TaxTMI 
TaxTMI 
2022 (3) TMI 471
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....ction 263 of the Income-tax Act, 1961 [hereinafter called the Act] and communicated to the Appellant on the same day, the Appellant appeals against and on the following amongst other grounds which are without prejudice to each other. 1. Setting aside of order under section 263 of the Act 1.1 On the facts and circumstances of the case and in law, the Pr. CIT erred in passing an order under section 263 setting aside the assessment order dated December 31, 2018 passed under section 143(3) r.w.s. 147 of the Act on the ground that the Assessing Officer in not examining the following issues has rendered the order as erroneous and prejudicial to the interest of the revenue: (a) Re-possessed vehicles to be treated as bad debts and not as a business loss (b) Non disallowance of unpaid leave encashment (C) Deduction claimed under section 36(1)(viii) 1.2 The Pr. CIT erred in not considering the alternative plea raised by the Appellant that revision on the aforesaid issues pertaining to loss on repossessed vehicles and unpaid leave encashment is time barred by limitation under section 263(2) of the Act as it is sought to be exercised, on is....
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....viia) of the Act allowed in the previous assessment year 2010-11. 3. Non disallowance of Unpaid leave encashment 3.1 On the facts and circumstances of the case and in law, the Pr. CIT erred in not appreciating that out of the unpaid leave encashment of Rs. 108,02,83,033, only Rs. 27,82,79,269 which was debited to the P&L account was disallowed by the Appellant in the return of income and the balance amount of Rs. 80,20,03,764 which had not been routed through P&L account was not claimed by the Appellant and hence the question of disallowing the same does not arise. 4. Deduction of Special Reserve under section 36(1)(viii) of the Act 4.1 The Pr. CIT erred on facts and circumstances of the case and in law, in holding that it is the gross lease rentals of Rs. 98,43,12,859 credited to the P&L A/c as against Rs. 89,85,60,025 being the net amount credited to P&L which ought to be reduced in working out the finance income for calculating the deduction under section 36(1)(viii) of the Act and the Assessing Officer by not considering the correct figure has resulted in the assessment order being erroneous in so far as prejudicial to the interest of revenue....
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..../-. This loss is nothing but part of bad debt only as held in AY 2010-11. As this loss along with other bad debts of Rs. 556,05,50,638/- does not exceed the credit balance allowed u/s. 36(1)(viia) of the Act allowed in AY 2010-11, the loss was not allowable and required to be added to total income of the assessee. A.O. has failed to examine these facts. Failure of the assessing officer to examine the same has rendered the assessment order dated 31.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue. (ii) It is also observed that Annexure J clause 21 (1)(B) of Tax Audit Report (TAR) in 3 CD From that there was unpaid leave encashment of Rs. 108,02,83,033/- which was outstanding on date of reporting of TAR. Further no document available on records which shows that the said unpaid amount was paid on or before due date of filing of return. However from computation of income of the assessee it is revealed that the assessee had disallowed only Re. 27,82,79,269/ on account unpaid leave encashment which was accepted. As the deduction on account of leave encashment is available only on actual payment, the entire unpaid amount was required to be disal....
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....ts claim of business loss on sale of re-possessed assets of Rs. 8,51,14,124 in detail during the course of assessment proceedings vide letter dated December 12, 2015, which is reproduced below: 1.2 The Bank gives loans for purchase of two wheelers as well as consumer vehicles, farm equipments and also for consumer durables to various parties comprising of mainly individuals. The said loan is given against hypothecation of the said asset to the Bank. The loan is generally given for a period of 3 to 5 years and EMIs are accordingly fixed over the tenure of the loan. In the event the bank is unable to recover its dues inspite of follow-ups, it finally resorts to last step that is possession and disposal of the vehicle. The outstanding loan amount as on the date of repossession along with the outstanding EMIs represent the total amount due from the borrower. On sale of the asset, the overdue EMI's are first adjusted against the sale proceeds and the balance of sale proceeds is then appropriated towards the principal portion. Thus the balance principal portion is then written off as a business loss on sale of repossessed assets. 1.3 As per the show cause n....
