Revision of assessment on write off of loan denied where AO applied mind; revisional order quashed and appeal allowed

Revision of assessment on the write off of a loan to a joint venture raised the question whether the assessing officer had failed to examine earlier year entries and apply mind, justifying exercise of revisional jurisdiction. The tribunal found the assessing officer had issued notices and received replies, and that two reasonable views existed on allowability and capital-versus-revenue character; where AO applies mind and takes one view, exercise of revisional powers is impermissible. Comparative decisions showing mere non inquiry were distinguished. Consequently the revisional order was quashed and the assessee's appeal allowed.

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Issues: Whether the Principal Commissioner of Income Tax was justified in invoking revisionary jurisdiction under section 263 of the Income-tax Act, 1961 to set aside the assessment order for de novo consideration of the write-off of loans to joint venture amounting to Rs. 4,54,26,124/-.

Analysis: The issue arises from the ld. PCIT holding that the assessment order was erroneous and prejudicial to the revenue because the Assessing Officer allegedly failed to verify and inquire into the write-off of loans and whether the expenditure was capital or revenue in nature. The Tribunal examined the assessment record, the notices issued under section 142(1) and 143(2), the replies furnished by the assessee, and authorities on the scope of section 263. The Tribunal applied the legal framework distinguishing cases of no inquiry or lack of verification (where section 263 may be invoked) from cases where the Assessing Officer has examined evidence and taken one of two possible plausible views. Reliance was placed on recent Supreme Court and High Court precedents establishing that section 263 cannot be invoked merely because the Revisional Authority disagrees with an Assessing Officer's view where the Assessing Officer has applied his mind and made inquiries; invocation is permissible where there was no inquiry or no application of mind.

Conclusion: The Tribunal concluded that the Assessing Officer had issued relevant notices, examined the assessee's submissions and documents, and took a plausible view allowing the deduction; therefore the twin conditions for invoking section 263 were not satisfied. The order passed by the Principal Commissioner of Income Tax under section 263 was not sustainable and is set aside; the appeal is allowed in favour of the assessee.

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