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Facts
The assessee filed its return of income for AY 2017-18. The Assessing Officer (AO) completed the assessment. Subsequently, the Principal Commissioner of Income Tax (PCIT) initiated revision proceedings under Section 263 of the Income Tax Act, considering the AO's order erroneous and prejudicial to revenue. The PCIT's order was based on alleged incorrect disallowance of expenses related to advance written off and provision for standard assets.
Held
The Tribunal held that the PCIT's order under Section 263 was not in accordance with the law as the twin conditions of the order being erroneous and prejudicial to the interest of revenue were not satisfied. The Tribunal found that the AO had conducted proper inquiries and applied his mind to the facts of the case.
Key Issues
Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking Section 263 of the Income Tax Act, 1961 to revise the assessment order passed by the Assessing Officer (AO) when the AO's order was not erroneous or prejudicial to the interest of revenue.
Sections Cited
147, 144B, 263, 143(3), 148, 142(1), 36(1)(viia), 37, 43B
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”A” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA No. 253/JP/2024
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA No. 253/JP/2024 fu/kZkj.k o"kZ@Assessment Years : 2017-18 cuke Baroda Rajasthan Kshetriya The Principal Commissioner Vs. Gramin Bank, Vaishali Nagar, of Income Tax, Udaipur Ajmer LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAAJB 1164 C vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Shailesh Mantri, CA jktLo dh vksj ls@ Revenue by : Sh. Arvind Kumar, CIT-DR lquokbZ dh rkjh[k@ Date of Hearing : 26/06/2024 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 22/07/2024 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM
Because the assessee is aggrieved from the order of the Principal Commissioner of Income Tax, Udaipur dated 09/02/2024 [here in after ld. PCIT] for assessment year 2017-18 the present appeal is filed by the assessee. The said order of the PCIT in turn arise from the order dated 25.03.2022 passed under section 147 r.w.s. 144B of the Income Tax Act, by the Assessing Officer.
“1. That the order under section 263 passed by ld. Pr. CIT Udaipur is bad in law and facts of the case as :- A) The order under section 143(3) dated 31/12/2019 and under section 147 Dt. 25/03/2022 are not in any way erroneous and prejudicial to interest of revenue. (B) As the case has been subjected to scrutiny twice, the revision shall tantamount to third time enquiries against a genuine tax payer for no reason.”
3. Succinctly, the fact as culled out from the records is that the assessee filed its return of income on 27.10.2017 declaring income of Rs. 168,98,64,432/- for AY 2017-18. Assessment Order u/s 143(3) of the I. T.
Act, 1961 was completed on 31.12.2019 at total income of Rs. 1,71,16,33,482/-. Revenue holds that as per information available on record, the assessee has wrongly claimed expenses of Rs. 1,37,05,000/- for the Advance written off and also claimed expenses of Rs. 3,39,25,000/- on account of provision for standard assets during the F.Y. 2016-17 relevant to AY 2017-18. Based on that contention a notice u/s 148 of the Income Tax Act 1961 dated 23.03.2021 was issued after recorded the reason to believe that in the case of the assessee the income is escaped assessment, thereby requiring the assessee to furnish his return of income in the prescribed form. In compliance to notice u/s 148 of the Act, 1961 dated 23.03.2021, assessee filed its return of income on 22.04.2021 declaring income of Rs. 168,98,64,430/- vide acknowledgement no. Act, 1961 dated 30.06.2021 was issued to assessee.
3.1 While in this re-assessment proceeding the ld. AO noted that the assessee had wrongly claimed expenses of Rs. 1,37,05,000/- for the advance written off and also claimed expenses of Rs. 3,39,25,000/- on account of provision for standard assets. Notices u/s 142(1) of the Income Tax Act 1961 dated 17/12/2021 & 29/12/2021 were issued to assessee requiring documentary evidence in support of expenditure of Rs. 1,37,05,000/- on account of write off advance claimed and expenses of Rs. 3,39,25,000/- on account for provision of standard assets. In compliance of notice u/ 142(1), assessee submitted written reply, Audit report, Balance sheet, Profit & Loss account etc.
3.2 Based on the records available the ld. AO noted the assessee has not debited the provision for bad and doubtful debts by an amount of Rs. 1,37,05,000/-. Thus, the claimed expenses of Rs. 1,37,05,000/- for the Advance written off was disallowed and added back to the income of assessee under the head "profit and gain of business and profession. The ld. AO further noted that the assessee has wrongly claimed expenses of same was disallowed. Based on those observations re-assessment was completed by an order dated 25.03.2022.
