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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 ..... omputation of book profit u/s. 115JB. The CIT noticed that the Assessing Officer had accepted the argument of the assessee that the said provision made was shown as reduction from the Trade Receivables (Sundry Debtors) a/c in the balance sheet which amounts to write off and eligible for deduction while computing the total income in view Vijaya Bank vs. CIT (323 ITR 166) and no disallowance was made on this account. The CIT further observed that the amount of Rs.1,00,33,280 was provision made during the previous year relating to AY 2012-13 and t he same was not debited to provision for doubtful debts account and consequently, the provision for doubtful debts was not obliterated. According to the CIT it was only for disclosure purpose that the amount shown as reduction from the trade receivables in the balance sheet. Hence, the CIT held that the provision for doubtful debts amounting to Rs.1,00,33,280/- was not allowable deduction while computing total income under normal provision as well as while computing book profit u/s. 115JB i.e. vide clause (i) of 115 JB(2) and in view of Whirlpool India vs. Union of India is not applicable in this case as the facts of the case are different. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds that may be further adduced at the time of hearing the order of the learned CIT requires to be modified to the extent appealed against. 5. The Ld. AR submitted that the only finding of the CIT is that the impugned order of AO is prejudicial to the interests of the revenue. For assuming jurisdiction under section 263 of the Income Tax Act, the CIT ought to have satisfied that the order is erroneous and is prejudicial to the interest of the revenue. It was submitted that so as to reopen u/s. 263, an assessment completed legally and in accordance with the law, the CIT ought to have satisfied the following two prerequisites, which are cumulative: i) The order of the AO sought to be revised is erroneous and ii) It is prejudicial to the interest of revenue ii) If one of the above conditions is absent, the recourse cannot be u/s. 263 of the IT Act. Reliance is placed in this regard on the decision of Hon Supreme Court in the case of Malabar Industrial Co Ltd 243 ITR 83 (SC). 5.1 The Ld. AR placed reliance on the following decisions: 1) Rajasthan High Court in the case of Jain Construction (34Taxmann.com 84) 2013. 2) Karnataka High Court in the case of D G Gopala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 JB. The Ld. AR submitted that during the course of assessment proceedings, the AO accepted the argument of the assessee that the said provision made was shown as a reduction from the Trade Receivables (Sundry Debtors) in the Balance Sheet which amounts to write off and eligible for deduction while computing the total income in view of the judgment of the Hon. Apex Court in Vijaya Bank Vs. CIT (323 ITR 166). 5.5 It was submitted that according to the CIT the amount debited to Profit & Loss A/c represents only a provision made during the previous year relevant to the AY 2012-13 and has not been debited to provision for Doubtful Debts account and consequently the provision for Bad debts account had not been obliterated and the amount had been reduced only for the purpose of disclosure and hence the provision for doubtful debts amounting to Rs ,100,33,280/- was not allowable deduction. The Ld. AR also submitted that the CIT had also stated that the judgment of the Supreme Court in the case of Vijaya Bank was with regard to a bank and the assessing officer did not examine whether the facts in that case is same as the facts in the case of the assessee. The Ld. AR stated the reasons fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, after April 1,1989, a mere provision for bad debt would not be entitled to deduction under Section 36(l)(vii). To understand the above dichotomy, one must understand how to write off. If an assessee debits an amount of doubtful debt to the profit and loss account and credits the asset account like sundry debtor's account, it would constitute a write off of an actual debt. However, if an assessee debits 'provision for doubtful debt' to the profit and loss account and makes a corresponding credit to the current liabilities and provisions' on the liabilities side of the balance-sheet, then it would constitute a provision for doubtful debt. In the latter case, the assessee would not be entitled to deduction after April 1,1989" (Emphasis Supplied)." 5.7 The Ld. AR submitted that from the above it could be seen that the Hon. Apex Court had made very clear that if an assessee debits an amount of Provision for bad & doubtful debts to the profit & loss account and simultaneously reduces it from the Debts/advances, it would constitute a write off of actual debt. However, it was submitted that if an assessee debits provision for doubtful debts to the profit & loss account and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng revision under section 263 of the I.T. Act. It was also submitted that when two views are possible, provisions of section 263 has no jurisdiction and the order passed by the assessing officer cannot be treated as erroneous order prejudicial to the interest of the revenue. The Ld. AR submitted that the CIT ought to have appreciated that the AO had taken one of the possible views prevailing at the relevant point of time based on the decisions of Hon apex court and other decisions cited above and relied by the assessee and the order passed by the AO was in consonance with the judgments of Hon Apex Court and other judgments as cited above. It was submitted that this principle was followed by the ITAT Cochin Bench also in the following cases: i) Acumen Capital Marketing (I) Ltd ( 81 Taxmann.com 334) ii) Trinity Charitable Trust Vs ITO, Ward-1, Thiruvalla (51 Taxmann.com 44) iii) V. K Natesan Vs DCIT, Central Circle-2, Kochi (9 Taxman. Com 76). iv) CIT Vs Max India Ltd (295 ITR 282 (SC). v) CIT Vs Honds Siel Power Products Ltd (194 Taxman 175 (Delhi) vi) CIT Vs Sak Soft Ltd (298 ITR 63 (Madras) 6. The Ld. DR submitted that there was no enquiry from the end of the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner will be well within his powers to regard an order as erroneous on the ground that in the circumstances of the case, the Assessing Officer should have made further inquiries before accepting the claim made by the assessee in his return. The reason is obvious. Unlike the Civil Court which is neutral in giving a decision on the basis of evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator. He cannot remain passive in the face of a claim, which is apparently in order but calls for further enquiry. He must discharge both the roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The scheme of assessment has undergone radical changes in recent years. It deserves to be noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), and Malabar Industrial Co. Ltd's case ( 243 ITR 83) (SC). 