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2013 (7) TMI 283 - AT - Income TaxRevision order passed u/s 263 - addition made with regard to disallowance of Rs.50 lac on account of advance written off - Held that - It is manifest from the query raised by the AO and reply submitted by the assessee that the AO conducted an enquiry and after considering the reply of the assessee has accepted the claim. Though in the assessment order passed u/s 143 (3) the AO has not discussed this issue however, once specific query was raised and the assessee submitted the reply and after considering the assessee s reply, AO has accepted the claim of the assessee then it cannot be said that there was no enquiry at all on this issue. There must be a distinction between a lack of enquiry and inadequate enquiry in a case the AO has made an enquiry and took a possible view under the law then even if the view taken by the AO is not acceptable to the Commissioner it cannot render the assessment order as erroneous and prejudicial to the interest of revenue as to empower the Commissioner to invoke the provisions of Section 263. The Hon ble High Court in DG HOUSING PROJECTS LTD case 2012 (3) TMI 227 - DELHI HIGH COURT has clearly made out distinction between the orders where no enquiry has been made by AO from the cases of inadequate enquiry. Therefore, where the AO had made an enquiry and taken a possible/ permissible view then the said order cannot be treated as erroneous and prejudicial to the interest of the revenue unless the view taken by the AO is unsustainable in law - Since the order passed u/s 263 disallowed therefore, consequential disallowance made in the order passed in pursuant is not sustainable - appeals of the assessee allowed.
Issues Involved:
1. Legitimacy of the revision order under Section 263 of the Income Tax Act. 2. Disallowance of Rs. 50 lakh as advance written off by the assessee. Detailed Analysis: 1. Legitimacy of the Revision Order under Section 263: The primary issue in the appeal ITA No. 3994/Mum/2005 concerns the revision order dated 31.3.2005, passed by the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act. The CIT noted discrepancies in the original assessment, specifically the allowance of Rs. 50 lakh as bad debts without proper proof, incorrect calculation of advertising commission, and reduction of ad-agencies commission without adequate inquiry. The CIT issued a show cause notice under Section 263 on 16.03.2005, proposing to revise the assessment order. After considering the assessee's reply, the CIT set aside the assessment order on three issues, directing the Assessing Officer (AO) to conduct further inquiries. The assessee contended that the AO had already examined the issue of advance written off in the original assessment order under Section 143(3) and accepted the claim after considering the assessee's explanation. The assessee argued that the CIT cannot invoke Section 263 merely because he disagrees with the AO's view, citing the case of CIT Vs. Gabriel India Ltd. [(1993) 203 ITR 108 (Bom.)] and ITO v. DG Housing Projects Ltd. [(2012) 343 ITR 329 (Del.)]. The assessee emphasized that the AO had conducted an inquiry and accepted the claim, making the assessment order neither erroneous nor prejudicial to the revenue's interest. The Tribunal noted that the AO had indeed raised a specific query regarding the advance written off and accepted the assessee's reply. The Tribunal emphasized the distinction between lack of inquiry and inadequate inquiry, stating that an order cannot be erroneous if the AO has made an inquiry and taken a possible view, even if the CIT disagrees with it. The Tribunal referenced the Hon'ble Delhi High Court's decision in ITO Vs. DG Housing Project Ltd., which clarified that the CIT must conclude that the order is erroneous and unsustainable in law before invoking Section 263. 2. Disallowance of Rs. 50 Lakh as Advance Written Off: In the appeal ITA No. 687/Mum/2009, the issue revolves around the disallowance of Rs. 50 lakh as advance written off, following the revision order under Section 263. The AO, in the consequential assessment order, disallowed the claim of Rs. 50 lakh, while accepting the assessee's claims regarding the incorrect calculation of advertising income and ad-agencies commission. The Tribunal examined whether the AO's acceptance of the assessee's claim in the original assessment was a possible view under the law. The Tribunal found that the advance was given for purchasing episodes of a program, which was a business transaction. When the arrangement did not proceed, the advance became irrecoverable, justifying the write-off as a business loss. The Tribunal concluded that the AO's acceptance of the claim was a permissible view, and the CIT's invocation of Section 263 was not justified. Conclusion: The Tribunal held that the revision order under Section 263 was not sustainable, as the AO had conducted an inquiry and taken a permissible view. Consequently, the disallowance of Rs. 50 lakh in the assessment order pursuant to the Section 263 order was also not sustainable. Both appeals of the assessee were allowed, and the revision order under Section 263 was set aside. Order Pronounced on: The order was pronounced on the 30th day of April, 2013.
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