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Income Tax Appellate Tribunal, DELHI BENCH ‘C’, NEW DELHI
ORDER
PER ANIL CHATURVEDI, AM :
This appeal filed by the assessee is directed against the order dated 25.03.2022 of the Pr. Commissioner of Income Tax (Appeals)-Bareilly relating to Assessment Year 2016-17.
Brief facts of the case as culled out from the material on record are as under :-
Jubilant Pharmova Limited vs. PCIT 2 3. The assessee is a company stated to be engaged in the business of manufacturing and sale of chemicals, chemical intermediates, active pharmaceutical ingredients and generation of power. The assessee filed its return of income for A.Y 2016-17 on 28.11.2016 declaring total of income at Rs. 54,63,38,840/-. The case of the assessee was selected for scrutiny and thereafter assessment was framed u/s. 143(3) r.w.s. 144C(3) vide order dated 17.02.2020, and the total income was determined at Rs. 95,52,38,865/-.
Thereafter PCIT called for the assessment records. After perusing the assessment records PCIT was of the view that the assessment order framed by the AO u/s. 143 r.w.s. 144C(3) was erroneous and prejudicial to the interest of Revenue. He thereafter issued notice u/s. 263 of the Act, which was sent to the assessee on 08.03.2022. PCIT after considering the submissions filed by the assessee concluded that the assessment order passed by the AO was erroneous, in so far as prejudicial to the interest of Revenue as per explanation 2A to section 263 of the Act. The basis for arriving at the aforesaid conclusion by PCIT was inter alia for the reason that the provision for bad debts was not examined by the AO with regard to the genuineness of the bad debts. He thereafter vide order passed u/s. 263 dated 25.03.2022 in DIN & Order No. ITBA/REV/F/REV5/2021- 22/1041531884(1), set aside the assessment order passed by AO
Jubilant Pharmova Limited vs. PCIT 3 and directed him to pass fresh assessment order after considering the observations made by him.
Aggrieved by the order of PCIT, assessee is now in appeal and has raised the following grounds:-
1. On the facts and in the circumstances of the case and in law, the Ld. Pr. CIT grossly erred in setting aside the assessment framed w/s 143(3) r.w.s. 144C(3) of the Act dated 17.02.2020 and directing the assessing officer for denovo assessment by erroneously holding that the assessment so framed is erroneous and prejudicial to the interests of the revenue under the provisions of section 263 of the Act, thereby, rendering the impugned order as bad in law.
2. On the facts and in the circumstances of the case and in law, the Ld. Pr. CIT grossly erred in holding that Assessing Officer (A) had failed to make necessary enquiry and verification within the meaning as per Explanation 2 to section 263 of the Act without appreciating that the issues so raised are merely computational adjustments vis-à-vis Audited Financial Statements and the return of income. 3. On the facts and in the circumstances of the case and in law, the Ld. Pr. CIT grossly erred in invoking Explanation 2 to section 263 of the Act to set aside the original assessment without undertaking any independent and factual inquiry to come to the conclusion that assessment so framed is erroneous and prejudicial to the interests of the revenue. 4. On the facts and in the circumstances of the case and in law, the Ld. Pr. CIT grossly erred in passing impugned order under section 263 of the Act without appreciating the merits of the submission made by the assessee in response to the Jubilant Pharmova Limited vs. PCIT 4 show cause notice, thereby, rendering the impugned order as perverse, mechanical and liable to be set aside.
