2023 (6) TMI 812 - AT - Income Tax

Revision u/s 263 - assessment as framed by AO u/s 143(3) - as per CIT claim made by the assessee was not in accordance with the provisions of Sec.36(1)(vii) since the claims includes items like TDS payable, advance premium deposit, unpaid wages, salary and wages payable, loan given to various parties, prepaid expenses, DEPB receivable, duty drawback receivable, electricity deposit, provision for bad and doubtful debts etc. - HELD THAT - This was a case of no-enquiry / no-verification by AO. We are not inclined to accept this argument on the face of the assessment order. A specific query was raised by AO during the course of assessment proceedings and the same was duly responded to by the assessee. Assessment order also takes note of the fact that the requisite details were furnished by the assessee and no comments have been made on the conduct of the assessee in the assessment order, in this regard. The plea raised by Ld. CIT-DR could not be accepted. Another line of argument is that certain items as pointed out in the revisional order could not be allowed u/s 36(1)(vii). As submitted that the assessee had explained that the debts arose as a result of debit note raised on purchase due to quality issues. The argument that, AO failed to carry out enquiries regarding the debit notes. AO did not enquire when the assessee had sold the entire stock purchased and he did not enquire as to how the purchases were accounted for in the earlier years how the stock was adjusted. This argument would stand negated by the fact that no discrepancy has been pointed out either by AO or by Pr. CIT in the purchases made by the assessee or stock maintained by the assessee. The only allegation in the revisionary order is that certain items claimed by the assessee could not be held to be revenue in nature since this would be allowed only when the assessee is a going concern. No other doubt, whatsoever, has been raised against the claim so made by the assessee. Allegation that the amounts were written-off so as to avoid capital gains on slum sale is bereft of any concrete material on record. Therefore, this argument also could not be accepted. CIT-DR also referred to the recent decision in the case of Khyati Realtors Pvt. Ltd. 2022 (8) TMI 1141 - SUPREME COURT for the submission that the item of expenditure falling u/s 30 to 36 will not be covered by Section 37. We find that the assessee had made a claim u/s 36(1)(vii) and considering the nature of certain items, made partial claim u/s 28 r.w.s. 37 which was accepted by AO. The subsequent decision of Hon ble Supreme Court could have never been considered by AO while framing the assessment. No apprehension has been raised by AO against the claim so made by the assessee. It was a case of adoption of one of the possible views which is not contrary to any law. Revision of the order was no sustainable in the eyes of law and hence, liable to be quashed. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of revisional jurisdiction under Section 263.
2. Assessment proceedings and the adequacy of inquiries made by the Assessing Officer (AO).
3. Revisionary proceedings and the justification for invoking Section 263.
4. The nature of bad debts and their classification under Section 36(1)(vii).

Summary:

Validity of Revisional Jurisdiction under Section 263:
The assessee challenged the revisional jurisdiction exercised by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263, arguing that the original assessment order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal noted that the AO had raised specific queries regarding the bad debts claimed by the assessee and that the assessee had provided detailed responses. The Tribunal emphasized that the twin conditions for invoking Section 263'erroneous order and prejudice to the revenue'were not met.

Assessment Proceedings:
During the assessment proceedings, the AO issued notices under Section 142(1) seeking various details, including those related to bad debts. The assessee furnished a detailed note and working of the bad debts, citing judicial precedents like the Supreme Court's decision in TRF Ltd. The AO, satisfied with the explanations, accepted the claim without further queries. The Tribunal observed that the AO's acceptance of the claim was a possible view supported by binding judicial precedents, and thus, could not be deemed erroneous.

Revisionary Proceedings:
The Pr. CIT initiated revisionary proceedings, arguing that the AO did not verify whether the bad debts claimed were in accordance with Section 36(1)(vii) and that some items were not revenue in nature. The Pr. CIT also suggested that the bad debts claim was intended to avoid capital gains tax. The assessee defended the assessment order, stating that the debts were written off due to quality rejections and were not taken over by the acquirer of the business. The Tribunal found that the Pr. CIT's apprehensions were not supported by concrete material and that the AO had made due inquiries during the assessment proceedings.

Nature of Bad Debts:
The Tribunal noted that the business of the assessee had not closed down but was sold on a slump sale basis, and the items not taken over by the acquirer belonged to the assessee. Therefore, the Tribunal held that the bad debts were indeed revenue in nature and allowable as business losses. The Tribunal also rejected the Pr. CIT's argument that the bad debts claim was intended to avoid capital gains tax, finding no concrete evidence to support this allegation.

Conclusion:
The Tribunal concluded that the revision of the assessment order under Section 263 was not sustainable in law, as the twin conditions of the order being erroneous and prejudicial to the interest of the revenue were not met. The appeal was allowed, and the revisionary order was quashed. The Tribunal emphasized that an assessment order cannot be revised merely because the Pr. CIT has a different view, especially when the AO's view is a possible and legally sustainable one.