On culmination of that re-assessment proceeding the ld. PCIT called for the assessment records for examination and while doing so he found that the assessing officer/FAU, applied in correct appreciation of facts and law so far as to the claim of the assessee for provision of Standards assests of Rs. 26,51,59,000/- made during the year in the Balance Sheet figure reported in ITR vis a vis the amount debited in the Profit & Loss account was found to be erroneous and prejudicial to the interest of revenue, therefore, ld. PCIT proposed to modify the order as per provision of section 263 of the Act. Before doing so a notice dated 27.12.2023 was issued to the assessee giving an opportunity of being heard as well as requiring the assessee to furnish its submission on the issues. The assessee filed the reply dealing with the issue. The ld. PCIT considered the submission but not found convincing hold as under :
“7. I have carefully considered the submission of the assesseee as well as the facts of the case and my observations are as under: - (a) During the course of assessment, the assessee had submitted the Breakup of 'Details of other provisions' of Rs.1203388000/- [3-d-ii-C of (b) As per section 36(1) (viia) of Income Tax Act, 1961, in respect of any provision for bad and doubtful debts made by (a) a scheduled bank [not being a bank incorporated by or under the laws of a country outside India) or a non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, an amount not exceeding eight and one- half per cent. Of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding ten per cent. Of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner are allowable.
(c) Although the provisions on Standard assets has been made as per RBI guidelines, which are meant for maintaining a healthy status of the bank but these provisions are not allowed as per Income Tax Act, and hence, should have been disallowed.
(d) The AO/NFAC, while making the assessment u/s 147/144B of the I.T. Act, 1961, made addition of Rs.3,39,25,000/- only on this account, whereas, he should have examined the dis- allowability of total sum of Rs.26,51,59,000/- which was earmarked by you as "Provisions for Standard Asset", as per Section 36(1) (viia) read with Section 37 of the Income Tax Act, 1961.
(e) As per CBDT Instruction No. 17/2008, it has been clearly laid down that provision of standard asset is a contingent liability and a contingent liability cannot constitute deductible expenditure for the propose of Income Tax Act
(f) Further, perusal of assessment records reveals that you have claimed Rs.137.05 Lakh on account of advances written off and Rs.4975.05 Lakh for provision for NPA in P&L account. It is pertinent to mention here that you have reduced advances on asset side of your balance sheet by Rs.4975.05 Lakh as provision for NPA, which also constitutes bad debts write off whereas you were having provision of Rs.2651.59 lakh being the provision on Standard Assets in Balance Sheet and as per ibid provision, the write off of advance amounting to Rs.5112.1 Lakh (Rs.137.05 lakh plus Rs.4975.05 lakh) was to be debited to Provisions for Bad and Doubtful i.e. the provision of Rs.2651.59 lakh being the provision on standard asset lying in Balance Sheet. Further, remaining amount of Rs.2460.51 Lakh was to be debited in P&L Account. Therefore, an excess amount of Rs.2651.59 Lakh was claimed by you in the P&L account, out of which an addition of Rs.476.3 Lakh (137.05 lakh plus 339.25 lakh) was made by the AO/FAU while making the assessment u/s 147/144B of the I.T. Act, 1961.
(g) Meaning thereby, the total Income was under assessed by Rs.2175.29 Lakh, as per the above, and hence, the Assessment Order so passed by the AO/FAU on 25.03.2022 was observed to be erroneous in so far as it is prejudicial to the interest of revenue.
(h) The reply filed by the assessee has been carefully considered and found not acceptable in view of the reasons mentioned above in the foregoing sub-para.
8. As per the amended provision i.e., clause (a) of Explanation 2 of Section 263, an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of revenue, if in the opinion of Principal Commissioner or Commissioner, the order is passed without making inquiries or verification which should have been made; Further, as per clause (b) to Explanation 2 of Section 263 says about "if the order is passed allowing any relief without inquiring into the claim. It reads as under- (Amendment of section 263 w.e.f 01.06.2015).
In section 263 of the Income-tax Act, in sub-section (1), the Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted with effect from the 1st day of June, 2015, namely. -
"Explanation 2 -For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, - (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.”
8.2. In reaching such conclusion, I rely on the following judicial rulings:
(i) The Hon'ble Supreme Court in the case of Malabar Industrial Limited V/S CIT2431TR has held that "An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind".
