2023 (1) TMI 708 - AT - Income Tax

Revision u/s 263 - bad debts written off - HELD THAT - At one hand, CIT has noted that the AO had not made proper enquiries relating to identity of the concerned M/s. Metalmine Enterprise Pvt. Ltd., but at the same time the, ld. Pr. CIT in its question no. 3 of the show cause notice, herself, has observed that it was obvious from the given transactions that there was a regular give-and-take between the assessee and M/s. Metalmine Enterprise Pvt. Ltd., and that there was a relationship of deep trust based on which the assessee was regularly transferring such huge amounts to the concern. The aforesaid observations of the ld. Pr. CIT are self-contradictory. It is undisputed that there was a regular business transactions of the assessee with the said concern and the amount outstanding was on account of trade receivables and that there were regular business transactions, even in earlier years, between the parties. It was duly explained before the ld. Pr. CIT that the assessee had not made any fresh payment to M/s. Metalmine Enterprise Pvt. Ltd. during the Assessment Year 2017-18 and that these amounts were brought forward balances of the preceding years. It was also explained that these were the old outstanding balances on account of sales which were written off. The observation of the ld. Pr. CIT that the assessee had not even reflected under the head bad debts in the relevant column of ITR is concerned, we find that the assessee had duly replied to the ld. Pr. CIT, that though it was mistakenly omitted, however, the assessee company had given the due disclosure of the amount written off in the audited profit and loss account. The issue has not only been brought to the notice of the assessing officer, but the same has also been examined and verified by the assessing officer and under the circumstances there remains no prejudice to the revenue of not reflecting of the aforesaid amount of bad debt under the relevant column of the online ITR form. The issue is otherwise squarely covered by the decision TRF Ltd. 2010 (2) TMI 211 - SUPREME COURT as held that it is not necessary for the assessee to establish that the debt, income, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Moreover, in this case, as observed above, the dishonor of cheques and thereby reversal entries, itself, show that the said debt had become bad. In this case the assessing officer had duly made enquiries and verification and showcaused the assessee in this aspect and the assessing officer has allowed the claim after being satisfied with the explanations offered by the assessee. Deduction u/s 80IC - assessee had not uploaded the audit report in Form 10CCB along with the return of income - Hon ble Supreme Court M/S WIPRO LIMITED 2022 (7) TMI 560 - SUPREME COURT held that the assessee can file a revised return in a case where there is omission or wrong statement but a revised return of income u/s 139(5) cannot be filed to withdraw the claim of exemption and subsequently to claim carry forward or set off of any loss and that the revised return filed by the assessee u/s 139(5) of the Act can only substitute its original return u/s 139(1) of the Act and cannot transform it into a return u/s 139(3) of the Act in order to avail the benefit of carry forward or set off of any loss u/s 80 of the Act. We find that the Hon ble Apex Court considered the decision in the case of CIT v. G.M. Knitting Industries (P.) Ltd. 2015 (11) TMI 397 - SC ORDER and held that the revised return can be filed in a case where there remains some omission or wrong statement. The ratio laid down by the Hon ble Supreme Court in the case of PCIT vs. Wipro Ltd. (supra) is of no help to the revenue. Even otherwise the ld. Pr. CIT has not found any error in the order of the Assessing Officer in this respect. The ld. D/R cannot put additional plea or ground to improvise the impugned order of the ld. Pr. CIT. The action of the ld. Pr. CIT in holding the assessment order is erroneous and thereby setting aside the order for de-novo assessment cannot be held to be justified. Hence the order passed u/s 263 of the Act is quashed. Appeal of the assessee stands allowed.

Summary

Issues Involved:
1. Legitimacy of the claim of bad debt write-off.
2. Allowability of deduction under Section 80IC without the timely submission of the audit report in Form 10CCB.

Issue-wise Detailed Analysis:

1. Legitimacy of the claim of bad debt write-off:

The assessee, a manufacturing company, claimed a bad debt write-off of Rs. 1,66,70,246/- related to transactions with M/s Metalmine Enterprises Pvt. Ltd. The Principal Commissioner of Income Tax (PCIT) challenged this, observing that the assessee had not provided sufficient evidence to substantiate the write-off and had not responded adequately to the Assessing Officer's (AO) queries. The PCIT noted that the AO had accepted the claim without conducting proper inquiries, deeming the assessment order erroneous and prejudicial to the revenue.

The assessee contended that the entries were reversal entries due to dishonored cheques, not fresh payments, and submitted detailed explanations and documentary evidence during the assessment proceedings. The assessee also argued that the bad debt write-off complied with Section 36 of the Income Tax Act, as the debt had been taken into account in previous years' income and was written off as irrecoverable.

The PCIT, however, was not satisfied, asserting that the AO had failed to verify the identity and transactions of M/s Metalmine Enterprises and had not conducted adequate inquiries. The PCIT emphasized that the AO's passive acceptance of the assessee's claims without verification rendered the assessment order erroneous.

The Tribunal found that the AO had indeed made inquiries and verified the claim, and the assessee had provided sufficient explanations and evidence. The Tribunal noted that the dishonor of cheques supported the assessee's contention of irrecoverability. Citing the Supreme Court's decision in TRF Ltd. vs. CIT, the Tribunal held that it was sufficient for the bad debt to be written off in the accounts, without needing to prove irrecoverability. Therefore, the Tribunal concluded that the AO's order was not erroneous or prejudicial to the revenue.

2. Allowability of deduction under Section 80IC without the timely submission of the audit report in Form 10CCB:

The assessee claimed a deduction under Section 80IC amounting to Rs. 3,24,45,802/-. The PCIT noted that the audit report in Form 10CCB was filed four days after the revised return, not along with it, as required by Sections 80IC(7) and 80IA(7) of the Income Tax Act. The PCIT argued that the deduction was not allowable as the audit report was not furnished with the return of income.

The assessee countered that both the revised return and the audit report were filed before the due date, satisfying the legislative intent. The assessee relied on the Supreme Court's decision in CIT vs. G.M. Knitting Industries (P) Ltd., which allowed deductions if the audit report was submitted before the final assessment order, even if not filed with the return.

The Tribunal observed that the revised return and the audit report were filed before the due date, and both documents were available to the AO during the assessment. The Tribunal held that the legislative intent was to ensure the audit report was filed before the due date, not necessarily with the return. The Tribunal also noted that the PCIT's reliance on the ITAT Delhi decision in Pardeep Kumar Batra vs. DCIT was misplaced, as the audit report in that case was not filed on time, whereas in the present case, it was.

The Tribunal concluded that the AO's acceptance of the deduction was a legally possible view, supported by the Supreme Court's decisions, and thus the assessment order was not erroneous.

Conclusion:

The Tribunal quashed the PCIT's order under Section 263, holding that the AO's assessment was neither erroneous nor prejudicial to the interest of the revenue. The appeal of the assessee was allowed.