2015 (9) TMI 1351 - AT - Income Tax

Revision u/s 263 - Claim of deduction in accordance with the provision of section 36 (1)(viia) - Held that - Now a settled position of law that if the assessment order is passed by the A.O. without enquiry or without application of mind, the assessment order is erroneous and prejudicial to the interest of the revenue and in that situation; the CIT gets the jurisdiction to pass revisionary order u/s 263. Learned CIT has observed that it would be factually incorrect to hold that the AO made the assessment after enquiry and the order of the AO is found to have been passed without enquiry. In the written submissions of the assessee there is no objection raised regarding this specific finding of CIT and hence, we find no infirmity in the order of the CIT because if the assessment order has been passed by the A.O. without enquiry, the same is erroneous. Regarding this aspect that it is prejudicial to the interest of revenue or not, we find that the AO has allowed deduction of ₹ 2.84 Crores claimed by the assessee in the revised return of income as business loss and as per written submissions of the learned AR of the assessee as reproduced above, the assessee has not debited the same in the Profit & Loss Account but the same was partly out of Statutory Reserves and partly out of Opening Credit balance of Profit & Loss Account. Generally business loss is adjusted against profit of the present year and Capital Loss is adjusted against Reserves and/or Opening Balance of Profit & Loss Account. When this position is seen in the light of this fact that no enquiry was made by the A.O., there remains no doubt that the action of the A.O. in allowing deduction is prejudicial to the interest of revenue also. Learned CIT has not decided the issue either way and he has directed the A.O. to pass the assessment order de novo after proper examination of the issue and after affording a fair and reasonable opportunity of being heard to the assessee. No infirmity in the impugned order of the CIT and hence, we decline to interfere therein - Decided against assessee.

Summary

Issues:
Validity of Revisionary order passed by CIT u/s 263.

Analysis:
The appeal was against the order of the Learned CIT I Lucknow for A.Y. 2008-09 passed under section 263. The main grievance of the assessee was about the validity of the Revisionary order passed by CIT. The CIT found the assessment order erroneous and prejudicial to the revenue due to various reasons, including not examining the claim of deduction as per section 36(1)(viia) of the IT Act, 1961. The CIT's findings were challenged by the assessee, arguing that the claim was a business loss, not bad debts, and therefore, the provisions of section 36(1)(viia) were not applicable. The assessee also contended that it was not a bank as envisaged in the said section. The assessee explained the nature of the loss incurred during its banking business activities, emphasizing that the claim was not covered by section 36(1)(viia). The Reserve Bank of India's restrictions on dividend distribution due to the loss were also highlighted.

The CIT's observations included the lack of a revised balance sheet and profit & loss account, which the assessee defended by stating that the adjustment had already been made in the financial statements. The statutory reserve created by the assessee was explained as a mandatory requirement for contingencies like unforeseen losses. The CIT's order was based on the premise that the assessment was made without proper enquiry, leading to an erroneous and prejudicial decision in allowing the deduction claimed by the assessee. The CIT directed the AO to re-examine the issue and pass a fresh assessment order after providing a fair opportunity to the assessee. The Tribunal upheld the CIT's order, stating that if the assessment was done without enquiry, it was erroneous and prejudicial to revenue, justifying the revisionary order under section 263. As the deduction was not properly examined and the assessment was without enquiry, the Tribunal found no fault in the CIT's decision and dismissed the appeal.

In conclusion, the Tribunal affirmed the CIT's order under section 263, emphasizing the importance of proper enquiry in assessments to avoid erroneous decisions. The Tribunal upheld the CIT's directive to the AO to re-examine the deduction claim thoroughly and pass a fresh assessment order. The appeal of the assessee was dismissed, and the CIT's order was upheld for further assessment proceedings.