2016 (7) TMI 819 - AT - Income Tax

Revision u/s 263 - the assessee had not offered any income in terms of section 36(2) of the Act out of these advances and accordingly not entitled for deduction u/s 36(1)(vii) of the Act on the write off of the same - Held that - AO had duly appreciated the stand of the assessee during the course of original assessment proceedings and had allowed the deduction to assessee by taking one of the possible views in the matter. When one possible view has been taken, the same cannot be substituted by another view of the Learned CIT. We also find that the Learned CIT had initiated the revisionary proceedings on the pretext that the claim of deduction made by the assessee is not allowable u/s 36(1)(vii) of the Act as no income was offered by the assessee in terms of section 36(2) of the Act. But from the records, we find that the assessee had not made any claim towards bad debts warranting invocation of section 36(1)(vii) read with section 36(2) of the Act. Hence the initiation of section 263 proceedings by the Learned CIT on the wrong assumption of facts is to be declared as bad in law. With regard to the argument advanced by the Learned DR that the loss arising on account of advances written off should be construed as capital loss for which certain case laws were relied upon by him, in view of our aforesaid findings and judicial precedents relied upon hereinabove, we don t deem it fit and appropriate to get into the aspect of whether the loss arising on account of write off is a capital loss or not. Thus the revisionary jurisdiction invoked by the Learned CIT u/s 263 is to be quashed. - Decided in favour of assessee

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Justification of invoking revisionary jurisdiction under Section 263 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal by the assessee was delayed by 88 days. The assessee provided affidavits from the Chief Financial Officer (CFO) and Mr. Nand Kishore Mittal explaining the reasons for the delay. The delay occurred due to the resignation of key employees who were responsible for handling the order under Section 263, which led to the order being misplaced and subsequently found after breaking open a drawer. The Learned DR objected to the condonation, arguing insufficient cause was shown. However, the tribunal emphasized that substantial justice should prevail over technical considerations, referencing multiple Supreme Court judgments that support a pragmatic approach to condonation of delay. The tribunal concluded that the delay was due to reasons beyond the control of the assessee and condoned the delay, admitting the appeal for adjudication.

2. Justification of Invoking Revisionary Jurisdiction under Section 263:
The central issue was whether the CIT was justified in invoking Section 263 of the Income Tax Act. The assessment for AY 2009-10 allowed a deduction for advances written off, which the CIT later challenged, arguing the assessee did not offer income in terms of Section 36(2) and thus was not entitled to the deduction under Section 36(1)(vii). The CIT issued a show cause notice and set aside the AO's order for re-examination.

The assessee argued that the AO had already examined the deduction claim during the original assessment, raising specific queries and accepting the explanations provided. The assessee contended the advances were given to safeguard properties and business interests, and the write-off was a business loss. The tribunal found that the AO had indeed conducted an enquiry and accepted the deduction after due consideration. It emphasized that the CIT cannot initiate proceedings under Section 263 merely to conduct fishing and roving enquiries or substitute one possible view with another.

The tribunal referenced several judicial precedents, including the Supreme Court and High Court rulings, establishing that the CIT must demonstrate the AO's order was erroneous and prejudicial to the interests of the revenue. The tribunal concluded that the AO's order was a possible view and not erroneous. It also noted that the CIT's initiation of Section 263 proceedings was based on an incorrect assumption that the assessee claimed bad debts under Section 36(1)(vii), which was not the case.

Conclusion:
The tribunal quashed the revisionary jurisdiction invoked by the CIT under Section 263, holding that the original assessment order was neither erroneous nor prejudicial to the interests of the revenue. The appeal by the assessee was allowed, and the order was pronounced in the open court on 08.07.2016.