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TMI Blog2015 (11) TMI 989X X X X Extracts X X X X X X X X Extracts X X X X ..... t order passed by the A.O. The A.O. has not verified either (a) the allowability of the loss in principle or (b) where the claim is factually correct as quantification of the loss has not been verified by the A.O. In our opinion such exercise of powers u/s 263 of the Act is in accordance with law. Just because the Ld.CIT has come to a conclusion that in principle the loss in question is a business loss, it does not lead to a conclusion that the quantification has to be accepted based on audited accounts, though the A.O. has not made any enquiry on this issue. It is well settled that in case of no enquiry, it would be a case of non application of mind, resulting in an error in the assessment order which causes prejudice to the interest of the Revenue. The Ld.CIT has held the first issue in favour of the assessee and on the second issue, set aside the order for fresh adjudication. Coming to the third ground of revision i.e. excess provision of securitised assets, the Ld.CIT could have verified whether the assessee had suo moto disallowed the provision and the revision on this count would result in a double disallowance. Without coming to a firm conclusion on this issue, despite th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, as business loss. (b) Allowability of loss on sale of bad loan portfolio as business loss. (c) Allowability of excess provision of securitized assets. 3.1. The Ld.CIT(A) set aside the assessment to the file of the A.O., for the limited purpose of verification of the correctness of deduction claimed at ₹ 497.77 lakhs, on account of sale of the repossessed stock and at ₹ 209.05 lakhs on account of sale of bad loan port folio, as also for carrying out the verification of the claim that, the excess provision of ₹ 32 lakhs on securitised assets was in fact, added back to the total income of the assessee company itself and hence no further disallowance was called for. The AO was directed to dispose of these issues as per law. 3.2. Aggrieved the assessee is in appeal before us on the following grounds. 1. That on the facts and in the circumstances of the case and in law, the impugned order u/s 263 of the Income Tax Act, 1961 (the Act) is beyond jurisdiction, bad in law and void ab-initio. 2. That on the facts and in the circumstances of the case and in law, the Ld.CIT erred in alleging that the assessment order was erroneous and prejudicial to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acto does not lead to a conclusion that there was no enquiry by the A.O. (c) What are the proper, requisite and desired enquiries in relation to, various matters during the course of assessment proceedings is at best left to the discretion of the A.O. and the presumption is that the officer involved acted in a bonafide and diligent manner. (d) The Ld.CIT has not based his conclusions on any material, which could lead to a conclusion that the acceptance of the assessee s version by the A.O. was not warranted either in law or on facts. (e) The A.O. not only asked specific question on the allowability of these items of loss as business loss, but had also applied his mind to the detailed submissions made by the assessee and after perusing the audited annual accounts, which have clearly reflected these claims, accepted the contention of the assessee. This is neither non enquiry nor lack of application of mind and it is a possible view taken by the A.O. (f) When the A.O. has drawn inferences after making enquiries, the Ld.CIT does not have any jurisdiction u/s 263 of the Act, to cancel the assessment order. The object of S.263 of the Act is not to make rowing and endless enqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch finding has been given. (b) That the assessee has not produced any evidence on actual sale of repossessed assets and that the assessment order is silent on these issues, and hence the Ld.CIT has come to a conclusion that the loss is not allowable. (c) That in Schedule 20 of the annual accounts along with Schedule VII, read with the Notes thereto, has not been examined by the A.O. That the A.O. has simply collected replies but has not applied his mind to the issues in question and had simply accepted the replies of the assessee. That the A.O. has kept mum on the reply given by the assessee and hence it is a case of no enquiry due to non application of mind. (d) That before the Ld.CIT, voluminous data has been filed by the assessee, the Ld.CIT cannot by himself come to a conclusion and hence the matter was remanded back to the file of the A.O. for fresh adjudication de novo and in such circumstances, no fault can be found with the order of the Ld.CIT. Reliance was placed on the following case laws. (i) Gee Vee Enterpirses reported in 99 ITR 375 (Del.) (ii) Duggal Co. Reported in 220 ITR 456 (Del.) (iii) Malabar Industries Co.Ltd. reported in 243 ITR 83 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In case of hire purchase, in the event the hirer defaults in payment of instalments, the company repossesses the stock given by it on hire purchase. Similarly in case of auto or consumer loans the loan is hypothecated against the auto/two wheeler or the consumer durable as a security which, in the event of default by a customer, is repossessed. As and when an asset is repossessed under a hire purchase and/or consumer loan transaction, the same is included in the repossessed stock of the company under the current assets. The same is done by debiting the repossessed stock account and crediting the debtors account. In other words by passing this entry there is only a balance sheet movement not affecting the profit and loss account and consequently having nil effect on the taxable income. Thereafter, assessee taking a commercially prudent decision sells these repossessed assets to interested buyers. On sale the excess/shortfall of the sale proceeds vis a vis the amount recoverable from the hirers is booked as business profit/loss in the profit and loss account under Schedule 21: operating expenses under the head loss on sale of repossessed assets. The unsold repossessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and after giving reasonable opportunity to the assessee company of being heard. 