Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, C BENCH: CHENNAI
Before: SHRI ABY T VARKEYAND
ORDER \nPER AMITABH SHUKLA, A.M :\nThis appeal is filed by the assessee against the order bearing DIN\n& Order No.ITBA / REV / F / REV5 / 2024-25 / 1074931062(1) dated\n24.03.2025 of the Learned Principal Commissioner of Income Tax-1\n[herein after “PCIT-1, Chennai for the assessment year 2020 -21. The\nreference to the word \"Act\" in this order hereinafter shall mean the\nIncome Tax Act, 1961 as amended from time to time.\n2.0 The only issue raised by the assessee through its grounds of\nappeal is regarding the revisionary powers invoked by the Ld.PCIT-1,\nChennai u/s 263 of the Act. Brief factual matrix of the case is that the\nassessee is engaged in the business of trading of agricultural,\nHorticultural, Floricultural, activities as well as growing of fruits and\nvegetables etc. Return of Income declaring loss of Rs.(-)8,80,06,919/-\nwas passed by the assessee on 09.02.2021. Order u/s 143(3) was\npassed by the Ld.AO on 26.09.2022 determining taxable loss at Rs.(-)\n2,68,08,267/- after making addition of Rs.6,12,60,652/-. Pertinently, the\ncase was selected in the complete scrutiny category. Among various\nissues enquired by the Ld.AO included an assessee's claim of write off of\ntrade advance amounting to Rs.8,78,95,397/-. Before the Ld.AO the\nassessee had claimed that it had given trade advances of\nRs.8,78,95,397/- to one Ms. Subartha, Proprietor of M/s.SSS Export for\nsupply of food grains and that the impugned party subsequently neither\nsupplied the promised products nor returned the money. After protracted\ncourt proceedings the party agreed to pay the disputed amount however\nit soon vanished and is absconding without payment of the amount of\nRs.8,78,95,397/-. The Ld.AO allowed the claim of the assessee after\nmerely placing on record copies of FIR and Court Orders. Subsequently,\nthe Ld.PCIT-1, Chennai noted that the said issue was not adequately\nenquired into and investigated by the Ld.AO. It was noted that the\nLd.AO had not even placed on record any agreement between the\nassessee and the delinquent party even though the same was specifically\nrequested by the Ld.AO. No such evidence was placed before the\nLd.PCIT-1, Chennai as well. The Ld.PCIT further noted that there was an\nabnormal gap between the advances paid by the assessee and the\nsupplies received. Accordingly, concluded that as the Ld.AO failed to\nmake a complete verification and enquiry w.r.t issue at hand, it is a fit\ncase for invocation of provision of section 263.\n3.0\nIt is the case of the assessee that the matter of write off of trade\nadvance was fully investigated by the Ld.AO before allowing the same to\nthe assessee. The Ld.Counsel has further argued, while placing a\ndetailed paper book on record, that the trade advances were paid by it\nthrough banking channels and that the same are genuine business\ntransactions. The Ld.Counsel argued that they are eligible to be allowed\nas bad debts u/s 36(1)(vii). It was further submitted that the impugned\ntrade advances are admissible for allowance u/s 37 also. Thus it was\nargued when the claim of the assessee per se is legally permissible\nunder the provisions of the Act and the same was enquired into by the\nLd.AO, the same cannot be revisited through the revisionary powers of\nthe Ld.PCIT u/s 263 of the Act. It was accordingly pleaded that the 263\norder may be set aside and quashed.\n4.0 Per contra, the Ld.DR argued in favour of the revisionary order of\nLd.PCIT u/s 263.\n5.0 We have heard the rival submissions in the light of material\navailable on records. Before proceeding further, we deem it appropriate\nto briefly examine the statutory provisions u/s 263, 36(1)(vii) and section\n37 which are seminal to the controversy.\n“\nSection - 263, Income-tax Act, 1961 - FA, 2025\nE.-Revision by the 28[Principal Commissioner or] Commissioner\nRevision of orders prejudicial to revenue.\n29 263. (1) The 28[ 30[Principal Chief Commissioner or Chief Commissioner or\nPrincipal Commissioner] or] Commissioner may call for and examine 31 the\nrecord 32 of any proceeding under this Act, and if he considers that any\norder 32 passed therein by the 33[Assessing] Officer 34[or the Transfer Pricing\nOfficer, as the case may be,] is erroneous 32 in so far as 32it is 32prejudicial to the\ninterests of the revenue 32, he may, after giving the assessee an opportunity of\nbeing heard and after making or causing to be made such inquiry as he deems\nnecessary, 32pass such order thereon as the circumstances of the case\njustify, 35[including,-\n(i) an order enhancing or modifying the assessment or cancelling the\nassessment 32 and directing a fresh assessment; or\n(ii) an order modifying the order under section 92CA; or\n(iii) an order cancelling the order under section_92CA and directing a fresh\norder under the said section].\n36[ 37[Explanation 1.]-For the removal of doubts 38, it is hereby declared that, for the\npurposes of this sub-section,-\n(a) an order passed 39[on or before or after the 1st day of June, 1988] by the\nAssessing Officer 40[or the Transfer Pricing Officer, as the case may be,]\nshall include-\n(i) an order of assessment made by the Assistant Commissioner 41[or\nDeputy Commissioner] or the Income-tax Officer on the basis of\nthe directions issued by the 42[Joint] Commissioner under section\n144A;\n(ii) an order made by the 42[Joint] Commissioner in exercise of the\npowers or in the performance of the functions of an Assessing\nOfficer 40[or_the Transfer Pricing Officer, as the case may be,]\nconferred on, or assigned to, him under the orders or directions\nissued by the Board or by the 43[Principal Chief Commissioner or]\nChief Commissioner or 43[Principal Director General or] Director\nGeneral or 43[Principal Commissioner