TMI Blog2022 (3) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... tax act by this order. As we have already stated that the time limit for revising the issues involved in the original assessment order has already expired on 31/3/2017, therefore the revision on the above issues namely (1) the consideration of loss on repossessed vehicle is bad debts and not in the business loss, (2) disallowance of unpaid leave encashment u/s 43B (f) of the act is beyond the powers of the ld PCIT u/s 263 of the act. Therefore without looking into the merits of the case, we hold that the order of the learned PCIT is not sustainable on the above 2 issues. Revisional powers u/s 263 with respect to the deduction claimed u/s 36 (1) (viii) - whether the correct lease rental income has been reduced by the assessee and ld AO in computing the income from long-term finance or not - Gross lease rental income and Arrears of lease Income should have been reduced for working out the long-term finance income. The expenditure of interest should not have been reduced from gross lease income. AO has not at all verified the above adjustment made while arriving at lease income. Therefore it is apparent that the AO has not made necessary enquiries with respect to the computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and interest income on income tax refund for working out long-term finance income of the assessee. With respect to the issue of repossessed vehicles to be treated as bad debts and non-disallowance of unpaid leave encashment, as already held above the order of the learned principal Commissioner of income tax is not sustainable in law. Therefore on these two issues the order of the learned principal Commissioner of income tax is quashed. - Decided in favour of assessee in part. - ITA No. 737/Mum/2021 - - - Dated:- 8-3-2022 - SHRI PRASHANT MAHARISHI, AM AND SHRI PAVAN KUMAR GADALE, JM Appellant by : Ms Arati Vissanji, AR Respondent by : Shri Nikhil Chaudhary, CIT DR ORDER PER PRASHANT MAHARISHI, AM: 01. This appeal is filed by ICICI Bank Ltd (The appellant/ assessee) against the order passed by the Pr. Commissioner of Income-tax, Mumbai-2, [ The ld PCIT ] under section 263 of the Income-tax Act [The Act] for Assessment Year 2011-12 holding that assessment order passed by The Assistant Commissioner of Income tax Circle -2 (3) (2), Mumbai [ the ld AO ] under section 143(3) read with section 147 of the Act dated 3rd December, 2018 is erroneous and prejudicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposed to be revised, the same would not come within the purview of revision as per provisions of Explanation 1 to section 263(1) of the Act. 2. Claim of loss on re-possessed vehicles to be considered as part of bad debts and not as business loss 2.1 On the facts and circumstances of the case and in law, the Pr. CIT erred in holding that the loss on repossessed vehicles claimed as a business loss by the Appellant is nothing but a part of bad debts and since this loss along with other bad debts claimed under section 36(1)(vii) of the Act does not exceed the credit balance under section 36(1)(viia) allowed in the preceding assessment year 2010-11, the same is not allowable and is required to be added to the total income. 2.2 The Pr. CIT erred in setting aside the assessment order with a direction to examine the issue as per law and frame a fresh assessment on the same despite the same having been examined during the original assessment proceedings and without appreciating that the loss on repossessed vehicles has been claimed and allowed as a business loss in the preceding assessment years 2009-10 and 2010-11. 2.3 The Pr. CIT erred in not appreciating the fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment Year 2011-12, it filed its return of income on 28th November, 2011 declaring income of ₹ 6,269,23,75,570/-. It revised its return on 29 March 2013 at ₹ 5450,09,08,140/-. The case of the assessee was taken up for scrutiny. Draft assessment order was passed. As assessee did not want to approach Dispute Resolution Panel, final assessment order under section 143(3) read with section 144C(3) of the Act was passed on 25th March, 2015 determining the total income at ₹ 6738,06,99,060/-. 04. Subsequently, case of assessee was reopened by issuing notice under section 147 of the Act on 28 th September 2017. In response to the same assessee filed its return on 1st November, 2017 at ₹ 5336,88,47,547/-. Consequent to that the assessment order under section 143(3) read with section 147 of the Act was passed on 31st December, 2018 determining the total income of the assessee at ₹ 5,6,99,01,35,320/-. 05. Subsequently, on perusal of the record, The Ld PCIT, Mumbai issued show cause notice under section 263 of the Act stating that the order passed on 31st December, 2018 is erroneous and prejudicial to the interest of the Revenue on four different groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lure of the assessing officer to examine the same has rendered the assessment order dated 31.