SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA,MUMBAI vs. CIT -3, MUMBAI

PER PAWAN SINGH, JUDICIAL MEMBER 1. This group of four appeals by assessee out of which two appeals challenging the order passed under section 263 by ld Commissioner of Income Tax (CIT) for assessment year (AY) 2007-08 and 2008-09 and remaining two appeals against the order giving effect by assessing officer. In all appeals, the assessee has raised certain common grounds of

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appeal, therefore, with the consent of parties all appeals were clubbed,

heard and are decided by a consolidated order. For appreciation of facts

we are refereeing the facts in ITA No. 3488/M/2015. 2. The assessment was completed under section 143(3) on 30.12.2009. The

Assessing Officer while passing the assessment order made addition on

account of bad-debts of Rs. 15.87 crore besides other additions and

disallowances. The ld. PCIT revised the assessment order vide order

dated 27.03.2012, The ld. PCIT while revising the assessment order noted

that the assessee claimed deduction of Rs. 181,01,81,537/- on account of

bad-debts written off during the previous year. The Assessing Officer

while passing the assessment order allowed the claim except for an

amount of Rs. 15,87,92,163/- which was disallowed on the ground that

bad-debts pertains to the period prior to 01.04.2001 when the income of

assessee was not chargeable to tax. The ld. PCIT further took his view

that the assessee has not considered bad-debts allowed as deduction while

arriving at the yearend balance. The debit balance in the provisions for

bad-debts and doubtful debts account can only arise when bad-debts is

more than the credit balance, the entire bad-debts was allowed as

deduction to the assessee. The question of having a debit balance in the

provisions of bad-debts and doubtful debts account does not arise at all.

The ld. PCIT treated the order of Assessing Officer dated 30.12.2009 to

be erroneous and prejudicial to the interest of revenue holding that 2

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Assessing Officer not applied his mind on the issue. The ld. PCIT on the

basis of his above observation issued show-cause notice under section

263 on 07.02.2012 for proposing to revise the assessment on the said

issue.

reply, the ld. AR of the assessee stated that the assessee has written of

bad-debts of Rs. 181,01,81,537/- as irrecoverable in the accounts and

claimed deduction under section 36(1)(vii) in the return of income. The

Assessing Officer disallowed bad-debts to the extent of Rs.

15,87,92,163/- on taking view that it pertains to loan which were

outstanding prior to the previous year 2001-02 i.e. during which period,

the assessee was outside the tax purview. The claim of bad-debt written

of Rs. 165,13,89,347/- was allowed by Assessing Officer after examining

all the condition prescribed under section 369(1)(vii) r.w.s. 36(2) and

proviso to section 3691)(vii). The assessee further stated that they fulfil

all the prescribed condition under section 36(1)(vii) r.w.s. 36(2) for

claiming such deduction of bad-debts written off which were rightly

allowed. The assessee further stated that assessee is public financial

institution and the advances written off in the accounts represent out of

advances. Thus, Clause-c of section 36(1)(vii)(a) is applicable to the

assessee. Therefore, the claim of bad-debts in the assessee’s case is not

affected, controlled or limited in any way by the proviso of clause (vii). 3

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The assessee also relied upon the decision of Hon’ble Supreme Court in

Catholic Syrian bank Ltd. Vs. CIT in (Civil Appeal No. 1143 of 2011). It

was further stated that the provision of bad-debts and doubtful debts

allowed under clause (vii)(a)(c) to section 36(1) has been reduced and

considered to arrive at net credit or debit balance in the account. There is

no credit balance in the provision for bad-debts and doubtful debts,

therefore, the entire bad-debts written off is allowable as deduction under

section 36(1)(vii). In support, the assessee relied upon the decision of

Tribunal in State Bank of Travancore vs. Addl. CIT (ITA Nos. 465 &

466/COCH/1998).

under section 143(3) after calling various details including details for

bad-debts and doubtful debts written off and explained as to why it

should not be allowed vide notice dated 28.04.2009 under section 142(1).

The assessee vide its reply dated 17.07.2009 furnished the justification

for the claim of bad and doubtful debts written off along with the list of

bad-debts written off, vouchers evidencing actual written off of such

debts as well as its explanation to support the claim for deduction in

respect of provision of bad and doubtful debts under section 36(1)(vii)(v)

and bad debts written off under section 36(1)(vii). The Assessing Officer

after examining the facts, applicability of the provision and proper

application of mind allowed the bad-debts written off to the extent of Rs. 4

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165,13,89,374/-. The Assessing Officer accepted the stand of assessee

after examination and submission. Therefore, it cannot be said that the

Assessing Officer has summarily accepted the claim of assessee. There is

no error in the assessment order and no prejudice is caused to the revenue

and hence, the provisions of section 263 are not applicable. As the

Assessing Officer has taken judicial view, just because another views is

possible it does not give jurisdiction for revision under section 263. The

assessee also relied upon the decision of Malabar Industrial Company

[243 ITR 83(SC)] (supra), CIT vs. Gabriel India Ltd. [203 ITR 109 (SC)],

Ashok Manilal Thakkar vs. ACIT [279 ITR (AT) 143 (Ahd.)], CIT vs.

