MEHTA FINSTOCK P. LTD.,MUMBAI vs. PR. CIT -4, MUMBAI

The brief facts of the case are, the return of income was filed on 21.9.2012 for the assessment year 2012 – 13 declaring total income of Rs. Nil. The return was processed under section 143 (1) of the Income Tax Act, 1961 (in short Act) on 15.02.2013 accepting the returned income. Later the case was reopened by issue of notice under section 148 of the Act on 13.03.2017 Mehta Finstock Pvt. Ltd. 2 and the assessment was completed under section 143(3) r w s 147 of the Act on 29.12.2017, assessing the loss at ₹ 83,58,340/–.

The Principal Commissioner of Income Tax, Mumbai – 4 (PCIT) perused the assessment records and observed that the note 14 to the profit and loss account reveals that assessee had claimed bad debts to the extent of ₹ 83, 69, 512/– and further observed that assessee has not shown revenue from business operation in the current year as well as immediately preceding year. As per the observations, the Ledger accounts of the parties written off as “bad” also indicate that the transactions involved did not reflect any relevance to the business of the assessee company. According to the PCIT the bad debts claimed should have been disallowed by the assessing officer while completing the assessment proceedings. Since the assessing officer did not disallow the same, he treated the assessment order under section 143 (3) read with section 147 of the Act as erroneous insofar as prejudicial to the interest of the revenue within the meaning of section 263 of the Act. Accordingly, he issued notice under section 263 of the Act dated 26.03.2021. The hearing was fixed on 30.03.2021. According to him, the assessee did not respond to the revisionary notice issued and he decided to proceed with completion of the 263 proceedings based on the material available on record. Ld. PCIT directed the assessing officer to disallow the claim of bad debts and add back the same to the total income assessed, he directed the assessing officer to reframe the reassessment de novo and at liberty to examine any other issue which needs to be scrutinised while completing the consequential assessment. At this stage, it is pertinent to note that the 263 order was also passed dated 30.03.2021.

Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal:

The Principal Commissioner of Income-tax - 4, Mumbai (hereinafter referred to as the Pr. CIT) erred in framing an order dated 30.03.2021 under section 263 of the Act to set aside the order of the Deputy Commissioner of Income-tax, Circle - 4(3)(2), Mumbai (hereinafter referred to as the Assessing Officer) by holding that the order of the Assessing Officer dated 29.12.2017 is both, erroneous and prejudicial to the interests of Revenue, and giving directions to the Assessing Officer to reframe the assessment de novo 2. The appellants contend that the Pr CIT has not appreciated the facts of the case in its entirety; the impugned order under section 263 is bad in law inasmuch as the assessment order of the Assessing Officer is neither erroneous nor prejudicial to the interests of the Revenue. 3. The appellants contend that the Pr CIT erred in framing the impugned order in haste and in utter disregard of the principles of natural justice inasmuch as the Pr. CIT issued notice dated 26.03.2021 requiring the appellants to submit written submissions or attend the hearing on 30.03.2021 but did not consider the written submissions filed by the appellants on 30.03.2021 and hence, the impugned order is bad in law; further, the Pr CIT did not provide reasonable opportunity of being heard. 4. The appellants further, contend that the Pr CIT has framed the impugned order entirely on assumptions and presumptions observing that the appellants had no revenue from business operations in the year under reference and in the immediately preceding previous year and that the bad debts were not related to the business of the appellants. 5. The appellants further, contend that on the facts and in the circumstances of the case and in law, the Pr CIT ought not to have reached the aforesaid conclusion inasmuch as the Assessing Officer did not make the disallowance of bad debts claimed by the appellants on being satisfied on the basis of documentary evidences filed and explanation given by the appellants during the course of assessment proceedings. 6. The appellants further, contend that the direction / observation of the Pr CIT that "the Assessing Officer will be at liberty to examine any other issue which needs to be scrutinized while completing the consequential assessment' is bad in law and needs to be expunged. 5. At the time of hearing, Ld. AR submitted that PCIT has violated the principle of natural justice, he brought to our notice that the notice under section 263 was issued on 26.3.21 and completed the revisionary order under section 263 on 30.3.21. He submitted that Ld. PCIT completed the order without considering the letter filed by the authorised representative of the assessee on 30.3.21. Ld. AR also brought to our notice the observations and findings of the Ld. PCIT in 263 order. Further, Ld. AR brought to our notice page 67 of the paper book, which is the assessment order under section 143 Mehta Finstock Pvt. Ltd. 4 (3) of the Act for assessment year 2013 – 14. He submitted that learned PCIT observed that there is no business activity carried on by the assessee, against the above observation, he submitted that assessee has carried on with the business activity and also assessing officer assessed the income of the assessee under the head ‘Income from Business’ and he also brought to our notice page 71 of the paper book in which the assessing officer allowed the business loss incurred by the assessee. He further brought to our notice page 72 and 85 of the paper book to submit that assessee has filed the return of income in assessment years 2014 – 15 and 2015 – 16 in which, assesse has declared the income under the head income from business, which shows that the assessee is carrying on the business activities in the subsequent assessment years. He submitted that the observation of the principal Commissioner is factually incorrect. He also brought to our notice page 45, 46 and 47 of the paper book to submit that the bad debts written off by the assessee is the balance outstanding out of business transaction. He brought to our notice individual Ledger accounts of the parties and submitted that these are business transactions carried on by the assessee in the earlier assessment years. He submitted that the observation of the principal Commissioner of income tax is not proper and formed his opinion without any basis and without giving any opportunity to the assessee as well as without considering the submissions made by the assesse vide letter dated 30.03.2021. He prayed that the revisionary order passed by the PCIT is unjust and improper deserves to be quashed.