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....assessment Amount in Rs. As proposed in show cause notice Amount in Rs. Bad Debts 556,05,50,639 556,05,50,639 Add: Loss on Sale of re-possessed assets 8,51,14,124 Less: credit balance under section 36(1)(viia) as per order dated 30.12.2017 passed for AY 2010-11 423,76,60,958 423,76,60,958 (A) Revised Bad debts 132,28,89,681 140,80,03,805 (B) Business loss 12,82,53,340 431,39,216 Total Bad Debts and business loss (A+B) 145,11,43,021 145,11,43,021 1.7 Without prejudice to the aforesaid, we respectfully submit that in respect of the above mentioned issue on which revision under section 263 of the Act is sought to be exercised, is on issues which were covered in the original assessment order dated March 12, 2013 passed under section 143(3) r.w.s 144C of the Act and hence the period of limitation as given in section 263(2) of the Act ought to be reckoned from the date of the original assessment order and not the reassessment order. This has been held by the Bombay High Court in the Bank's own merged entity case ICICI Limited vide order in ITA No. 6375/2010 dated February 8, 2012 for AY 1996-97 following the Sup....
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....ed, is on issues which were covered in the original assessment order dated March 12, 2013 passed under section 143(3) r.w.s 144C of the Act and hence the period of limitation as given in section 263(2) of the Act ought to be reckoned from the date of the original assessment order and not the reassessment order. This has been held by the Bombay High Court in the Bank's own merged entity case lClCl Limited vide order in ITA No. 6375/2010 dated February 8, 2012 for AY 1996-97 following the Supreme Court decision in the case of Alagendran Finance (2007) [293 ITR 1]. Hence the proposed revision on these issues is time barred by limitation under section 263(2) of the Act. 1. Deduction under section 36(1)(viii) 3. 1 With respect to the deduction under section 36(1) (viii) of the Act, the Assessing Officer in para 15 of the assessment order has allowed the same at Rs. 514,43,59,610. In the said working income from non finance such as rent and other charges, lease income, miscellaneous receipt, commission and brokerage and gains on trading aggregating to Rs. 2056,92,45,836 was excluded from the total business income computed at Rs. 7863,19,95,380 and the balance of Rs.....
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....as been held by Supreme Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax [243 ITR 83 (SC), CIT v Max India 295 ITH 282, CIT v Amitabh Bachhan 384 ITR 200 at 216, Para 21] that if one of the conditions is absent recourse cannot be had to section 263(1) of the Act. According to the Court the provisions cannot be invoked to correct each and every type of mistake or error. 5. We reiterate that the order dated December 31, 2018 passed under section 143(3) rw.s. 147 of the Act is neither erroneous nor prejudicial and the proceedings under section 263 initiated are not valid they being either barred by limitation under section 263(2) or being a subject matter of appeal [Expl. 1 Sec. 263(1) and ought to be dropped." 07. Based on this, the learned PCIT passed an order under section 263 of the Act on 31st March 2021 holding as under:- "4.1 Deduction under section 36(1)(viia): The submission made by the assessee is perused but found not tenable as in computation of income the assessee had claimed business loss of Rs. 12,82,53,340/- which was accepted by the Assessing Officer. The said loss interalia included Repossessed vehicles of Rs. 8,51,14,....
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....me Tax relief: The submission made by assesses in this regard is perused but found not tenable as perusal on submission it revealed that the assessee had interest on income of Rs. 164,63,00,000/- on account of interest on income tax relief included in 'others' 'Interest Earned' to the P & L account. This income being income from non finance income, it should also have been reduced from the total business income of the assessee to arrive at the business income from long term finance business activity eligible for deduction u/s. 36(1)(viii) of the Act. However, this was done, leading to excess allowance of deduction by Rs. 14,58,62,181/-. The AO in concluding the assessment, has not considered the above aspects and legal position. Therefore the order passed is erroneous in so far as prejudicial to the interest of revenue within the meaning of provisions of section 263 of the Act. 5. In view of the above stated legal position the AOs action in not examining the above stated issues has rendered the assessment order dated 31.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue. Therefore the assessment order passed u/s.143....
