TaxTMI 
TaxTMI 
2014 (2) TMI 741
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....he CIT while examining the assessment records in exercise of power u/s 263 of the Act felt that the assessment order passed was erroneous and prejudicial to the interests of revenue. He therefore issued a show cause notice to the assessee on 30-11-2011 proposing to revise the assessment order on the following issues:- (i) "As seen from page-19 of the Annual Report, profit and loss account of the year ending as on 31-3-2007 the amounts towards bad debts and advances written off are created as a provision to the extent of Rs.65443 and Rs.56494 (in thousands). Since provision made towards bad debts and advances written off is not an allowable expenditure, the Assessing Officer ought to have disallowed the same. Since the amounts are not written off in the books of accounts of the assessee, the same are not admissible. (ii) Report u/s 44AB has also not been brought on record and hence, no enquiry is conducted into the disallowable as per audit report. 3. In response to the show cause notice, the authorised representative for the assessee appeared and submitted that the bad debts and advances written off are allowable expenses as such write off was don....
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....sment order passed to be erroneous as well as prejudicial to the interests of revenue and enhanced he assessment by adding the amounts of Rs.5,64,42,802/- and Rs.6,54,93,526/- being the amounts written off as bad debts and advances and determined the net loss at Rs.6,52,04,832. Being aggrieved of the order passed u/s 263 of the Act by the CIT, the assessee is in appeal before us by raising as many as 14 grounds. 5. The grounds raised are not precise and argumentative. Be that as it may, the learned authorised representative for the assessee reiterating the stand taken before the CIT submitted before us that the Assessing Officer while completing the assessment order u/s 143(3) of the Act had examined all the details produced by the assessee in course of the assessment proceedings with regard to the bad debts and advances written off and only after due application of mind he has passed the assessment order allowing the same. The learned authorised representative for the assessee submitted that the assessee had actually written off the bad debts and advances in its books of accounts and as such they are allowable as expenditure u/s 36(1)(vii) of the Act. 6. The learned Departme....
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....e result, the appeal is treated as allowed for statistical purposes. ITA No.584/Hyd/12 assessment year 2003-04:- 9. Briefly, the facts are, a survey operation u/s 133A of the Act was conducted in the business premises of the assessee on 22-8- 2003. During survey operation, certain incriminating material was found and impounded. Subsequent to the survey operation the assessee filed its return of income for the impugned assessment year 2003-04 on 1-12-2003 declaring a total income of Rs.15,53,62,001/-. The return was initially processed u/s 143(1) of the Act on 28-4-2004. However, subsequently during the scrutiny assessment proceedings, the assessee filed a revised return declaring income of Rs.4,02,01,747/-. The assessment was completed u/s 143(3) of the Act on 29-3-2006 determining the total income at Rs.20,49,50,000/-. The assessee thereafter filed a petition u/s 154 of the Act before the Assessing Officer contending that the claims made in the revised return were not considered by the Assessing Officer while completing the assessment u/s 143(3) of the Act. The Assessing Officer however rejected the application made u/s 154 of the Act by observing that all claims made by the....
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....ed for want of proper response from the channels. Even the produced episodes could not be telecasted to financial implications. In view of the above, these projects have been abandoned. As the expenditure incurred on these projects is in the nature of production expenses and the same is to be claimed during the year in which these episodes have been telecasted. Since these projects have been abandoned, the expenditure which is in the nature of production expenses is claimed u/s 37 of the Act during the year in which these amounts have been resolved to be written off. It was further contended by the assessee that the deduction of these amounts were claimed in revised return in view of the resolution passed by the Board of Directors to write off these amounts during the previous year relevant to the assessment year 2003-04. The Assessing Officer however noticing that these amounts were not actually written off and debited to profit & loss A/c during the previous year relevant to the assessment year but has been written off and debited to the profit & loss a/c during the year 2004-05 asked the assessee to explain. 13. The assessee in its reply submitted that these amounts have been....
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.... According to Company Law, the annual report has been prepared a submitted to Registrar of Companies. The entries relating to writing off certain advances, work in progress, bad debts etc., could not have be made retrospectively in the books of the company. Hence, the expenditures / deduction could not have been also claimed for the incometax purposes. This aspect has been overlooked by the Assessing Officer. Further, the letter of Sri G V. Narasimha Rao, Executive Director sta. that these expenditures were written off in the next year (copy of the let enclosed herewith). This is in contradiction to the statement of 1 assessee in his letter dated 11.12.2009. Given these facts, there was case to allow the above sums. Audit was completed u/s. 44AB and report submitted from N.G. Rao Associates. This report does not speak of any write off on account of b debts / advances or write off under the heads redundant animation projects WIP and redundant software WIP. Given the above situation, the entire deduction claimed to the extent of Rs.2.48 crores and Rs.2.49 crores ought to have been disallowed by the AO as they are not admissible merits. ....
