Deductibility of provisions for standard assets: allowed where precedent supports the view and revisionary reopening lacks demonstrated failure of inquiry.

Revisionary jurisdiction to reopen assessments is restricted where established tribunal precedent and the taxpayer's immediately preceding year decision support the tax treatment; accordingly, deduction under section 36(1)(viia) for provisions on standard assets will ordinarily be allowable and cannot be set aside under revisionary powers absent a demonstrated failure of inquiry or an impermissible legal view by the assessing officer. Alleged non verification of related party payments did not produce additions on reconsideration, so no separate relief for revenue was sustained on that point.

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Issues: (i) Whether the Principal Commissioner erred in invoking revisionary jurisdiction under section 263 of the Income-tax Act, 1961 to set aside the assessment insofar as allowance of deduction under section 36(1)(viia) for provisions on standard assets; (ii) Whether the assessment order was erroneous and prejudicial to the revenue for not verifying transactions with related parties under section 40A(2)(b) of the Income-tax Act, 1961.

Issue (i): Whether deduction under section 36(1)(viia) of the Income-tax Act, 1961 is allowable in respect of provisions made for standard assets and whether non-enquiry by the Assessing Officer rendered the assessment order erroneous under section 263.

Analysis: The Tribunal examined whether the AO made requisite inquiries and whether the matter was one of two permissible views. It considered coordinate bench decisions including the assessee's own preceding-year decision and other Tribunal rulings that held deduction under section 36(1)(viia) may include provisions for standard assets. The Tribunal found that in the present facts the AO had not raised queries on the issue for the impugned year but coordinate bench precedent and the immediately preceding-year decision in the assessee's case supported allowance and quashing of 263 proceedings under identical circumstances.

Conclusion: The invocation of revisional jurisdiction under section 263 in respect of allowance under section 36(1)(viia) is quashed and the appeal is allowed on this issue in favour of the assessee.

Issue (ii): Whether the assessment order was erroneous for not verifying payments to related parties under section 40A(2)(b) of the Income-tax Act, 1961.

Analysis: The Tribunal noted that the PCIT set aside the assessment in part for alleged failure to verify related-party transactions. The assessee produced the AO's subsequent order for related-party payments showing no addition; the Tribunal therefore confined its decision to the first issue and observed that the AO ultimately did not make additions on the related-party issue.

Conclusion: No relief to Revenue is sustained on the related-party payments issue; the appeal is allowed as to the matters set aside and the 263 proceedings quashed.

Final Conclusion: The Tribunal, following coordinate bench precedent and the assessee's preceding-year decision, holds that revisionary proceedings under section 263 cannot be sustained on the facts and circumstances and accordingly allows the appeal, quashing the 263 order insofar as it set aside the assessment for examination of the specified issues.

Ratio Decidendi: Where coordinate benches of the Tribunal and the Tribunal's immediately preceding-year decision in the same assessee have consistently held that deduction under section 36(1)(viia) may include provisions for standard assets, revisional jurisdiction under section 263 cannot be sustained to reopen an assessment under identical circumstances absent a demonstrated failure of inquiry or an impermissible legal view by the Assessing Officer.

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