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....statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the Income-tax Officer was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commissioner under section 263(1) was justified." (iii) In following cases various courts have justified action U/s 263 of the Act, in case of failure of A.O. to make proper enquiry before accepting the statement made by the assessee/assessment completed in a perfunctory manner and without verifying the nature of expenditure and eligibility of the claim. Gee Vee Enterprises v. Addl. CIT(1975) 99 ITR 375 (Del)m Addl. CIT v. Mukur Corporation (1978) 111 ITR 312 (Guj), Duggal and Co. v. CIT (1996)220 ITR 456 (Del) and CIT v. South India Shipping Corporation Ltd. (1998) 233 ITR 546 (Mad). In the case of Duggal & Co. V/s. CIT 220 ITR 456 (Del), it is also held that word "erroneous" used in Section 263 of the Act, includes the failure to make enquiries as it is incumbent on the A.O. to investigate the facts stated in the return. The ITAT, Ahmeda....
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....rroneous in law as it would not be based on objective consideration of the relevant materials. It is therefore, the mere failure on the part of the Assessing Officer in not making the inquiries or not examining the claim of the assessee in accordance with law that per se renders the resultant order erroneous and prejudicial to the interest of the revenue. Nothing else is required to be established in such a case to show that the order sought to be revised is erroneous and prejudicial to the interests of the revenue." (Emphasis supplied) (vii) In M/s. Subhalakshmi Vanijya Pvt. Ltd. vs. CIT (ITA No. 1104/Kol/2014) where the Hon'ble ITAT held it would be totally untenable to hold that once the Assessing Officer as per his wisdom had enquired into certain aspects of assessment which he considered relevant, and thereafter the Commissioner cannot intervene. This view has been endorsed in a recent decision of the Hon'ble Supreme Court in Daniel Merchants Private Ltd vs. ITO (SC 23976/2017). In that case, the Commissioner of Income-tax had passed an order u/s. 263 with the observation that the Assessing Officer did not make proper enquiry while making the assessment and ac....
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....t order dated 31.12.2018 passed by the AO under section 143(3) r.w.s 147 of the Act is set aside as per provisions of Explanation 2 to section 263(1) of the Act to the Assessing Officer. He is directed to conduct the requisite enquiries to arrive at the correct conclusion as per law and frame the order of assessment de novo, keeping in mind the observations made in the foregoing paragraphs. Needless to add, adequate opportunity of being heard will be afforded to the assessee to file details and furnish its explanation." 08. Therefore, the assessee is aggrieved with the order of the learned PCIT has preferred this appeal. The assessee has also filed a detailed chart along with paper book containing 44 pages. 09. The learned Authorised Representative submitted that original assessment order under section 143(3) was passed on 25th March, 2015 and reassessment order was passed on 31st March, 2018. She also referred to the order passed under section 263 of the Act and submitted that it has held that the order of reassessment passed on 31st March, 2018 is erroneous and prejudicial to the interest of the Revenue. She therefore submitted that only the issues which were part of reopen....
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....terest of the Revenue while computing the above deduction for the reason that:- (1) Lease rental income reduced by the assessee in computing income from long term finance is Rs. 89.85 crores against lease rental income credited to the profit and loss account of Rs. 98.43 crores, (2) Interest on income tax refund of Rs. 164.63 crores in not reducing as non finance income at the time of computation of the above deduction. 014. She submitted that the ground No.3 of appeal before the learned CIT(A) covers this issue and hence revision cannot be permitted as issues is considered and decided by the ld CIT (A). Accordingly, it was submitted that the order passed by the learned PCIT is not sustainable in law. 015. The learned Authorised Representative also submitted a note of two pages on the various issues. 016. The learned CIT Departmental Representative, vehemently supported the order of the learned PCIT. He referred to the paragraph No. 3.3 of the order and stated that assessee himself has accepted that income tax refund interest is required to be reduced while calculating deduction under section 36(1)(vii) of the Act is erroneous . He further referred to the....
