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PER PAWAN SINGH, JUDICIAL MEMBER
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 , 3290/M/14, 3488/M/12, 3380/M/16 & 4111/M/13 M/s. Small Industries Development Bank of India 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.
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 , 3290/M/14, 3488/M/12, 3380/M/16 & 4111/M/13 M/s. Small Industries Development Bank of India 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.
The assessee contested the notice by filing reply dated 21.02.2012. In the 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 , 3290/M/14, 3488/M/12, 3380/M/16 & 4111/M/13 M/s. Small Industries Development Bank of India 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).
The assessee also stated in its reply, that the assessment order was passed 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 , 3290/M/14, 3488/M/12, 3380/M/16 & 4111/M/13 M/s. Small Industries Development Bank of India 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 assessee further stated that against the disallowance of bad debts to 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 , 3290/M/14, 3488/M/12, 3380/M/16 & 4111/M/13 M/s. Small Industries Development Bank of India Hon’ble Bombay High Court in CIT vs. Paul Brothers [216 ITR 548(Bom.)].
The reply of assessee was not accepted by ld. PCIT holding that on 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 , 3290/M/14, 3488/M/12, 3380/M/16 & 4111/M/13 M/s. Small Industries Development Bank of India 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.
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 , 3290/M/14, 3488/M/12, 3380/M/16 & 4111/M/13 M/s. Small Industries Development Bank of India 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 , 3290/M/14, 3488/M/12, 3380/M/16 & 4111/M/13 M/s. Small Industries Development Bank of India 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).
On the principle of merger, the ld. AR of the assessee relied upon the 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).
On the other hand, the ld. Departmental Representative (DR) for the 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 , 3290/M/14, 3488/M/12, 3380/M/16 & 4111/M/13 M/s. Small Industries Development Bank of India by Assessing Officer is not only erroneous but prejudicial to the interest of revenue.
We have considered the rival submission of the parties and have gone 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).
For appreciation of the contention of ld AR for the assessee, the relevant 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 , 3290/M/14, 3488/M/12, 3380/M/16 & 4111/M/13 M/s. Small Industries Development Bank of India
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."
A careful reading of the provisions of section 263 makes it clear that the 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
The Hon’ble Bombay High Court in CIT Vs K Sera Sera Productions Ltd ( 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 , 3290/M/14, 3488/M/12, 3380/M/16 & 4111/M/13 M/s. Small Industries Development Bank of India 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.
11. In the above factual circumstances, we do not find that the Tribunal erred in holding that clause (c) of the Explanation to sub section (1) of section 263 of the Income Tax Act, 1961 cannot be applied. In the present case, that has no application because the matters which have been considered and decided in the Appeal by the first appellate authority are being made subject matter of the revisional authority's order. In other words, the power to revise, as conferred by section 263, is sought to be exercised so as to deal with the same matters which have been considered and decided in the Appeal. We do not find any merit in Mr. Mohanty's submission because detailed references have been made in the foregoing paragraphs to the case of the Assessee before the Assessing Officer, his initial order, the order of the first appellate authority, the direction issued by the first appellate authority and which was given 12 , 3290/M/14, 3488/M/12, 3380/M/16 & 4111/M/13 M/s. Small Industries Development Bank of India
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.
The Hon’ble Gujarat High Court in CIT Vs Nirma Chemicals works P.
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. , 3290/M/14, 3488/M/12, 3380/M/16 & 4111/M/13 M/s. Small Industries Development Bank of India
Further Hon’ble Bombay High Court in Sonal garments Vs JCIT (95 ITD 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 , 3290/M/14, 3488/M/12, 3380/M/16 & 4111/M/13 M/s. Small Industries Development Bank of India section 263 was even not available under Explanation (c) to section 263(1).
In view of the above legal and factual discussions, the order passed by ld. 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.
In the result the appeal of the assessee is allowed.
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 , this appeal of the assessee is also allowed.
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 which we have allowed, therefore, following the , 3290/M/14, 3488/M/12, 3380/M/16 & 4111/M/13 M/s. Small Industries Development Bank of India principle of consistency, the appeal for this year is also allowed with similar direction.
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.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 17/07/2019.