7 Baroda Rajasthan Kheshtriya Gramin Bank vs. PCIT (ii) In case of TTK LIG Ltd., v/s. ACIT(Mad) 51 DTR 228 it has been held that Order would be erroneous if it is based on an incorrect assumption of facts or an incorrect application of law or non- application of mind or based on no or insufficient materials.
(iii) In the case of Arvee international vis. Addl. CIT (ITAT, Mum) 101 ITD 495, it has been held that Unlike the Civil Court which is neutral to give a decision on the basis of evidence produced before it, an Assessing Officer is not only an adjudicator but also an investigator. He cannot remain passive on the face of a return which is apparently in order but calls for further enquiry- It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke inquiry - If there is failure to make such enquiry, order is erroneous and prejudicial to revenue - CIT need not prove that it is erroneous and he can revise it u/s 263.
(iv) CIT vis. Raisons Industries Ltd., 288 ITR 322 (SC): The Hon'ble Supreme Court held as under- "The power of revision under section 263 is exercised by a higher authority. It is a special provision. The revisional jurisdiction is vested in the Commissioner. An order there under can be passed if it is found that the order of assessment is prejudicial to the Revenue. In such a proceeding, he may not only pass an appropriate order in exercise of the said jurisdiction but in order to enable him to do it, he may make such inquiry as he deems necessary in this behalf."
(v) Madras High Court in the case of Seshasayee Paper & Boards Ltd. [2000] 242 ITR 490 (Mad.) has held that the powers of the Commissioner are very wide in exercising the powers of revision u/s 263. It is no doubt true that for making a valid order u/s 263, it is essential for the Commissioner to record an express finding that the order sought to be revised was erroneous as well as prejudicial to the interest of the revenue. However, there is nothing in section 263 to show that the Commissioner should in all cases record his final conclusion on the points in controversy before him. The legislative intent to bring the amendment was to make clear the provisions of Explanation to section 263 and to reduce the litigations in this regard which is well supported in view of the clear words used in clause (a) of the Explanation 2 to section 263 (1) wherein it is mentioned that the order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue, if in the opinion of the PCIT the order is passed without making inquiries or verification which should have been made. If the order is passed without application of mind, such order will fall under the category of erroneous order"
Considering the above facts, it is held that the order passed by the Assessing Officer (FAO) u/s 147 r.wis 144B of the I.T. Act dated 25.03.2022 is suffering from 8 Baroda Rajasthan Kheshtriya Gramin Bank vs. PCIT specific defects, hence, order so passed by the AO is erroneous and also prejudicial to the interest of the revenue. The order of the assessing officer is therefore, liable to revision under clause (a) &(b) of the Explanation (2) of section 263 of the Income Tax Act, 1961.
10. In the light of above discussion, assessment order passed by the AO in the case of the assessee is Set-aside (Partly) to the AO on the above mentioned issue-ie. "The issue of Provision for Standard Asset: (Rs.26,51,59,000/-)" The AO to finalize the assessment keeping in view the observations of the undersigned as mentioned at para 7 above, i.e. mainly that the assessee had also claimed Rs.4,975.05 Lakh for provision for NPA in the P&L Account). The same amount was found reduced from the asset side of the balance sheet as provision for NPA, which also constitutes bad debt written off. It was seen that in the balance sheet of the assessee an amount of Rs.2651.59 Lakh was lying as provision on standard assets. As per provisions of section 36(2)(v) of the I.T. Act, the write off advances of Rs.5,11,2.1 Lakh (Rs. 137.05 Lakh + 4,975.05 Lak) was to be debited first from the Provision of Bad & Doubtful debts, i.e. from the amount Rs.2.651.59 lakh and remaining 2460.51 was to be debited from the P&L account. Thereafter, based on outcome of such enquiries and verification, necessary additions, wherever required, may be made to the total income of the assessee as per law by modifying the assessment order u/s 147 r.w.s 144B of the Act dated 25.03.2022. However, the AO is directed to ensure that ample opportunities of being heard are provided to the assessee before passing such order.
10.2 Further, it is made clear that the addition of Rs.2,17,69,052/- made on account of Section 43B of the I.T. Act, while completing the Assessment u/s 143 (3) on 31/12/19 shall not be disturbed.
