2021 (11) TMI 922 - AT - Income Tax

Tax Tribunal overturns revisionary order, reinstates assessment. Proper inquiries by AO upheld. Lack of findings under Section 263.

M/s. M.P. State Industrial Development Corporation Ltd. Bhopal Versus Pr. CIT -1, Bhopal

The Tribunal quashed the revisionary order under Section 263 and reinstated the assessment order under Section 143(3). The appeal was allowed as the ... Revision u/s 263 by CIT - Addition on provision of section 41(1) - excess provision made for bad and doubtful debts on ICD was written back in respect of recovery of ICD - HELD THAT:- As during the impugned year assessee was engaged in the process of recovery of loans and interest which was granted earlier and no fresh lending was done in the impugned year. Thus, in the impugned year when the excess provision made for bad and doubtful debts on ICD was written back in respect of recovery of ICD from Som Distilleries Limited, the same was deducted from the net profit as per the audited financial statements in computing income under the head profit and gains from business or profession - no benefit claimed by the assessee in terms of section 41(1) of the Act in respect of the impugned amount. It is also evident that there is no tax advantage derived by the assessee in respect of the impugned amount. It is worth noting that provisions of section 41(1) are attracted only when any allowance or deduction has been claimed in respect of loss, expenditure or trading liability and the assessee has obtained in cash or in any other manner any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof. We find that Ld. Pr.CIT has grossly erred in applying the provisions of section 41(1) in the present case which in no situation is applicable in the facts of the present case. We find that during the course of the assessment proceeding, the Ld. AO specifically asked Vide questionnaire issued on 17.04.2017, to explain large any other deduction claimed in sch. BP creating a loss without any income in Profit & Loss Account and explain mismatch between income/receipt credited to Profit & Loss Account considered under other heads of income and income from heads of income other than business/profession, which was replied. AO conducted proper enquiry to verify the withdrawal of provision of ICD and allowed the claim on being satisfied with the details and explanation. Thus, the decision of ld. AO cannot be held to be erroneous. We find that the ld. AO has applied his mind while conducting the assessment proceedings. Under these circumstances, where a detailed enquiry has been conducted on particular issue and the Ld. AO has made proper application of mind on the details filed by the assessee and have conducted sufficient enquiry the assessment order cannot be held to be erroneous so far as prejudicial to the interest of revenue. We accordingly quash the impugned revisionary order framed u/s 263 of the Act and restore the assessment order u/s 143(3) - Decided against revenue. Issues Involved:1. Legality of the order passed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act.2. Whether the order passed under Section 263 directing the Assessing Officer (AO) to reframe the assessment was vague, mechanical, and without application of mind.3. Whether the Pr. CIT identified any specific issue in the notices issued under Section 263.4. Applicability of the amendment made to Section 263 effective from June 1, 2015.5. Examination of whether the AO's order was casual, hurried, and failed to examine all material facts.6. Whether the order under Section 263 was passed without giving proper opportunity to the assessee.7. Dependency and interrelation of the grounds raised in the appeal.Detailed Analysis:1. Legality of the Order Passed by Pr. CIT under Section 263:The appellant challenged the legality of the Pr. CIT’s order passed under Section 263, arguing it was illegal and bad in law. The Tribunal noted that the Pr. CIT invoked Section 263 based on the audit objection that the AO's order was erroneous and prejudicial to the interest of revenue because the AO did not add back the recovered amount of Rs. 14,75,00,000, which was classified as loss assets. The Tribunal found that the AO had examined the details, applied his mind, and made due verification before framing the assessment, thus the Pr. CIT was not justified in alleging that the AO’s order was erroneous and prejudicial to the revenue.2. Vagueness and Mechanical Nature of the Order under Section 263:The appellant argued that the order under Section 263 was vague, mechanical, and without application of mind. The Tribunal observed that the Pr. CIT did not consider the submissions and documentary evidence placed on record by the assessee. The Pr. CIT concluded that the AO's order was erroneous without specific findings or detailed examination of the written submissions and evidence. Therefore, the Tribunal found the order under Section 263 to be vague and mechanical.3. Identification of Specific Issues in Notices under Section 263:The appellant contended that the Pr. CIT did not identify any specific issue in the notices issued under Section 263. The Tribunal noted that the Pr. CIT’s show cause notice mentioned the recovered amount of Rs. 14,75,00,000, which was classified as loss assets, should have been added back under Section 41(1). However, the Tribunal found that the AO had already examined this issue during the assessment proceedings, and the Pr. CIT did not provide any new specific issue or material to justify the revision.4. Applicability of Amendment to Section 263 Effective from June 1, 2015:The appellant argued that the revision order passed under Section 263 pursuant to the amendment effective from June 1, 2015, was bad in law. The Tribunal did not find any specific discussion or ruling on this argument, as the primary focus was on the erroneous and prejudicial nature of the AO’s order and the application of Section 41(1).5. Examination of AO's Order for Being Casual and Hurried:The appellant claimed that the Pr. CIT erred in holding that the AO's order was casual, hurried, and did not examine all material facts. The Tribunal observed that the AO had conducted proper enquiry, verified the withdrawal of provision of ICD amounting to Rs. 14,75,00,000, and allowed the claim after being satisfied with the details and explanations provided by the assessee. Thus, the Tribunal found that the AO’s order was neither casual nor hurried.6. Proper Opportunity to the Assessee:The appellant argued that the order under Section 263 was passed without giving proper opportunity to the assessee. The Tribunal noted that the Pr. CIT did issue a show cause notice and provided an opportunity for the assessee to present its case. However, the Tribunal found that the Pr. CIT did not consider the submissions and documentary evidence properly, which led to an erroneous conclusion.7. Dependency and Interrelation of Grounds Raised:The appellant stated that each ground of appeal was dependent on and without prejudice to the other grounds. The Tribunal’s analysis and decision addressed each ground comprehensively, finding that the AO had conducted proper enquiry, applied his mind, and the Pr. CIT’s order under Section 263 was not justified.Conclusion:The Tribunal quashed the revisionary order framed under Section 263 of the Act and restored the assessment order under Section 143(3) dated 13.02.2020. The appeal filed by the assessee was allowed, as the Tribunal found that the AO had made proper enquiries, applied his mind, and the Pr. CIT did not provide specific findings or conduct sufficient enquiry to justify the revision under Section 263.