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PER: SANDEEP GOSAIN, JM This appeal of the assessee is directed against the order of the ld. PCIT, Jaipur-1 dated 30-03-2023 for the assessment year 2018-19 in the matter of Section 263 of the Act wherein the assessee has raised the following grounds of appeal.
1. Under the facts and circumstances of the case and in law, Ld. PCIT. has failed to appreciate that the Assessment Order was neither erroneous nor prejudicial to the interest of revenue, thus, order passed u/s 263 of the Act is perverse, arbitrary, bad in law and without jurisdiction.
2 AU SMALL FINANCE BANK LTD . JAIPUR VS PCIT -1 , JAIPUR 2. Under the facts and the circumstances of the case and in law, the Ld. PCIT, has grossly erred in directing the Ld. AO for fresh assessment u/s 263 of the Act without holding how the Assessment Order is erroneous and prejudicial to the interest of the revenue and without appreciating the fact that the Ld. AO has duly verified the deduction with respect to bad debts written off.
3. Under the facts and the circumstances of the case and in law, the Ld. PCIT, has grossly erred in directing the Ld. AO for fresh assessment u/s 263 of the Act by alleging that the Assessment Order is liable for revision u/s 263 of the Act to the extent the Ld. AO has allegedly allowed excess deduction of Rs. 16.89 crores with respect to bad debts. written off.
4. Under the facts and the circumstances of the case and in law, the Ld. PCIT, has grossly erred in directing the Ld. AO for fresh assessment without holding how the Assessment Order is erroneous and prejudicial to the interest of the revenue even when the deduction u/s 36(1)(va) of Rs. 94.74 lakh with respect to deposit of employees' contribution to provident fund has been verified and correctly allowed.
5. Under the facts and the circumstances of the case and in law, the Ld. PCIT, has grossly erred in directing the Ld. AO for fresh assessment u/s 263 of the Act without holding how the Assessment Order is erroneous and prejudicial to the interest of the revenue and without appreciating the fact that the Ld. AO has duly inquired and verified the deduction u/s 36(1)(viia) of the Act with respect to provision for bad and doubtful debts.
6. Under the facts and the circumstances of the case and in law, the Ld. PCIT, has grossly erred in directing the Ld. AO for fresh assessment u/s 263 of the Act, even when the Ld. AO has correctly allowed deduction of Rs. 31.81 crores u/s 36(1)(viia) of the Act with respect to provision for bad and doubtful debts on other advances.
7. Under the facts and the circumstances of the case and in law, the Ld. PCIT. has grossly erred in directing the Ld. AO for fresh assessment u/s 263 of the Act, even when the Ld. AO has correctly allowed deduction of Rs. 9.19 crores u/s 36(1)(viia) of the Act with respect to provision for bad and doubtful debts on advances by rural branches.
8. Under the facts and the circumstances of the case and in law, the Ld. PCIT, has grossly erred in directing the Ld. AO for fresh assessment u/s 263 of the Act without holding how the Assessment Order is erroneous and prejudicial to the interest of the revenue and without appreciating the fact that the Ld. AO has duly inquired and verified the deduction u/s 36(1)(viii) of the Act with respect to special reserve.
3 AU SMALL FINANCE BANK LTD . JAIPUR VS PCIT -1 , JAIPUR 9. Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in directing the Ld. AO for fresh assessment u/s 263 of the Act, even when the Ld. AO has correctly allowed deduction of Rs.17.51 crores u/s 36(1)(viii) of the Act with respect to special reserve. 10 Under the facts and the circumstances of the case and in law, the Ld. PCIT, has grossly erred in directing the Ld. AO for fresh assessment u/s 263 of the Act without holding how the Assessment Order is erroneous and prejudicial to the interest of the revenue and without appreciating the fact that the Ld. AO has duly inquired and verified the treatment of share issue expense in the computation of total income. 11 Under the facts and the circumstances of the case and in law, the Ld. PCIT, has grossly erred in directing the Ld. AO for fresh assessment u/s 263 of the Act, even when the Ld. AO has correctly accepted the treatment of Rs. 2.04 crores towards share issue expenses. 12 Under the facts and the circumstances of the case and in law, the Ld. PCIT, has grossly erred in directing the Ld. AO for fresh assessment u/s 263 of the Act without holding how the Assessment Order is erroneous and prejudicial to the interest of the revenue and without appreciating the fact that the Ld. AO has duly inquired and verified the deduction with respect to debenture redemption premium expense u/s 37 of the Act. 13 Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in directing the Ld. AO for fresh assessment u/s 263 of the Act, even when the Ld. AO has correctly allowed deduction of Rs. 23.02 crores u/s 37 of the Act with respect to debenture.’’ 2.1 In this appeal, it is noted that the AO vide his assessment order dated 19-03- 2021 accepted the assessee’s returned income by observing as under:- ‘’1. The case was selected for complete scrutiny assessment under the E-Assessment Scheme, 2019 on the following issues:- S.N. Issues 1. Claim for any other amount allowable as deduction in schedule BP.