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....ugned assessment year as these expenders were written off in the subsequent financial year and they were never written off and debited to the P & L A/c in the impugned assessment year. The CIT further held that the expenditure claimed is capital in nature as they are expended in new projects. The assessee never debited them in Profit & Loss A/c and hence they are not admissible even if it is assumed that they were claimed in the year under consideration. The CIT was of the view since the Assessing Officer has never examined the true nature of the expenditure claim i.e., whether capital or revenue, there is prejudice in the order of the Assessing Officer. In this context, the CIT relied on the decision of the Hon'ble Delhi High Court in case of Dalmia Pvt. Ltd., in writ petition civil No.6205 of 2010 dated 26-9-2011 and CIT vs. Addl. CIT vs. M/s. Namdari Seeds in ITA Nos. 1282/2006 (Karnataka High Court 2011-TIOL-876-HC-KAR-IT. He further held that once the report u/s 44AB along with statement and annual report under company law are filed, they are to be taken as correct and genuine and there is no scope to write off retrospectively ignoring these documents and fresh claims made bef....
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....is not allowable and by allowing such expenditure, the assessment order passed is erroneous and prejudicial to the interests of revenue. The CIT therefore enhanced the income determined by the Assessing Officer by an amount of Rs.4,97,93,755/- and determined the total income at Rs.22,01,13,585. The assessee being aggrieved of such order preferred an appeal before us. 17. At the time of hearing of appeal, the assessee moved a petition seeking permission to raise the following additional grounds:- "12. The ld. CIT-I, Hyderabad erred in passing the order u/s 263 on 7-3-2012 without appreciating that the Commissioner is having no jurisdiction u/s 263 of the Act to revise an assessment order which has been subjectmatter of appeal before CIT (A). 13. The ld. CIT-I, Hyderabad ought to have appreciated that the time limit for filing of return of income u/s 139(5) is not applicable for the return of income filed in response to notice u/s 148. 14. The ld CIT-I, Hyderabad 3erred in placing certain paras in his order on record which are unwarranted and which may please be deleted. 15. The assessee may add, alter or modify or su....
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....t of Redundant Animation Projects WIP and Redundant Software WIP while completing the assessment u/s 143(3) of the Act. According to the CIT the expenditure should not have been allowed by the Assessing Officer as they are in the nature of capital expenditure. In this context, we have to observe that when the appeal arising out of the original assessment order passed u/s 143(3) of the Act came up for consideration before the Income-tax Appellate Tribunal in ITA Nos. 783 and 784/Hyd/2007 relating to assessment years 2003-04 and 2004-05 the assessee raised additional ground relating to the deduction claimed in the revised return in respect of Redundant Animation Projects WIP and Redundant Software WIP. The Tribunal after considering the submissions of the parties remitted the matter back to the file of the Assessing Officer with the following observations: "15. We have carefully considered the submission of the rival parties and perused the material available on record. We find merit in the plea of the ld. Counsel for the assessee that the assessee has duly made the aforesaid claims through the revised return. However, the Assessing Officer without discussing the same....
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.... fact, it cannot be said that the assessment order is erroneous and prejudicial to the interest of revenue. It is also a fact that the deductions claimed have been shown as work in progress (WIP). The CIT also does not dispute this fact. Therefore when the expenditure claimed relates to WIP, it cannot be held to be capital in nature as they relate to the impugned assessment year. Furthermore, when the Assessing Officer after considering the facts and applying his mind has taken one of the possible view by treating the expenditure claimed as a revenue expenditure only because according to the CIT, it is in the nature of capital expenditure, the assessment order cannot be held to be erroneous and prejudicial to the interests of revenue. Furthermore, the CIT has put much emphasis on the fact that the assessee had filed the revised return beyond the period prescribed u/s 139(5) of the Act and hence it cannot be a valid return and therefore should not have been considered by the Assessing Officer. He has further observed that the Misc. Application filed by the department in this regard has been pending before the Tribunal. However, on perusal of facts on record, it is seen that the Trib....
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....s under the heads bad debts written off, software under production and animation projects it is to be stated that the order u/s 143(3) dt. 29/03/2006 for the year was passed after taking into consideration all the facts put forth regarding the above issues were considered during the assessment proceedings and the above order was finalized. The assessee's claim u/s 154 is, therefore, rejected as not entertainable." 22. We find from the argument of the petitioner that the revised return submitted on 29/03/2006 is beyond the time limit prescribed under section 139(5) of the Act and, hence, the same is to be treated as invalid return and no cognizance can be given to the above return and hence that the AO has duly considered and alleged the same as return filed out of time is not correct in as much as the order u/s 154 clearly states that the order u/s 143 dated 29/03/2006 for the year under consideration was passed after taking into consideration all the facts putforth regarding the above issues, which were considered during the assessment proceedings and the order was finalized, which could not be the case if the returns were treated as non-est. 23. In....