2025 (2) TMI 986 - HC - Income Tax

Revision u/s 263 - provision for bad debts was made in the profit and loss account the same is not seen obliterated - 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 under Section 115-JB 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. Viewed in the above perspective we cannot find fault with the Principal Commissioner of Income Tax for having exercised his jurisdiction under Section 263 of the Income Tax Act 1961. Consequently the order passed by him after hearing the appellant and directing the assessing officer 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 Commissioner of Income Tax did not suffer from any illegality or perversity. Therefore we are of the considered view that the order impugned in the appeal does not suffer from any jurisdictional infirmity. Decided against the assessee.

Summary

The appellant, a domestic company operating and maintaining the Cochin International Airport, appealed against the order of the Income Tax Appellate Tribunal, Kochi bench for the assessment year 2012-13. The appellant initially declared a total income of Rs. 134,43,40,439/- under Section 115-JB of the Income Tax Act, 1961. However, after claiming a deduction under Section 80-IA for operating and maintaining the Airport, it filed a revised return declaring a taxable income of Rs. 11,88,92,410/-. The Department did not accept the deduction under Section 80-IA and made various disallowances, leading to the appellant filing an appeal. During the assessment proceedings, the Department questioned the provision for bad and doubtful debts debited by the appellant, leading to a series of events including the invoking of Section 263 of the Income Tax Act, 1961.The main issues raised by the appellant in the appeal were:1. Whether the Commissioner was justified in invoking the revisionary jurisdiction under Section 263 of the Income Tax Act.2. Whether there was sufficient evidence or material to justify the finding that the Assessing Officer had not made an inquiry into the issue in question.The appellant argued that the Principal Commissioner had no jurisdiction to invoke Section 263 as it was based on a change of opinion, citing relevant case law to support their position. On the other hand, the Department contended that the provision for bad debts was not clearly accounted for in the appellant's financial statements.The Court analyzed the situation and determined that for the Commissioner to exercise revisional jurisdiction under Section 263, two conditions must be satisfied: the order must be erroneous and prejudicial to the Revenue. The Court found that the assessing officer's order accepting the appellant's claim without providing reasons was erroneous, meeting the threshold for invoking Section 263.Referring to the Malabar Industrial Company Ltd. v. Commissioner of Income Tax case, the Court emphasized that Section 263 is meant to correct errors that cause prejudice to the Revenue. In this case, the assessing officer failed to apply his mind and mechanically accepted the appellant's claim without proper reasoning. As a result, the Principal Commissioner's decision to re-examine the issue under Section 263 was deemed justifiable.Ultimately, the Court dismissed the appeal, ruling in favor of the Revenue, as the order passed by the Principal Commissioner under Section 263 was found to be legally sound. The Court concluded that there was no jurisdictional infirmity in the impugned order and dismissed the income tax appeal without costs.