10.3 Further, it is also made clear that as the assessment order dated 25.03.2022 is partly set-aside, as mentioned above, only the the issue of Provision for Standard Asset: - (Rs.26,51,59,000/-) in the case would be subject matter of fresh assessment proceedings u/s 263 of the Act. Meaning thereby, the additions made by way of-
(i) Disallowance of the Expenses of Rs. 1,37,05,000/-, claimed by assessee as "Advance written off".
(ii) Disallowance of the Expenses of Rs.3,39,25,000/-, claimed by assessee as "Standard Assets". (ii) while assessment u/s 147 r.w.s 144B of the Act, dated 25.03.2022 by the AO/NFAC would not be disturbed, and would be free from fresh assessment proceedings. The AO shall take care the same while framing the assessment order, afresh.” of the Act, the present appeal is filed by the assessee challenging the finding recorded thereon. A propose to the ground so raised the ld. AR appearing on behalf of the assessee has placed their written submission which is reproduced here in below; “Facts of the Case 1. The case was selected for regular scrutiny as per CASS vide notice u/s 143(2) dated 10/08/2018 (PB page no 1). The case was selected for complete scrutiny. The AO after detailed verification passed an order u/s 143(3) dt 31/12/2019 and made an addition of Rs. 2,17,69,052/- in the total income for disallowance u/s 43B(f) (PB page no 26-33).
2. Later on the notice u/s 148 was issued after taking approval from Additional/Joint/Deputy Commissioner of Income Tax considering that “It is seen that assessee has wrongly claimed expenditure of Rs. 1,37,05,000/- for the advances written off. Further, the assessee has also wrongly claimed expenses of Rs. 3,39,25,000/- on account for provision for standard assets. After carefully considering the facts and circumstances of the case and for the reasons detailed in the preceding paragraphs, I have reason to believe that income of Rs.4,76,30,000/- (13705000 + 33925000) has escaped assessment for AY 2017- 18.” There after re-assessment u/s 148 dt. 23/03/2021 has been done after detailed verification and examination of the information submitted before NfAO. The detailed assessment was within the purview of section 148. The NfAO passed the order u/s 147 r.w.s. 144 dt.25/03/2022, and made addition of Rs. 4,76,30,000/- in the total income of the assessee.
3. The PCIT, Udaipur observed that, the assessment order dated 25/03/2022 is suffering from specific defects hence, order so passed by the NfAO is erroneous and prejudicial to the interest of the revenue. The order of the assessing officer is therefore, liable to revision under clause (a) & (b) of the Explanation (2) of section 263 of the Income Tax Act,1961. The assessment order dt. 25.03.2022 is partly set aside, only the issue of Provision for Standard Asset of Rs.26,51,59,000/- in the case would be the subject matter of fresh proceedings u/s 263 of the Act. Submissions
1. The case was selected for regular scrutiny as per CASS vide notice u/s 143(2) dated 10/08/2018 (PB page no 1). The case was selected for complete scrutiny. The AO after detailed verification passed an order u/s 143(3) dt 31/12/2019 and made an addition of Rs. 2,17,69,052/- in the total income for disallowance u/s 43B(f) (PB page no 26-33).
Later on, the notice u/s 148 was issued vide notice dt. 23/03/2021 (PB page no 34). The detailed assessment was within the purview of section 148. The NfAO passed the order u/s 147 r.w.s. 144 dt. 25/03/2022 (PB page no 43- 45), by making an addition of Rs. 4,76,30,000/- (13705000 + 33925000) in the total income of the assessee.