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue. (iv) Further it was also observed that during the previous year the assessee had interest income of ₹ 164,63,00,000/- on account of interest on income tax relief included in 'others' under the head schedule 13 Interest Earned' to the P L account. This income being income from non finance income, it should also have been reduced from the total business income of the assessee to arrive at the business income from long term finance business activity eligible for deduction u/s. 36(1)(viii) of the Act. However, this was not done , leading to excess allowance of deduction by ₹ 14,58,62,181/-. A.O. has failed to examine these facts. Failure of the assessing officer to examine the same has rendered the assessment order dated 31.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue. 06. The assessee submitted its reply on 26th March 2021 stating as under:- 3. In response, the assessee has filed written submission in ITBA portal, vide letter date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Limited vs. CIT (284 ITR 323). The same however has been allowed in appeal by the CIT(A), Mumbai. 1.5 Further, the loss on sale of repossessed assets has been treated as a business loss by the Assessing Officer in the preceding assessment years 2009-10 and 2010-11 and allowed by the CIT(A) in the respective assessment years. Thus your Honour's contention that the same should be treated as a bad debt following the treatment accorded in the preceding assessment year 2010-11 and the Assessing Officer has failed to examine the facts regarding the loss on sale of re-possessed assets is not correct. Since the Assessing Officer after examining has taken a particular view on identical facts and supported by past assessments, there is no justification to revise the assessment on a presumption that the same is erroneous and prejudicial to the interests of the revenue. Without prejudice to the aforesaid, even if the loss on sale of repossessed assets is to be treated as a bad debt, the order would not be erroneous nor prejudicial to the interests of the revenue as the bad debts including this loss far exceeds the credit balance under section 36(1)(viia) of the Act allowed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion, leave encashment, gratuity as appearing in the Books of the Bank of Rajasthan Limited as on August 12, 2010, of ₹ 7,348,424,124 was taken over by ICICI Bank Limited. 2.2 As per the show cause notice it/s alleged that as per Annexure J to clause 21(1)(B) of the Tax Audit Report (TAR) there was unpaid leave encashment of ₹ 108,02,83,833 outstanding on the date of the TAR but the Bank has disallowed only ₹ 27,82,79,269 out of the unpaid leave encashment instead of disallowing the entire amount. As the same was not examined by the Assessing Officer it has rendered the assessment order dated December 31, 2018 erroneous in so far as prejudicial to the interests of the Revenue. 2.3 We respectfully submit that the Bank as per note 4 of Annexure J to clause 21(1)(B) of the TAR has explained that the closing unpaid liability of the leave encashment includes liability of ₹ 78,93,33,682 which has been transferred from Bank of Rajasthan Ltd. and an additional liability of ₹ 1,26,70,082 on account of revaluation has been created through the amalgamation reserve aggregating to ₹ 80,20,03,764. Since the said amount of ₹ 80,20,03,764 has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease rental income of ₹ 98,43,12,859 and interest on arrears of lease rentals of ₹ 689,31,400 less of interest expenses incurred of ₹ 15,46,84,234. Hence the amount of ₹ 89,85,60,025 reduced as lease income is correct. 3.3 Your Honour's second observation is that interest on Income-tax refund of ₹ 164,63,00,000 included in Schedule 13 has not been reduced the same being non-finance income. With respect to this observation, we submit that interest on Income-tax refund of ₹ 164,63,00,000 has inadvertently not being reduced in the order dated December 31, 2018 passed under section 143(3) r.w.s 147 for the aforesaid assessment year which your Honour proposes to revise. We may add that the same was reduced in the earlier order giving effect to the CIT(A)'s order passed on March 31, 2017 of the said assessment year. We submit that the same may be rectified vide an order under section 154 of the Act and is not a subject matter of review under section 263 of the Act. 3.4 Without prejudice to the aforesaid, we respectfully submit that as per Explanation I to section 263(1) of the Act, the powers of the Principal Commissioner/Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of provisions of section 263 of the Act. 4.2 Unpaid Leave Encashment: The submission made by the assessee is perused but found not tenable as in Tax Audit Report (TAR) in 3 CD From that, there was unpaid leave encashment of ₹ 108,02,83,033/- which was outstanding as on date of reporting of TAR. Further no document available on records which shows that the said unpaid amount was paid on or before due