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2015 (5) TMI 860

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..... Directors and shareholders on 18.08.2009 by which time the entries were passed writing off the irrecoverable claims to the profit and loss account and party accounts. Thus, even on merits, the claims have to be allowed in view of the above Hon’ble Allahabad High Court decision. - Decided in favour of assesse. - I .T.A.No.508/Mds/2014 - - - Dated:- 15-4-2015 - SHRI A.MOHAN ALANKAMONY AND SHRI CHALLA NAGENDRA PRASAD, JJ. For the Appellant by : Mr. N. R. Suresh, C.A For the Respondent : Dr. Bhusari, CIT DR ORDER Per Challa Nagendra Prasad, JM: This appeal is filed by the assessee against the order of the Commissioner of Income Tax, Chennai-VI dated 18.02.2014 for the assessment year 2009-10 passed under section 263 of the Act. The assessee in its appeal challenges the order of the Commissioner of Income Tax passed under section 263 of the Act in holding that that assessee has made only provision for doubtful debt and has not made a write off and in assuming jurisdiction to hold that assessment order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue. 2. Brief facts are that assessee filed its return of income f .....

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..... for non- performance of the contract and damages suffered by them. This proceedings claimed by the BILT and the compensation got determined on 10th July 2009. The accounts of the assessee company were finalized and adopted by the Board on 18-08-2009. The assessee, therefore accounted for the claim under the head irrecoverables / bad debts in the profit and loss account and also reduced it from the amount receivable from the party. The assessee had rightly claimed the same as bad debt under Section 36(2) of the Income Tax Act as the income has been included in the Financial Year ended 31-03-2008 and 2009 and the amount though became irrevocable after March 2009 was an evidence available to the assessee that the amount is not recoverable. The assessee had written off the amount in compliance with Accounting Standard AS-9 Revenue Recognition as the amount was not realizable. The write off was also made in commercial prudence and in accordance with the Section 36(2) of the Income Tax Act. The assessee did not make a provision but wrote off the amount by debiting to the profit and loss account and crediting the debtors account. It is therefore incorrect to come to conclusion that as .....

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..... ncome in the previous year or earlier years and the amounts having been written in the books of accounts of the assessee by debiting to the profit and loss account and crediting to parties account shall be allowable as bad debts under section 36(2) of the Act. Counsel for the assessee submits that after considering all these submissions, the Assessing Officer completed the assessment on 26.12.2011 allowing the claim of the assessee. Thus, the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interests of the Revenue. The Assessing Officer has taken one of the views possible and therefore, the assessment order is not erroneous and prejudicial to the interest of the Revenue. 7. Counsel for the assessee placing reliance on the decisions of the Hon ble Andhra Pradesh High Court in the case of CIT Vs. Anand Food Products [39 Taxmann.com187 (AP)] and the Hon ble Gujarat High Court in the case of CIT Vs. Amit Corporation [21 Taxmann.com 64 (Guj)] submits that if the Assessing Officer while framing original assessment had access of all the records and after perusing such records framed the assessment, such assessment cannot be revised under section 263 of .....

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..... e CIT has assumed jurisdiction are incorrect and therefore proceedings under section 263 are vitiated. The CIT has directed that the claim for bad debts are not allowable. The Assessing Officer has verified that income relating to bad debts have been accounted in the previous years and the CIT has not controverted this fact. The CIT has assumed that the bad debt will have to be written off in the previous year , while section 36(1)(vii) requires that bad debt should be written off in the accounts of the assesse for the previous year . There is no condition that the write off should be done in the previous year i.e., 'before the end of the Financial Year , thus the assumption of Commissioner of Income Tax is also incorrect. 9. Counsel for the assessee placing reliance on the decision of the Hon ble Allahabad High Court in the case of U.P. Rajkiya Nirman Nigam Ltd. Vs. ACIT (36 Taxmann. Com 96) submits that the Hon ble High Court held that write off of bad debt can be made after closure of the year but before the audited accounts were adopted. Counsel for the assessee submits that similar view has been taken by the Mumbai Bench of this Tribunal in the case of Alliance Fin St .....