Honda Siel Power Products Ltd. [194 Taxman 175 (Delhi) and CIT vs.

Vikas Polymers [194 Taxman 57 (Del.)].

the extent of Rs. 15.87 crore, the assessee has filed appeal before the ld.

CIT(A). The ld. CIT(A) considered the claim of bad debts and vide its

order dated 10.03.2011 considered the claim of bad debts. Therefore, the

order of Assessing Officer so far as deduction claimed of bad debts is

considered, get merged with the order of ld. CIT(A). Therefore, the

present case in term of Explanation (c) to section 263(1) revisional

jurisdiction cannot be invoked by exercising power under section 263 of

the Act. To support his contention, the assessee relied on the decision of

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Hon’ble Bombay High Court in CIT vs. Paul Brothers [216 ITR

548(Bom.)].

verification of assessment proceeding, it was noticed by him, the only

issue to consider by Assessing Officer was relating to allowability of bad

debts pertaining to prior to 01.04.2001. The Assessing Officer after

examining the issue and submission of the assessee concluded that bad

debts of Rs. 15,87,92,163/- are not allowable, which pertains to prior to

01.04.2001, when the income of assessee was not chargeable to tax.

Accordingly, bad debts amounting to Rs. 15,87,92,163/- was disallowed

out of total claim of Rs. 188.01 crore. The Assessing Officer has not

enquired into, verified or made any enquiry with regard to allowability of

bad debts under clause (c) of section 36(1)(vii)(a) as claimed by assessee

before the ld. PCIT. The assessment order is silent on that issue and that

the Assessing Officer merely considered the issue regarding allowability

of bad debts prior to 01.04.2001. The ld. PCIT took his view that

Assessing Officer has not applied his mind and has incorrectly restricted

the disallowance towards bad-debts to an amount of Rs. 15.87 crore and

not making further disallowance of Rs. 17.91 crore. Since the same was

already allowed as deduction in Assessment Year 2006-07, hence, the

assessment order is erroneous and prejudicial to the interest of revenue.

The ld. PCIT also held that in the assessment order for Assessment Year 6

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2006-07, the deduction of Rs. 17.91 crore was allowed under section

36(1)(vii)(a), which amount is not reduced by Assessing Officer while

allowing deduction for bad debts in the Assessment Year under

consideration. The ld. PCIT further concluded that Assessing Officer has

not raised any special query to examine the claim, thus, assessment is

erroneous and prejudicial to the interest of revenue within the meaning of

section 263 and directed the Assessing Officer to make fresh assessment

after detailed verification and submission of assessee. Aggrieved by the

order of ld. PCIT, the assessee has filed the present appeal before us. The

assessee has raised following concise grounds of appeals:

(1) On the facts and in the circumstances of the case and in law, the ld Commissioner of Income tax erred in passing the order under section 263 of Income tax Act. The appellant prays that the order of learned CIT passed under section 263 of the Income Tax Act, may be cancelled being void ab initio and bad in law. (2) On the facts and in the circumstances of the case and in law, the ld Commissioner of Income tax erred in holding that the learned AO without application of mind has incorrectly allowed the claim for bad debts written off of Rs. 165,13,89,374/- for AY 2007-08 without setting off of Rs. 17,91,12,770/- being provision of bad debts and doubtful debts allowed u/s 36(1)(viia) in the preceding assessment year and thereby erred in setting aside the assessment and directing the AO to make fresh assessment and reasons assigned by him for doing so are wrong and contrary to the facts of the case, the provisions of Income tax Act, and the Rule made thereunder. 7. We have heard the rival submission of the parties and have gone through

the orders of authorities below that the assistance of ld. Representative of

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the parties. The ld. AR of the assessee submits that the Assessing Officer

while passing the assessment order made detailed investigation and raised

sufficient enquiry. The Assessing Officer vide its notice under section

142(1) dated 24.08.2009 raised various enquiries including claim of bad

and doubtful debts written off along with the reasons to show as to why it

should be allowed along with the necessary evidence and so that debtors

have actually been written off in the accounts. The details of bad-debts

recovered and the order in which the claims have been offered for

taxation and no claim as deduction under section 36(1)(vii). The copy of

notice dated 28.04.2009 is placed on record. The Assessing Officer

further vide notice dated 25.06.2009 again required necessary details

regarding deduction under section 36(1)(vii)(a) and 36(1)(viii) the

assessee vide its reply dated 02.06.2009 in response to the notice under

section 142(1) dated 28.04.2009 furnished the details to the Assessing

Officer along with note on the claim of bad debts written off and

provision for bad and doubtful debts along with the list of bad-debts

written off and vouchers dated 31.03.2007 evidencing the actual write off

such debts in the accounts of assessee. The Assessing Officer after

considering the details furnished by assessee passed the assessment order.