The assessee “BRKGB” had declared the financial results and in the Balance Sheet of year under consideration it has shown a total provision of Rs.1,20,33,88,000/- as closing balance of all provision. The summary of the same is as under:- (in crores) Sr. Particulars Opening Increase/ Closing No. Balance (Decrease) Balance
1. Inter office adjustment (Net) Rs.43.46 (Rs.33.87) Rs. 9.59 Intermediate unadjusted accounts on date 2. Adjusting (Credit) Items Rs. 5.63 Rs.1.02 Rs.6.65 (Provisions) 3. H.O.D.D Rs.16.03 Rs.20.82 Rs.36.85 4. Provision for Standard Assets Rs.23.21 Rs.3.39 Rs.26.51 5. Subsidy Reserve Fund Rs.19.42 (Rs.5.81) Rs.13.61 6. Sundry creditors Rs.2.33 Rs.1.07 Rs.3.40 7. Other Provisions including Staff Rs.12.16 Rs.0534 Rs.12.21 Prov. 8. Others (Service tax recorded, Rs.6.37 Rs.5.11 Rs.11.48 Tds, Staff security deposit, PF from branches) Total Rs.128.55 (Rs.8.21) Rs.120.34
4. The BRKGB has debited/ charged an amount of Rs.63,09,98,000/- as other provisions to the profit and loss account (Para 42 of P & L ITR). The summary of the same is as under:-
S Particulars Amount Remarks No 1. Income tax paid for earlier years Rs.7,57,90,000/- Tax Provision 2. Deferred Tax Rs.2,49,08,000/-
3. Provision for P.A. Rs.3,39,25,000/- Provision for PA 4. Provision for N.P.A. Rs.49,75,05,000/- Provision for NPA 5. Provision for Fraud (Rs.11,30,000/-) Provision for Fraud Total Rs.63,09,98,000/-
The above table show that the amount debited in the profit and loss account under the head provision for Standard Assets was Rs. 3,39,25,000/- only and the NfAO during the assessment proceedings already made addition for the same. Whereas the PCIT u/s 263 considered the total value of 26.51 Crores which was the balance sheet item and not the profit and loss item. This value is total value of the accumulated balances of provision under the head Provision for Standard Assets. Thus, the order passed u/s 263 is pertaining to the value which is not charged to P&L in the year itself, and therefore the same is not sustainable.
The PCIT wrongly considered the total amount of provision of standard assets being mentioned in the balance sheet amounting to Rs. 26,51,59,000/- as provision for the year only, whereas the provision for standard assets created / charged to P & L in the year under consideration was Rs. 3,39,25,000/- only. The summary of the same is as under:-
Date Particulars Amt. 01.04.2016 Opening Balance B/F Rs. 23,12,34,000/- 31.03.2017 Provision made for FY 16-17 Rs. 3,39,25,000/- 31.03.2017 Closing Balance Rs. 26,51,59,000/-
6. The authority while approving the proceedings u/s 148 has also examined the complete details and only questioned the balance of provision charged to profit and loss account amounting to Rs. 1,37,05,000/- & Rs.3,39,25,000/-. The NfAO examined the details and after a detailed verification, he made an addition of Rs. 4,76,30,000/-. Thus the order passed u/s 147 dated 25.03.2022 was after thorough examination during the assessment proceedings u/s 148, and after considering relevant facts and explanations furnished by the assessee. Therefore, the assessment order passed by NfAO u/s 147 was neither erroneous, nor prejudicial to the interest of the revenue.
The PCIT has wrongly taken into consideration, that the entire amount of Rs. 26,51,59,000/- is a provision charged to P & L as Provision for Standard Assets, whereas the same was the balance sheet value and not the amount charged to the P&L. This amount includes the opening balance of Rs.23,12,34,000/- which is accumulated value of previous years and the provision charged to profit and loss account was Rs.3,39,25,000/- only under the head Provision for Standard Assets for the year under consideration. Therefore, the order passed u/s 263 by PCIT is unsustainable in law and should be quashed.
a. Dena Bank Accounts Department Dena Bank Building VS PCIT The Hon’ble ITAT held that, we are of the considered view that the conditions prescribed u/s 263 are not fulfilled to invoke revisional jurisdiction by the Ld. PCIT to revise the assessment order passed by the Ld. AO u/s 143(3) of the I.T. Act, 1961. Therefore, we are of the considered view that the assessment order passed by the Ld. AO is neither erroneous, nor prejudicial to the interest of the revenue. We, therefore, quash the order of the Ld. PCIT u/s 263 of the Act, and allow the appeal of the assessee. b. CIT vs. Vikas Polymers (2005) 273 ITR 683 (Guj): In this case, the Gujarat High Court held that the Commissioner cannot exercise revisionary jurisdiction under Section 263 merely because he disagrees with the opinion of the Assessing Officer, especially if the Assessing Officer has conducted proper inquiries and applied his mind to the facts of the case. The court emphasized that the Commissioner's revisionary power is not an appellate power and cannot be used to substitute his