Revision for lack of enquiry upheld where bad debt claim was not actually written off and assessment demand was incorrectly computed

Revision under section 263 was upheld because the Assessing Officer had not verified whether the claim described as provision for bad and doubtful debts had actually been written off in the books; the assessee was still pursuing recovery, so the necessary condition for allowance was not met. The assessment was therefore treated as lacking the enquiries required by law, bringing Explanation 2(a) to section 263(1) into play. The objection regarding incorrect adoption of assessed income and excess demand was also sustained, with the Tribunal noting that any computational mistake could be addressed separately by rectification, but it did not affect the validity of the revisional order and fresh verification direction.

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Issues: (i) Whether revision under section 263 was justified on the ground that the assessment order allowed a claim described as provision for bad and doubtful debts without proper verification; (ii) Whether revision under section 263 was justified in respect of the incorrect adoption of assessed income and consequent excess levy of demand.

Issue (i): Whether revision under section 263 was justified on the ground that the assessment order allowed a claim described as provision for bad and doubtful debts without proper verification.

Analysis: The assessment was revised because the Principal Commissioner found that the Assessing Officer had not examined whether the amount claimed as provision for bad and doubtful debts had actually been written off in the books. The material relied upon showed that the assessee was still pursuing recovery from the debtors, and the condition of actual write-off, which is necessary for such a claim, was not satisfied. The order was therefore treated as one passed without the enquiries that ought to have been made, attracting section 263 and the deeming provision in Explanation 2(a) to section 263(1).

Conclusion: The revision on this issue was upheld and was against the assessee.

Issue (ii): Whether revision under section 263 was justified in respect of the incorrect adoption of assessed income and consequent excess levy of demand.

Analysis: The adoption of assessed income in the ITBA system was found to be incorrect, resulting in an excess demand. The Tribunal accepted that the mistake could be dealt with by rectification in appropriate proceedings, but held that the broader revisionary order did not suffer from infirmity because the assessment order had already been found to be passed without adequate verification. The consequential direction for further enquiry and fresh assessment after due opportunity was therefore sustained.

Conclusion: The revision on this issue was also upheld and was against the assessee.

Final Conclusion: The Tribunal sustained the revisional order in full, holding that the assessment suffered from lack of proper enquiry and that the direction for fresh verification and consequential assessment was valid.

Ratio Decidendi: An assessment order is liable to revision under section 263 where the Assessing Officer fails to conduct the enquiries and verification that were ary on the record, and a claim of bad debts is not allowable unless the debts are actually written off in the books of account.

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