The Assessing Officer while passing the assessment order made

disallowance of Rs. 15.87 crore on account of bad debts under section

36(1)(viii). Against the disallowance, the assessee filed appeal before the 8

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ld. CIT(A) on the disallowance made by assessee. The Assessing Officer

passed the assessment order after full satisfaction of the case. As the

assessee has filed appeal before the ld. CIT(A) on similar issue, therefore,

the ld. PCIT was precluded from revising the assessment order. The ld.

AR submits that the Assessing Officer while passing the assessment order

has taken one of the possible views. Therefore, the assessment order was

not erroneous. The twin condition as provided under section 263 of the

Act when the order is erroneous in so far as prejudicial to the interest of

revenue are not satisfied. In support of his submission, the ld. AR of the

assessee relied upon the decision of Malabar Industrial Company Ltd.

(supra), decision of Hon’ble Mumbai High Court in CIT vs. Gabriel India

Ltd. (supra).

decision of jurisdictional High Court in CIT vs. Paul Brothers (supra),

CIT Vs K Sera Sera Productions Ltd ( 374 ITR 530 Bom) and Gujarat

High Court in CIT Vs Nirma Chemicals works P. Ltd (309ITR 67 Guj).

revenue supported the order of ld. PCIT. The ld. DR submits that the

Assessing Officer has not discussed the issue in details while passing the

assessment order and that the Assessing Officer after receiving the reply

of assessee allowed the relief to the assessee. Therefore, the order passed

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by Assessing Officer is not only erroneous but prejudicial to the interest

of revenue.

through the orders of authorities below. The ld AR for the assessee

vehemently submitted that against the partial disallowances of bed debts

the assessee filed appeal before First appellate authority and that in view

of clause (c) of Explaination-1 of section 263 the ld PCIT was precluded

to revised the assessment order on the subject matter of appeal. We have

seen that the assessee while filing the reply to the show cause notice

under section 263 has specifically brought this fact in the notice of ld

PCIT, which has been duly recorded by ld PCIT in his order. However,

the ld PCIT failed to address the objection raised by the assessee that

their appeal on the similar issue is pending before ld CIT(A). This fact

was not disputed by ld. CIT-DR for the revenue. The ld. AR for the

assessee has filed on record the copy of the ld. CIT(A) dt. 10.03.2011

(page No. 56 to 61 of PB).

part of Section 263 of the Act and Explanation (c) there under which are

material for consideration on the issue in this appeal and read as under

"263. Revision of orders prejudicial to revenue.—(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be

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made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation.[1]-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— ****** (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject-matter of any appeal, the powers of the Commissioner under this sub-section shall extend to such matters as had not been considered and decided in such appeal."

Commissioner of Income-tax is entitled to revise an assessment order

insofar as the order is erroneous and prejudicial to the interest of the

revenue, however, Explanation (c) places an embargo on the

Commissioner of Income-tax in case of subject-matter of any appeal

which has been considered and decided in such appeal. In other words,

before the Commissioner of Income-tax exercises the jurisdiction under

section 263 of the Act, the Commissioner of Income-tax is required to

ascertain whether the order referred to in sub-section (1) of section 263 of

the Act had been the subject-matter of any appeal, and if yes, the

revisional powers shall be available only if such subject-matter had not

been considered and decided in such appeal

( 374 ITR 530 Bom) held where issues of income of assessee from

production of film and deduction of cost of production there against had

been considered and decided in appeal by first appellate authority, said

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issues could not be made subject matter of revision under section 263.

The relevant part of the order is extracted below:

“ 10. We find that despite this position emerging from the record and being undisputed, the order under section 263 of the Income Tax Act makes detailed reference to the show cause notice. The show cause notice as also this order passed under section 263 make detailed reference to the claims of the Assessee and which were part of the Appeal before the Commissioner and dealt with by him in his order dated 12th October, 2011. The order of the Commissioner under section 263 dated 29th March, 2012, from paras 8 onwards, makes extensive reference to these aspects. In the circumstances, what further emerges is that not only did the revisional authority purport to revise the Assessing Officer's order, but he purported to deal with the same direction which was issued in the order of the first appellate authority and which was given effect to by the Assessing Officer. Meaning thereby, the contents of the remand report, giving effect to the order of the first appellate authority, as submitted by the Assessing Officer, came to be reconsidered and revisited. In addition thereto, one more aspect of sale of theatrical rights of "Darna Zaroori Hai" to M/s. RGV Enterprises was considered. Naturally, therefore, the doctrine of merger was invoked by the Assessee and it was applied by the Tribunal to uphold the objection raised by the Assessee.

