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2022 (12) TMI 678 - AT - Income TaxRevision u//s 263 by CIT - writing off of inventory in the form of non-convertible debentures - net realisable value of the debentures as on 31.03.2017 were ascertained as NIL and the un-recoupable cost of inventory i.e. the balance amount of cost of debentures was written off in the profit loss account - As per CIT debentures were still showing in the DEMAT statement of the assessee, such write off was not correct and ld. AO failed to consider these facts and did not conduct any enquiries or verifications - HELD THAT - Details were placed before ld. AO who has thoroughly examined and after being satisfied that since M/s. Amtek Auto Ltd. has gone into liquidation and was unable to pay the balance sum of Rs. 4,54,00,000/- to the assessee, accepted the assessee s claim of write off of the said amount. It is also worth noting that Note no. 2.25 of the audited balance sheet states the said transaction and the writing off of Rs. 4.54 Cr. in the statement of profit loss account which was held as stock-in-trade by the assessee. During the course of assessment proceedings AO asked the assessee to specifically explain the basis of valuation of the debentures of M/s. Amtek Auto Ltd. to which the company replied on 20.12.2019 furnishing the complete details. Ld. AO after being satisfied with the details and explanations passed the order u/s 143 of the Act drawing no adverse inference in relation to claim of valuation loss arising on writing off of the debentures held as stock-in-trade. We find that the transaction referred in the show cause notice has been examined by ld. AO and one of the view permissible under the law has been taken. Even otherwise it has been stated before the lower authorities and before us that in case the assessee will be able to recover the alleged sum, the same will be offered to tax in the year when it will be received - we find that the assessment order dated 27.12.2019 is neither erroneous nor prejudicial to the interests of the Revenue and thus, ld. PCIT erred in invoking jurisdiction u/s 263 of the Act and therefore, the same deserves to be quashed. Appeal of assessee allowed.
Issues Involved:
1. Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking jurisdiction under Section 263 of the Income Tax Act, 1961. 2. Whether the assessment order passed under Section 143(3) of the Income Tax Act, 1961 was erroneous and prejudicial to the interests of the Revenue. 3. Whether the write-off of debentures as inventory was correctly valued and substantiated by the assessee. Issue-wise Detailed Analysis: 1. Jurisdiction under Section 263 of the Income Tax Act: The assessee challenged the PCIT's invocation of jurisdiction under Section 263, arguing that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. The Tribunal examined the provisions of Section 263, which empower the Commissioner to revise an order if it is erroneous and prejudicial to the interests of the Revenue. The Tribunal highlighted that the Commissioner must follow a four-step process: calling for records, examining them, forming an opinion, and issuing a show cause notice. The Tribunal noted that the PCIT issued a show cause notice citing the write-off of debentures and alleged lack of proper inquiry by the Assessing Officer (AO). 2. Erroneous and Prejudicial Assessment Order: The Tribunal analyzed the conditions under which an assessment order can be considered erroneous and prejudicial, referencing the Supreme Court's decision in Malabar Industries Ltd. vs. CIT. The Tribunal reiterated that an order is erroneous if it is based on incorrect facts, incorrect application of law, violates natural justice, or lacks proper inquiry. The Tribunal found that the AO had thoroughly examined the transaction of debentures, including the reasons for their write-off, and had conducted proper inquiries. The AO had accepted the assessee's claim after being satisfied with the explanations and supporting documents provided. 3. Write-off of Debentures as Inventory: The Tribunal reviewed the facts surrounding the write-off of debentures. The assessee had purchased debentures from M/s. Amtek Auto Ltd., which defaulted on redemption and interest payments. The assessee wrote off the unrecovered amount in the profit and loss account, treating the debentures as inventory. The Tribunal noted that the AO had specifically inquired about the valuation of the debentures and had received detailed explanations and supporting documents from the assessee. The Tribunal found that the AO had accepted the assessee's claim after a thorough examination, and the write-off was correctly valued based on the principle of lower of cost or market value. Conclusion: The Tribunal concluded that the assessment order dated 27.12.2019 was neither erroneous nor prejudicial to the interests of the Revenue. The AO had conducted proper inquiries and had taken a permissible view under the law. The Tribunal quashed the PCIT's order invoking jurisdiction under Section 263, allowing the assessee's appeal. Result: The appeal filed by the assessee was allowed, and the order of the PCIT was quashed.
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