5. That on the facts and in the circumstances of the case and in law, Ld. PCIT failed to appreciate that the deduction of expenses under the head provision / write-off bad debts/ irrecoverable advances (net) amounting to INR 12,72,99,842 ( mentioned as 12,73,00,000 in the order) has been claimed strictly in accordance with the provisions of the Act. 5.1 Without prejudice to the above ground, that the Ld. PCIT failed to appreciate that amount of INR 2,96 ,99,151 (part of net expense of IN 12,72,99,842 debited to Profit and Loss Account) representing liabilities written back during the year was duly offered to tax by the Appellant in its return of income for the assessment year 2016-17. 5.2 Without prejudice to the above grounds, that, Ld. PCIT failed to appreciate that amount of IN 43,93,653 part of net expense of INR 12,72,99,842 debited to Profit and Loss Account) representing bad debts written off during the year was duly claimed by the Appellant in its return of income for the assessment year 2016-17 in accordance with the provisions of the Act and the decision of the Hon'ble Supreme Court in the case of TRF Ltd. v. CIT (2010) 323 ITR 397 as well as Hon'ble CBDT Circular no. 12/2016 dated May 30, 2016. 5.3 Without prejudice to the above grounds, that, Ld. PCIT failed to appreciate that amount of INR 15,26,05,340 (part of net expense of INR 12,72,99,842 debited to Profit and Loss Account) representing write-off of interest receivable during the year was duly claimed by the Appellant in its return of income for the year under consideration in accordance with the provisions of the Act and the decision of the Hon' ble Supreme Court in the case of TRF Ltd. v. CIT (2010) 323 ITR 397 as well as Hon' ble CBDT Circular no. 12/2016 dated May 30, 2016.
Jubilant Pharmova Limited vs. PCIT 5
Without prejudice to the above grounds, that, Ld. PCIT failed to appreciate that "amortization of foreign currency monetary item translation difference account" amounting to INR 25,18,95,557 ( part one of INR 25,59,20,557) had been suo- moto offered to tax by the Appellant in its return of income for the assessment year 2016-17.
That, Ld. PCIT failed to appreciate that the deduction claimed by the Appellant of INR 40,25,000 (part two of INR 25,59,20,557) towards mark to market loss realized loss) in relation to foreign exchange forward contract for a revenue transaction is an allowable business expenditure. 8. That, Ld. PCIT erred in holding that AO has failed to make necessary enquiry and bring on record all facts without appreciating that specific query was duly raised in the assessment proceeding on the issue of provision for doubtful receivables and all the details in respect thereof were duly filed by the Appellant during the course of the original assessment proceedings. 8.1 Without prejudice to the above ground, that, Ld. PCIT failed to appreciate that the Appellant had reversed the "excess provision for doubtful trade receivable" of INR 38,18,704 that was credited to profit and loss account during the assessment year 2016-17 was duly added back to the returned total income in year of creation of such provision and reversal of such provision already disallowed in earlier years is not a taxable sum.
6. Before us at the outset, Ld. AR submitted that assessee does not wish to press grounds no. 5 to 8.1. In view of the aforesaid submissions of the Ld. AR, the aforesaid grounds are dismissed as not pressed.
Jubilant Pharmova Limited vs. PCIT 6 7. Learned AR thereafter submitted that grounds no. 1 to 4 are interconnected and are with respect to invocation of powers by PCIT u/s. 263 of the Act.
Before us, Ld. AR submitted that in the present case the pre-requisite conditions specified u/s. 263 of the Act for invoking the revisionary proceedings were not satisfied and therefore the proceedings initiated u/s. 263 of the Act lacks jurisdiction and are bad in law. He submitted that u/s. 263 of the Act Ld. CIT/PCIT can revise an order passed by the AO only on the satisfaction of twin conditions namely (i) the order is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent i.e. if either the order of Revenue is erroneous but is not prejudicial to the interest of Revenue or if it is not erroneous but is prejudicial to the interest of Revenue-recourse cannot be had to section 263(1). He further submitted that the error envisaged by section 263 is not one which depends on possibility of guess work but it should be actual error either of facts or of law. With respect to the invoking of explanation 2A to section 263 of the Act, learned AR submitted that the law is now very well settled that the revisionary jurisdiction u/s. 263 of the Act could be invoked only when an assessment was completed without making enquiries or verification and not where enquiries were made. In support of his aforesaid contentions he placed reliance on the decision rendered by Hon’ble Delhi High Court in the case CIT vs. Sunbeam Auto Ltd. reported in 189 Taxman
Jubilant Pharmova Limited vs. PCIT 7 436 (Delhi), and Delhi High Court in the case of Vikas Polymers [2010] 236 CTR 476 (Delhi) and other decisions cited in his synopsis.
