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Facts
The assessee, Muthoot Insurance Brokers (P) Ltd., claimed a deduction of Rs. 5 crores for writing off an investment in Yes Bank Tier 1 Bonds. The Principal Commissioner of Income Tax (Pr. CIT) initiated revisionary proceedings under Section 263, contending that the investment write-off was capital in nature and the Assessing Officer (AO) had failed to make proper inquiries, rendering the assessment order erroneous and prejudicial to revenue. The assessee argued that the investment was a business asset, its write-off a revenue loss, and the AO had duly examined the claim.
Held
The Tribunal found that the AO had indeed examined the claim for write-off, and the investments were business assets, making the write-off a revenue loss. Since the Pr. CIT failed to establish how the loss was not a revenue deduction or that further verification was warranted, the assessment order was deemed neither erroneous nor prejudicial to the interests of the Revenue. Consequently, the Pr. CIT ought not to have exercised jurisdiction under Section 263.
Key Issues
Whether the Principal Commissioner of Income Tax was justified in exercising revisionary powers under Section 263 to set aside an assessment order where the Assessing Officer had allowed a deduction for investment write-off.
Sections Cited
263, 143(3)
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Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM & SHRI SONJOY SARMA, JM
O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the Principal Commissioner of Income Tax (Pr. CIT) dated 28.02.2025 for Assessment Year (AY) 2020-21 passed u/s. 263 of Income Tax Act, 1961 (hereinafter "the Act").
Brief facts of the case are that the appellant is a company incorporated under the provisions of Companies Act, 1956. It is engaged in the business of customized insurance solutions to customers. The return of income for AY 2020-21 was filed on Muthoot Insurance Brokers (P) Ltd. 01.12.2020 declaring total income of Rs. 17,62,43,670/-. Against the said return of income, the assessment was completed by the DCIT, Corporate Circle-1(1), Kochi (hereinafter called "the AO") vide order dated 21.09.2022 passed u/s. 143(3) r.w.s. 144B of the Act at a total income of Rs. 17,79,50,143/- after making disallowance of cess on income tax of Rs. 17,02,043/-. Subsequently, the ld. Pr. CIT, on review of the assessment record found that the appellant company claimed deduction of Rs. 5 crores towards ‘writing off’ of investment under other expenses, which is not an allowable deduction as it is capital in nature. The AO has passed the assessment order without making enquiries or verification allowed the deduction. Therefore, the ld. Pr.CIT formed an opinion that the assessment order is erroneous and prejudicial to the interests of Revenue. Accordingly, a show cause notice dated 08.02.2024 was issued u/s. 263 of the Act calling upon the appellant to explain as to why the assessment order should not be set aside.
In response to the show cause notice, the appellant filed detailed explanation, which is extracted by the ld. Pr. CIT vide para 4 of the impugned order. On a perusal of the above explanation it would reveal that the subject investments of Rs. 5 crores was made by the appellant in Yes Bank Tier 1 Bonds during FY 2016-17. The interest earned on such investment was offered to tax in the subsequent year on accrual basis. However, subsequently on 5th March the Reserve Bank of India (RBI), in exercise of the powers conferred u/s. 36ACA of the Banking Regulation Act, 1949 and in Muthoot Insurance Brokers (P) Ltd. consultation with the Central Government, superseded the Board of Directors of Yes Bank Ltd. owing to serious deterioration in the financial position of the bank. Subsequently, on 14th March, 2020 the RBI had written down permanently Tier 1 Bonds on the ground that the Bank is undergoing reconstruction and is deemed non- viable. The circular issued by the RBI is also extracted vide page e of the impugned order. Following this action by the RBI, the value of investment made by the appellant company in Tire 1 Bonds of Yes Bank had become zero and the same was written off irrecoverable during FY 2019-20 and claimed as deduction in the return of income filed by the appellant. On considering the above submission filed by the appellant the ld. Pr. CIT proceeded to hold that the Board resolution was passed on 16.05.2020 to write off the investment during FY 2019-20. Further, taking into consideration the fact that the Hon'ble Bombay High Court in Writ Petition No. 850/2020 had restored the Bond. Thus, the matter has not attained finality and concluded that the value of investment had not become irrecoverable and cannot be written off. Accordingly, set aside the assessment order with a direction to redo the assessment after affording reasonable opportunity of hearing to the appellant.
Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal.
The learned A.R. submits that the order of the Hon'ble High Court has been stayed by the Hon'ble Supreme Court after admitting Muthoot Insurance Brokers (P) Ltd. SLP. Therefore, the conclusion of the ld. Pr. CIT that the investment had not become irrecoverable is contrary to the fact. He further submits that the Board Resolution to write off the investment relates back to the accounting year, previous relevant to assessment year under consideration. He further submits that the fact of writing off of investment was clearly disclosed in the audited financial statements and the notes to the account No. 19 clearly stated these facts. He further submits that this issue was examined by the AO during course of assessment proceedings and is tax neutral transaction, therefore, there is no prejudice caused to the Revenue. In the circumstances the ld. Pr. CIT ought not had exercised jurisdiction u/s. 263 of the Act.
On the other hand, the ld. CIT-DR submits that these investments, which are written off constitute capital asset. Any write off of such investment cannot be allowed as revenue deduction. Therefore, no interference in the order of the ld. Pr. CIT is called for.
We have heard the rival contentions and perused the material available on record. The only issue that arises for our consideration whether the ld. Pr. CIT was justified in exercising the power of revision to set aside the assessment order. The Parliament had conferred the power of revision on the Commissioner of Income Tax u/s 263 of the Act in case the assessment order passed is erroneous and prejudicial to the interests of revenue. In order to Muthoot Insurance Brokers (P) Ltd. invoke the power of revision, the above two conditions are required to be satisfied cumulatively. References in this regard can be made to the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC) and in the case of CIT vs. Max India Ltd., 295 ITR 282 (SC). The error in the assessment order should be one that it is not debatable or plausible view. In a case where the Assessing Officer examined the claim took one of the plausible views, the assessment order cannot be termed as an “erroneous”.
Now, we shall examine the facts of the present case in order to find out whether the issue of write off of the investments was examined by the AO or not. It was clearly discussed in the notes under Schedule 6 of investment as well as Schedule 19 of other expenses. From para 3.2 of the assessment order it would be clear that the AO has called for all the details of investments made as well as the capital gains earned. It is apparent that the AO was very much aware of the claim for deduction on account write off of investments. However, the AO has not chosen to make any addition. It is undisputed fact that the investments are made out of the business receipts of the company. Therefore, such investments are current assets. Furthermore, from the Balance Sheet it is clear that the fall or appreciation in the value of investment are reflected in the Profit Muthoot Insurance Brokers (P) Ltd. & Loss A/c. This fact would substantially demonstrate that the investments are nothing but business assets of the appellant company. Therefore, any fall or write off of these investments are clearly constitutes a revenue loss. There is no dispute with regard t the fact of write off of the investment. The fact that the Board had approved the write off of investment subsequently has no relevance, inasmuch as, the loss had occurred in the month of March, 2020 following the directions issued by the RBI on 06.03.2020. The ld Pr. CIT had not made out a case as to how the loss incurred on write off of investment cannot be allowed as revenue deduction nor pointed out the circumstances warranting further verification of the claim. In the circumstances, we are of the considered opinion that the assessment order cannot be said to be erroneous and prejudicial to the interest of Revenue. Therefore, the ld. Pr.CIT ought not have exercised the power of jurisdiction.
In the result, the appeal filed by the assessee stands allowed. Order pronounced in the open court on 13th June, 2025.