2024 (2) TMI 389 - AT - Income Tax

Revision u/s 263 by CIT - Irregular allowance of long-term capital loss wherein it has been held that the assessee has applied the cost of inflation index on foreign currency while computing the capital gain on the assets acquired out of foreign currency - HELD THAT - As PCIT has given a reason that the order of the learned assessing officer is not in accordance with the concept of cost inflation index. In fact, assessee has not invested in foreign currency but in INR. Even other second proviso to section 48 is only with respect to Nonresident Assessee. By computing long term capital gain by incorrect method assessee has got the benefit of Foreign Exchange Fluctuation as well as cost inflation index both which is not in accordance with Income tax Act. In view of this, to this extent, on this issue we find that the jurisdiction assumed by the learned PCIT holding that there is an irregular allowance of long- term capital loss of Rs. 99,675.31 lakhs and higher capital loss of Rs 502.62 Cr is justified. Therefore, on this issue the order under section 263 of the income tax act passed by the learned PCIT is sustained. Excess bad debts allowed - Order of the PCIT does not show that what is the error in allowing the claim of the assessee wherein the amount is debited to the profit and loss account as write off .therefore, on this issue we do not find that there is any error in the order of the learned assessing officer in allowing the claim of the assessee which is after calling for the explanation and correctly allowed. Therefore, on the same issue of the bad debts allowed the order of the learned PCIT is not sustainable. Accordingly, ground number 3 of the appeal is allowed to the extent indicated above. Provision for depreciation of investment - The provision for securities held as investment was added to the total income of the assessee PCIT found that the book loss claimed by the assessee have been claimed by the assessee as realized loss on investment and reduced from the book loss of investment. Therefore, he was of the view that the amount is being actual loss and not a provision for depreciation of investments so it was required to be disallowed and added to the total income of the assessee. The AO has not verified this amount. During hearing before us, nothing was shown to us that this issue was examined by the learned assessing officer. Therefore, this issue is squarely covered by the explanation 2 to section 263 of the act where the assessing officer has not made any enquiry on the issue and has allowed the claim of the assessee, to such extent the order of the learned assessing officer is erroneous and prejudicial to the interest of the revenue. Therefore, on this issue we uphold the order of the learned PCIT. Excess deduction allowed u/s 36 (1) (via) - only argument of the learned authorized representative is that the quantum deduction is linked to the total income and therefore any enhancement made in the income returned to additions/disallowances impact the quantum of deduction. However, we find that it cannot be the case that the amount of deduction is allowable to the assessee higher than what is not claimed in the return of income without there being a revised return before the LD AO. Therefore, it is in clear violation of the decision of Goetz India limited 2006 (3) TMI 75 - SUPREME COURT Therefore, we uphold the action of the learned PCIT in holding that claim allowed by the assessing officer higher than that claimed in the return of income without assessee filing any revised return is definitely erroneous and prejudicial to the interest of the revenue - action of the learned PCIT is upheld in holding that assessee has been allowed excess deduction u/s 36 (1) (viia). Excess grant of deduction under section 36 (1) (vii) of the act with respect to the aggregate rural advances - There is an error in the order of the learned assessing officer in granting deduction merely on the submission of the assessee and without making any enquiry about the various branches, which are claimed to be eligible for deduction under this section on the advances. Thus, non-examination of the details clearly makes the order of the learned assessing officer erroneous and prejudicial to the interest of revenue. Further, it is the claim of the assessee that this is based on the audit objection raised by the Director-General of Audit, Mumbai. We do not find any infirmity in the order of the PCIT because even if there is an audit objection, he has applied his mind independently and held that order of the AO is erroneous to that extent. In the result on this issue, we hold that the learned PCIT has correctly assumed the jurisdiction and correctly held that the order of the learned AO is erroneous and prejudicial to the interest of revenue. To that extent, the order of the learned PCIT is sustainable on this issue. Accordingly, ground number 6 of the appeal is dismissed. Excess deduction u/s 36 (1) (viii) - Admittedly, no revised return was filed by the assessee on this account. The only claim of the assessee is that the quantum of deduction is linked to the total income and therefore the enhancement in the income returned due to additions/disallowances which has impacted the quantum of deduction. The learned PCIT has held that in view of the decision of the honourable Supreme Court 2006 (3) TMI 75 - SUPREME COURT the allowance of claim higher than the amount claimed in the return of income without revising the return of income makes the order of the learned assessing officer is erroneous and prejudicial to the interest of revenue. We do not find any infirmity in the order of the learned principal Commissioner of income tax on this account is not following the decision of the honourable Supreme Court makes the order of the learned assessing officer is erroneous and prejudicial to the interest of the revenue. Excess allowance of deduction u/s 36 (1) (vii) - During the course of assessment proceedings neither there is any discussion not there is any detail called for by the assessing officer and therefore we do not find infirmity in the order of the learned principal Commissioner of income tax in holding that not making any enquiry by the learned assessing officer on this aspect makes the order of the learned AO erroneous so far as judicial to the interest of the revenue. Accordingly, we dismiss ground number 9 of the appeal of the assessee. Appeal filed by the assessee is partly allowed.