or] Commissioner authorised\nby the Board in this behalf under section 120;\n44[(iii) an order under section 92CA by the Transfer Pricing Officer;]\n(b) 45“record” 46[shall include and shall be deemed always to have included] all\nrecords relating to any proceeding under this Act available at the time of\nexamination by the 43[Principal 47[Chief\nCommissioner or Chief\nCommissioner or Principal] Commissioner or] Commissioner;\n(c) where any order referred to in this sub-section and passed by the\nAssessing Officer 44[or the Transfer Pricing Officer, as the case may be,]\nhad been the subject matter 48 of any appeal 49[filed on or before or after\nthe 1st day of June, 1988 48], the powers of the* 50[Principal Commissioner\nor] Commissioner under this sub-section shall extend 49[and shall be\ndeemed always to have extended] to such matters as had not been\nconsidered and decided in such appeal.]\n51[Explanation 2.-For the purposes of this section, it is hereby declared that an\norder passed by the Assessing Officer 52[or the Transfer Pricing Officer, as the\ncase may be,] shall be deemed to be erroneous in so far as it is prejudicial to the\ninterests of the revenue, if, in the opinion of the Principal 53[Chief Commissioner or\nChief Commissioner or Principal] Commissioner or Commissioner,-\n(a) the order is passed without making inquiries or verification which should\nhave been made 48;\n(b) the order is passed allowing any relief without inquiring into the claim;\n(c) the order has not been made in accordance with any order, direction or\ninstruction issued by the Board under section 119; or\n(d) the order has not been passed in accordance with any decision which is\nprejudicial to the assessee, rendered by the jurisdictional High Court or\nSupreme Court in the case of the assessee or any other person.]\n54[Explanation 3.-For the purposes of this section, “Transfer Pricing Officer” shall\nhave the same meaning as assigned to it in the Explanation to section 92CA.]\n55[(2) No order shall be made under sub-section (1) after the expiry of two years\nfrom the end of the financial year in which the order sought to be revised was\npassed.]\n(3) Notwithstanding anything contained in sub-section (2), an order in revision\nunder this section may be passed at any time in the case of an order which has\nbeen passed in consequence of, or to give effect to, any finding or direction\ncontained in an order of the Appellate Tribunal, 56 the High Court or the Supreme\nCourt.\nExplanation.-In computing the period of limitation for the purposes of sub-section\n(2), the time taken in giving an opportunity to the assessee to be reheard under\nthe proviso to section 129 and 56a[the period commencing on the date on which\nstay on any proceeding under this section was granted by an order or injunction of\nany court and ending on the date on which certified copy of the order vacating the\nstay was received by the jurisdictional Principal Commissioner\nCommissioner] shall be excluded.\nOther deductions.\n36. (1) The deductions provided for in the following clauses shall be allowed in\nrespect of the matters dealt with therein, in computing the income referred to in\nsection 28-\n59(vii) subject to the provisions of sub-section (2), the amount of 60[any 61bad\ndebt or part thereof which is written off as irrecoverable in the accounts of\nthe assessee for the previous year]:\n62[Provided that in the case of 63[an assessee] to which clause (viia)\napplies, the amount of the deduction relating to 61any such debt or part\nthereof shall be limited to the amount by which such debt or part thereof\nexceeds the credit balance in the provision for bad and doubtful debts\naccount made under that clause:]\n64[Provided further that where the amount of such debt or part thereof\nhas been taken into account in computing the income of the assessee of\nthe previous year in which the amount of such debt or part thereof\nbecomes irrecoverable or of an earlier previous year on the basis of\nincome computation and disclosure standards notified under sub-section\n(2) of section 145 without recording the same in the accounts, then, such\ndebt or part thereof shall be allowed in the previous year in which such\ndebt or part thereof becomes irrecoverable and it shall be deemed that\nsuch debt or part thereof has been written off as irrecoverable in the\naccounts for the purposes of this clause.]\n65[ 66[Explanation 1].-For the purposes of this clause, any bad debt or part\nthereof written off as irrecoverable in the accounts of the assessee shall\nnot include any provision for bad and doubtful debts 67 made in the\naccounts of the assessee.]\n68[Explanation 2.-For the removal of doubts, it is hereby clarified that for the purposes\nof the proviso to clause (vii) of this sub-section and clause (v)of sub-section (2), the\naccount referred to therein shall be only one account in respect of provision for\nbad and doubtful debts 69 under clause (viia) and such account shall relate to\nall types of advances, including advances made by rural\nbranches;]\n30(2) In making any deduction for a bad debt or part thereof, the following\nprovisions shall apply-\n31[(i) no such deduction shall be allowed unless such debt or part thereof has\nbeen taken into account in computing the income of the assessee of the\nprevious year in which the amount of such debt or part thereof is written off\nor of an earlier previous year, or represents money lent in the ordinary\ncourse of the business of banking or money-lending which is carried on by\nthe assessee;]\nii) if the amount ultimately recovered on any such debt or part of debt is less\nthan the difference between the debt or part and the amount so deducted,\nthe deficiency shall be deductible in the previous year in which the ultimate\nrecovery is made;\nGeneral.\n36.
