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2024 (1) TMI 1425 - HC - Income TaxRevision u/s 263 - disallowing the deduction of the claim of doubtful debts - order of the AO sought to be revised is erroneous and also prejudicial to the interest of the Revenue - HELD THAT - AO did not show any application of mind and mechanically accepted the statement of the assessee. When the assessee is found to have claimed deduction towards the provision for doubtful assets for the purpose of computation of book profit u/s 115-JB the AO did not state any reason as to why he decided if at all to accept the explanation of the assessee despite the fact that the said amount was not debited for the provision for doubtful account and consequently the provision of doubtful debts account has not been obliterated. Thus it is only for disclosure purposes that the amount was shown as a reduction from the trade receivables in the balance sheet. The assessee has not included the said amount as written off debts but was hopeful of getting it back at some point of time. We cannot find fault with the PCIT for having exercised his jurisdiction u/s 263. Consequently the order passed by him after hearing the appellant and directing the AO to re-examine the said issue is perfectly justifiable and legal. Tribunal on the other hand had analysed the position of law as stated by us above and concluded rightly that the order passed by the CIT did not suffer from any illegality or perversity. Decided against assessee. 1. ISSUES PRESENTED and CONSIDERED The judgment primarily revolves around the following legal issues:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Justification for Invoking Section 263 Relevant Legal Framework and Precedents: Section 263 of the Income Tax Act, 1961 allows the Principal Commissioner of Income Tax to revise an order if it is erroneous and prejudicial to the interests of the Revenue. The Supreme Court's decision in Malabar Industrial Company Ltd. v. Commissioner of Income Tax provides that an order is erroneous if based on incorrect facts or law, or if passed without applying the principles of natural justice or without application of mind. Court's Interpretation and Reasoning: The court noted that the Principal Commissioner could exercise revisional jurisdiction if the order was erroneous and prejudicial to the Revenue. The assessment order in question lacked reasoning and was based on an incorrect assumption of facts, thereby justifying the invocation of Section 263. Key Evidence and Findings: The court observed that the Assessing Officer did not provide any reasoning for accepting the assessee's claim of deduction for the provision for doubtful debts. The lack of enquiry and mechanical acceptance of the assessee's claim indicated an error. Application of Law to Facts: The court applied the principles from the Malabar Industrial Company Ltd. case, determining that the assessment order was erroneous due to lack of enquiry and incorrect assumptions, thus justifying the invocation of Section 263. Treatment of Competing Arguments: The appellant argued that the invocation of Section 263 was due to a change of opinion, which is impermissible. However, the court found that the absence of enquiry and reasoning in the assessment order constituted an error, not merely a change of opinion. Conclusions: The court concluded that the Principal Commissioner was justified in invoking Section 263, as the assessment order was erroneous and prejudicial to the Revenue. Issue 2: Evidence or Material Justifying the Tribunal's Finding Relevant Legal Framework and Precedents: The Tribunal's role is to ensure that the Assessing Officer has conducted a proper enquiry and applied the law correctly. The absence of enquiry or reasoning can justify the Tribunal's decision to uphold the invocation of Section 263. Court's Interpretation and Reasoning: The court found that the Tribunal correctly determined that the Assessing Officer failed to conduct an enquiry or provide reasoning for accepting the deduction claim, thereby justifying the invocation of Section 263. Key Evidence and Findings: The court noted that the assessment order lacked any discussion or reasoning regarding the deduction claim, indicating a failure to conduct a proper enquiry. Application of Law to Facts: The court applied the principles of ensuring proper enquiry and reasoning in assessment orders, finding that the Tribunal was justified in its decision. Treatment of Competing Arguments: The appellant contended that there was sufficient enquiry by the Assessing Officer, but the court found this argument unconvincing due to the lack of reasoning in the assessment order. Conclusions: The court concluded that the Tribunal was justified in its finding that the invocation of Section 263 was warranted due to the lack of enquiry and reasoning in the assessment order. 3. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning: "An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind." Core Principles Established:
Final Determinations on Each Issue:
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