2022 (6) TMI 1003 - AT - Income Tax

Tribunal overturns PCIT's revision order under Income Tax Act, emphasizing thorough tax assessments

The Tribunal allowed the appellant's appeal, setting aside the PCIT's revision order under Section 263 of the Income Tax Act, 1961. The Tribunal found ... Revision u/s 263 by CIT - deduction u/s 36(1)(viia) - Whether AO order does not satisfy the twin conditions erroneous and prejudicial to the interest of the revenue and hence the revision order passed by the Pr.CIT is bad in law? - HELD THAT:- The assessee has furnished the details in the course of assessment in lieu of notice issued u/s 142(1) of the Act and further the claim of the assessee has been accepted in earlier year. In case the claim was not allowed by the revenue, the assessee has filed an appeal before the Honble Tribunal and the directions are issued to the Assessing officer for allow ability of claim. We find that the A.O. though has not mentioned the specific claim allowed in respect of the bad debts in the assessment order. But the fact remains that the A.O has issued a notice u/s 142(1) of the Act on claim of bad debts and the explanations filed are demonstrated by the Ld.AR. Whereas the Pr.CIT has not considered the facts that the A.O has called for the information and the case was discussed and there cannot be any non application of mind by the A.O. We find that the A.O has considered one of the possible views based on the information and it is not necessary that the A.O should put all the discussions/observations in the assessment order. Further as per explanations (2) to sec 263 of the Act the authority has to invoke provisions only when there is no verification and enquiry conducted by the A.O. Whereas the A.O has applied his mind and verified the facts. If any query is raised in the assessment proceedings and it was responded by the assessee, mere fact that it is not dealt with by the A.O. in the order cannot implied that there is no application of mind. Hence, the Pr.CIT action cannot be acceptable as the order passed by the A.O. does not satisfy the twin conditions of erroneous and prejudicial to the interest of the revenue. Accordingly, we set aside the revision order and allow the grounds of appeal in favour of the assessee. Issues:- Appeal against order passed by Principle Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961.- Validity of invoking provisions of Section 263.- Claim of deduction under Section 36(1)(viia) for bad debts.- Compliance with procedural requirements and verification of bad debts claim.- Application of mind by Assessing Officer (A.O) and correctness of the order passed.- Judicial decisions and precedents regarding similar issues.- Relief granted in earlier years by the Hon'ble ITAT.- Challenge by the department and pending cases before the Hon'ble High Court.- Decision on the appeal filed by the assessee.Analysis:1. The appellant challenged the PCIT's order under Section 263, arguing that the A.O's order under Section 143(3) was not erroneous or prejudicial to the revenue's interest. The PCIT questioned the deduction claim under Section 36(1)(viia) for bad debts, alleging lack of verification. The appellant contended that the claim had been allowed in previous years and the A.O had considered the issue adequately.2. The appellant cooperatively bank filed its return for A.Y 2015-16 showing nil income. After scrutiny, the A.O accepted the returned income. The PCIT, however, disagreed regarding the bad debts claim, leading to the Section 263 notice. The appellant argued that the A.O had verified the claim, which had been allowed in earlier assessments.3. The appellant's reply highlighted the history of the bad debts claim, emphasizing compliance with procedural requirements and past approvals. The PCIT's decision under Section 263 was based on procedural lapses, including the absence of an auditor's certificate. The Tribunal noted the appellant's consistent filing of necessary details and compliance with previous decisions.4. During the hearing, the appellant stressed the A.O's consideration of the bad debts claim and cited precedents where similar claims were allowed. The Tribunal analyzed the A.O's actions, emphasizing the need for verification and enquiry before invoking Section 263. The Tribunal referenced the appellant's submissions and financial statements as evidence of compliance.5. The Tribunal found that the A.O had adequately considered the bad debts claim, despite not explicitly mentioning it in the order. Relying on the High Court's decision in a similar case, the Tribunal concluded that the PCIT's action was unwarranted as the A.O's order met the necessary criteria. The Tribunal allowed the appeal, setting aside the PCIT's revision order.6. Considering the relief granted in earlier years and the department's challenges, the Tribunal upheld the A.O's order as meeting the legal standards. The Tribunal emphasized the importance of proper consideration and application of mind by the A.O in tax assessments. The appeal filed by the assessee was allowed, and the revision order was set aside.7. The Tribunal's decision, based on thorough analysis of procedural compliance and past precedents, highlighted the significance of proper verification and consideration in tax assessments. The Tribunal's ruling in favor of the appellant underscored the importance of adherence to legal requirements and the need for a comprehensive review of claims and orders in tax matters.