2023 (9) TMI 1304 - AT - Income Tax

Tribunal Confirms Section 263 Action Due to Inadequate AO Examination of Bad Debts, Calls for Fresh Assessment.

Jubilant Pharmova Limited (Erstwhile Jubilant Life Sciences Limited) Versus The Pr. CIT, Bareilly

The Tribunal upheld the PCIT's invocation of Section 263 of the Income Tax Act, determining that the AO's inadequate examination of the provision for bad ... Revision u/s 263 - “no inquiry” v/s “inadequate inquiry” - As per CIT deduction of provision for bad debts which were written back 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 - HELD THAT:- 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. [2000 (2) TMI 10 - SUPREME COURT] has held that “an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous and in the same category fall orders passed without applying the principals of natural justice or without application of mind.” Also in the case of Duggal & Co. [1994 (8) TMI 6 - DELHI HIGH COURT] 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. Thus 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 assessee. Grounds of the assessee are dismissed. Issues Involved:1. Invocation of powers by PCIT under Section 263 of the Income Tax Act.2. Examination of the provision for bad debts and its genuineness.3. Adequacy of the enquiry conducted by the Assessing Officer (AO).Summary:Invocation of Powers by PCIT under Section 263:The assessee appealed against the order dated 25.03.2022 by the Pr. Commissioner of Income Tax (Appeals)-Bareilly for the Assessment Year 2016-17. The PCIT had called for the assessment records and, after review, issued a notice under Section 263 of the Income Tax Act, asserting that the assessment order framed by the AO was erroneous and prejudicial to the interest of Revenue. The PCIT concluded that the AO had not adequately examined the provision for bad debts, thus setting aside the assessment order and directing a fresh assessment.Examination of Provision for Bad Debts:The assessee contended that the provision for bad debts was claimed in accordance with the Act's provisions and supported by the decision of the Hon'ble Supreme Court in TRF Ltd. v. CIT (2010) 323 ITR 397 and CBDT Circular no. 12/2016. The assessee argued that the AO had made necessary enquiries and verifications during the original assessment proceedings, as evidenced by the notices and replies exchanged. However, the PCIT found that the AO had not conducted a thorough examination of the provision for bad debts, leading to the invocation of Section 263.Adequacy of Enquiry by AO:The Tribunal observed that the AO had issued notices and received replies from the assessee regarding the provision for bad debts. However, the AO did not seek further clarification or conduct a detailed enquiry into the matter. The Tribunal noted that merely calling for information without applying judicial mind and not pursuing further enquiries constitutes a 'no inquiry' scenario. The Tribunal referred to the Hon'ble Apex Court's decision in Malabar Industrial Co. Ltd. v. CIT, which stated that orders passed without proper enquiry or application of mind are erroneous and prejudicial to the interests of Revenue.Conclusion:The Tribunal upheld the PCIT's invocation of Section 263, concluding that the AO's failure to conduct a thorough enquiry into the provision for bad debts rendered the original assessment order erroneous and prejudicial to the interests of Revenue. The appeal by the assessee was dismissed.Order:The appeal of the assessee is dismissed. Order pronounced in the open court on 11.05.2023.