date of filing of return. However from computation of income of the assessee it is revealed that the assessee had disallowed only ₹ 27,82,79,269/- on account unpaid leave encashment which was accepted. As the deduction on account of leave encashment is available only on actual payment, the entire unpaid amount was required to be disallowed. The AG in concluding the assessment, has not considered the above aspects and legal position. Therefore the order passed is erroneous in so far as prejudicial to the interest of revenue within the meaning of provisions of section 263 of the Act. 4.3 Depreciation on lease Assets: The submission made by the assessee is perused but found not tenable as on perusal of Submission it is found that there is a rental inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T. Act., 1961 dated 31.12.2018 in assessee's case for A.Y. 2011-12 is set aside within the meaning of the provisions of section 263 of the Act with a direction to the A.O to examine the above stated aspects on all the issues as per law and frame a fresh assessment after affording an opportunity to the assessee of being heard. 6. In arriving at the above conclusions in this context, various judicial pronouncements delivered under similar circumstances are also relied upon and the same are discussed as under. (i) As regards the scope and ambit of the expression erroneous , Hon'ble Bombay High Court in C.I.T. vs Gabriel India Ltd. (1993) 203 ITR 108 (Bombay), while referring to Black's Law Dictionary observed that an erroneous judgment means one rendered according to course and practice of Court, but contrary to law, upon mistaken view of law: or upon erroneous application of legal principles . In the instant case the assessing officer ought to have made enquiries relating to correctness and genuineness of the valuation reports relied upon by the assessee company. (ii) The Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. V CIT 243 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and that the order of the ITO is prejudicial to the interest of revenue. Further, in the case of Umashankar Saraf V/s CIT 187 ITR 638, the Hon'ble Orissa High Court upheld the Tribunal's order in which the action U/s 263 of the Act of the Commissioner was justified even though there was an exhaustive enquiry by the ITO before making assessment. (v) In the case of CIT V/s HR Sugar Factory Pvt. Ltd [190 ITR 643 (All)] the Hon'ble Court has held that the Commissioner does have the power to set aside the assessment order and sent matter for fresh assessment if he is satisfied that further enquiry is necessary and that the order of the ITO is prejudicial to the interest of revenue. (vi) In the case of Mahalakshmi Liquor Promoters (P) Ltd vs. Commissioner of Income Tax [2013] 29 taxmann.com 70, the ld. Tribunal, found that there was no enquiry by the Assessing Officer on the issues raised by the CIT. It was held that the lack of enquiry or inadequate enquiry by the Assessing Officer was a valid reason for revision of the assessment order. The ld Tribunal, therefore, concluded that an order becomes erroneous because inquiries, which ought to have been made on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te, that the provisions of section 263 are distinct from that of section 147 of the Act. The differing conditionality for the assumption of jurisdiction is ex facie apparent from a plain reading of the aforesaid sections itself. It is also worthwhile to note that Explanation 2(a) below section 263 of the Act specifies that the order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the revenue if in the opinion of the Pr. Commissioner, the order was passed without making any inquiries or verification which should have been made by the Assessing Officer. The aforesaid is squarely applicable to the facts obtaining in this case. The aforesaid was inserted with effect from 1/4/2015. The ld. ITAT, Mumbai in Anuj Jayaendra Shah vs. PCIT-35, Mumbai [2016] reported in 67 taxmann.com 38, held as under: 10. Now, as can be seen above, the amendment to section 263 of the Act by insertion of Explanation 2 to Section 263 is declaratory in nature and is inserted to provide clarity on the issue as to which orders passed by the AG shall constitute erroneous and prejudicial to the interest of Revenue whereby it is provided, inter-alia, that if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs under section 263 of the Act. For this proposition, she referred to the decision in assessee s own case of the Hon'ble Bombay High Court for Assessment Year 1996-97, wherein following the decision of Hon'ble Supreme Court in case of CIT vs. Alagendran Finance Ltd. (2007) [293 ITR 1] (SC) revision proceedings were held to be invalid. 