2011 (6) TMI 951 - AT - Income Tax

Summary

Issues involved: Appeal against order of CIT u/s. 263 for assessment year 2006-07.

Grounds of appeal:
1. CIT's order u/s. 263 cancelling assessment and directing de novo assessment was unjustified.
2. CIT's order u/s. 263 was bad, illegal, and unjustified.
3. CIT's action of setting aside assessment u/s. 263 was unjustified.

Facts:
- CIT noted debits towards provision for doubtful debts/deposits in profit and loss account.
- CIT observed under-statement of income due to non-addition of provisions while computing total income.
- Assessee claimed the amount as bad debts, written off in profit and loss account.
- Assessee relied on Vijaya Bank case for methodology.
- CIT set aside assessment, directing reframe after verification of books of account.

Assessee's arguments:
- Two views possible as seen from Section 154 proceedings.
- Cited case supporting contention that assessment order was not erroneous.

Department's submission:
- CIT's order of setting aside assessment should be upheld.

Judgment:
- For CIT to assume jurisdiction u/s. 263, assessment order must be both erroneous and prejudicial to revenue.
- Examination focused on whether sundry debtors were written off.
- Methodology of writing off debts in conformity with Supreme Court decision.
- Actual write off of amount justifies deduction on bad debt.
- CIT not justified in assuming jurisdiction u/s. 263.
- Order of CIT cancelled, appeal of assessee allowed.

Conclusion:
The Appellate Tribunal ITAT Kolkata allowed the appeal against the CIT's order u/s. 263 for assessment year 2006-07, finding that the assessment order was not erroneous and the CIT was not justified in assuming jurisdiction under section 263 of the Income Tax Act.