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TMI Blog2023 (4) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... oss and is allowable in computing the income of the assessee under the Act. From the above noted facts and observations, we find that the revisionary proceeding invoked by Ld. CIT did not meet the twin criterion enunciated in section 263 of the Act. Hon'ble Supreme Court in the case of Malabar Industries [ 2000 (2) TMI 10 - SUPREME COURT] held that this phrase i.e. prejudicial to the interest of the revenue'' has to be read in conjunction with an erroneous order passed by the AO. Their Lordships held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the AO adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the AO is unsustainable in law. Thus we are convinced to quash the impugned revisionary order passed u/s. 263 - Decided in favour of assessee. - ITA No. 1168/Kol/2018 - - - Dated:- 27-3-2023 - SHRI SAJNA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., which is a subsidiary of the assessee. 3.1. On these observations, a show cause notice was issued u/s. 263(1) of the Act dated 23.02.2018. The contents of show cause notice are reproduced as under: 1. An assessment order 18.05.2016 was passed u/s. 143(3) of Income Tax Act, 1961 in the case of M/s. Titagarh Wagons Limited by the Assessing Officer i.e. Assistant Commissioner of Income Tax (LTU)-2, Kolkata. On examination of case records of the said assessment order, it has been observed that during the year under consideration, the Assessing Officer had allowed a sum of Rs. 3,24,45,459/- debited/written off under the head Doubtful Advances/irrecoverable advance u/s. 36 of Income Tax Act, 1961. In fact, assessee company offered an advance of Rs. 3,24,45,459/- (three Crores twenty four lakh forty five thousand and four hundred fifty nine) to M/s. Greysham Private Limited (Vendor) for the purpose of supply of Air Brake equipment and Slack Adjuster during the period 2008 to 2010. Vendor was an Associated Company of the assessee i.e. M/s. Titagarh Wagons Limited. Meanwhile, as per Assessee Company, the Vendor failed to supply goods for which advance offered due to bankruptcy an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed it after due application of mind in AY 2013-14. (iii) The advance made by the assessee and claimed as a bad debt is a business loss. 3.3. Ld. Counsel submitted that in respect of claim of deduction made on account of provision for doubtful debts in AY 2011-12, Ld. CIT categorically noted the relevant facts that AO had disallowed an amount of Rs. 344.45 Lakhs debited in Schedule 20 of its P L Account. Assessee had shown a recovery of Rs. 20 lakhs during the year and now the amount debited in the computation is Rs. 324.45 lac. In the written submission filed before Ld. CIT(A) for AY 2011-12 the same ground was 'not pressed' for relief before the Ld. CIT(A). 3.4. Ld. CIT also took note of the observation made by Ld. AO while making disallowance in AY 2011-12 which are reproduced as under: B. Provision for Doubtful Advances: (i) The assessee has debited an amount of Rs. 344.45 lakh in schedule-20 of its P L A/c on account of 'provision for doubtful advances' for the assessment year under consideration. (ii) In this regard, the assessee was asked to furnish the details of doubtful advance vide notice u/s. 142(1) of the I T Act dated 07.01.2014. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effort for recovery/adjust of advance money from its associated company, it has claimed expense in the form of provision of doubtful advance. The contention of the assessee as mentioned in its submission is not acceptable. Hence, the entire amount of Rs. 344.45 lakh debited in the P L A/c as provision for doubtful advance is disallowed and added back to the total income of the assessee. [Disallowance: Rs. 344.45 lakh] 3.5. After considering the submissions made by the assessee, Ld. CIT drew his consideration to hold that Ld. AO has passed the assessment order without taking all the documents on record, conducting enquiry, examining the legal issues involved and the material placed on record, making the order erroneous insofar as it is prejudicial to the interest of the revenue. He also directed the Ld. AO who may carry out the examination and verification from the accounts of Greysham Co. Pvt. Ltd. for AY 2011-12 and AY 2013-14 regarding the adjustment and reflection in the final account. He also directed to examine the records of Greysham CO. Pvt. Ltd., the treatment of the alleged advances in their final account and get information from M/s. Greysham CO. (firm) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/- which is repayable by way of adjustments against bills for supply. (b) In terms of a separate agreement entered into between M/s. Greysham Pvt. Ltd. and the aforesaid partnership firm, M/s. Greysham Pvt. Ltd. has given to the said firm as interest free trade advance (outstanding amount Rs. 4,05,85,420/- as on 31.3.2011) which is recoverable (under a back to back arrangement) against the bills for supply as mentioned in (9) (a) above. However, the same is subject to confirmation the said advances are considered recoverable in terms of agreement above referred to M/s. Greysham Pvt. Ltd. has filed a case for breach of one of the clause of the said agreement against the firm and its partners 'at Hon'ble City Civil Court. 