On the other hand, Ld. DR brought to our notice paragraph 4 and 5 of the 263 order and submitted that it needs to be read together. He brought to our notice page 18 of the paper book to submit that during this year there is no revenue from operations earned by the assesse, further he brought to our Mehta Finstock Pvt. Ltd. 5 notice page 24 of the paper book to submit that during the year the assessee has earned income only from the head Capital Gains consisting of long-term and short-term capital gains. He supported the findings of the PCIT that the assessee cannot claim bad debts when there is no business operations. He also submitted that assessee has not submitted any Ledger account before the assessing officer and assessing officer has not verified the claim of the assessee and never had a chance to apply his mind. Therefore, he vehemently argued in support of the findings of the PCIT. 6.1 In rejoinder, Ld. AR submitted that in the reopened assessment assessing officer cannot make fresh enquiry.

Considered the rival submissions and material placed on record. We observe from the record submitted before us that the impugned assessment order which was passed by assessing officer by invoking the provisions of section 147 of the Act based on the information received from investigation wing of the Department in order to verify the investments made by the assessee in shares, according to the Department it is classified under penny stock. We observed from the record that the Ld PCIT invoked the provisions of section 263 of the Act in order to revise the assessment order, according to him which is erroneous as well as prejudicial to the interest of the revenue. In order to revise the assessment order, he issued notice under section 263 of the Act on 26.03.2021 and directed the assessee to appear before him on 30.03.2021. He gave 4 days to appear before him with the explanation, why the assessment order should not be treated as erroneous. Before us, Ld AR brought to our notice letter filed by the assessee on 30.03.2021 in the office of the Ld PCIT. However, we notice that Ld PCIT without giving any further opportunity, completed the proceedings under section 263 on 30.03.2021 by directing the assessing officer to redo the assessment de novo. We do not Mehta Finstock Pvt. Ltd. 6 know what is the urgency in this case to complete the proceedings under section 263 within 4 days and also without giving any further opportunity to the assessee. It clearly shows that he has not followed the general principles of natural justice. This itself a proper ground to quash the order Passed under Section 263 of the Act. However, we notice from the record submitted before us that the observation of the PCIT with regard to business operations of the assessee as well as the quality of the outstanding dues claimed by the assessee is factually incorrect. No doubt there is no revenue from operation during this year as well as previous assessment year. However, there is proper record to show that assessee has carried on business activities in the earlier assessment years and carried on business activities in subsequent assessment years. We observed from the record that Ld. PCIT completed the proceedings under section 263 in hurry and without giving proper opportunity to the assessee otherwise assessee would have submitted all the relevant information before him. Therefore, in our considered view, the order passed under section 263 deserves to be set-aside which is passed without following due procedure and principles of natural justice. Accordingly, grounds raised