Increase in TDS in Revised Return.
Reduction of income in Revised Return & Claim of Refund.
4. Refund Claim 4 AU SMALL FINANCE BANK LTD . JAIPUR VS PCIT -1 , JAIPUR 5. Unsecured Loans 6. ICDS Compliance and Adjustment 7. Sales Turnover/Receipts 8. Expenses incurred for Earning Exempt Income 9. Deduction from Total Income under Chapter VI-A On the basis of material available on record, responses and submissions by the assessee, the return income is accepted. Demand Notices issued. Credit of prepaid taxes is given. Tax and interest us l234A, 234B,234C and 234D are calculated as per the provision of the I.T. Act, 1961.’’ 2.2 The ld. PCIT on examination of the details/ record available before her observed that the assessment order passed on 19-03-2021 u/s 143(3) r.w.s. 143(3A) and 143(3B) of the assessee for the assessment year 2018-19 appears to be erroneous insofar as it is prejudicial to the interest of the Revenues and she proposed to modify the order on the above issue under the power vested u/s 263 of the Act. It is also mentioned in the order of the ld. PCIT that the assessee was allowed an opportunity to show cause as to why the order passed u/s 143(3) r.w.s. 143(3A) and 143(3B) of the Act dated 19-03-2021 should not be revised u/s 263 of the Act in a suitable manner. The assessee was given an opportunity to submit its reply. For the sake of convenience, the relevant observation of the ld. PCIT is reproduced as under:- ‘’2. 2 On examination of the details available on record, it was noticed that deduction of Rs 39. 43crore was claimed for provision for bad and doubtful debts us 36(1)(via)(d) of the Act. However, at the 5 AU SMALL FINANCE BANK LTD . JAIPUR VS PCIT -1 , JAIPUR end of AY 2017-18, the credit balance in the provision for bad and doubtful debts account made under the clause (vii a) of section 36 (1), was Rs. 16.89 crore. Thus, bad debts of Rs. 39.43 crore claimed during the AY 2018-19 was to be restricted to Rs. 22.54 crore (Rs. 39.43 crore - Rs. 16.89 crore) only i.e. restricted to the amount which exceeded the credit balance in the provision for bad and doubtful debts account.
3. Further, was noticed that the assessee filed Return of income (Revised) for the AY 2018-19 on 25.03.2013 declaring total income of Rs.345.58 crore. The return was processed on 13.02.2020 u/s 143 (1) of the Act and total income determined at Rs.346.52 crore by making an addition of Rs.94.74 lakh us 36(1)(va) of the Act for non- credit of funds by the due date. However during the assessment proceedings, the case was completed on 19.03.2021 at returned income of Rs. 345.58 crore instead of Rs. 346.52 crore determined u/s 143(1) of the Act. Thus, addition of Rs 94.74 lakh which was made during processing ufs. 143(1) of the Act was not added while completing assessment us. 143(3) of the 1.T. Act. 4.
It was further noticed that the assessee made the following claims in the computation of income:- (a) Deductions for special reserve us 30 (1) (vii): Rs.17.51 crore (b) Deduction for other advances u/s 30 (1) (viia): Rs.31.81 crore However in Balance sheet, segment wise break up of long term finance for the purpose of deduction claimed u/s 36(1)(vii) of the Act was not furnished. In schedule 2 of the Balance sheet, amount shown for Special Reserve u's 36 (1) (vii) was Rs 20.50 crore instead of Rs.17.51 crore claimed as above. Further, computation sheet in support of claim u/s 36(1)(vii a) and (vii) of the Act was not available on records. Thus these deductions claimed remain unverified by the AO.
