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Facts
The assessee appealed against an order passed by the Principal Commissioner of Income-tax (PCIT) under section 263 of the Income-tax Act, 1961. The PCIT initiated revisionary proceedings, flagging issues related to the recovery of bad debts, disallowance of excess provision for bad and doubtful debts, and excess deduction claimed for bad debts.
Held
The Tribunal observed that the issues flagged by the PCIT were not examined by the Assessing Officer (AO) during the assessment proceedings, despite the assessee providing various replies. The Tribunal noted that the PCIT's observations were based on the Tax Auditor's report and that factual verification was required for these aspects. However, since the PCIT had already directed the AO to conduct necessary verifications, the Tribunal found no reason to interfere with the impugned order.
Key Issues
Whether the PCIT correctly invoked revisionary powers under section 263 without the AO having examined the issues, and whether the assessment order was erroneous and prejudicial to the revenue.
Sections Cited
263, 143(3), 144B, 41(4), 36(1)(viia), 36(1)(vii)
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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM & HON’BLE SHRI MANU KUMAR GIRI, JM
(िनधा(रण वष( / Assessment Year: 2018-19) & 2. Stay Application No.27/Chny/2024 (In (िनधा(रण वष(/Assessment Year:2018-19) M/s. Cholamandalam Investment PCIT and Finance Company Limited Chennai-1 बनाम Chola Crest, C-54 & 55, Super B-4, Thiru Vi Ka Industrial Estate, / Vs. Guindy Industrial Estate, S.O., Chennai-600 032. �थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACC-1226-H (अपीलाथ�/Appellant) : (� थ� / Respondent) अपीलाथ�कीओरसे/ Appellant by : S/Shri Ajit Jain, Kunal Shah & Ms. Aashna Dhila (CAs)- Ld.AR � थ�कीओरसे/Respondent by : Shri Nilay Baran Som (CIT)-Ld. Sr. DR सुनवाईकीतारीख/Date of Hearing : 05-11-2024 घोषणाकीतारीख /Date of Pronouncement : 14-11-2024 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)
By way of this appeal, the assessee assails invocation of revisionary jurisdiction u/s 263 by Ld. Pr. Commissioner of Income Tax, Chennai-1 (Pr.CIT) for Assessment Year (AY) 2018-19 vide impugned order dated 31-03-2024 in the matter of an assessment framed by Ld. AO u/s 143(3) r.w.s. 144B on 20-04-2021. The grounds raised
by the assessee read as under:- On the facts, and in the circumstances of the case, and in law, the Appellant craves to prefer an appeal against order dated
31. March 2024 passed by the Principal Commissioner of Income-tax (Appeals), Chennai (hereinafter referred to as the 'learned PCIT'), under section 263 of the Income-tax Act, 1961 ('the Act'), in respect of order dated
20. April 2021 passed by the National e-Assessment Centre ('learned AO') under section 143(3) of the Act, on the following grounds: Legal grounds - Order under section 263 of the Act is bad in law, erroneous and not tenable in law: On the facts and in the circumstances of the case, and in law, the learned PCIT has 1.1. erred in initiating proceedings under section 263 of the Act; 1.2 On facts and in the circumstances of the case, and in law, the learned PCIT has erred in undertaking the revisionary proceedings under section 263 of the Act without satisfying the twin statutory preconditions viz. the order being erroneous and the order being prejudicial to the interests of the revenue, and is therefore without jurisdiction and thus, deserves to be quashed. 1.3 On the facts and in the circumstances of the case, and in law, the learned PCIT failed to appreciate that the learned AO after thorough examination of the facts on record and after making all possible enquiries and exercising the quasi-judicial power as conferred by the Act, passed the assessment order, accepting all the claims of the Appellant. 1.4 On facts and in the circumstances of the case, and in law, the learned PCIT failed to appreciate that the if the assessment order is in accordance with the law and has been passed after conducting the necessary enquiries and verification, the same cannot be held to be 'erroneous in so far as it is prejudicial to the interests of the revenue' as given under Explanation 2 to section 263 of the Act. 1.5 On facts and in the circumstances of the case, and in law, the learned PCIT erred in appreciating that the Appellant has duly submitted the details sought vide show cause notice issued by the learned PCIT and thereafter failed to form an opinion as to whether there is an error in the assessment order passed by the learned AO. Mere direction to verify the facts before forming an opinion cannot be a valid ground to initiate revision proceedings and pass an order under section 263 of the Act. The Appellant prays that the impugned order be quashed as being bad in law. 2.Factual grounds 2.1 On the facts and circumstances of the case, and in law, the learned PCIT erred in directing the learned AO to verify the facts and make an addition towards 'recovery of bad debts' under section 41(4) of the Act. 2.2 On the facts and circumstances of the case, and in law, the learned PCIT erred in directing the learned AO to verify the facts and make disallowance of additional provision for bad and doubtful debts under section 36(1)(viia) of the Act. 2.3 On the facts and circumstances of the case, and in law, the learned PCIT erred in directing the learned AO to verify the facts and make disallowance in respect of bad debts written off under section 36(1)(vii) of the Act.
