2025 (7) TMI 1975 - AT - Income Tax

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 ... Revision u/s 263 - write off of loan given by the assessee to JV company - As per CIT AO has merely dealt with the allowability of expenditure u/s. 35D but has failed to verify the loans in the books of account of the assessee in earlier years, where the assessee has written off provision - case of no inquiry or lack of proper inquiry - HELD THAT:- PCIT in the impugned order has stated that the expenditure towards the write off of loan has to be determined where the same is in the nature of capital or revenue for which various parameters ought to have been examined by the AO which according to the ld. PCIT has not been carried on during the assessment proceeding. This action substantiates the proposition that when there are two views possible and the AO has taken one of the possible views, the ld. PCIT cannot invoke the revisional powers u/s. 263 of the Act on the said facts. It has been reiterated in a catena of decisions delivered by the Hon'ble High Courts and coordinate benches. Considering the submission of the DR and on perusal of the decisions relied upon by the ld. DR viz. in the case of Apollo Tyres Ltd [2024 (6) TMI 524 - ITAT COCHIN]where it is a case of no inquiry on pertinent issues by the ld. AO and there has been no application of mind, thereby rendering the order erroneous and prejudicial to the interest of the revenue. Similar are the cases relied upon by the ld. DR, where it is clearly a case of no inquiry or lack of proper inquiry which has been reiterated in these decisions, which in are considered opinion is distinguishable on the facts of the assessee’s case were evidently it is not a case of no inquiry or lack of proper inquiry which has been fairly substantiated by the notices issued by the ld. AO and the reply given by the assessee for the said notices. Though there are contrary views taken in the case of M/s. V-Con Intergrated Solutions Pvt. Ltd. [2025 (4) TMI 1137 - SC ORDER (LB)] which has already been succinctly discussed herein above to decide this issue in favour of the assessee. Thus, order passed by the ld. PCIT u/s. 263 of the Act is not sustainable and is liable to be set aside. Appeal of assessee allowed. 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.