It was also noted that in computation of income fled by the assessee, deduction of Rs 2.04 crore was claimed for share issue expenses which was disallowed during AY 2017-18 being expenditure of capital nature. In reply dated 10.02.2021 fled during the course of 6 AU SMALL FINANCE BANK LTD . JAIPUR VS PCIT -1 , JAIPUR assessment proceedings, the assessee submitted that the above expenses ware received from shareholders during AY 2018-19 and reversed/credited to profit and loss account under schedule 16 'Operating expenses and thus, claimed as deduction during AY 2016- 19.However it was soon that the credit of Rs 2.04 crore, as stated, was not verifiable from Schedule 16. Thus, the deduction claim of Rs 2.04 crore was not been verified during assessment proceedings by the AO.
Perusal of the records also showed that in computation of income, deduction of Rs.23.02 crore was claimed for debenture redemption premium for which no computation was furnished. It was seen that in respect of debentures redeemed, details viz. type of debentures, rate of interest, date of issue and maturity etc. were not furnished A debenture redemption premium expense was allowable over a period of maturity and in absence of sufficient data, correctness of claim of debenture redemption premium, was not verifiable.
It was further noted that a deduction of Rs 9.19 crore was claimed for rural advances under. Section 36(1)(viia) of the Act but no details of advances made by the rural branches were furnished in the financial statement. In absence of such details, deduction claimed for rural advances remains unverified and was liable to be added back to the total income.
In view of the above mentioned facts, it appears that the assessment order passed u/s 143(3) r.w.s 143(3A) and 143(38) of the Act in case of the assesseeor AY 2018-19 on 19.03.2021appeared to be erroneous in so far as it is prejudicial to the interest of the revenue. This office accordingly proposed to modify the order on the above issue under the power vested us 263 of the Act, The assessee was allowed an opportunity to show cause as to why the order passed u/s 143(3) ws. 143(34) and 143(3B) of the Act dated 19.03.2021 should not be revised u/s 203 of the Act in a suitable manner. The assessee was given an opportunity to submit its reply. In response to the show cause, the assessee submitted its reply before the ld. PCIT who perused the order of the AO, the reply of the assessee and various documents 7 AU SMALL FINANCE BANK LTD . JAIPUR VS PCIT -1 , JAIPUR placed on record and came to conclusion that the assessment order is set aside to be made afresh in the light of the observations made in this order. The relevant observations of the ld. PCIT from para 12 to 14 of her order are reproduced as under:- ‘’12. On the basis of above facts, it is apparent that the assessment order is erroneous and prejudicial to the interest of revenue.
As discussed above, the Assessing Officer failed to apply his mind on the material available on record and failed to invoke the applicable provisions of law. This in turn has resulted in passing of an erroneous order by the Assessing Officer in the case due to non-application of mind to relevant material, an incorrect assumption of facts and an incorrect application of mind to the law which la prejudicial to the interest of the revenue and hence liable for revision under section 203 of the Income Tax Act. The Hon'ble Supreme Court in the case of Malabar Industrial Limited Vs CIT 243 ITR it has held as under:- ‘’…..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."