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effect to by the Assessing Officer. All these would denote that something which was very much part and parcel of the appellate authority's order and dealt with extensively therein is now sought to be revised and revisited. Firstly, if the income of the Assessee from the film is Rs.11,25,00,000/-, then, whether the explanation of the Assessee that it is not so deserves to be considered or not by the Assessing Officer is grievance No. 1/ground No. 1 before the first appellate authority. Secondly, if that is taken to be the income of the Assessee and without admitting it to be so the cost of production of the film needs to be deducted by applying Rule 9A of the Income Tax Rules. Thus, that is ground No. 2 in the memo of Appeal before the first appellate authority and in his order dated 12th October, 2011. Both these matters are very much part of the revisional authority's order dated 29th March, 2012. The attempt to reopen them cannot be saved as clause (c) of Explanation below sub-section (1) of section 263 of the Income Tax Act, 1961 had no application.

Ltd (309ITR 67 Guj) held that the Commissioner is entitled to revise an

assessment order insofar as the order is erroneous and prejudicial to the

interest of the revenue, but the Explanation (c) to section 263 places an

embargo on the Commissioner in case of subject-matter of any appeal

which had been considered and decided in such appeal. In other words,

before the Commissioner exercises the jurisdiction under section 263, he

is required to ascertain whether the order referred to in sub-section (1) of

section 263 had been the subject-matter of any appeal, and if yes, the

revisional powers should be available only if such subject-matter had not

been considered and decided in such appeal.

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363 Mum) held that from the chronology of events it appears that

computation of deduction under section 80HHC was a subject-matter of

appeal before the Commissioner (Appeals). The Commissioner (Appeals)

had given some findings on the computation of deduction under section

80HHC. Therefore, the assessment order had merged with the order of

the Commissioner (Appeals). Thus, under Explanation (c) to section

263(1), such action of the Commissioner was not permissible. The word

‘matter’ is certainly a word of wide import and represents a subject or

situation that one needs to think about, discuss or deal with. The Hon’ble

High Court also after considering the similar objection of the department

held that it was difficult to accept the submission of the department that

the issue of depreciation being optional or the issue whether the assessee

was at all entitled to deduction under section 80HHC or not, was not a

subject-matter of appeal filed by the assessee before the Commissioner

(Appeals). A matter might have many aspects and the above-mentioned

two factors might be the aspects of the matter but not the entire ‘matter’

itself. The ‘matter’, in the instant case, was deduction under section

80HHC. Therefore, the assessment order, so far as it related to deduction

under section 80HHC, had merged with the order of the Commissioner

(Appeals) and, therefore, exercise of power by the Commissioner under

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section 263 was even not available under Explanation (c) to section

263(1).

PCIT under section 263 was not a valid order in the eyes of law, which

we quashed. Considering the fact that we have quashed the order of ld.

PCIT on one of the legal submissions of the ld. AR for the assessee

therefore, the discussions on other legal submissions and merit of the case

has become academic. 17. In the result the appeal of the assessee is allowed.

ITA No. 3290/Mum/2014 18. This appeal relates to the order passed by Assessing Officer in order

giving effect to the order of ld. CIT(A) dated 27.03.2012. Since we have

allowed the appeal of assessee and quashed the revision order passed

under section 263 of the Act. Therefore, the order passed by Assessing

Officer in order giving effect has become invalid. Therefore, in view of

our finding in ITA No. 3488/Mum/2012, this appeal of the assessee is

also allowed. 19. In the result, appeal of the assessee is allowed.

ITA No. 4111/Mum/2013 20. The assessee has raised identical grounds of appeal as raised in ITA No.

3488/Mum/2012, which we have allowed, therefore, following the

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principle of consistency, the appeal for this year is also allowed with

similar direction.

ITA No. 3380/Mum/2016 21. This appeal relates to order giving effect of order passed by ld. PCIT

under section 263 dated 22.01.2016. Considering the fact that we have

already quashed/set-aside the order dated 22.01.2016. Therefore,

subsequent action taken by lower authorities in order giving effect has

become invalid.

Order pronounced in the open court on 17/07/2019.

Sd/- Sd/- G.MANJUNATHA, PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 17.07.2019 SK Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. DR “E” Bench, ITAT, Mumbai 6. Guard File

BY ORDER,

Dy./Asst. Registrar ITAT, Mumbai