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....r Of Income Tax - 3, Mumbai versus ICICI bank Ltd dated 8 February 2012, wherein the honourable Bombay High Court has held that where the jurisdiction u/s 263 (1) is sought to be exercised with reference to an issue which is covered by the original order of assessment u/s 143 (3) and which does not form the subject matter of the reassessment, the limitation must necessarily begin to run from the order u/s 143 (3) of the act. In that particular case the honourable High Court has held that issues which stands concluded and not part of the reopening proceedings, time limit of two years as prescribed Under the provisions of Section 263 (2) run from the end of the financial year in which the order u/s 143 (3) of the act was passed. Further, when assessment is reopened and reassessed, the time limit for revision of reassessment order would run from the end of the financial year in the order of reassessment was passed. Therefore, the natural corollary shows that there is no merger of the original order passed u/s 143 (3) of the act when the assessee is reassessed u/s 143 (3) of the act read with Section 147 of the act. Thus only on the issues for which the assessment was reopened u/s 147 ....
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....iii) of the act where the deduction claimed by the assessee of Rs. 3,797,060,858 was examined. Assessee worked out long term finance income at Rs. 18,985,304,290/-. The 20% of such sum which is allowable u/s 36 (1) (viii) amounts to Rs. 3,797,060,858/-. Thereafter applying the ratio of special reserve transfer and amount equal to twice of the paid-up share capital and general reserve, the assessee claimed deduction u/s 36 (1) (vii ) of the act amounting to Rs. 3,797,060,858. 024. During the course of assessment proceedings the assessee was asked to justify the claim of deduction Under that Section. After that learned assessing officer allowed the claim of Rs. 3,778,145,600/-. 025. The learned principal Commissioner of income tax assumed revisionary jurisdiction holding that while working out the income eligible for deduction from long-term finance, the learned assessing officer has not reduced the lease income fully. The learned assessing officer considered such income to the extent of only Rs. 898,560,025/- against the total receipt of Rs. 984,312,859/- and therefore the order passed by the learned assessing officer is erroneous and prejudicial to the interest of revenue. ....
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....the act can only be restricted to the matters as had not been 'considered and decided' in the appeal. It was stated that the above mentioned issue regarding curtailment of deduction claimed u/s 36 (1) (viii) of the act has already been made a subject matter of appeal before the learned CIT - A (6), Mumbai against the order passed u/s 143 (3) read with Section 147 dated 31st of December 2008. The assessee submitted copy of form number 35 and grounds of appeal wherein as per ground number 3 this deduction is challenged. Thus, the learned authorised representative submitted that the learned PCIT could not have invoked the powers of revision u/s 263 of the act. 030. The learned departmental representative vehemently supported the order of the learned principal Commissioner of income tax and stated that the assessee has claimed excess deduction u/s 36 (1) (viii) of the act by reducing lesser income of lease rent income from the long-term finance income. He further submitted that interest on income tax refund of Rs. 164.63 crores has not been reduced as non finance income computing the above deduction clearly shows that the order passed by the learned assessing officer is erroneous an....
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....ary enquiries with respect to the computation of deduction u/s 36 (1) (viii) of the act with respect to what amount of lease rent should be reduced from the long-term finance income of the assessee to arrived at deduction u/s 36 (1) (viii) of the act. This inquiry is just and proper, and should have been made by the ld AO. 032. Further with respect to the inclusion of interest on income tax refund considered both by the assessee as well as by the learned assessing officer as part of long-term finance income of the assessee, the assessee itself agreed that there is an error and it should not have been included in the long-term finance income of the assessee. 033. Therefore on both these issues, the learned assessing officer has failed to make any enquiries to examine whether the correct lease rental income as well as interest on income tax refund should have been included in the long-term finance income of the assessee for working out deduction u/s 36 (1) (viii) of the act. Hence, on both these issues, we do not find any infirmity in the order of the learned principal Commissioner of income tax in invoking jurisdiction u/s 263 of the income tax act. Accordingly the action of t....