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TMI Blog2010 (8) TMI 1158X X X X Extracts X X X X X X X X Extracts X X X X ..... . 153A read with section 143(3) passed by the Ld. A.O. which were carried into further appellate proceedings before the learned CIT(A) and ITAT in respective proceedings and were adjudicated upon by them before Ld. CIT passed order u/s. 263 of the Act. 1.2. The Ld. C.I.T. erred in law and on facts in wrongly passing the order u/s. 263 qua the amount of bad debts of ₹ 71,08,600/- which were allowed in the original assessment order u/s. 143(3) dated 18-03-2004 and for which the time limit of 2 years prescribed u/s. 263(2) was already over. The Ld. CIT wrongly assumed jurisdiction u/s. 263 for the above same amount presuming that the same is allowed for the first time in the order passed u/s. 153A r. w. section 143(3) dated 31-12-2007. Thus, the order passed by the Ld. C.I.T. being beyond the time limit prescribed u/s. 263(2) is barred by limitation and bad in law. 1.3. The Ld. C.I.T. has wrongly assumed jurisdiction u/s. 263 in respect of the issue of bad debts allowed by the Ld. A.O. u/s. 153A r. w. section 143(3) as such issue was not for the first time considered in the order u/s. 153A r. w. sec. 143(3). The Ld. A.O. had already considered the same in the earlier order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed u/s. 263 by Ld. CIT be quashed." 2. The facts of the case are that assessee is a broker dealing in shares business. The return of income was filed at a loss of ₹ 1,52,980/- on 30-10- 2001 for the Assessment Year 2001-02 and the assessment thereof u/s. 143(3) was completed on 18-3-2004 at a total income of ₹ 52,76,440/-. In that case, an addition of ₹ 21,22,560/- was made in respect of bad debts disallowed. The assessee went in appeal before the Ld. C.I.T.(A) who vide his order dated 8-11-2004 confirmed the order of the Ld. A.O. in not allowing claim of bad debts as well as not allowing the claim as trading loss u/s. 28(1). In this regard we refer to paragraph 6.2 to 6.4. from that as under :- "6.2. I have carefully considered the issue. It is seen that the appellant is carrying on business of buying and selling shares on behalf of its clients and in that process it earns income by way of brokerage. Thus the transactions are carried out in the course of business of the appellant. However, apparently this is a case where sale and purchase is not of the appellant but he is working as an agent and these amounts have never been taken to the profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that in the year under consideration, the amount cannot be said to be irrecoverable as the party in question had sufficient assets and no steps were taken to recover this amount. In view of the above, the claim of the appellant cannot be allowed and the A. O's action is upheld." 3. The assessee then went in appeal before the Tribunal which vide their order dated 27/2/2009 in the case of 35 assessees including this assessee who was listed at item No.19 and 20 therein, restored the matter to the file of the Assessing Officer to verify whether assessee has written off the amounts in the books of accounts and if yes, the deduction should be allowed to the assessee but where assessee has merely made the provision then deduction should not be allowed. In this regard we refer to paragraph 64 of the order of the Tribunal as under :- "64. However, in ITA No.99/Ahd/05 for A.Y. 2001-02, it is not clear from the record whether the assessee has written off the amount in its books of account or has made the provision. We, therefore, direct the A.O. to verify the audited books of account and in case the A.O. finds that the assessee has written off the amount in its books of account, the ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding on the date of search/requisition. Hence the legal objections of the appellant are not acceptable and are therefore, rejected. 8. The disallowance made by the A./O. for sub-brokerage and the provisions for bad debt is based on the reasons in the original assessments. The CIT (A) in his order dated 8-11-2004 for A.Y. 2000- 01 and 2001-02 has deleted the disallowance for the sub-brokerage as discussed in his order in Appeal No. CIT (A)/Cir./94/04-05 dated 8/11/2004. The facts and circumstances being the same the disallowance of sub-brokerage i.e. ₹ 98,720/- and ₹ 3,46,286/- in A.Y. 2000-01 and 2001-02 is therefore, deleted. In respect of the disallowance for provision of bad debt it is seen that the disallowance was confirmed for both the assessment years in the appellate orders by the Cs. IT(A). The facts and circumstances, contentions being the same, the disallowance for provisions of bad debt ius upheld. The related ground(s) of appeal is rejected." 6. Thereafter, the matter traveled to the Tribunal which vide their order in ITA No.800 & 801/Ahd/2009 pronounced on 5-6-2009 deleted the addition of bad debts on the ground that if certain issues are considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td., 701-702, Premium, Behind Handloom House, Off. Ashram Road, Ahmedabad. Sir, Sub:- Show cause notice for action u/s. 263 of the I.T.Act - A.Y. 2001-02 - PAN AABCM 0357 Q - reg. - ---- The assessment for A.Y. 2001-02 was finalized in your case u/s. 153A r. w. s. 143(3) on 31.12.2007 by DCIT, Central Circle 2(2), Ahmedabad, which was subsequently modified by order u/s. 154 dated 18.02.2009. The orders passed by the A.O. have been perused by me. It is observed from the orders that: "While determining the total income at ₹ 45,32,957/-, the bad debts written off incorporated in the Profit and Loss Account amounting to ₹ 92,.31,160/- was overlooked and only an amount i.e. ₹ 21,22,560/- included in the appellate order was considered for disallowance. Hence, the difference amount of ₹ 71,08,600/- stands allowed wrongly. Since you are engaged in share broking business and shown only brokerage income any loss on purchase of share on behalf of the client, which were not routed through your trading account is not eligible as bad debts for your business." The above fact shows that the assessment order passed by the Assessing Officer in respect