The Ld. AR advanced arguments and submitted that twin conditions i.e., erroneous and prejudicial to the interest of the revenue was not fulfilled in the present case and the revision has been done to verify the factual aspects. The Ld. AR drew attention to assessee’ various replies as furnished during the course of original assessment proceedings. The Ld. CIT-DR, on the other hand, supported the revisionary order and submitted that revision emanates from the case records as well as Tax Audit Report. Having heard rival submissions and upon perusal of case record, our adjudication would be as under. Facts leading to Impugned Revision 3.1 Upon perusal of impugned order, it could be seen that after going through Tax Audit, Ld. Pr. CIT has flagged three issues which could be tabulated as under: - No. Particulars Amount Rs. 1. Addition towards Recovery of bad debts 49,40,44,466 u/s.41(4) of the Act 2 Disallowance of excess provision for bad 13,77,71,602 and doubtful debts 3 Excess deduction claimed u/s.36(1)(vii) of 49,45,71,365 the Act 3.2 From the paper book, it emerges that during assessment proceedings, notice u/s 142(1) was issued to the assessee on 01-12- 2020 wherein vide point 13, the assessee was required to provide the working of deduction claimed u/s 36(1)(vii) as well as deduction claimed u/s 36(1)(viia). In reply dated 26-12-2020, the assessee submitted that bad debts (net off recovery) were written off for Rs.96.88 Crores. The details of working of deduction u/s 36(1)(viia) was furnished in Annexure- 11. In reply dated 24-02-2021, the assessee submitted that it had debited bad debts of Rs.96.88 Crores in the Profit & Loss Account which is allowable u/s 36(1)(1)(vii). Apart from this, there is no further query / details furnished by the assessee and there is no discussion on any of the flagged issues in the assessment order. No further query is shown to have been raised Ld. AO on the flagged issues. 3.3 Coming to the impugned issue of bad-debt recovery u/s 41(4), Ld. Pr. CIT noted that Tax Auditor quantified the same at Rs.49.40 Crores, however, the same was not credited in the Profit & Loss Account. This amount was to be brought to tax. On the issue of provision for bad debts, it was noted that the provision of Rs.63.33 Crores was added back to the Profit & Loss Account whereas the assessee debited provision of Rs.77.11 Crores in the Profit & Loss Account towards provision for bad and doubtful debts. The difference of Rs.13.77 Crores was required to be brought to tax. On the issue of deduction u/s 36(1)(viia), it was observed by Ld. Pr. CIT that for AY 2017-18, the assessee was allowed deduction of Rs.49.45 Crores towards provision for bad and doubtful debts u/s 36(1)(viia). For AY 2018-19, an amount of Rs.96.88 Crores was written-off as bad debts under "loss assets written off' in the Profit and Loss A/c and the same was allowed as deduction u/s 36(1)(vii). As per provision of Sec.36(1)(vii), in case of an assessee to which clause (viia) applies, the amount of deduction relating to any bad debt shall be limited to the amount by which such debt exceeds the credit balance in the provision for bad and doubtful debts account made under that clause. Thus, the claim of the assessee u/s 36(1)(vii) was required to be restricted to Rs.47.42 Crores (Rs.96.88 Crores minus Rs.49.45 Crores) since there was a balance of Rs.49.45 Crores in the provision created u/s 36(1)(viia) in AY 2017-18. The excess allowance of deduction u/s 36(1)(vii) for Rs.49.45 Crores was required to be brought to tax. Since the assessment order was passed without considering the above issues, the same was held to be erroneous in so far as it was prejudicial to the interest of the revenue within the meaning of Section 263 of the Act. The assessee was show-caused accordingly. 