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..... wings supplied by the assessee are defective and that was the cause for collapse of roof and therefore claim made by the party towards non-performance of contract and damages . Apart from these, assessee filed detailed notes on irrecoverables as under:- The assessee has charged to P L account Rs. 62,00,468 being irrecoverables and claims from customers and employee advances. The details for irrevocable claims together with the ledger copies of the respective parties are enclosed. For the sake of easy understanding, we have referred to page number of Annexure (Ledger extract) against the amount written off. All the irrevocables have been debited to Profit Loss account and credited to respective party's account. All the amounts written off have been either offered as income in the previous year ended March 2009 and earlier years. In respect of BIL T Power Ltd., the company has written off ₹ 50 lakhs being the claim for non-performance of the contract and damages suffered by the client. The income relatable to the contract has been included in the income for the previous year in March 2008 and 2009. The company was intimated collapse of the building .....

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..... ion 263 of the Act proposing to revise the assessment stating that assessment order passed under section 143(3) of the Act on 26.12.2011 is erroneous and prejudicial to the interest of the revenue and also the Assessing Officer has not looked into the facts that assessee has received claim letter from M/s. BILT Power Ltd. only during August, 2009 and the assessee company s accounts were closed by 31.03.2009. Section 263 was invoked for one more reason that the assessee has not actually written off the amount instead has made only a provision for writing off the amount. The assessee has filed detailed reply before the Commissioner stating that bad debts were actually written off in the books of accounts by debiting the profit and loss account and also by crediting the party s account and it is not mere provision. The assessee also submitted that passing entries after 31st March but before finalizing the accounts by the Board is actual write off and is not prohibited by law. The assessee also places reliance on the decision of Hon ble Allahabad High Court in the case of CIT Vs. U.P. Rajkiya Nirman Nigam Ltd. (supra) and submitted that where books of accounts are not closed and not si .....

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..... and inadequate inquiry . If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under s. 263, merely because he has different opinion in the matter. It is only in cases of lack of inquiry that such a course of action would be open. The AO had called for explanation on this very item from the assessee and the assessee had furnished his explanation vide letter dt. 26th sept., 2002. This fact is even taken note of by the CIT himself in para 3 of his order. This clearly shows that the AO had undertaken the exercise of examining as to whether the expenditure incurred by the assessee in the replacement of dyes arid tools is to be treated as revenue expenditure or not. It appears that since the AO was satisfied-with the aforesaid explanation, he accepted the same. The CIT in his impugned order even accepts this. Thus, even the CIT conceded the. position that the AO made the inquiries, elicited replies and thereafter- passed the assessment order. The grievance of the CIT was that the AO should have made further inquiries rather than accepting the explanation. Therefore, it cannot be said that it is a case of 'lack of inquiry .....

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..... 63 was not warranted in the facts and circumstances of the case. In conclusion, the Hon ble High court held that since an enquiry was specifically held with reference to which a disclosure of details was called for by the Assessing Officer and made by the assessee, the observation of the Commissioner of Income Tax that Assessing Officer had arrived at his finding without conducting enquiry was erroneous and therefore Commissioner of Income Tax wrongly exercised powers under section 263 of the Act. 17. In this case also, the details called for by the Assessing Officer were furnished by the assessee and such details were accepted by the Assessing Officer and in such circumstances, it cannot be said that there is a lack of enquiry. There was an enquiry, though it is inadequate and in such circumstances, in view of the above decisions, the Commissioner of Income Tax lacks jurisdiction under section 263 of the Act to revise the assessment order. 18. In the case of CIT Vs. U.P.Rajkiya Nirman Nigam Ltd. (supra), the Hon ble Allahabad High Court held as under:- 6. On perusal of the provisions here-in-above, it reveals that the only requirement for allowing the ba .....

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