of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim both on facts and in law. It is the contention of the assessee that the issue of erroneous deduction of ₹ 71,08,600/- as bad debts has merged with the decision of the Hon'ble ITAT on the issue of deduction of ₹ 21,22,560/- as allowed. The argument is incorrect as the issue is different and Hon'ble ITAT had no occasion to consider the allowability of ₹ 71,08,600/- which the Assessing Officer had allowed u/s. 36(1)(vii); whereas the amount of ₹ 21,22,560/- held by the Hon'ble ITAT as allowable u/s. 28(1) of the I.T. Act. As the issue was never raised or agitated it is to be held that the issue has not merged with the Hon'ble ITAT. Reliance is placed on Hon'ble Supreme Court decision in the case of 231 ITR 50 (SC) Shri Arbuda Mills vs. C.I.T. The Assessing Officer did not examine the issue of allowance of the claim as trading loss where the conditions of allowability were totally different compared to the conditions to be satisfied for allowing the claim as bad debt u/s. 36(1)(vii) of the I.T. Act. The assessee was liable to establish that the loss was incurred during the normal course of business carried out and the same was genuine. In the above co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red 7 items of bad debts as under:- Sr. No. Name of the parties. Amount.(Rs.) 1. Amit Arun Bhargav 11,310/- 2. Chandrakant S.Trivedi 64,680/- 3. Mundra Investment 1,22,862/- 4. Prime Share & Stock Pvt. Ltd. 21,06,783/- 5. Pee Square Trading Co. 16,400/- 6. Sneha Securities Pvt. Ltd. 4,465/- 7. Tejbahadursingh Deshrajsingh Rajput. 69,05,107/- Total 92,31,610/- 10.2 The ld. AR referred to paragraphs 14, 18 and 19 where A.O. had discussed the issue of bad debts in respect of Sneha Securities, Amit Arun Bhargava and Prime Share & Stock Pvt. Ltd. He considered these items of claim of bad debts as not allowable and accordingly resorted to addition in respect of these three items only which totaled to ₹ 21,22,560/-. In respect of others, he was apparently satisfied and did not make any addition. The Ld. A.R. submitted that A.O. had called Shri Tejbahadursingh Deshrajsingh Rajput u/s131(1) and had recorded his statement in the case of the assessee on 16/12/2003 in respect of whom assessee had made a claim of bad debts amounting to ₹ 69,05,107./- (being at Sr.No.7 in the above chart) and thus after considering the statement, Ld. A.O. had accepted the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue regarding the trading loss has also been considered by the Tribunal in their order dated 27-2-2009 in para 62,63 and 64 and also in their order dated 5-6-2009. Once this bad debt is also considered as trading loss by the Tribunal then the order of the A.O. merged in the order of the Tribunal. Then, the same cannot be revised by the Commissioner u/s. 263 by virtue of clause (c) of section 263(1). 10.5 In any case, Ld. A .R. submitted that Tribunal in their order dated 5-6- 2009 has held that issues which are already considered in the proceedings u/s. 143(3), the same cannot be subject matter of assessment u/s. 153A for the same year. 10.6 On merits Ld. A.R. submitted that assessee had in fact in written off the amounts in the books and they are not mere the provisions. Therefore, the issue is covered in favour of the assessee by the decision of the Hon'ble Supreme Court in TRFS Ltd., case. 11. Against this Ld. D.R. submitted that once proceedings u/s. 153A are taken up as a result of a search then orders passed prior to the search have lost their significance and all the issued whether considered in assessment u/s. 143(3) or not can be taken up in the assessment u/s. 1253A. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the above said parties, made through the assessee, were recorded and the difference of such amounts was the debit or credit balance reflected therein. It is also possible that such ledger accounts of these parties consisted of certain loans/advances." He also recorded the statement of Shri Tejbahadursingh Deshrajsingh Rajput and he was apparently satisfied that claim of bad debts in respect of other four parties was acceptable and he accordingly had proposed addition in respect of only three parties viz., Sneha Securities, Shri Amit Arun Bhargav and Prime Share and Stock Pvt. Ltd., being at Sr.Nos.1,4 and 6 of the above table. Then it cannot be said that Ld. A.O. had not examined and applied his mind in respect of all the seven parties. Thus, once the issue of bad debt in respect of these four parties was considered by the A.O. and was accepted then as per the decision of the Tribunal dated 5-6-2009 those issues cannot be considered in the assessment framed u/s. 153A. 1 4. In addition to above, we are of the view that issue is also covered by clause (c) of Explanation to sub section (1) of Section 263 which reads as under :- "263(1)(c) : "Where any order referred to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudicial to the interest of Revenue. 18. In the case of John Wyeth & Brothers Ltd. vs. CIT reported at 312 ITR- 80 (ITAT Mumbai Bench), it was similarly held that if the order of A.O. is merged in the order of CIT(A), then Commissioner has no power to assume jurisdiction to revise the order of AO in respect of the amounts covered in appeal. But where an issue is not taken up in appeal, the Commissioner has jurisdiction. 19. In the case of C.I.T. vs. Ganpat Ram Bishnoi (2008) 296 ITR-292, it was held that the jurisdiction u/s. 263 cannot be invoked for directing more inquiries or to go into the process of assessment again merely on the basis that inquiries as thought by the CIT ought to have been conducted. The A.O. had passed an assessment order after relevant inquiries and it is not shown by the Ld. Commissioner as to why the inquiries conducted by the A.O. was not in accordance with law. 20. Similarly in C.I.T. vs. Mangilal Didwania (2006) 286 ITR 126 (Raj.) it was held that where AO had inquiried with due application of mind then C.I.T. cannot set aside the order u/s. 263 on the ground that AO had not carried out proper investigation or completed the assessment in undue h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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