3.4 The assessee stated that it already offered bad-debts recovery to tax since the amount of Rs.96.88 Crores as reported as ‘Loss Assets written-off’ was net-off of this amount. The assessee produced extract of Trial Balance to demonstrate that gross bad-debts were Rs.146.28 Crores and after adjusting bad-debt recovery of Rs.49.40 Crores, the net amount claimed was Rs.96.88 Crores. After considering assessee’s replies, Ld. Pr. CIT directed Ld. AO to verify the same. 3.5 On the issue of provision, the assessee clarified that the amount of Rs.63.33 Crores being deduction claimed in AY 2017-18 was reversed during the year and offered to tax in AY 2018-19. The assessee also made provision of Rs.77.11 Crores which was also disallowed while computing the income. After considering assessee’s replies, Ld. Pr. CIT directed Ld. AO to verify the same. 3.6 On the issue of deduction u/s 36(1)(viia), the assessee submitted that it claimed deduction of Rs.63.33 Crores u/s 36(1)(viia) for AY 2017- 18 which was allowed only to the extent of Rs.49.45 Crores and the assessee was in appeal against the same. Further, the assessee followed approach of claiming provision u/s 36(1)(viia) in a particular year and it immediately reversed such provision in subsequent year so that actual bad debts could be claimed without making any further reduction. Accordingly, the assessee opposed any interference in the assessment order. After considering assessee’s replies, Ld. Pr. CIT directed Ld. AO to verify the same. Finally, Ld. AO was directed to examine these aspects and pass a fresh order after granting opportunity of hearing to the assessee. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 4. From our observation in preceding para 3.2, it could be seen that during the course of assessment proceedings, the assessee was required to provide the working of deduction claimed u/s 36(1)(vii) as well as deduction claimed u/s 36(1)(viia). The assessee stated that bad debts were claimed net of recoveries. The assessee also furnished working of deduction u/s 36(1)(viia). However, apart from this, there is no further query / details furnished by the assessee and there is no discussion on any of the flagged issues in the assessment order. Apparently no factual verification was carried out by Ld. AO. Therefore, it could very well be said that the issues as flagged by revisionary authority were nowhere examined by Ld. AO during the course of regular assessment proceedings. As against this, the observations of Ld. Pr. CIT are based on reporting made by Tax Auditor. The assessee has furnished various replies to establish that there was no error in the assessment order and the claim was in accordance with law. However, all these aspects require factual verification for which requisite direction have already been issued by Ld. Pr. CIT to Ld. AO. Therefore, we see no reason to interfere in the impugned order. The Ld. AO may carry out the requisite verifications as directed in the impugned order.
The appeal stands dismissed. The connected stay application has been rendered infructuous and accordingly, dismissed. Order pronounced on 14th November, 2024 Sd/- Sd/- (MANU KUMAR GIRI) (MANOJ KUMAR AGGARWAL) �ाियक सद# / JUDICIAL MEMBER लेखा सद# / ACCOUNTANT MEMBER चे3ई Chennai; िदनांक Dated : 14-11-2024 DS आदेशकीEितिलिपअ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. � थ�/Respondent 3. आयकरआयु</CIT Chennai / Trichy 4. िवभागीय�ितिनिध/DR 5. गाडAफाईल/GF