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TMI Blog2022 (12) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. - I.T.A. No.: 164/Kol/2022 - - - Dated:- 1-11-2022 - DR. MANISH BORAD, ACCOUNTANT MEMBER AND SONJOY SARMA, JUDICIAL MEMBER Sh. Akkal Dudhewala, AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and prejudicial to the interests of the Revenue. 4. Brief facts of the case are that the assessee is a private limited company. Income of Rs. 49,73,270/- declared in e-return filed on 30.10.2017 which was subsequently revised on 08.02.2018 declaring loss of Rs. 9,95,92,993/-. Case selected for scrutiny through CASS followed by serving of notices u/s 143(2) 142(1) of the Act. Various details called for were filed by the assessee. Considering the submissions made by the assessee ld. AO completed the assessment assessing loss at Rs. 9,34,92,993/- after making disallowance of commission paid to the Directors at Rs. 61,00,000/-. 5. Subsequently, ld. PCIT called for the assessment records and after examining the same issued the following show cause notice u/s 263 of the Act to the assessee: Whereas the undersigned had called for and examined the record of your case and it is considered that the impugned assessment order passed u/s 143(3) of the I T Act, 1961 by the DCIT, Circle-7(1), Kolkata on 27.12.2019 for A.Y. 2017-18 is, prima facie, erroneous in so far as it is prejudicial to the interests of the revenue for the following reasons: Scrutiny of the assessment re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o submitted that ld. AO has examined this transaction. However, ld. PCIT was not convinced with these submissions and he, based on his observation that the said 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. Ld. PCIT accordingly held that the impugned order dated 27.12.2019 passed by ld. AO is erroneous so far as prejudicial to the interests of the Revenue and the same deserves to be set aside to be framed afresh After considering the observations given in the order u/s 263 of the Act. 7. Aggrieved the assessee is now before this Tribunal. Ld. Counsel for the assessee after giving a brief history about the issue of the investment in debentures and the default by M/s. Amtek Auto Ltd. which issued the debentures, referring to the following documents (Sl. No. 1 to 6) given in the paper book stated that the transaction akin to the purchase of debentures and their write off were placed before ld. AO and the same has been examined thoroughly and therefore, the order of ld. AO is neither erroneous nor prejudicial to the interests of the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed finding of ld. PCIT and the decisions referred in light therein. 9. We have heard rival contentions and perused the records placed before us. The revisionary proceedings carried out by ld. PCIT and the directions given therein setting aside the order of ld. AO to be framed afresh are in challenge before us. The transaction in question is writing off of inventory in the form of non-convertible debentures at Rs. 4,54,00,000/-. We observe that during the financial year 2015-16 the assessee purchased debentures of Rs. 5 Cr. from M/s. Amtek Auto Ltd. On the due date the issuer company defaulted and subsequently went into liquidation. As stated by the ld. Counsel for the assessee that after making hard efforts the assessee was able to recover only Rs. 46 lakh and the remaining amount was written off as an expenditure in the profit loss account. In this regard, the submissions made by the assessee before ld. PCIT are worth notable: 6. In Para 2 of the Show Cause Notice, it has been alleged that it is not clear that such write-off is on revenue account or capital account. According to your goodself such write-off was made on account of Non- Performing Investment and therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od corroborated by the public announcement made by the company on 24th July 2017, copy of which is enclosed at Annexure - 3. Pursuant to the liquidation proceedings, the company had received sum of Rs.46,00,000/- in part settlement of its redemption proceeds from the issuer company in FY 2016-17. Having regard to the foregoing facts and particularly that the company had gone into liquidation, the NRV of the debentures as on 31.03.2017 was ascertained at NIL and hence the differential sum of Rs.4,54,00,000/- was written off on account of valuation loss arisen on the stock-in-trade. 13. ..In view of above cited judgments of the Hon ble Supreme Court on this very same issue, the company submits that its method of valuation of the closing stock of debentures on the principle of cost or market value, whichever is lower, is in accordance with law and therefore the valuation loss was rightly claimed as deduction from the profits of the business. In the circumstances the SCN issued u/s 263 of the Act is wholly untenable in law. 14. The company has thus duly met your specific objection raised in the SCN with adequate explanation and the facts set out above clearly demonstrate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120; (b) record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. 12. Before we advert to the facts and law involved in this issue before us, let us revisit the law governing the issue before us. The assessee has challenged in the first place, the very usurpation of jurisdiction by ld. PCIT to invoke his revisional powers enjoyed u/s 263 of the Act. Therefore, first we have to see whether the requisite jurisdiction necessary to assume revisional jurisdiction is existing in this case before the PCIT rightfully exercises his revisional power. For that, we have to examine as to whether in the first place the order of the Assessing Officer found fault by the Principal CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedence laid down by the Hon'ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO on 13.08.2019 to which the assessee replied on 19.10.2019 and at point 11 of the annexure attached to the notice, the assessee was required to submit explanation regarding larger amount of refund claimed in the revised return as lesser taxable income shown in the revised return. In reply thereby on 20.12.2019 the assessee filed the details regarding the transaction of debentures purchased from M/s. Amtek Auto Ltd. and the reason for closing valuation of the debentures being considered NIL. Copies of correspondence between the assessee and SEBI were also filed which are placed at page 52 to 64 of the paper book. These 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 ld. AO asked t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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