opinion for that of the Assessing Office. c. Preeti ben Chhatra singh Chauhan Vs. Principal Commissioner of Income Tax RT/2023 ITAT Surat held that an assessment or re- assessment could only be revised u/s 263 of the Act in case it satisfies the twin conditions, viz: order is erroneous as well as prejudicial to the interest of revenue. In the case of assessee, order passed u/s 143(3) of the Act is neither erroneous nor prejudicial to the revenue, as it was passed after detailed examination and proper verification of all documents of subject matter of scrutiny. d. World Trade Park Ltd Jaipur, Rajasthan Vs. Pr. CIT -5 held that the action of the Pr. CIT cannot be acceptable as the order passed by the A.O. does not satisfy the twin conditions of erroneous and prejudicial to the interest of the revenue. Accordingly, we set aside the order of the Pr. CIT and allow the grounds of appeal in favor of the assessee. e. Navneet Bhardwaj Vs. The PCIT, Dehradun ITAT held that they are unable to see any valid reason to allege the assessment order as erroneous and prejudicial to the interest of revenue and hence we are inclined to hold that the ld. PCIT was not validly empowered to invoke revisionary provision of sec 263 of the Act. Hence revisionary order u/s. 263 dated 27.03.2021 for AY 2016-17 is set aside and assessment order dated 19.12.2018 is restored. f. The Hon’ble Bombay High Court in the case of CIT v. Gabriel India Ltd., [1993] 71 Taxman 585/203 ITR 108 held that ITO conclusion cannot be termed as erroneous simply because Commissioner does not agree with his conclusion .A.O. order cannot be held to be “erroneous” simply because in his order he did not make an elaborate discussion
13 Baroda Rajasthan Kheshtriya Gramin Bank vs. PCIT 9. Even otherwise it is pertinent to mention that, the assessment order u/s 147/ 144 dated 25/03/2022 being questioned by PCIT u/s 263, is the order passed under face less scheme of Assessment by NfAO. It is a fact that any faceless assessment which is carried out through a teamwork of assessment unit, technical unit, review unit, verification unit etc. Since different units are headed by Principal Commissioner of Income Tax, therefore, in a faceless regime, normally there cannot be a case of prejudice of lack of enquiry for the reason that there is application of mind by multiple officers of Department and not by a single officer. The assessee had furnished the requisite information and the NfAO has completed the assessment after considering all the facts, therefore, the order passed by the AO cannot be termed as erroneous
The NfAO has completed the assessment after considering all the facts. Therefore, the order passed by the PCIT u/s 263 is not in accordance with the provisions of the law and thus, the same is required to be quashed. Reliance can be placed in the following case laws: a) Sourabh Sharma Vs. PCIT, : The Hon’ble ITAT Jaipur’s ruling in Sourabh Sharma Vs PCIT underscores a significant legal standpoint: the PCIT’s authority under Section 263 cannot be exercised merely for additional inquiries if the AO’s order is based on comprehensive examinations and reasoned decisions. This verdict reaffirms the importance of procedural correctness and the limitations of Section 263, ensuring that reassessments are grounded in concrete evidence rather than speculative dissatisfaction. The decision is a crucial reminder of the checks and balances within the income tax assessment process, ensuring fairness and thoroughness in the evaluation of claims and deductions.
b) Rajasthan High Court in the case of CIT Vs. Ganpat Ram Bishnoi [ 296 ITR 292 Raj)] wherein the jurisdiction high court when enquiry in fact has been conducted and the AO has reached a particular conclusion, though reference to such enquiries has not been made in the order of the assessment, but the same is apparent from the record of the proceedings, in the present case, without anything to say how and why the enquiry conducted by the AO was not in accordance with law, the invocation of jurisdiction by the CIT was unsustainable. As the exercise of jurisdiction by the CIT is founded on no material, it was liable to be set aside. Jurisdiction under Section 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something. The jurisdiction assumed by the CIT being non-existent must be held to be not sustainable.
Prayer:- The PCIT has wrongly considered the balance sheet item of Rs. 26,51,59,000/- as the Provision for Standard Asset, whereas the provision for standard assets created / charged to P & L in the year under consideration was Rs. 3,39,25,000/- only. Thus, the order by NfAO u/s 147 r.w.s 144 is neither
14 Baroda Rajasthan Kheshtriya Gramin Bank vs. PCIT erroneous nor prejudicial to the interest of the revenue. Therefore, the proceedings u/s 263 is unsustainable in law and should be quashed.”
