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TMI Blog2018 (3) TMI 2052X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT was of the opinion that there is no proper enquiry by the AO and he accepted the claim of the assessee without making any enquiry with regard to the bad and doubtful debts. He has not gathered any information and evidence to suggest that the claim of the assessee was right.
AO absolutely closed his eyes and accepted the claim of the assessee toward the provision for bad and doubtful debts both under the normal computation of income as well as u/s 115JB.
AO is required to cause enquiries with regard to the claim of the assessee. As such, the CIT is justified in remitting the issue to the file of the AO for re-examination. All the grounds raised by the assessee are dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing Officer u/s. 143(3) dated 27/03/2015 is not valid in law. The only finding of the learned CIT as per Para 3 of the order is that the impugned order of Assessing Officer is prejudicial to the interests of the revenue. For assuming jurisdiction under section 263 of the Income Tax Act, the Ld. CIT ought to have satisfied that the order is erroneous and is prejudicial to the interest of the revenue. 2) The learned Commissioner of Income tax erred in setting aside the impugned proceedings u/s. 143(3) on 27/03/2015, since there was no error prejudicial to the interest of revenue in the said proceedings requiring revision under section 263 of the I.T. Act, as the subject matter is directly covered by the judicial orders including that of the Hon. Apex court mentioned in the order. The finding of the Ld. CIT is that the order of the Hon. Supreme Court is applicable in regard to Bank, whereas the Hon Apex Court had made it clear that the order applies to all assesses. 3) The learned CIT on facts in observing that the appellant reduced the provision for Bad & Doubtful debts/advances from Trade receivables/advances for disclosure purpose only as in the audited financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the prerequisites mandatorily required under section 263 of the Income Tax Act for setting aside an assessment order passed u/s 143 (3). Hence, according to the Ld. AR, the order passed by CIT u/s 263 setting aside the assessment u/s 143 (3) is not valid and requires to be set aside. 5.3 The Ld. AR submitted that the CIT erred in his conclusion that the AO had not examined the issues mentioned in the order. According to the Ld. AR it was explained in detail in the reply to the notice u/s 263 that the matter was examined by the AO in detail and the AO has only followed the law as settled by the decision of Hon Apex Court which is followed by various appellate authorities including ITAT, Cochin Bench. It was submitted that in the present case, all the relevant records / documents were produced before the Assessing Officer and after examining all the relevant facts related to the matter and relying on the case laws submitted by the appellant, the AO allowed the deduction. Therefore, it was submitted that there is no error prejudicial to the interest of the revenue requiring revision under 263 of the Income Tax Act and completion of the assessment is the prerogative of the AO and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heet is the real amount of Trade receivables/short term advances. 5.6 Further, it was submitted that this issue was dealt with by the Hon. Apex Court in the decision of Vijaya Bank (323 ITR 166). The Hon. Apex Court had clearly clarified the difference between making a provision for Doubtful debts and write off of Bad debts. Both in the case of Vijaya Bank and also in the case of Southern Technologies Ltd Vs. Jt.CIT (320 ITR 577), it was held by the Hon.Apex Court as under: "Prior to April 1,1989, the law, as it then stood, took the view that even in cases in which the assessee(s) makes only a provision in its accounts for bad debts and interest thereon and even though the amount is not actually written off by debiting the profit and loss account of the assessee and crediting the amount to the account of the debtor, the assessee was still entitled to deduction under section 36(l)(vii). [See CIT v. Jwala Prasad Tiwari (1953) 24 ITR 537 (Bom) and Vithaldas H. Dhanjibhai Bardanwala vs. CIT (1981) 130 ITR 95 (Guj)] Such state of law prevailed up to and including the assessment year 1988-89. However, by insertion (with effect from April 1, 1989) of a new Explanation in section 36(l)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not obliterated the provision for Doubtful debts was not factually correct. 5.8 The Ld. AR further submitted that the Apex Court had also clarified that the AO was not right in insisting that such account should be written off separately as a pre-condition for claiming deduction u/s 36(l)(vii) of the Act. According to the Ld. AR the Hon. Apex Court held that for various reasons the assessee may not square off the individual accounts but if the amount is reduced from Trade Receivables/Advances it would be sufficient to treat the amounts as written off in the accounts. It was submitted that this principle was followed by the ITAT Cochin Bench also in the case of Hi-Build Coatings P Ltd Vs The Addl CIT. ITA No 310/Coch/2014. 5.9 The Ld. AR further relied on the following decisions in this regard: i) High Court of Karnataka in the case of CIT Vs Yokogawa India Ltd (204 Taxmann 305 ) ii) High Court of Karnataka in the case of CIT Vs Kirloskar Systems Ltd (200 Taxmann 1) iii) High Court of Bombay in the case of Tainwala Chemicals & Plastics Limited (34Taxmann.com 159). iv) High Court of Gujarat in the case of Indian Petrochemicals Corporation Ltd (74 Taxmann.com l63) 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgments cited by the parties before us. We shall take up the legal issue with reference to the jurisdiction of invoking the provisions of section 263 of the Act by the learned CIT. The scheme of the IT Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to erroneous order of the assessing officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of the revenue. As held in the case of Malabar Industries Co. Ltd., Vs. CIT ( 243 ITR 83 (SC), the Commissioner can exercise revision jurisdictional u/s 263 if he is satisfied that the order of the assessing officer sought to be revised is (i)erroneous; and also (ii) prejudicial to the interests of the revenue. 7.1 In order to ascertain whether an order sought to be revised under Section 263 is erroneous, it should be seen whether it suffers from any of the aforesaid forms of error. In our view, an order sought to be revised under Section 263 would be erroneous and fall in the aforesaid category of "errors" if it is, inter alia, based on an incorrect assumption of facts or an incorrect application of law or no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee in the sense that he is not subjected to any amount of tax in excess of what is legitimately due from him, and on the other hand, he has a duty to protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return when the circumstances of the case are such as to provoke inquiry. Arbitrariness in either accepting or rejecting the claim has no place. The order passed by the Assessing Officer becomes erroneous because an enquiry has not been made or genuineness of the claim has not been examined where the inquiries ought to have been made and the genuineness of the claim ought to have been examined and not because there is anything wrong with his order if all the facts stated or claim made therein are assumed to be correct. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an arbitrator between the revenue and the taxpayer and he has to be fair to both. His duty to act fairly requires that when he enquires into a subbstantial matter like the present one, he must record a finding on the relevant issue giving, howsoever briefly, his reasons therefor. In S.N. Mukherjee v. Union of India AIR 1990 SC 1984, it has been observed by the Hon'ble Supreme Court as follows: "Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court in holding that an administrative authority must record reasons for its decision are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances or arbitrariness and ensures a degree of fairness in the process of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ositive finding in his favour, though he may have sufficiently established his case. 7.5 In view of the foregoing, it can safely be said that an order passed by the Assessing Officer becomes erroneous and prejudicial to the interests of the Revenue under Section 263 in the following cases: (i) The order sought to be revised contains error of reasoning or of law or of fact on the face of it. (ii) The order sought to be revised proceeds on incorrect assumption of facts or incorrect application of law. In the same category fall orders passed without applying the principles of natural justice or without application of mind. (iii) The order passed by the Assessing Officer is a stereotype order which simply accepts what the assessee has stated in his return or where he fails to make the requisite enquiries or examine the genuineness of the claim which is called for in the circumstances of the case. 7.6 We shall now turn to the facts of the case to see whether the case before us is covered by the aforesaid principles. Perusal of the assessment order passed by the Assessing Officer does not show any application of mind on his part. He simply accepted the impugned claim of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder erroneous and prejudicial to the interest of the revenue. Nothing more is required to be established in such a case. One would not know as to what would have happened if the Assessing Officer had made the requisite inquiries or examined the claim of the assessee in accordance with law. He could have accepted the assessee's claim. Equally, he could have also rejected the assessee's claim depending upon the results of his enquiry or examination into the claim of the assessee. Thus, the formation of any view by the Assessing Officer would necessarily depend upon the results of his inquiry and conscious, and not passive, examination into the claim of the assessee. If the Assessing Officer passes an order mechanically without making the requisite inquiries or examining the claim of the assessee in accordance with law, such an order will clearly be erroneous in law as it would not be based on objective consideration of the relevant materials. It is therefore, the mere failure on the part of the Assessing Officer in not making the inquiries or not examining the claim of the assessee in accordance with law that per se renders the resultant order erroneous and prejudicial to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attributed to have "adopted" or chosen a course permissible in law when his order does not speak in that behalf. Similarly, "taking" one view where two or more views are possible also necessarily imports the requirement of analysing the facts in the light of applicable law. Therefore, proper examination of facts in the light of relevant law is a necessary concomitant in order to say that the Assessing Officer has adopted a permissible course of law or taken a view where two or more views are possible. It is only after such proper examination and evaluation has been done by the Assessing Officer that he can come to a conclusion as to what are the permissible courses available in law or what are the possible views on the issue before him. In case he comes to the conclusion that more than one view is possible then he has necessarily to choose a view, which is most appropriate on the facts of the case. In order to apply the aforesaid observations to a given case, it must therefore first be shown that the Assessing Officer has "adopted" a permissible course of law or, where two views are possible, the Assessing Officer has "taken" one such possible view in the order sought to be revise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to cull out the law laid down by the Hon'ble Supreme Court. If so read, it is quite evident that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue. If the order sought to be revised under Section 263 suffers from any of the aforesaid vices, it cannot be said that the Assessing Officer has "adopted", in such an order, a course permissible in law or "taken" a view where two or more views are possible." 7.12 It was next contended by the Ld. Counsel that the Assessing Officer had considered all the relevant aspects of the case carefully while passing the order. According to him, the mere fact that the Assessing Officer has not discussed the issue would neither mean failure on his part in not examining the matter carefully nor would render his order erroneous so long as the view taken by him was a possible view. In our view, the aforesaid submission of the assessee must fail for the reasons already explained in the foregoing paras of this order as the order, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by such erroneous orders. For this reason also, we are of the view that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind or without making requisite inquiries will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue within the meaning of Section 263. 8. Coming to the facts of the present case as already pointed by the Ld. DR, there is no whisper in the assessment order with regard to the claim of the assessee which refers to the provisions of bad and doubtful debts. Since there was no enquiry at the end of the Assessing Officer on this issue, the CIT took up the case under section 263 of the Act and the Assessing Officer, being a quasijudicial authority cannot take a view, either against or in favour of the assessee without making proper enquiries and without proper examination of the claim made by the assessee in the light of the applicable law. The Commissioner is empowered to initiate suo moto proceedings under section 263 of the Act where the Assessing Officer takes a wrong decision without considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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