He thereafter submitted that the revisionary proceedings u/s. 263 have been invoked in respect of deduction of provision for bad debts which were written back amounting of Rs. 38,18,704/- from the total income of the assessee in the year under consideration on the presumption that no enquiries were conducted by the learned AO with respect to the aforesaid claim, in the course original assessment. Learned AR thereafter pointed to the notice issued u/s. 142(1) dated 23.09.2019, the copy which is placed at page 43 to 45 of the paper book and from the aforesaid notice he pointed to query at point 6 wherein assessee was asked to furnish the details of large amount allowable as deduction claimed in schedule BP of ITR with evidences. He thereafter pointed to the assessee’s reply dated 31.10.2019 and the relevant portion of reply at page 30 and 33 of the paper book wherein it was inter alia submitted that the during A.Y. 2016-17 assessee had written back provision for doubtful debts amounting to Rs. 38,18,704/- and included the same in its Profit and Loss account. It was further submitted that since the company had suo motto added back the said provision in the computation of income of earlier years therefore during the year under consideration it was charged to Profit and Loss account therefore the same has been claimed as deduction in the current
Jubilant Pharmova Limited vs. PCIT 8 assessment year i.e. 2016-17 to avoid double taxation of the same item. He thereafter submitted that subsequent to the reply given by the assessee, in the notices issued on 31.10.2019 and the final show cause notice dated 12.12.2019 (the copy of which are attached at page 46 to 49 of the paper book) no further clarification was sought on the above issue. He therefore submitted that the AO in the course of assessment had duly enquired about the issue of provision for doubtful debts and on the finding the same to be satisfactory no addition was made. He therefore submitted that the allegation of PCIT about the AO having failed to carryout necessary enquiries in respect of the aforesaid deduction and assessee not submitting details in support of the claim was incorrect. He also placed reliance on the decision rendered by Hon’ble Delhi High Court in the case PCIT vs. Brahma Centre Development Pvt. Ltd. in & 118 of 2021 order dated 05.07.2021. He submitted that the Hon’ble Delhi High Court in the case of Brahma Centre Development Pvt. Ltd. (supra) has held that the standard to be adopted while dealing with the issue as to whether or not the AO has carried out an enquiry or verification all that the court is required ascertain is as to whether the AO has applied his mind. The fact that AO has not given reasons in the assessment order is not always indicative of whether or not he applied his mind. He submitted that the Hon’ble High Court has further held that inadequacy in conduct of enquiry cannot be the reason based on which powers u/s. 263 of the Act can be invoked to interdict an Jubilant Pharmova Limited vs. PCIT 9 assessment order. He also pointed to the reply given by the assessee before PCIT and submitted that no enquiry of finding has been rendered by the PCIT on the issue. He therefore submitted that the order of PCIT be set aside.
Learned DR on the other hand took us through the order of PCIT and supported his order.
We have heard the rival submissions and perused the materials available on record. The issue in the present case is about the invoking of provisions of Section 263 by Ld. PCIT. Section 263(1) of the Act, the powers under which Learned PCIT has assumed power for revision reads as under : “(1) The Principal Chief Commissioner or Chief Commissioner or the Principal Commissioner or 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 in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be 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.”
The reading of the above provision makes it very clear that the power of suo motu revision u/s 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision
Jubilant Pharmova Limited vs. PCIT 10 u/s 263, namely (i) the order is erroneous (ii) by virtue of being erroneous, and prejudice has been caused to the interests of the Revenue.