The ld. AR of the assessee in addition to the written submission filed a detailed paper book containing the following evidence / judgments in support of the contentions so raised:
S. No. Particulars Page No. 1 Notice u/s 143(2) issued as per CASS dt.10.08.2018 1-4 2. Notice u/s 142(1) dt. 19.08.2019 5-7 3. Reply submitted along with details during the assessment 8-11 proceedings vide reply dated 23.09.2019 4. Notice u/s 142(1) dt. 26.12.2019 and its reply dt. 28.12.2019 12-25 5. Order u/s 143(3) dt. 31/12/2019 26-33 6. Notice u/s 148 dt.23.03.2021 34 7. Notice u/s 142(1) in respect of proceedings u/s 148 dt. 35-42 17.12.2021 & 29.12.2021 and Its reply dt. 03.01.2022 8. 43-45 Order u/s 147 r.w.s 144E3 dt. 25.03.2022 9. ITR form & Computation for AY 2017-18 46-56
7. The ld. AR of the assessee submitted that the assessee is for the same assessment year is dealing with the third-round litigation. The assessment u/s. 143(3) of the Act was completed on 31.12.2019 wherein the additions were made. Notice u/s. 148 was issued and the additions were made in that second round of litigation and for the appeal is pending standard asset in the case of the assessee is subjected to proceeding before him. On this issue in the reassessment proceeding all the details were submitted to ld. AO who has in appreciation of the facts placed before him made an addition of Rs. 3,39,25,000/-. The same very issue is picked up by PCIT and the same is not permitted under the provision of section 263 of the Act.
The ld. DR is heard who relied on the findings of the ld. PCIT recorded in her order. The ld. DR submitted that the ld. AO has not examined the issue which the ld. PCIT has pointed out and thus considering the provision of section 263 of the Act the ld. PCIT has power to revise the order which is passed without verifying the material placed on record. Thus, considering the facts and circumstances discussed in the order of the PCIT the issue raised are prejudicial to the interest of the revenue.
9. We have heard the rival contentions and perused the material placed on record. The bench noted that in this case two rounds of litigation for the same assessment year is undertaken. After culmination of the second- round assessment the PCIT noted so far as to the issue of write off of of upon examination of the case record found in order. But regarding the issue of provision for standard assets ld. PCIT noted that the ld. AO made addition of Rs. 3,39,25,000/- only on this account, whereas he should have examined the disallowability of total sum of Rs. 26,51,59,000/- which was earmarked by the assessee as “Provisions for standard Asset” as per section 36(1)(via) read with section 37 of the Act. She while observing so noted circular no. 17/2008 of CBDT where in it was laid down that provision of standard asset is contingent liability and a contingent liability cannot constitute deductible expenditure for the purpose of the Act. The ld. PCIT further noted that assessee claimed Rs.137.05 Lakh on account of advances written off and Rs.4975.05 Lakh for provision for NPA in P&L account. So assessee reduced advances on asset side of balance sheet by Rs.4975.05 Lakh as provision for NPA, which also constitutes bad debts write off whereas assessee having provision of Rs.2651.59 lakh being the provision on Standard Assets in Balance Sheet and as per ibid provision, the write off of advance amounting to Rs.5112.1 Lakh (Rs.137.05 lakh plus Rs.4975.05 lakh) was to be debited to Provisions for Bad and Doubtful i.e. the provision of Rs.2651.59 lakh being the provision on standard asset lying in Balance Sheet. Further, remaining amount of Rs.2460.51 Lakh was to be was claimed by the assessee in the P&L account, out of which an addition of Rs.476.3 Lakh (137.05 lakh plus 339.25 lakh) was made by the AO/FAU while making the assessment u/s 147/144B of the I.T. Act, 1961. Therefore, ld. PCIT hold that Income was under assessed by Rs.2175.29 Lakh, and hence, the Assessment Order so passed by the AO/FAU on 25.03.2022 was observed to be erroneous in so far as it is prejudicial to the interest of revenue. Thus, he hold that as per amended provision i.e., clause (a) of Explanation 2 of Section 263, an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of revenue, if in the opinion of Principal Commissioner or Commissioner, the order is passed without making inquiries or verification which should have been made; Further, as per clause (b) to Explanation 2 of Section 263 says about "if the order is passed allowing any relief without inquiring into the claim. Based on these observations, PCIT partly set aside the issue of provision of standard asset in the case of assessee to be decided as fresh.
