2024 (2) TMI 335 - AT - Income Tax

Revision u/s 263 - CIT setting aside the assessment order and directing to frame fresh assessment order on the issues of Interest accrued but not paid to Power Finance Corporation (PFC), claim of Bad Debts and provision on account of leave encashment - HELD THAT - As clearly evident from the findings of the Ld. PCIT, as noted above by us, that in very clear terms he stated to be satisfied with the explanation of the assessee regarding the irregularities noted by him in the assessment order and for which purpose he assumed jurisdiction u/s 263 of the Act for revision of the assessment order. It is but obvious that as per PCIT himself there was no error in the assessment order in allowing the above claims to the assessee - PCIT was satisfied that these claims had been rightly allowed to the assessee on the basis of the assessee s explanation and the documents filed before him. When the ld. PCIT himself was satisfied that there was no error in the order of the Assessing Officer vis- -vis irregularities noted by him initially, there can be no case for exercising any revisionary power u/s 263 of the Act. The provisions of the section are very clear. The concerned authorities can exercise revisionary powers only on fulfillment of the essential conditions of finding error in the order sought to be revised and the error being such as causing prejudice to the Revenue. In the absence of any of the two conditions the power of revision u/s 263 of the Act cannot be exercised. See Malabar Industrial Co. Ltd. Vs. CIT 2000 (2) TMI 10 - SUPREME COURT . In the present case, with the ld. PCIT s recording of satisfaction vis- -vis explanation of the assessee regarding the alleged errors noted by him in the assessment order, it can be safely said that as per the ld. PCIT, there was no error in the assessment order. And having found no error in the assessment order himself , there was possibly no scope of the issue being examined again by the AO, an officer junior in Rank to the Ld. PCIT . There was no case therefore, we hold, for the Ld. PCIT to exercise any revisionary power u/s 263 of the Act on the issue. Merely because the Assessing Officer had not examined these issues during assessment proceedings does not make the assessment order erroneous particularly when the ld. PCIT finds, on the basis of explanation and documents furnished to him, that the assessee s claim was eligible as per law - Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Assumption of jurisdiction under Section 263 of the Income-tax Act, 1961.
2. Validity of proceedings under Section 263.
3. Specific disallowances related to Interest accrued but not paid, Bad Debts, and Leave Encashment.

Summary:

1. Assumption of jurisdiction under Section 263 of the Income-tax Act, 1961:
The assessee contended that the Principal Commissioner of Income-Tax (PCIT) erred in assuming jurisdiction under Section 263 without recording satisfaction that the assessment order passed under Section 143(3) was erroneous and prejudicial to the interest of Revenue. The tribunal noted that the PCIT assumed jurisdiction under Section 263 due to three irregularities: incorrect allowance of interest accrued but not paid on loans from Power Finance Corporation (PFC), wrong claim of Bad Debts, and incorrect allowance of provision on account of Leave Encashment.

2. Validity of proceedings under Section 263:
The assessee argued that the proceedings under Section 263 were void as the original assessment order was passed after due inquiry and application of mind, and was not erroneous or prejudicial to the interest of the Revenue. The tribunal observed that the PCIT found merit in the explanation furnished by the assessee and noted no categorical finding of error in the assessment order. The tribunal emphasized that the PCIT was satisfied with the explanation provided by the assessee regarding the alleged irregularities.

3. Specific disallowances related to Interest accrued but not paid, Bad Debts, and Leave Encashment:
- Interest accrued but not paid: The PCIT noted that the interest payable to PFC was required to be disallowed under Section 43B(d) as it was not paid before the due date for furnishing the return of income. However, the assessee clarified that the interest did not become due until after the date of filing the return, and the provisions of Section 43B did not apply.
- Bad Debts: The PCIT observed that the bad debts claimed were not written off in the books of accounts, making the deduction claimed inadmissible. The assessee explained that the bad debts were written off against the existing provision in books made in earlier years, and the deduction was rightly claimed.
- Leave Encashment: The PCIT noted that the provision for leave encashment was not fully added back in the statement of income, resulting in an under-assessment. The assessee clarified the amounts involved and provided supporting details, asserting that the disallowance was correctly offered under Section 43B.

Conclusion:
The tribunal held that the PCIT, having found the assessee's explanations satisfactory and noting no error in the assessment order, had no basis to exercise revisionary powers under Section 263. The tribunal emphasized that revisionary powers can only be exercised when there is an error causing prejudice to the Revenue, which was not the case here. Consequently, the tribunal set aside the order passed by the PCIT under Section 263 and allowed the appeal of the assessee. The appeal of the assessee was allowed, and the order was pronounced in the open Court on 02/02/2024 at Ahmedabad.