Considering all the facts and circumstances of the case and for the reasons discussed above, the assessment order dated 10-03-2021 for AY 2018-19 passed by the AO is held erroneous in so far as it is prejudicial to the interests of the revenue for the purpose of section 283 of the 1.T. Act. The said order has been passed by the Assessing Officer in a routine and casual manner without verification of the issues discussed in above paras. The order of the Assessing Officer is, therefore, liable to revision under the explanation (2) cause (b) and clause (a) of section 283 of the Income Tax Act. The assessment order is set aside to be made afresh in the light of the observations made in this order. The AO is required to make necessary verification and examine in depth the issues discussed above in accordance with the 8 AU SMALL FINANCE BANK LTD . JAIPUR VS PCIT -1 , JAIPUR prevailing law to determine the correct income of the assessee liable to tax for the A.Y 2018-19 after affording reasonable opportunity to the assessee.’’ 2.3 During the course of hearing, the, the ld. AR of the assessee supported the assessment order and also filed a detailed written submission pages 1 to 60 countering that the order of the ld. PCIT invoking Section 263 of the Act is not maintainable as assessment order is neither erroneous nor prejudicial to the interest of the Revenue. To this effect, the ld. AR of the assesseee relied upon following case laws. 1. Malabar Industrial Co. Ltd vs CIT 243 ITR 83 (SC) 2. Nabha Investments (P) Ltd, vs Union of India [2000] 112 taxman 465 (Delhi). 3. CIT vs Gabriel India Ltd. [1993] 71 Taxman 585 (Bom.) 4. CIT vs Vodafone Essar South Ltd [2012] 28 taxmann.com 273 (Del.) 5.ITO vs D.G. Housing Projects Ltd. [2012] 343 ITR 329 (Del.) 6. CIT vs Nirav Modi [2017] 291 CTR 245 (Bom.) 7. Flextronics Software Systems Ltd. vs CIT [2010] 128 TTJ 107 (Delhi) 8. P.C. Puri vs CIT [1984] 18 Taxman 158 (Del) 9. J.P. Srivastava & Sons (Kanpur) Ltd vs CIT [1978] 111 ITR 326 (All.) 10. CIT vs Nirmal Chemicals Works (P) Ltd. [2009] 222 CTR 593 (Guj.) 11. State Bank of India vs ACIT & Ors [2019] 411 ITR 664 (Bom.) 12. Subrata Banik vs CIT, Central-III (2013) 144 ITD 676 (Kol. Trib) 13. Kannur Distt. Co-op Bank Ltd vs ACIT, Circle 2(1), Kannur[2012] 20 Taxmann.com 667 (Coch) 14. CIT vs Industrial Engineering Project Pvt. Ltd. (1993) 202 ITR 1014 9 AU SMALL FINANCE BANK LTD . JAIPUR VS PCIT -1 , JAIPUR 15. Director of Income Tax (International Taxation) Scindia House Ballard Estate vs Krupp Udhe GMBH, LBS Marg, Vikhroli (ITA No. 2626 of 2009) 16.CIT vs Dhaneswar Rath Institute of Engineering & Medical Sciences (ITA No. 90 of 2022) dated 14-02-2023. 17. Shri Manjunatheshwar Packing Products & Camphor Works (1998) 96 taxman 1 (SC)
2.4 On the other hand, the ld. DR supported the order of the ld. PCIT and submitted that the invocation of Section 263 by the ld. PCIT(A) in the case of the assessee is justified. 2.5 We have heard both the parties and perused the materials available on record. In this case, it is noted that the AO while making assessment in the case of the assessee has accepted the returned income of the assessee with following narration. ‘’On the basis of materials available on record, responses and submissions by the assessee, the returned income is accepted.’’ On examination of the records the ld. PCIT was not satisfied with the assessment order made in the case of the assessee for which the ld. PCIT invoked the provisions of Section 263 of the Act with following narration. ‘’ ……the Assessing Officer failed to apply his mind on the material available on record and failed to invoke the applicable provisions of law. This in turn has resulted in passing of an erroneous order by the Assessing Officer in the case due to non-application of mind to relevant material, an incorrect assumption of facts and an incorrect application of 10 AU SMALL FINANCE BANK LTD . JAIPUR VS PCIT -1 , JAIPUR mind to the law which la prejudicial to the interest of the revenue and hence liable for revision under section 203 of the Income Tax Act. The Hon'ble Supreme Court in the case of Malabar Industrial Limited Vs CIT 243 ITR it has held as under:- ‘’…..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." The ld. PCIT considering the facts and circumstances of the case noted that the assessment order dated 19-03-2021 for the A.Y. 2018-19 passed by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue for the purpose of Section 263 of the Act. Further, the ld. PCIT also observed that the assessment order passed by the AO is in a routine and casual manner and without verification of issues as discussed by her in the order. Thus the order of the AO is liable to revision under explanation (2) clause (b) and clause (a) of Section 263 of the Act and hence she set aside the assessment order to be made afresh in the light of the observations made in her order (supra). We have also taken into consideration the case laws cited by the ld. AR of the assessee. The Bench meticulously pondered on the invocation of Section 263 of the Act by the ld. PCIT and felt that Hon’ble Delhi High Court in the case of M/s. Gee Vee Enterprises 99 ITR 375 held that the Assessing Officer is not only an adjudicator but also an investigator and failure of the AO to conduct the required inquiry and accepting the statement of the assessee