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2016 (8) TMI 1565 - AT - Income TaxRevision u/s 263 by CIT - Validity of assessment framed u/s 143(3) r.w.s. 147/148 - As per CIT AO failed to conduct proper enquiries/verifications/examinations in respect of trading results declared in exclusion to extraordinary income declared by way of write back of certain credits - HELD THAT - A combined reading of Section 263 and Section 147 would clearly suggest that revisionary powers under S. 263 cannot be read in a manner to expand the scope of section 147 of the Act. S. 263 read in the context of reassessment proceedings cannot be exercised unless there is a cause available on objective facts to demonstrate that detailed probe or enquiries were warranted to encompass escapement of other possible income in a given set of facts. Consequently, the alleged inaction of the AO on the issue of correctness of trading results in reassessment proceedings is not fatal or erroneous for the purposes of section 263 of the Act. Hence, the reassessment order passed within the four corner of its authority cannot be dubbed as erroneous per se and is thus is not susceptible to review contemplated under S. 263 of the Act. Lack of enquiry on unconnected issues in a reassessment proceeding - We notice that the Commissioner has merely entertained strong suspicion on the bona-fide of trading results owing to huge losses and observed that in the absence of income reported on account of credit towards write back of certain amounts under section 41(1), the assessee has declared trading losses on a substantial turnover which ought not to have been accepted without embarking upon a detailed enquiry. The show-cause action of the Commissioner under section 263 seeking to upset the reassessment order is thus clearly actuated in the realm of such suspicion. As noted earlier, indulging in roving enquiry u/s 147 on unconnected issues is a case of overreaching of powers which is not permissible in law. AO in his quasi judicial capacity has accepted the trading results. A mere different perception of Commissioner founded upon suspicion on the issue is not sufficient to legitimize jurisdiction under section 263. It would be farfetched to presume that the purported substantial turnover per se would necessarily give rise to presumption of profits thereon. The allegation of reassessment order being erroneous by the Commissioner is purely founded upon suspicion and surmises on losses declared. The exercise of revisionary power based on such suspicion is in our view not permissible in law. Certain figures of income as an amount written back does not tally with corresponding breakup submitted in the course of assessment proceedings - The income declared by the assessee for the impugned assessment year 2008-09 is higher than the income given in the assessment year 2007-08 as an amount written back under section 41(1) of the Act. Apparently, no prejudice has thus caused to the interest of Revenue by declaring higher income compared to what was provided in the course of assessment in the earlier year. The condition precedent for exercise of powers under S. 263 is thus sorely missing. Hence, we fail to visualize any rationale in this Ground set out by the Commissioner for invoking revisionary powers. A higher remission by a unilateral act to the prejudice of the Assessee can not be ordinarily forced. Therefore, this ground for invoking section 263 is also not sustainable in law - Decided in favour of assessee. AO has not verified the write off amount during the course of assessment proceedings - A.Y. 2009-10 - Hon ble Supreme Court in the case of T.R.F. Ltd. 2010 (2) TMI 211 - SUPREME COURT has held that the assessee need not prove the debts to be irrecoverable under section 36(1)(vii) of the Act. It is sufficient if the debts incidental to business are written off for the purpose of making claims. In the light of the aforesaid decision of the Hon ble Supreme Court in the case of T.R.F. Ltd. vs. CIT (supra), it was not unreasonable for the Assessing Officer to accept the debts written off. Further, the Commissioner has not brought on record any good reason to hold to the contrary. In this view of the matter, we do not see any error committed by the Assessing Officer in admitting amounts write off towards bad debts and grant deduction of the same with similar amounts written back. In the light of aforesaid discussion, the action of the Commissioner under section 263 is outside the bounds of law and thus cannot be sustained. In consequence, the order passed u/s 263 for the assessment year 2009-10 dated 28.03.2014 requires to be set aside and quashed.
Issues Involved:
1. Invocation of Section 263 by the Commissioner. 2. Alleged failure of the Assessing Officer (AO) to conduct proper enquiries/verifications. 3. Jurisdiction and scope of reassessment under Section 147. 4. Doctrine of merger and its applicability. 5. Examination of bad debts written off under Section 36(1)(vii) r.w.s. 36(2). Detailed Analysis: 1. Invocation of Section 263 by the Commissioner: The Commissioner of Income Tax (CIT) invoked Section 263 of the Income Tax Act, 1961, to revise the assessment orders for the assessment years 2008-09 and 2009-10. The CIT contended that the assessment orders were erroneous and prejudicial to the interests of the Revenue. The assessee challenged the invocation of Section 263, arguing that the orders were not erroneous and that the CIT's action was contrary to law and facts. 2. Alleged Failure of the AO to Conduct Proper Enquiries/Verifications: The CIT alleged that the AO failed to conduct proper enquiries regarding the trading results and the write-back of certain credits. Specifically, the CIT noted discrepancies in the figures of income written back and claimed that the AO did not verify these discrepancies or the authenticity of the disclosure. The assessee argued that all relevant details were provided to the AO and that no further enquiry was necessary. 3. Jurisdiction and Scope of Reassessment under Section 147: The Tribunal examined whether the AO, during reassessment under Section 147, is required to conduct roving enquiries into all aspects of the assessment. It was noted that Section 147 allows the AO to assess or reassess "other income" that comes to his notice during the reassessment proceedings. However, the Tribunal clarified that this does not imply that the AO must conduct roving enquiries without any relevant material. The Tribunal cited the Supreme Court's decision in CIT vs. Alagendram Finance Ltd., which stated that the reassessment does not reopen the entire proceedings unless the subject matter is distinct and different. 4. Doctrine of Merger and Its Applicability: The Tribunal discussed the doctrine of merger, which applies when an assessment order is subjected to appellate proceedings. In this case, the reassessment order for the assessment year 2008-09 was already appealed before the CIT(A) and the ITAT. The Tribunal held that the doctrine of merger applied, and the CIT could not invoke Section 263 to revisit issues already decided in the appellate proceedings. 5. Examination of Bad Debts Written Off under Section 36(1)(vii) r.w.s. 36(2): For the assessment year 2009-10, the CIT invoked Section 263 on the ground that the AO did not verify the details of the amount written off as bad debts. The Tribunal referred to the Supreme Court's decision in T.R.F. Ltd. vs. CIT, which held that it is sufficient for the assessee to write off the debts in their books. The Tribunal found that the AO had accepted the debts written off based on the particulars provided by the assessee and that the CIT's action was not justified. Conclusion: The Tribunal concluded that the CIT's invocation of Section 263 was without authority of law and could not be sustained. The reassessment orders passed by the AO were not erroneous or prejudicial to the interests of the Revenue. Consequently, the Tribunal set aside and quashed the orders passed under Section 263 for both assessment years 2008-09 and 2009-10. Both appeals filed by the assessee were allowed.
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