2015 (5) TMI 860 - AT - Income Tax

Tribunal overturns Tax Commissioner's decision on bad debt claim, finding no error.

The Tribunal set aside the Commissioner of Income Tax's order under Section 263, finding that the assessment order was not erroneous or prejudicial to ... Revision u/s 263 - assessee has made only provision for doubtful debt and has not made a write off - Held that:- The details called for by the Assessing Officer were furnished by the assessee and such details were accepted by the Assessing Officer and in such circumstances, it cannot be said that there is a lack of enquiry. There was an enquiry, though it is inadequate and in such circumstances, in view of the above decision of CIT Vs. Development Bank Ltd. (2010 (2) TMI 161 - BOMBAY HIGH COURT) the Commissioner of Income Tax lacks jurisdiction under section 263 of the Act to revise the assessment order. The Hon’ble High Court in CIT Vs. U.P.Rajkiya Nirman Nigam Ltd [2013 (7) TMI 176 - ALLAHABAD HIGH COURT] held that where books are not closed and not signed by the Board of Directors and not adopted by the shareholders as per the Companies Act, it is legally permissible to make adjustments before they are finally adopted. Hence, in the case of the assessee when the books are closed and adopted by the Board of Directors and shareholders on 18.08.2009 by which time the entries were passed writing off the irrecoverable claims to the profit and loss account and party accounts. Thus, even on merits, the claims have to be allowed in view of the above Hon’ble Allahabad High Court decision. - Decided in favour of assesse. Issues Involved:1. Validity of the Commissioner of Income Tax's order under Section 263 of the Income Tax Act.2. Whether the assessee's claim of bad debts was correctly disallowed for the assessment year 2009-10.3. Determination of whether the bad debt was actually written off or merely provisioned.4. Examination of the jurisdiction and authority of the Commissioner of Income Tax under Section 263.Detailed Analysis:1. Validity of the Commissioner of Income Tax's order under Section 263 of the Income Tax Act:The appeal was filed against the order of the Commissioner of Income Tax (CIT) under Section 263, which proposed to revise the assessment order dated 26.12.2011. The CIT held that the assessment order was erroneous and prejudicial to the interests of the revenue because the Assessing Officer (AO) allowed the bad debts claimed by the assessee without proper verification. The CIT assumed jurisdiction under Section 263, stating that the AO accepted the assessee's version without verifying that the bad debt was actually written off and not just provisioned.2. Whether the assessee's claim of bad debts was correctly disallowed for the assessment year 2009-10:The assessee claimed that the bad debt of Rs. 50 lakhs from BILT Power Ltd. was written off in compliance with Section 36(2) of the Income Tax Act. The assessee provided various details, including ledger copies and a report from IIT Delhi, which substantiated that the drawings supplied were defective, leading to the roof collapse. The CIT, however, held that the claim was not allowable for the assessment year 2009-10 and directed the AO to examine the debt in subsequent years if the conditions stipulated in the Act were satisfied.3. Determination of whether the bad debt was actually written off or merely provisioned:The assessee contended that the bad debt was written off by debiting the profit and loss account and crediting the debtor's account, not merely provisioned. The CIT concluded that the bad debt was only provisioned based on the claim letter received in August 2009, after the accounts were closed on 31.03.2009. The assessee argued that the accounts were finalized and adopted by the Board on 18.08.2009, and the write-off was made in commercial prudence and in accordance with Section 36(2).4. Examination of the jurisdiction and authority of the Commissioner of Income Tax under Section 263:The Tribunal examined whether the CIT had the authority to revise the assessment order under Section 263. It was noted that the AO had called for details and conducted an enquiry during the assessment proceedings. The Tribunal referred to various judicial precedents, including CIT Vs. Amit Corporation and CIT Vs. Sunbeam Auto Ltd., which held that if the AO had made enquiries and accepted the assessee's explanation, the CIT cannot invoke Section 263 merely because he had a different opinion. The Tribunal concluded that the AO had conducted an enquiry, and the CIT's assumption of jurisdiction under Section 263 was incorrect.Conclusion:The Tribunal set aside the order of the Commissioner of Income Tax, holding that the AO had conducted a proper enquiry and the assessment order was neither erroneous nor prejudicial to the interests of the revenue. The appeal of the assessee was allowed, and it was held that the bad debt claim was correctly written off in compliance with the provisions of the Income Tax Act.Order Pronouncement:The appeal of the assessee was allowed, and the order was pronounced in the open court on 15th April 2015 at Chennai.