4.2. Ld. Counsel further emphasized on the fact that assessee had claimed the deduction of the same amount towards provision for bad and doubtful debts in AY 2011-12 which was disallowed by Ld. AO. Against this disallowance, assessee went in appeal before the Ld. CIT(A) in Appeal No. 12/CIT(A)-22/ACIT-LTU-2/11-12/17-18/Kol wherein ground taken by the assessee for this disallowance was not pressed . Ld. Counsel thus, asserted that this amount cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nents and which was being used in the final product manufactured by the assessee company. The said company was manufacturing such components and which was being used in the final product manufactured by the assessee company. The advance was given to such company was adjusted towards supply made by said company to the assessee company. Since April 2010, manufacturing activity in the said associated company has been haulted due to operational difficulties and other reasons and it had shut down its manufacturing activity since such time. As such, the amount of Rs. 344.45 lakh is the unadjusted advance remaining since such period. Your good self may kindly appreciate that the advance was given in the course of business and the said associated company was unable to return the same to the assessee company the assessee company has treated the same as business loss and the provision in such respect was debited in the P/L A/C and has been claimed as such in the computation of income. In such respect, your good self may kindly appreciate that since the advance was given in the course of business, the assessee company unable to recover/adjust the same and it has claimed as business loss and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t ground No. 9] had not pressed against the disallowance of the impugned amount shown as provision for doubtful debt and had withdrawn such ground before CIT(A). 6. That, the provision for doubtful debt in A.Y 2011-12 will not be pressed as claim for deduction of such assessment year in any further proceedings. 4.4. Ld. Counsel thus stated that in the year under consideration i.e. AY 2013-14, assessee has actually written off the amount of bad debts in the books of account and thus the same was claimed as deduction from the computation of income which was allowed by the Ld. AO after due examination and verification of the records and application of mind. Ld. Counsel referred to the order sheet entries to demonstrate that relevant enquiries were made and were complied with which are placed in paper book. He referred to order sheet entry dated 24.02.2016 in particular, wherein details of bad debts submitted are noted. Ld. Counsel also referred to the written submission made before the ld. AO vide letter dated 24.02.2016 and pointed to the details of bad debts written off by the assessee. He also referred to Note no. 1 disclosed in the audited financial statement of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f bad debts written off by the assessee. He also submitted that the claim of business loss by the assessee is not in the nature of revenue loss. According to him, it is a capital loss for the purpose of acquiring a capital asset and not allowable. He thus submitted that Ld. CIT has rightly set aside the order of Ld. AO directing him for fresh assessment. 6. We have heard the rival contentions and perused the material available on record. At the outset, we note that this issue had already been considered and dealt with in AY 2011-12 wherein claim of the assessee on account of provision for bad and doubtful debts had been disallowed by Ld. AO for which assessee had accepted the disallowance by not pressing the ground taken before the Ld. CIT(A) in the appeal filed by the assessee. Relevant extracts in this respect are reproduced above in this order. 6.1. For the year under consideration, assessee has claimed bad debts when it has only written off the advances given to Greysham Co. Pvt. Ltd. for supply of raw material from its books of account. The claim is of the same amount which was disclosed in AY 2011-12 and has suffered its due taxes. We also take note of the affidavit b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; [because AO has to discharge dual role of an investigator as well as that of an adjudicator] then in aforesaid any of the events, the order passed by the AO can be termed as erroneous order. Looking at the second limb as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue, one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. prejudicial to the interest of the revenue'' has to be read in conjunction with an erroneous order passed by the AO. Their Lordships held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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