7.3 In Malabar Industrial Co. Ltd. case the Hon'ble Court has held as under: "There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall the orders passed without applying the principles of natural justice or without application of mind. In our humble view, arbitrariness in decision-making would always need correction regardless of whether it causes prejudice to an assessee or to the State Exchequer. The Legislature has taken ample care to provide for the mechanism to have such prejudice removed. While an assessee can have it corrected through revisional jurisdiction of the Commissioner under Section 264 or through appeals and other means of judicial review, the prejudice caused to the State Exchequer can also be corrected by invoking revisional jurisdiction of the Commissioner under Section 263. Arbi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge." 7.4 Similar view was earlier taken by the Hon'ble Supreme Court in Siemens Engg. & Mfg. Co. Ltd. v. Union of India AIR 1976 SC 1785. It is settled law that while making assessment on assessee, the ITO acts in a quasi-judicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under Sections 263 and 264. Therefore, a reasoned order on a substantial issue is legally necessary. The judgments on which reliance was placed by the learned Counsel for the assessee also points to the same direction. They have held that orders, which are subversive of the administration of revenue, must be regarded as erroneous and prejudicial to the interests of the revenue. If the Assessing Officers are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee stood automatically accepted without any proper scrutiny. The assessment order placed before us is clearly erroneous as it was passed without proper examination or enquiry or verification or objective consideration of the claim made by the assessee. The Assessing Officer has completely omitted to examine the issues in question from consideration and made the assessment in an arbitrary manner. There is no discussion in his order with reference to this issue. In our view, it was a fit case for the learned Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling the assessment order and directing the Assessing Officer to pass a fresh order considering the issues raised by the CIT. In our view, the assessee should have no grievance in the action of learned Commissioner in exercising the jurisdiction u/s. 263 of the IT Act as he has rightly mentioned in his order in para 3 that the assessment order was erroneous in so far as it is prejudicial to the interest of Revenue. It is to be noted that order of the CIT is to be read in whole and not in a piecemeal manner. 7.7 It was however contended by the learned Counsel that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r se be an erroneous view and hence will be amenable to revisional jurisdiction under Section 263. Second reason is that it is not taking of any view that will take the matter under the scope of Section 263. The view taken by the Assessing Officer should not be a mere view in vacuum but a judicial view. It is well established that the Assessing Officer being a quasi-judicial authority cannot take a view, either against or in favour of the assessee / revenue, without making proper inquiries and without proper examination of the claim made by the assessee in the light of the applicable law. As already stated earlier, we are not able to appreciate on what material was placed before the Assessing Officer at the assessment stage to take such a view. The assessee has also not been able to lead enough evidence to show to us that any inquiry was made by the Assessing Officer in this regard. Therefore mere allegation that the Assessing Officer has taken a view in the matter will not put the matter beyond the purview of Section 263 unless the view so taken by the Assessing Officer is a judicial view consciously based upon proper inquiries and appreciation of all the relevant factual and lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o have "adopted" a permissible course of law or "taken" a view where two or more views are possible when the order passed by him does not speak in that behalf. We cannot assume, in order to provide legitimacy to the assessment order, that the Assessing Officer has adopted a permissible course of law or taken a possible view where his order does not say so. The submissions made by the learned Counsel, if accepted, would require us to form, substitute and read our view in the order of the Assessing Officer when the Assessing Officer himself has not taken a view. It could have been a different position if the Assessing Officer had "adopted" or "taken" a view after analysing the facts and deciding the matter in the light of the applicable law. However, in the case before us, the Assessing Officer has not at all examined as to whether only one view was possible or two or more views were possible and hence, the question of his adopting or choosing one view in preference to the other does not arise. The aforesaid observations of the Hon'ble Supreme Court do not, in our view, help the assessee; and rather they are against the assessee. 7.11 In the case of Padmasundara Rao v. State of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has correctly exercised his revisional jurisdiction under Section 263. 7.13 In our opinion, the Assessing Officer has been entrusted the role of an investigator, prosecutor as well as adjudicator under the scheme of the Incometax Act. If he commits an error while discharging the aforesaid roles and consequently passes an erroneous order causing prejudice either to the assessee or to the State Exchequer or to both, the order so passed by him is liable to be corrected. As mentioned earlier, the assessee can have the prejudice caused to him corrected by filing an appeal; as also by filing a revision application under Section 264. But the State Exchequer has no right of appeal against the orders of the Assessing Officer. Section 263 has therefore been enacted to empower the Commissioner to correct an erroneous order passed by the Assessing Officer which he considers to be prejudicial to the interest of the revenue. The Commissioner has also been empowered to invoke his revisional jurisdiction under Section 264 at the instance of the assessee also. The line of difference between Sections 263 and 264 is that while the former can be invoked to remove the prejudice caused to the State th ..... 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