THE SOUTH INDIAN BANK LIMITED,THRISSUR vs. PCIT, , THRISSUR

The solitary grievance of the assessee, in the present appeal, pertains to rectification of the revision order passed under section 263 of the Act by the learned PCIT.

The brief facts of the case pertaining to this issue, as emanating from the record, are: The assesseeis a banking company. For the year under consideration, the return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. Vide order dated 17/02/2021 passed under section 143(3) read with section 143(3A) and section 143(3B) of the Act, the Assessing Officer (“AO”) assessed the total income of the assessee at ₹ 419,62,77,950.

Subsequently, the learned PCIT issued notice dated 09/03/2013 under section 263 of the Act, inter-alia, on the basis that in the computation of income, the assessee has claimed bad debts amounting to ₹ 541,06,13,280, however, from the record it appears that the AO has not conducted any enquiry regarding the claim of bad debts. In response, the assessee made the following submissions: –

The learned PCIT, vide order passed under section 263 of the Act, inter-alia, after considering the submissions of the assessee along with documents filed, held that the setting aside of the assessment on the issue of claim of bad debts under section 36(1)(vii) of the Act is not called for. The relevant findings of the learned PCIT, vide order passed under section 263 of the Act, in respect of this issue are as follows: – “4. I have considered the matter. With regard to bad debt written off,deduction u/s 36(1) and depreciation on investments, the submission made and attached documents filed were seen. After consideration of the matter, it is seen that setting aside of the assessment on those issues is not called for.”

On 14/02/2024, the learned PCIT issued notice under section 154 of the Act on the basis that vide revision order passed under section 263 of the Act, the explanation of the claim of bad debt under section 36(1)(vii) of the Act of the assessee bank was accepted based on the submissions made by the assessee, without taking into consideration the order passed by the Jurisdictional Assessing Officer, for the assessment year 2017-18, pursuant to the directions vide order passed under section 263 of the Act, whereby the provision account has been recomputed which has resulted in closing credit balance for the financial year 2016-17 (i.e. opening credit balance for the assessment year 2018-19) which is different from the one submitted by the assessee, and therefore, in turn will affect the allowable bad debt write off claimed by the assessee for the assessment year 2018-19. Accordingly, the learned PCIT alleged that there is an error apparent from the record by way of acceptance of the provision account under section 36(1)(viia) of the Act without considering the recomputed figures made by the Jurisdictional Assessing Officer. Vide order dated 16/05/2024 passed under section 154 of the Act, the learned PCIT, rejecting the submissions of the assessee, set aside the issue of claim of bad debts to the file of the Jurisdictional Assessing Officer after taking into consideration the recomputed figures of the opening balance of the provision of bad debts account. The relevant findings of the learned PCIT, vide impugned order, are as follows: – “4. It is apparent from the submissions of the assessee that the order u/s 263 was passed by accepting the submissions of the assessee, including the provision of bad debts account submitted by the assessee during the hearing. It is apparent that the submitted provisions of bad debt account of the assessee did not contain the recasted figures of opening balance (based on the closing balance worked out by the learned JAO for AY2017-18 after verification of the facts of the case). Thus it is apparent that there is a mistake apparent from records by accepting the erroneous provision for bad debt accounts without considering the findings of JAO in the previous assessment year which results in an opening credit balance in the Provisions for bad debts accounts submitted by the assesse, where the opening balance is a debit balance.

It is also to be noticed that the submission of the assessee that the recasting made by AO is erroneous is devoid of any merits, as the findings of the JAO and recasting of provision under bad debt account made by him is examined and upheld by the learned CIT(A) vide order u/s 250 dated 07.02.2024 while deciding the appeal filed by the assessee against the findings and recasting of provision under bad debts account by the JAO for A. Y 2017-18.

Thus in order to rectify the error apparent from record, the issue of claiming of bad debts without telescoping against provision for bad.” Being aggrieved, the assessee is in appeal before us.