7.2. A perusal of the above findings of the Ld.CIT, clearly demonstrates that the allowability of the claim of loss on sale of re-possessed assets and loss on sale of bad loan portfolio per se, as a business loss, is not disputed by the Ld.CIT. He only doubts whether the quantification of the claim is correct or not. This is because the A.O. has not enquired into these aspects during the course of assessment proceedings. Thus he sets aside the assessment to the file of the A.O. for the limited purpose of verification of the correctness of the quantification of the deduction claimed. Hence we need not labour much on the issue whether the claims in question are allowable or not as business loss. 7.3. The Ld.D.R. has relied on the judgement of Hon ble Allahabad High Court in the case of Motor and General Sales (Pvt.)Ltd. Vs. CIT 226 ITR 137. In our considered opinion, the facts of the current case are different from the facts considered by the Hon ble High Court in the case of M/s Motor and General Sales P.Ltd. (supra). In that case the factual position was, that the assessee was not the owner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rused the same. 8.3. After considering these submissions of the assessee in response to the query which included, party wise details of loss incurred on sale of repossessed assets, the A.O. accepted the claim of the assessee. Similarly for the A.Y. 2003-04 a query was raised by the A.O. and after considering the details furnished and the submissions, the claim was accepted. The question before us is, whether under such circumstances the Ld.CIT can invoke his powers u/s 263 of the Act when this is not a case of lack of enquiry but merely a case of inadequate enquiry as per the Ld.CIT. 8.4. The Hon ble Delhi High Court in the case of CIT vs. Sunbeam Auto Ltd. (supra) has held as follows. Held, dismissing the appeal, : (i) That the AO allowed the claim on being satisfied with the explanation of the assessee. Such decision of the A.O. could not be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. The AO had called for explanation on the very item from the assessee and the assessee had furnished its explanation. This fact was conceded by the Commissioner himself in his order. This showed that the AO had undertaken th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the A.O. had not examined the cash credits of the partners or deposits of chit fund. Assuming this to be so, this might make the order erroneous, but how it was prejudicial to the interest of the Revenue had not been stated by the Ld.CIT as he did not deal with the explanation given by the assessee in the course of S.263 proceedings. The Commissioner observed in his order that the assessee had not filed certain documents on the record at the time of assessment. Assuming this was so it did not justify the conclusion arrived at by the Commissioner that the AO had shirked his responsibility of examining and investigation of the case. More so, in view of the fact that the assessee explained that the capital investment made by the partners, which had been called into question by the Commissioner, and this was duly reflected in the respective assessments of the partners who were income tax assesses and the unsecured loan taken from the chit fund was duly reflected in the assessment order of the chit fund which was also an assessee. The order of revision was not valid. 8.7. Applying the propositions laid down in the above judgements, we hold that this is not the case of lack of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d.CIT has not given any material or evidence which would contradict the assessee s version and which aspect has not been adverted to by the A.O. while completing the assessment. For all these reasons we allow both these appeals by the assessee for the A.Y. 2003-04 and A.Y. 2004-05, by holding that the Ld.CIT has erroneously invoked his powers u/s 263 of the Act. 10.2. Coming to the A.Y. 2002-03, admittedly there is lack of enquiry on the part of the A.O. In the S.263 proceedings, the Ld.CIT has come to a definite conclusion that the loss in question is a business loss. This does not mean that the lack of enquiry by the A.O. would not be considered as erroneous and prejudicial assessment order passed by the A.O. The A.O. has not verified either (a) the allowability of the loss in principle or (b) where the claim is factually correct as quantification of the loss has not been verified by the A.O. In our opinion such exercise of powers u/s 263 of the Act is in accordance with law. Just because the Ld.CIT has come to a conclusion that in principle the loss in question is a business loss, it does not lead to a conclusion that the quantification has to be accepted based on audited acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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