2015 (11) TMI 989 - AT - Income Tax

Revision u/s 263 - loss on sale of repossessed assets and loss on sale of bad loan portfolio - Held that - In this case, the Ld.CIT has not referred to any material from which it could be said that the acceptance of the assessee s submissions and details by the A.O. was not warranted, either in law or on facts. The Ld.CIT has not given any material or evidence which would contradict the assessee s version and which aspect has not been adverted to by the A.O. while completing the assessment. For all these reasons we allow both these appeals by the assessee for the A.Y. 2003-04 and A.Y. 2004-05, by holding that the Ld.CIT has erroneously invoked his powers u/s 263 of the Act. Coming to the A.Y. 2002-03, admittedly there is lack of enquiry on the part of the A.O. In the S.263 proceedings, the Ld.CIT has come to a definite conclusion that the loss in question is a business loss. This does not mean that the lack of enquiry by the A.O. would not be considered as erroneous and prejudicial assessment order passed by the A.O. The A.O. has not verified either (a) the allowability of the loss in principle or (b) where the claim is factually correct as quantification of the loss has not been verified by the A.O. In our opinion such exercise of powers u/s 263 of the Act is in accordance with law. Just because the Ld.CIT has come to a conclusion that in principle the loss in question is a business loss, it does not lead to a conclusion that the quantification has to be accepted based on audited accounts, though the A.O. has not made any enquiry on this issue. It is well settled that in case of no enquiry, it would be a case of non application of mind, resulting in an error in the assessment order which causes prejudice to the interest of the Revenue. The Ld.CIT has held the first issue in favour of the assessee and on the second issue, set aside the order for fresh adjudication. Coming to the third ground of revision i.e. excess provision of securitised assets, the Ld.CIT could have verified whether the assessee had suo moto disallowed the provision and the revision on this count would result in a double disallowance. Without coming to a firm conclusion on this issue, despite the submissions and evidences submitted by the assessee, it is wrong on the part of the Ld.CIT to simply set aside the matter to the file of the A.O. for fresh adjudication. In any event as we have upheld the order passed u/s 263 of the Act on the first two issues, we dismiss the appeal filed by the assessee for the A.Y. 2002-03 and allowed for the A.Y. 2003-04 and 2004-05.

Summary

Issues Involved:
1. Allowability of loss incurred on sale of repossessed assets as business loss.
2. Allowability of loss on sale of bad loan portfolio as business loss.
3. Allowability of excess provision of securitized assets.
4. Allowability of depreciation on improvements to leasehold assets.

Issue-wise Detailed Analysis:

1. Allowability of Loss Incurred on Sale of Repossessed Assets as Business Loss:
The assessee, a Non-Banking Finance Company (NBFC), claimed losses on the sale of repossessed assets as business losses. The CIT revised the assessment order under section 263 of the Income Tax Act, questioning the correctness of the quantification of the claimed losses. The Tribunal noted that the assessee repossessed assets from defaulting customers, recorded them as stock in trade, and claimed losses upon their sale. The CIT did not dispute the nature of the loss as a business loss but doubted the quantification. The Tribunal held that the CIT's action was not justified as the Assessing Officer (AO) had conducted an enquiry, and the CIT's revision was based on the presumption of inadequate enquiry, which is not a valid ground for revision under section 263.

2. Allowability of Loss on Sale of Bad Loan Portfolio as Business Loss:
The assessee claimed losses on the sale of a bad loan portfolio, treating them as bad debts written off. The CIT questioned the verification of these losses by the AO. The Tribunal observed that the AO had raised specific queries and received detailed responses from the assessee, which were accepted. The Tribunal held that the CIT's revision on the grounds of inadequate enquiry was not justified since the AO had conducted an enquiry and accepted the assessee's claims based on detailed submissions.

3. Allowability of Excess Provision of Securitized Assets:
The CIT questioned whether the excess provision for securitized assets was added back to the total income by the assessee. The Tribunal noted that the CIT could have verified this claim directly instead of setting aside the matter for fresh adjudication. The Tribunal found the CIT's action of setting aside the matter without a firm conclusion on the issue to be unjustified.

4. Allowability of Depreciation on Improvements to Leasehold Assets:
For the assessment year 2004-05, the CIT questioned the depreciation claimed on improvements to leasehold assets, presuming it was for building renovations. The assessee clarified that the depreciation was claimed for furniture and fixtures. The Tribunal held that the CIT's remand for verification was based on a wrong presumption and was not in accordance with law.

Conclusion:
The Tribunal quashed the CIT's revision orders for the assessment years 2003-04 and 2004-05, holding that the CIT's invocation of powers under section 263 was not justified as the AO had conducted enquiries and accepted the assessee's claims based on detailed submissions. For the assessment year 2002-03, the Tribunal upheld the CIT's revision on the grounds of lack of enquiry by the AO, but found the CIT's setting aside of the matter for fresh adjudication on the issue of excess provision for securitized assets to be unjustified. The appeal for the assessment year 2002-03 was dismissed, while the appeals for the assessment years 2003-04 and 2004-05 were allowed.