During the hearing, the learned Authorised Representative (“learned AR”) submitted that the consequent order dated 30/03/2023 for the assessment year 2017-18, whereby the provision of bad debts account was recomputed, was passed after the order under section 263 of the Act was passed for the assessment year 2018-19 on 29/03/2023. Therefore, the learned AR submitted that the consequent order dated 30/03/2023 did not form part of the record at the time of passing of the order under section 263 of the Act, and therefore, cannot be the basis for passing the rectification order under section 154 of the Act.

On the other hand, the learned Departmental Representative (“learned DR”) vehemently relied upon the order passed under section 154 of the Act and submitted that the same is merely an instruction to the AO.

We have considered the submissions of both sides and perused the material available on record. The only dispute that arises for consideration, in the present appeal, pertains to the validity of the rectification order dated 16/05/2024 passed under section 154 of the Act. There is no dispute regarding the fact that the rectification order under section 154 was passed on the basis that while passing the revision order under section 263 for the year under consideration, the consequential order dated 30/03/2023 pursuant to the directions vide order under section 263 of the Act for the assessment year 2017-18, whereby the provision for doubtful debts account was recomputed, was not taken into consideration. As per the assessee, since the consequential order dated 30/03/2023was passed after the revision order dated 29/03/2023 under section 263 of the Act, the same was not forming part of the record, and therefore, it cannot be held that there is any mistake apparent from the record in the order passed on 29/03/2023 under section 263 of the Act. In this regard, the assessee has placed reliance on the provisions of Explanation-1(b) of section 263 of the Act, which defines the term “record” as follows: –

On the plain reading of the provisions of Explanation-1(b) of section 263 of the Act, it is evident that the term “record” means all the records that are available at the time of examination by the learned PCIT. In this regard, it is also pertinent to note the provisions of section 263(1) of the Act, which reads as follows: –

Therefore, from the combined reading of the provisions of sub-section (1) and Explanation-1(b) of section 263 of the Act, it is amply clear that the revision order can be passed if, upon examination of the record, the learned PCIT considers that the assessment order is erroneous insofar as it is prejudicial to the interest of the Revenue. Further, such a record can only be the record which is available at the time of examination by the learned PCIT.

In the present case, it is evident that the revision order under section 263 of the Act was passed on 29/03/2023. Therefore, for any information or document to be considered as forming part of the “record”, as per the provisions of Explanation-1(b) of section 263, it is necessary that the same must be available for examination by the learned PCIT on or before 29/03/2023, i.e.the date of passing the order under section 263 of the Act.

Since the consequential order passed by the Jurisdictional Assessing Officer for the assessment year 2017-18 recomputing the closing balance of the provision of bad debts under section 36(1)(viia) of the Actwas passed on 30/03/2023, we are of the considered view that the same cannot be said to be available for examination by the learned PCIT on or before the date of passing of order under section 263 of the Act, i.e. 29/03/2023, and therefore, cannot be said to be forming part of the “record”, as per the provisions of Explanation-1(b) of section 263. Thus, we are of the considered view that once the learned PCIT could not have examined the said consequential order dated 30/03/2023 while passing the order under section 263 of the Act on 29/03/2023, the learned PCIT cannot be allowed to do the same by passing the impugned order under section 154 of the Act. As the same would result in doing whatotherwise could not have been done under section 263 of the Act. At this stage, it is necessary to note the well- established Latin maxim “quando aliquid prohibetur ex directo, prohibetur et per obliquum”, which means that what cannot be done directly cannot also be done indirectly.

It is pertinent to note that for the purpose of section 154 of the Act as well, only those documents can be considered as forming part of the record which were in existence on or before the date of passing the order under section 263 of the Act, i.e. 29/03/2023. Thus, as the consequential order came into existence only after passing the order under section 263, therefore, the consequential order cannot be considered as forming part of the record for the purpose of section 154 of the Act. Accordingly, we are of the considered view that the findings of the learned PCIT, vide impugned order, that by not considering the consequential order, there is a mistake apparent from the record,are completely erroneous and misplaced. Thus, without going into any other aspect of the matter, on this short basis alone as discussed in the foregoing paragraphs, the impugned order passed under section 154 of the Act is quashed. As a result, the grounds raised