Issues Involved:
1. Irregular Allowance of Long-Term Capital Loss
2. Excess Bad Debts Allowed
3. Provision for Depreciation of Investments
4. Excess Deduction under Section 36(1)(viia)
5. Excess Grant of Deduction under Section 36(1)(vii)
6. Excess Deduction under Section 36(1)(viii)
7. Excess Allowance of Long-Term Capital Loss
8. Excess Allowance of Deduction under Section 36(1)(vii)

Summary:

1. Irregular Allowance of Long-Term Capital Loss:
The Pr. CIT held that the assessee applied the cost inflation index on foreign currency while computing the capital gain on assets acquired in foreign currency, which is erroneous as the cost inflation index is with reference to Indian currency. The correct method should have been to convert the cost price in Indian currency and then apply the cost inflation index. The Tribunal upheld the Pr. CIT's view, stating that the AO did not examine this issue properly.

2. Excess Bad Debts Allowed:
The Pr. CIT found that the AO allowed bad debts of Rs. 312.69 crores without proper examination, as the assessee had not debited any bad debts towards the claim of Rs. 1855 crores but only utilized Rs. 1543 crores. The Tribunal disagreed with the Pr. CIT, noting that the assessee provided a detailed reconciliation of bad debts claimed, and the AO had examined this issue.

3. Provision for Depreciation of Investments:
The Pr. CIT noted that the AO failed to disallow the provision for depreciation on investments amounting to Rs. 46.19 crores. The Tribunal upheld the Pr. CIT's view, stating that the AO did not make any inquiry on this issue, making the order erroneous and prejudicial to the interest of the revenue.

4. Excess Deduction under Section 36(1)(viia):
The Pr. CIT held that the AO allowed a deduction of Rs. 159.22 crores more than what was claimed by the assessee in the return of income, violating the Supreme Court decision in Goetz India Limited. The Tribunal upheld the Pr. CIT's view, stating that the AO should have allowed the claim to the extent of deduction claimed in the return of income.

5. Excess Grant of Deduction under Section 36(1)(vii):
The Pr. CIT found that the AO allowed a deduction of Rs. 12.23 crores on advances of semi-urban branches, which should not have been considered for deduction. The Tribunal upheld the Pr. CIT's view, stating that the AO did not examine whether the branches were rural or semi-urban.

6. Excess Deduction under Section 36(1)(viii):
The Pr. CIT noted that the AO allowed a deduction of Rs. 138.52 crores more than what was claimed in the return of income. The Tribunal upheld the Pr. CIT's view, stating that the AO's allowance of a higher deduction without a revised return was erroneous and prejudicial to the interest of the revenue.

7. Excess Allowance of Long-Term Capital Loss:
The Pr. CIT held that the AO allowed excess long-term capital loss of Rs. 502.62 crores without examining the application of the cost inflation index on foreign currency. The Tribunal upheld the Pr. CIT's view, stating that the AO did not examine this issue properly.

8. Excess Allowance of Deduction under Section 36(1)(vii):
The Pr. CIT found that the AO allowed excess deduction of Rs. 250.03 crores under Section 36(1)(vii) without considering the correct opening balance of provisions for bad debts. The Tribunal upheld the Pr. CIT's view, stating that the AO did not make any inquiry on this aspect.

General:
The Tribunal dismissed the general grounds of appeal and upheld the Pr. CIT's order in part, directing the AO to reframe the assessment order after proper examination and giving the assessee an opportunity to be heard.

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