So far as issue of provision for standard assets the ld. AR of the assessee filed detailed chart, wherein the details of the provision of standard assets is also involved, the said details is extracted herein below so as to understand the contention about the allowability of the deduction claimed by the assessee:
(in crores) Table-A Sr. Particulars Opening Increase/ Closing No. Balance (Decrease) Balance
Inter office adjustment (Net) Rs.43.46 (Rs.33.87) Rs. 9.59 Intermediate unadjusted accounts on date 2. Adjusting (Credit) Items Rs. 5.63 Rs.1.02 Rs.6.65 (Provisions) 3. H.O.D.D Rs.16.03 Rs.20.82 Rs.36.85 4. Provision for Standard Assets Rs.23.21 Rs.3.39 Rs.26.51 5. Subsidy Reserve Fund Rs.19.42 (Rs.5.81) Rs.13.61 6. Sundry creditors Rs.2.33 Rs.1.07 Rs.3.40 7. Other Provisions including Staff Rs.12.16 Rs.0534 Rs.12.21 Prov. 8. Others (Service tax recorded, Rs.6.37 Rs.5.11 Rs.11.48 Tds, Staff security deposit, PF from branches) Total Rs.128.55 (Rs.8.21) Rs.120.34 The bench also noted that the assessee has debited a sum of Rs. 63,09,98,000/- being the amount of other provisions. The breakup of the same is as under:
Table -B S Particulars Amount Remarks No 1. Income tax paid for earlier years Rs.7,57,90,000/- Tax Provision 2. Deferred Tax Rs.2,49,08,000/- 3. Provision for P.A. Rs.3,39,25,000/- Provision for PA 4. Provision for N.P.A. Rs.49,75,05,000/- Provision for NPA 5. Provision for Fraud (Rs.11,30,000/-) Provision for Fraud Total Rs.63,09,98,000/- that as the ld. PCIT is concerned only about the allowability of the provision of standard assets which in this case it is Rs. 3,39,35,000/- which has already been considered as disallowable item. Whereas the amount of 26,51,59,000/- noted by the ld. PCIT is the closing balance reflected in the balance sheet of accumulated balance over the year and in that account opening balance is Rs. 23,12,34,000/- only and thus the difference of Rs. 3,39,25,000/- already disallowed. Based on these set of facts we are of the considered view that even if out of the total closing balance of Rs. 26,51,59,000/- ld. AO disallowed a sum of Rs. 3,39,25,000/- leaving behind opening balance of 23,12,34,000/- and opening balance cannot be subjected to the addition for the year under consideration. Thus, looking to the overall facts of the case, evidence placed on record and ongoing through the order of the ld. PCIT, the bench noted so far as the issue observed by the ld. PCIT order of the ld. AO is not erroneous or prejudicial to the interest of the revenue.
The prerequisite for exercising the jurisdiction by the learned PCIT under section 263 of the Act is that the order of the AO is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The ld. sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent i.e., if the assessment order is not erroneous but it is prejudicial to the Revenue, provision of section 263 cannot be invoked. This provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to Revenue's interest, than the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. It is pertinent to mention that if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the PCIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. In this process even the AO has no power to review his own. In this regard, we draw strength from the decision of the Hon'ble Rajasthan High Court in held that ;
“the jurisdiction high court when enquiry in fact has been conducted and the AO has reached a particular conclusion, though reference to such enquiries has not been made in the order of the assessment, but the same is apparent from the record of the proceedings, in the present case, without anything to say how and why the enquiry conducted by the AO was not in accordance with law, the invocation of jurisdiction by the CIT was unsustainable. As the exercise of jurisdiction by the CIT is founded on no material, it was liable to be set aside. Jurisdiction under Section 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something. The jurisdiction assumed by the CIT being non-existent must be held to be not sustainable.”
Thus, based on this decision it is also noteworthy to mention that one of the pre-requisites before invoking S. 263 and the allegation of the Ld. PCIT is that there has been incorrect assumption of fact and law by the Assessing Officer. However, despite our deep and careful consideration of the material on record and the findings recorded in the order of the PCIT does attract any of the twin conditions and based on the facts we do not find any error in the order of the ld. AO. Before us the ld. DR did not controvert the factual aspect argued by the ld. AR of the assessee and thus, considering the material placed on record on the issue we are of the considered view that the law and does not attract the clause (a) or (b) to explanation 2 of section 263 of the Act and thus, it is nothing but a change of opinion which is not permitted in the eyes of the law. In the light of the accordance with the provisions of section 263 of the Act as the twin conditions failed in this case and therefore, we vacate the order of the PCIT passed u/s. 263 of the Act.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 22/07/2024.
Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 22/07/2024 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Baroda Rajasthan Khestriya Gramin Bank, Ajmer izR;FkhZ@ The Respondent- PCIT, Udaipur 2. 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत xkMZ QkbZy@ Guard File (ITA No. 253/JP/2024) 6. vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत