TaxTMI 
TaxTMI 
TaxTMI 
2026 (3) TMI 320
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....S in Revised Return iii. High Creditors/liabilities iv. Reduction of Income in Revised Return & Claim of Refund v. Refund Claim vi. Unsecured Loans vii. Expenses Incurred for Earning Exempt Income viii. Taxability of business liability written off u/s 41 or any other section ix. Foreign Outward Remittance x. Capital Gains/Income on Sale of Property xi. Deduction from Total Income under Chapter VI-A xii. Expenditure by Way of Penalty or Fine for Violation of any Law xiii. Securities Transaction 3. The Assessing Officer completed the assessment u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') on 29.09.2021 determining the total income of the assessee at Rs. 5732,80,60,408/- by making the following additions: i) Addition on account of ESOP Rs. 344,66,78,035/- ii) Addition on account of Education cess Rs. 71,25,58,512/- iii) Disallowance of deduction u/s 80JJAA Rs. 10,50,75,400/- iv) Addition on account of Fee for Technical service Rs. 24,30,603/- v) Addition on account of Fee for Technical service Rs. 58,788/- vi) Addi....
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.... for scrutiny under CASS, on following issues :- S. No. Issues i. Claim of Any Other Amount Allowable as Deduction in Schedule BP ii. Increase in TDS in Revised Return iii. High Creditors/ liabilities iv. Reduction of Income in Revised Return & Claim of Refund V. Refund Claim vi. Unsecured Loans vii. Expenses Incurred for Earning Exempt Income viii. Taxability of business liability written off u/s 41 or any other section ix. Foreign Outward Remittance X. Capital Gains/Income on Sale of Property xi. Deduction from Total Income under Chapter VI-A xii. Expenditure by Way of Penalty or Fine for Violation of any Law xiii. Securities Transaction The assessment was completed u/s.143(3) r.w.s 144B of the I.T. Act on 29/09/2021 determining the total income at Rs. 5732,80,60,408/-. 3. Excess allowance of deduction of provision for bad and doubtful debts u/s.36(1)(viia) :- 3.1 On perusal of the Schedule 11- "Provisions and contingencies" of the Annexure-III (Disclosure as required by the NBFC Master Direction issued by the RBI) forming part of the financial statements for the year 20....
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....which is otherwise not allowable in view of the provisions of relevant clauses of section 36(1) (viia) read with para 13 on provisioning requirements of the RBI Master Direction. However, this excess deduction claimed by the assessee has been allowed by the Assessing Officer during the assessment, without conducting proper enquiry and verifying the relevant facts. 4. Applicability of the provisions of Sec.40A(2)(b) in respect of payments mad to related to parties :- 4.1 Further, it is observed that a comparison of payments made to related parties specified u/s 40A(2)(b) as per clause 23 of Tax Audit Reports in form 3CD vis-à-vis notes to financial statements regarding disclosure of related party transactions during the year under consideration revealed variations, as under :- (Rs. In crores) Related Party Nature of Transactions (As per item 23 of TAR) Payments as per books of the assessee Receipts as per books of the related party Difference 1. Bajaj Alliance General Insurance Company Ltd. (PAN: AABCB5730G) Payment to Insurance premium on Asset/Vehicles/ Travel 18.06 17.48 0.58 2. Bajaj Alliance Life insurance Company Ltd....
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....n stated by the Hon'ble Himachal Pradesh High Court in the case of CIT vs. HP Financial Corporation Ltd. (186 Taxmann.com 105) that "an incorrect assumption of fact or an incorrect application of law satisfy the requirement of the order being erroneous". 8. In view of the above facts, the assessment order passed u/s 143(3) r.w.s. 144B of the I.T. Act, 1961 dated 29.09.2021 prima-facie appears to be erroneous and prejudicial to the interests of the Revenue. You are, therefore, requested to explain as to why the provisions of section 263 of the I.T. Act, 1961 should not be invoked. In this regard, you are hereby given an opportunity of being heard by means of this notice u/s 263(1). For this purpose, the case is fixed for hearing on 21/12/2023 at 11.30 AM. You may also furnish your written reply along with supporting evidence, if any, which may be filed in the office of the undersigned or through your account in the e-filing portal of the Income Tax Department or e-mail of this office [email protected] on or before the aforesaid date. Please note that non- compliance to this notice may create a presumption that you have nothing to say on this matter and may lea....
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....s of the case, the relevant position of law, the assessment order and the written submissions filed by the assessee. Apart from making submissions on merits on the issues involved, the assessee has also raised arguments questioning the validity of the revisionary proceedings on the ground of incorrect assumption of jurisdiction. The main supporting argument advanced by the assessee is that the AO having considered the facts and relevant position, allowed such deduction by adopting one of the two views possible and a mere disagreement by the PCIT would not render the order erroneous. Similarly, with regard to the variance in the value of the transactions reported u/s.40A(2)(a), the assessee says that there existed no variance so as to attract the said provisions, calling for revision u/s.263 of the Act. 7.1 To decide on the objections raised by the assessee on assumption of revisionary jurisdiction it is, therefore, necessary to deal with the merits of the issues involved first. 1) Excess allowance of deduction of provision for bad and doubtful debts u/s.36(1)(viia) :- 8. The assessee states that it is a non-banking financial company and that the provision....
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.... the degree of well-defined credit weaknesses and extent of dependence on collateral security for realization :- a. Standard asset b. Sub-standard assets c. Doubtful assets and d. Loss assets. 8.3.1 The broad parameters of classification of the assets in the above categories have been elaborated in para 8.3 of the directions as per which - "Standard asset" shall mean the asset in respect of which, no default in repayment of principal or payment of interest is perceived and which does not disclose any problem or carry more than normal risk attached to the business. "Sub-standard asset" shall mean as an asset which has been classified as non- performing asset not for a period exceeding 12 months ... "Doubtful asset" shall mean an asset which remains a sub-standard asset for a period exceeding 12 months. "Loss asset" shall mean an asset which has been identified as loss asset or which is affected by a potential threat of non- recoverability. 8.3.2 From the above, it can be seen that the term 'Standard Asset' has been defined to be an asset in respect of which there is no perceivable threat of default....
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....s and are not certain liabilities at the time of provision. Merely because the assessee has made certain provisions in its books based on the directives of the RBI, the same would not constitute a liability as it is not a debt in preasenti or in futuro till that contingency has arisen as held by the Hon'ble Apex Court in the case of CIT Vs. Lucas TVS Ltd. - 249 ITR 302 (SC). Considering this position, the reliance placed by the assessee on decisions of various benches of the ITAT on the issue of provision on standard assets cannot come to the rescue of the assessee in the present case. 8.6 On the contrary, while dealing with similar issue, the Chennai Bench of the ITAT in the case of Bharat Overseas Bank Ltd. vs. CIT as reported in [2012] 26 taxmann.com 330 (Chennai), held that standard assets are always considered recoverable and any provision made on such assets cannot be considered as a provision for bad and doubtful debts and upheld the revisionary proceedings initiated by the PCIT u/s.263 of the Act. The assessee has claimed that unlike in the above case, the assessee has demonstrated in its case that even standard asset carries the risk of becoming bad. However, ....
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....x audit report furnished by the assessee for the year under consideration. When such transactions are reported in the tax audit report, it was incumbent upon the AO to examine whether the values of such transactions were excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to it therefrom. During the present proceedings, justifying the variance in the value of transactions with related parties, the assessee has attributed various reasoning such as timing difference, exclusion of GST in the transaction value, premium having been collected on behalf of related concern but not routed through the P & L A/c of the assessee etc. However, none of these claims seems to have been verified by the AO during the assessment proceedings. Therefore, it is clear that the order was passed by the AO without making inquiries or verification which should have been made vis-à-vis the payments made to related parties. 10. Having dealt with the merits of the issues involved, now, I proceed to deal with th....
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....ent order, which has been passed without making any inquiries or verification which should have been made, or allowing any relief without inquiring into the claim, will be deemed to be both erroneous and prejudicial to the interest of revenue. 10.3 From the discussion made in para 8 hereinabove, it becomes clear that the Assessing Officer did not make necessary inquiries and verification of all relevant issues which has led to granting of excess relief to the assessee in the form of deduction u/s.36(1)(viia) of the I.T. Act. Similarly, no enquiries are also prima facie made to ascertain the justifiability of the transactions carried out with the related concerns reported u/s.40A(2)(a) of the Act, as discussed in para 9 hereinabove. Thus, this is not a case where the AO analyzed the issues in question and took one of the possible views, but this is a case where the issues were not at all examined by the AO and therefore, no view could be said to have been taken on those issues. Therefore, both clause (a) and (b) of Explanation to Sec.263 are clearly attracted to the assessment order passed by the AO making it both erroneous and prejudicial to the interest of the Revenue. He....
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.... 1 to Section 263 of the Act defines 'record' as under :- "record" [shall include and shall be deemed always to have included] all records relating to any proceeding under this Act available at the time of examination by the 5[Principal 9[Chief Commissioner or Chief Commissioner or Principal] Commissioner or] Commissioner; From the above, it is clear that 'record' for the purpose of revision u/s.263 would include all records relating to 'any proceeding' under this Act available at the time of examination by the authority exercising the jurisdiction and not merely the records available with the AO at the conclusion of the relevant proceedings. The assumption of jurisdiction u/s.263 of the Act is necessitated for the precise reason that the AO failed to enquire into certain issues and carry out the verification by calling for the relevant evidence which ought to have been done by him. The conclusion as to whether an order is erroneous and prejudice to the interest of the revenue is drawn by the PCIT/CIT on the basis of records/documents/evidence available at the time of such examination. Therefore, the contention of the assessee that the revi....
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....thout jurisdiction and bad-in-law 1.2. The learned PCIT erred in initiating the proceedings under section 263 of the Act without appreciating that the learned AO during the course of original assessment proceedings had made necessary enquiry and verification, before allowing the claim made by the Appellant under section 36(1)(viia) of the Act. 1.3. The learned PCIT ought to have appreciated that the proceedings under section 263 of the Act cannot be initiated on interpretational issues based on mere difference in opinion from the position adopted by the learned AO. 2. Ground 2. Challenging the deduction claimed under section 36(1)(viia) of the Act on standard assets: 2.1 The learned PCIT erred in holding that deduction under section 36(1)(viia) of the Act is not allowable on provision made for standard assets on the premise that the said provision allows deduction only for provision made for 'bad or doubtful debts. 2.2 The learned PCIT ought to have appreciated that the term bad and doubtful assets is not defined under the provisions of section 36(1)(viia) of the Act and the same should be interpreted in general parlance and consider....
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....ed the 263 proceedings under identical circumstances wherein the Ld. PCIT set aside the order u/s 263 to the file of the Assessing Officer on the ground that the Assessing Officer has allowed the deduction on account of provision for doubtful debts claimed u/s 36(1)(viia) of the Act erroneously. 11. Referring to the decision of the Co-ordinate Bench of the Tribunal in the case of Shri Samartha Sahakari Bank Ltd. Vs. ACIT vide ITA No.873/PUN/2017 order dated 07.01.2020 for assessment year 2013-14, he submitted that the Tribunal in the said decision, following the decision of Hon'ble Karnataka High Court in the case of Bellad Bagewadi Urban Souhard Sahakari Bank Niyamit vs. CIT & Anr vide order dated 29.01.2018, has held that the assessee is eligible for deduction in respect of provision made against standard assets. 12. Referring to the decision of the Mumbai Bench of the Tribunal in the case of M/s. Union Bank of India vs. DCIT vide ITA No.2956/Mum/2024 order dated 20.06.2025 for assessment year 2019-20, he drew the attention of the Bench to para 8 of the order which reads as under: "8. Coming to the issues relating to the broken period interest paid on purchase ....
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....n the assessee. In the present case, the debt is the amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore, in our view Item (c) of the Explanation is not attracted to the facts of the present case. In the circumstances, the AO was not justified in adding back the provision for doubtful debts of Rs. 92,15,187/- under clause (c) of the Explanation to Section 115JA of the 1961 Act." 14. Referring to the decision of the Co-ordinate Bench of the Tribunal in the case of ITO vs. Latur District Central Co-Op Bank Ltd. vide ITA No.1222/PUN/2024 order dated 28.01.2025 for assessment year 2018-19, he submitted that the Tribunal in the said decision has held that the assessee is eligible for deduction in respect of provision for standard assets and bad & doubtful debts & reserves u/s 36(1)(viia) of the Act. He submitted that since the issue stands decided in favour of the assessee by various decisions, therefore, the Ld. PCIT was not justified in invoking the provisions of section 263 for provision of doubtful debts claimed u/s 36(1)(vi....
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....plicable to the facts of the present case. 19. So far as the argument of the Ld. Counsel for the assessee that the various Benches of the Tribunal have taken a favourable view on the issue of allowability of claim u/s 36(1)(viia) of the Act towards provision for doubtful debts is concerned, he submitted that if the Assessing Officer had called for the details and has taken a view on this issue, then probably the powers of the Ld. PCIT could have been limited. However, in the instant case since no query whatsoever was raised on this issue and the Assessing Officer has not taken any view and has allowed the claim of the assessee, therefore, the order has become erroneous as well as prejudicial to the interests of the Revenue and therefore, the Ld. PCIT was fully justified in invoking his revionary powers u/s 263 of the Act. 20. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. PCIT and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case completed the assessment u/s 143(3) of the Act on 29.09.2021 determining the....
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....hat the assessee is entitled for deduction u/s 36(1)(viia) of the Act in respect of provision for bad and doubtful debts which includes the standard assets. 25. We find the Co-ordinate Bench of the Tribunal in assessee's own case vide ITA No.564/PUN/2023 order dated 26.02.2024 for assessment year 2018-19 has quashed the 263 proceedings under identical circumstances by observing as under: "6. We have heard both the parties and perused the records. The issue involved is whether ld.Pr.CIT had rightly invoked jurisdiction under section 263 of the Act. 6.1 It is observed that different benches of ITAT have taken different views on the issue of allowability under section 36(1)(viia) deduction for provision for standard assets. The ITAT Indore Bench in the case of Vikramaditya Nagrik Sahkari Bank Maryadit Vs. ACIT in ITA No.36/IND/2017 (supra), ITAT Mumbai Bench in the case of Kotak Mahindra Bank Limited Vs. ACIT in ITA Nos.3267 to 3269/MUM/2019(supra) and ITAT Amritsar Bench in the case of Dy.CIT Vs. M/s.Punjab Gamin Bank in ITA No.134/ASR/2015 for A.Y.2008-09(supra), had held that deduction under section 36(1)(viia) is allowable for provision for standard assets....
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....under section 14A the interest expense debited by the assessee because the same has been incurred for the purpose of business. The PCIT though was unhappy with the view of the Assessing Officer, the PCIT himself does not say why it should have been considered for the calculation of disallowance under section 14A. Even if one assumes that he has, after reading of the order expressed his views, but still the position is two views therefore were possible. Therefore, if one of the two possible views was taken by the Assessing Officer, the PCIT could not have exercised his powers under section 263 of the Act. 8." Unquote 6.6 Thus, the principal of the law emanating from the above decision of the Hon'ble Supreme Court, the Hon'ble Jurisdictional High Court, the Hon'ble Bombay High Court is that when two views are legally possible and AO adopts one view the Assessment Order cannot be said to be erroneous for the CIT to invoke jurisdiction u/s 263. In this case, applying the above principle of law, it is held that assessment order is not erroneous and prejudicial to the interest of the revenue and hence the order under section 263 is bad in law. Accordingly, appeal of ....