2014 (2) TMI 741 - AT - Income Tax

Allowability of deduction u/s 36(1)(vii) of the Act Bad debts written off Held that - If the bad debts and advances written off are only provisions but are not actually written off in the books of accounts then no deduction can be allowed - assessee contended that the bad debts and advances are actually written off in the books of accounts of the assessee - the matter remitted back to the file of the Assessing Officer for verification as to whether the bad debts and advances were actually written off in the accounts of the debtors appearing in the books of account of the assessee - If on verification, it is found to be actually written off and it is not simply a provision made then the deduction u/s 36(1)(vii) can be allowed Decided in favour of Assessee. Jurisdiction u/s 263 of the Act to revise the order Held that - Though the CIT (A) has issued a show cause notice for enhancement of income in respect of deduction claimed with regard to Redundant Animation Projects WIP and Redundant Software WIP but the same was not decided by the CIT (A) when the CIT invoked jurisdiction u/s 263 and finally passed the order - the CIT was competent to invoke the jurisdiction u/s 263 of the Act - The restriction for invoking the jurisdiction u/s 263 of the Act would only apply to such issues which were subject matter of appeal before the CIT (A) and decided in appeal order here, the assessee has not been able to prove that the issue in dispute was decided by the CIT (A) before the revision order was passed. Survey u/s 133A of the Act - Non consideration of claim - Deduction on account of Redundant Animation Projects WIP and Redundant Software WIP Applicability of time-limit for filing return of income u/s 139(5) of the Act Held that - The claim made in the revised return should not have been considered by the Assessing Officer as it was filed beyond the time prescribed u/s 139(5) does not hold much water Relying upon Malabar Industries vs. CIT 2000 (2) TMI 10 - SUPREME Court any loss of revenue as a consequence of an order passed by the Assessing Officer cannot be treated as prejudicial to the interests of revenue - the Assessing Officer has taken the decision in compliance with the directions of the Income-tax Appellate Tribunal with regard to the claim made in the revised return in respect of Redundant Animation Projects WIP and Redundant Software WIP by holding it to be a revenue expenditure - Only because the view adopted by the Assessing Officer is not acceptable to the CIT, according to whom it is capital in nature, it cannot be said that the assessment order is erroneous and prejudicial to the interests of revenue it cannot be said to be erroneous and prejudicial to the interests of revenue - exercise of jurisdiction u/s 263 of the Act cannot be sustained Decided in favour of Assessee.

Summary

Issues Involved:
1. Allowability of bad debts and advances written off.
2. Validity of audit report under section 44AB.
3. Deduction claims for Redundant Animation Projects WIP and Redundant Software WIP.
4. Jurisdiction of CIT under section 263 of the Act.

Detailed Analysis:

1. Allowability of Bad Debts and Advances Written Off:
The assessee claimed deductions for bad debts and advances written off, which were initially allowed by the Assessing Officer (AO). The CIT, however, found these to be mere provisions and not actual write-offs in the books of accounts, thus disallowing them under section 36(1)(vii) of the Act. The Tribunal remitted the matter back to the AO for verification of whether the bad debts and advances were actually written off in the accounts of the debtors. If verified, the deduction under section 36(1)(vii) would be allowed.

2. Validity of Audit Report under Section 44AB:
The CIT noted that the audit report under section 44AB was not initially brought on record, and the AO relied on computerised statements instead of certified audit reports. The Tribunal directed the AO to verify the authenticity of the documents and ensure compliance with section 44AB requirements.

3. Deduction Claims for Redundant Animation Projects WIP and Redundant Software WIP:
The assessee claimed deductions for Redundant Animation Projects WIP and Redundant Software WIP, which were allowed by the AO but later disallowed by the CIT under section 263. The CIT argued that these expenditures were capital in nature and were written off in the subsequent financial year, not in the year under consideration. The Tribunal found that the AO had duly considered the claims and allowed them after proper application of mind. The Tribunal held that the AO's decision could not be deemed erroneous and prejudicial to the interests of revenue merely because the CIT disagreed with it.

4. Jurisdiction of CIT under Section 263 of the Act:
The CIT invoked section 263, arguing that the AO's order was erroneous and prejudicial to the interests of revenue. The Tribunal examined whether the issues were subject to appeal before the CIT(A) and whether the AO's order was passed after due consideration. The Tribunal concluded that the AO had taken one of the possible views after thorough examination, and the CIT's disagreement did not justify invoking section 263. The Tribunal set aside the CIT's order, holding that the AO's order was not erroneous or prejudicial to the interests of revenue.

Conclusion:
The Tribunal allowed the appeal for statistical purposes regarding the verification of bad debts and advances written off and set aside the CIT's order under section 263 concerning the deductions for Redundant Animation Projects WIP and Redundant Software WIP. The Tribunal emphasized that the AO's decision, made after proper application of mind and in compliance with Tribunal directions, could not be deemed erroneous and prejudicial to revenue merely due to the CIT's differing view.