37 (1) 38Any expenditure 39 (not being expenditure of the nature\ndescribed in sections 30 to 3640[***] and not being in the nature of capital\nexpenditure 41 or personal expenses of the assessee), laid out or\nexpended wholly and exclusively 41 for the purposes of the business 41 or\nprofession shall be allowed in computing the income chargeable under the\nhead “Profits and gains of business or profession”.....”\n6.0 The first argument taken by the Ld. Counsel is regarding the\nnon-applicability of section 263 of the Act in this case. It has been\nargued that the Ld.AO has done all the enquiries in the issue of trade\nadvances and therefore no action under section 263 of the Act lies in this\ncase. Sub-clause(a) of Explanation-2 to Section 263 postulates that a\nPCIT shall be entitled to draw his conclusions of an order passed by an\nassessing officer as erroneous in so far as it is prejudicial to the interest\nof Revenue if the order is passed without making inquiries or verification\nwhich should have been made. The law thus stipulates that if an\nassessing officer is found to have made enquiries in a case, the\nrevisionary authority cannot be exercised by a supervisory commissioner.\nIt is in this context that the nature of enquiries made by the Ld.AO in this\ncase assumes significance. The Ld.AO has accepted the assessee's\nclaim of about Rs.8,78,95,397/- by placing on record copies of FIR and\nCourt Orders which were at the opportune time seminal to the\ncontroversy. The said documents firmly alluded that the party namely\nMrs.Subartha prop M/s S.S.S.Export had indeed received trade advances\nfrom the assessee for supply of some items and that neither were the\nagreed items supplied nor were the advances returned. The said\ndocuments possessed sufficient credibility to allude towards truthfulness\nof hypothesis propounded by the assessee. Consequently we are not in\nagreement with the conclusions drawn by the Ld.PCIT that the Ld.AO has\nfailed to conduct necessary enquiries in this case and proceeded in\ndrawing his conclusions of the assessment order passed by the\nassessing officer being erroneous in so far as it is prejudicial to the\ninterest of Revenue and consequently directing the AO for making fresh\nenquiries and verification and assessment of income.\n7.0 We have noted that the Hon'ble Delhi High court in the case of Vikas\nPolymers 194 taxmann 57 have held that there is distinction between\n\"lack of enquiry” and “inadequate enquiry. Whereas the former can be a\ncase for exercise of revisionary authority, the latter cannot be a ground\nfor initiating action u/s 263 by the supervisory commissioner.\nThe\nHon'ble High Court ruled that.\n“...This is for the reason that if a query is raised during the course of scrutiny by\nthe Assessing Officer, which was answered to the satisfaction of the Assessing\nOfficer, but neither the query nor the answer were reflected in the assessment\norder, this would not by itself lead to the conclusion that the order of the Assessing\nOfficer called for interference and revision. In the instant case, for example, the\nCommissioner has observed in the order passed by him that the assessee has not\nfiled certain documents on the record at the time of assessment. Assuming it to be\nso, in our opinion, this does not justify the conclusion arrived at by the\nCommissioner that the Assessing Officer had shirked his responsibility of\nexamining and investigating the case. ....”.\nIn the instant case the evidence on record vividly suggests that the Ld.AO\ndid make enquiries in the case. It is not the case of the Revenue that\nno enquiries were made but rather that the Ld.AO ought to have collected\nand considered for verification different set of evidences\n8.0\nAgain in the case of Anil Kumar Sharma 194 taxman 504,\nHon'ble Delhi High Court have ruled that once it is inferred from the\nrecords that the Ld.AO had applied his mind, action u/s 263 cannot be\ntaken. Merely because the Ld. Commissioner holds a different opinion\non the view taken by the Ld.AO would not make his order erroneous in as\nmuch as prejudicial to the interest of Revenue as mandated u/s 263 of\nthe Act. Thus Hon'ble Delhi High Court held as under:-\n“.....