learned Assessing Officer in respect of bad debts claimed by the assessee as deduction in sum of Rs.26,07,725/-. 2 Accordingly, a show-cause notice was issued under section 263 of the Act by learned PCIT on 12.03.2021 fixing the case for hearing on 17.03.2021. Learned PCIT has recorded in his revision order under section 263 of the Act that no reply was received from the assessee for the said show-cause notice. Accordingly, he directed to set aside the assessment order passed by the Assessing Officer to the limited extent of examining the issue of claim of deduction of bad debts in the sum of Rs.26,07,725/- in accordance with law after giving sufficient opportunity of being heard to the assessee.

Learned AR before us, vehemently pleaded that the detailed reply was indeed furnished by the assessee in electronic mode before learned PCIT but the same has not been taken cognizance by him. However, he fairly admitted that no query was raised by learned Assessing Officer in the course of assessment proceedings with regard to the claim of deduction on account of bad debts.

Per contra, learned DR submitted that in response to the show-cause notice, the assessee is not able to produce any evidence on record that whether any reply was filed before learned PCIT in electronic mode. The learned DR also submitted that any way there would be no prejudice that would be caused to the assessee as learned PCIT had merely directed the Assessing Officer to examine the eligibility of claim of deduction of bad debts after giving sufficient opportunity of being heard to the assessee.

At the outset, we find that the learned AR has drawn our attention to page no. 27 of the paper-book, containing the screenshot available in Income Tax Department portal qua the assessee. On perusal of the said screenshot, the reply stated to have been filed by the assessee before the learned PCIT is not discernible thereon. With regard to the computation of total income under section 115JB of the Act, even after the disallowance of bad debts, in our considered opinion, the said argument would be premature as learned PCIT had not directed the Assessing Officer to disallow the bad debts, instead, he had merely directed to examine 4 the claim of deduction of bad debts after giving sufficient opportunity to the assessee.

It is not in dispute that the Assessing Officer having raised queries on various issues during the course of assessment proceedings has not raised any query regarding the allowability of bad debts to the sum of Rs.26,07,725/-. There was no occasion for either the learned Assessing Officer or the learned PCIT to examine the facts on the allowability of bad debts as directed under section 36(1)(vii) of the Act. Hence, in these facts and circumstances of the case, we do not find any infirmity in the action of learned PCIT assuming revisionary jurisdiction under section 263 of the Act.

The assessee is at liberty to furnish all the evidences to justify the claim of direction under section 36(1)(vii) of the Act. The assessee is also at liberty to furnish evidences to prove that the income has already been offered by it in terms of section 36(2) of the Act which had become irrecoverable and accordingly triggered the action of write off as bad debt. The assessee is also given further liberty to furnish evidences in respect of amounts paid as advance, if any, to certain parties in the normal course of business, which has become irrecoverable and to that extent, the bad debts account 5 is debited in the books. With regard to the third issue of write off of regular advances given in the normal course of business, the assessee is duty-bound to prove that the said advance had become irrecoverable, to justify its claim of deduction as bad debts thereon.

In the result, the appeal of the assessee is partly allowed for statistical purposes.