Hon’ble Apex Court in the case of Malabar Industrial Co., Ltd., Vs CIT reported in (2000) 243 ITR 83 (SC) has held that PCIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent - if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to Sec. 263(1). It was further held that the provision cannot be invoked to correct each and every type of mistake or error committed by the AO; when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law.
The perusal of notice u/s 142(1) of the Act dated 23.09.2019 issued by AO at the time of original assessment proceedings (the copy of which is placed at Page 43 & 44 of the paper book) reveals that AO vide Pt. No.6 has asked the assessee to “furnish the details of large amount allowable as deduction claimed in Schedule BP of ITR with evidences” (emphasis supplied by us).
Jubilant Pharmova Limited vs. PCIT 11 The aforesaid query was inter alia responded by the assessee vide reply dated 31.10.2019 (the copy of which is placed at page 28 to 33 of the paper book). As far as the reply with respect to the provision for doubtful debts of Rs.36,18,704/- is concerned assessee had replied that “since the company had suo moto added back the said provision in the computation of income of earlier years during which the same was charged to P & L account therefore the same has been claimed as deduction in the current assessment year i.e. A.Y. 2016-17 to avoid double taxation of the same item”. (Refer PB 33 of the paper book). It is also a fact that after the receipt of the aforesaid reply no query was raised by the AO on the issue of provision for doubtful debts vide notice u/s 142(1) dated 12.12.2019 (page 48 of the paper book) nor any further details were furnished by assessee on the issue as is evident from the letter to AO dated 04.12.2018 (copy placed at page 67 of the paper book). It is thus evident that though the assessee was asked to justify the claim of expenses with necessary evidences, the assessee had merely explained its position by way of note without giving its details like in which year the amount of provision that was written back, what was its breakup. It is also a fact that no reconciliation of the same was furnished by the assessee to AO and the AO had accepted the contentions of the assessee by not making any addition of the amount of such provision for doubtful debts. In such a situation, we are of the view that though the AO had called for the required information of the issue and in the absence of full details
Jubilant Pharmova Limited vs. PCIT 12 furnished by the assessee on the issue, there was no application of mind on the issue. We are of the view that AO merely seeking information on an issue and the assessee not giving the full information, cannot be considered to be sufficient. It is necessary that AO actually applies his mind to the information that is supplied by assessee and after considering the information AO is required to form an opinion as to whether the assessee is actually entitled to deduction. We are of the view that there is a distinction between merely calling for information on a particular issue and considering such information with due application of mind if and when such information is actually provided by the assessee. Thus in the present facts, we are of the view that on the issue of allowing of provision for doubtful debts, the claim of the assessee was allowed which according to us is a case of “no inquiry” and not a case of “inadequate inquiry” and consequently a case of non application of mind to the material on record. In the present case since the required information was not furnished by the assessee therefore it cannot be considered to be a case where the AO was satisfied with respect to the query by some other explanation offered by assessee. Merely asking a question which goes to the root of the matter and not carrying it further, would according to us fall in the category of non inquiry. We find that Hon’ble Apex Court in the case of Malabar Industries Co. (supra) has held that “an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous and Jubilant Pharmova Limited vs. PCIT 13 in the same category fall orders passed without applying the principals of natural justice or without application of mind.”
The Hon’ble Delhi High Court in the case of Duggal & Co. vs. CIT (1996) 220 ITR 456 (Del) has held that the Income tax officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is incumbent on the Income- tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent and the word “erroneous” in Section 263 of the Act includes the failure to make such an inquiry. It has further held that the order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.
Considering the totality of the facts of the present case seen in the light of the decisions cited therein above, we are of the view that PCIT was fully justified in invoking the provisions of Section 263 of the Act in the present case and therefore there is no merit in the grounds raised by assesse. Thus the grounds of the assessee are dismissed.
Jubilant Pharmova Limited vs. PCIT 14
In the result, appeal of the assessee is dismissed.
Order pronounced in the open court on 11.05.2023