2023 (4) TMI 234 - AT - Income Tax

Tribunal Upholds Deduction for Bad Debt, Quashes Revisionary Order

Titagarh Wagons Ltd. Versus Commissioner of Income Tax (LTU), Kolkata

The Tribunal quashed the revisionary order passed under Section 263 of the Income-tax Act, concluding that the Assessing Officer had conducted a proper ... Revision u/s 263 by CIT - claim of deduction on account of bad debt actually written off in the books of the assessee - Assessee stated that in the year under consideration he had actually written off the amount of bad debts in the books of account and thus the same was claimed as deduction from the computation of income which was allowed by the AO after due examination and verification of the records and application of mind - HELD THAT:- AO has duly examined and verified the records in respect of claim made by the assessee in the relevant disclosures were made in the audited financial statements of the assessee for AY 2011-12, placed on record. Assessee had given advance in earlier years for supply of raw material to Greysham Co. Pvt. Ltd. Supplies were made to the assessee in the earlier years. Subsequently, dispute arose between the assessee and the supplier company resulting in the claim of bad debts by the assessee towards the balance advance lying with the supplier. The said advance against the supply of raw material is claimed by the assessee as a business loss and is allowable in computing the income of the assessee under the Act. From the above noted facts and observations, we find that the revisionary proceeding invoked by Ld. CIT did not meet the twin criterion enunciated in section 263 of the Act. Hon'ble Supreme Court in the case of Malabar Industries [2000 (2) TMI 10 - SUPREME COURT] held that this phrase i.e. 'prejudicial to the interest of the revenue'' has to be read in conjunction with an erroneous order passed by the AO. Their Lordships held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the AO adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the AO is unsustainable in law. Thus we are convinced to quash the impugned revisionary order passed u/s. 263 - Decided in favour of assessee. Issues Involved:1. Initiation of revisionary proceedings under Section 263 of the Income-tax Act, 1961.2. Claim of deduction of Rs. 3,24,45,459/- on account of bad debt actually written off.Summary of Judgment:1. Initiation of Revisionary Proceedings under Section 263 of the Act:The assessee challenged the initiation of revisionary proceedings under Section 263 of the Income-tax Act, 1961, by the Ld. CIT (LTU), Kolkata. The primary contention was that the Assessing Officer (AO) had already examined the claim of bad debt and allowed it after due application of mind in AY 2013-14. The assessee argued that the revisionary proceedings were unwarranted as the AO had conducted a detailed inquiry and accepted the claim based on substantial evidence.2. Claim of Deduction of Rs. 3,24,45,459/- on Account of Bad Debt:The assessee, a public company engaged in manufacturing and selling railway wagons and other equipment, claimed a deduction of Rs. 3,24,45,459/- as bad debt for an advance given to its subsidiary, Greysham & Co. Pvt. Ltd. The AO allowed this deduction during the assessment for AY 2013-14. However, the Ld. CIT (LTU) observed that the same amount had been claimed as a deduction in AY 2011-12, which was disallowed by the AO and accepted by the assessee at the appellate stage. The Ld. CIT (LTU) initiated revisionary proceedings, arguing that the AO's order was erroneous and prejudicial to the interest of the revenue.Tribunal's Findings:- Examination of Records: The Tribunal noted that the AO had duly examined and verified the records concerning the bad debt claim. The AO had made specific inquiries, and the assessee had provided detailed submissions and documentary evidence.- Previous Disallowance: The Tribunal acknowledged that the same amount had been disallowed in AY 2011-12, and the assessee had accepted this disallowance. The Tribunal also noted an affidavit from a director of the assessee affirming that the disallowance for AY 2011-12 was not contested further.- Business Loss: The Tribunal accepted the assessee's contention that the advance given for the supply of raw materials, which was written off due to irrecoverability, constituted a business loss allowable under the Act.- Legal Precedents: The Tribunal referred to the Supreme Court's decision in Malabar Industries Ltd. vs. CIT, emphasizing that for revisionary jurisdiction under Section 263, the order must be both erroneous and prejudicial to the interest of the revenue. The Tribunal found that the AO's order did not meet these criteria.Conclusion:The Tribunal quashed the revisionary order passed under Section 263 of the Act, concluding that the AO had conducted a proper inquiry and allowed the claim based on substantial evidence. The Tribunal allowed the appeal of the assessee, maintaining that the deduction for bad debt was rightly claimed and allowed.Order Pronouncement:The appeal of the assessee was allowed, and the order was pronounced in the open court on 27th March 2023.