010. With respect to taking exact amount of lease rent and income tax refund for working deduction u/s 36 (1) (vii) , she submitted that both items are related to the claim of deduction under section 36(1)(vii) which is subject matter of appeal before the learned Commissioner of income-tax (Appeals). She referred to the form No. 35 and grounds of appeal filed before the learned CIT(A) against the impugned order which is subject to revision. Here, contention was that issues which are before the learned CIT(A) cannot be the matter of revision under section 263 of the Act. 011. On the merits of claim of loss on reprocessed vehicles, she submitted that even otherwise, if it is bad debt and further the credit balance under section 36(1)(viia) of the Act does not exceed the claim, there cannot be any addition. She extensively referred the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2018 and order passed u/s 263 of the income tax act by the learned principal Commissioner of income tax. 018. According to the provisions of Section 263 of the income tax act, The Principal Commissioner Of Income Tax, after examination of the records may pass an order thereon, , after giving an opportunity of hearing to the assessee and causing enquiries, if he finds that any order passed by the learned assessing officer is erroneous insofar as it is prejudicial to the interest of the revenue. 019. According to section 263 (2) of The Act , Such revisionary order can be passed before the expiry of two years from the end of the financial year in which the order sought to be revised was passed. In the present case, the fact shows that first order u/s 143 (3) of the act was passed by the learned assessing officer on 25th of March 2015. Subsequently the case was reopened and reassessment order u/s 143 (3) read with Section 147 of the act was passed on 31 December 2018. Therefore, apparently if the learned PCIT would like to revise the order passed u/s 143 (3) of the act which was passed on 25th of March 2015, the time limit set under the provisions of Section 263 (2) of the act w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed by the assessee to ₹ 3,778,145,600/ d. considering the perpetual bonds as equity and consequently the interest paid on such bonds was not allowed as deduction u/s 36 (1) (iii) of the act and thereby ₹ 2,436,138,910 did not qualify for claim Under that Section e. the addition on account of mismatch of income as perform number 26AS of ₹ 661,817/ 021. The learned PCIT invoked the provisions of Section 263 of the income tax act on three counts as Under:- a. the consideration of loss on repossessed vehicles to be treated as bad debts and not as a business loss b. disallowance of unpaid leave encashment u/s 43B (f) of the act c. disallowance of deduction claimed u/s 36 (1) (viii of the act. 022. On careful examination, issue number (a) and (b) above, are not part of the reassessment order but were part of the original assessment order. As we have already stated that the time limit for revising the issues involved in the original assessment order has already expired on 31/3/2017, therefore the revision on the above issues namely (1) the consideration of loss on repossessed vehicle is bad debts and not in the business loss, (2) disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rror in the assessment. 027. There is one more component of deduction u/s 36 (1) (viii) of the act. Assessee has earned interest income on Income tax Refund of ₹ 1,646,300,000. This was disclosed by the assessee in schedule 13 Under the head interest earned others in the profit and loss account. This income was also considered by the assessee as income earned from long-term finance. The learned PCIT issued show cause notice that the above income cannot be considered as income from long-term finance and it is income from non-finance activities. Therefore the above sum should be reduced from the total business income of the assessee to arrive at the business income from long-term finance business activity which is eligible for deduction u/s 36 (1) (viii) of the act. The learned assessing officer without examination considered the net income of ₹ 89.85 crs instead of ₹ 98.43 Crs for reduction from long term finance income and also accepted the working of the assessee considering income tax refund interest as eligible for deduction as long-term finance. 028. In response, assessee submitted that Interest on Income tax Refund has inadvertently not been reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the correct lease rental income has been reduced by the assessee and ld AO in computing the income from long-term finance or not. In para number [5] of the assessment order the learned assessing officer has reproduced the computation made by assessee where the lease income has been reduced by ₹ 898,560,025/ . At paragraph number 5.5, the learned assessing officer has taken the same lease income of ₹ 898,560,025 for reduction from income from long-term finance. The contention of the learned principal Commissioner of income tax is that the learned assessing officer should have taken the above sum at ₹ 984,312,859/ . On careful consideration of explanation of the assessee, which is placed at para number 3.2 of the order u/s 263 of the Act, clearly shows that assessee has stated that a sum of ₹ 898,560,025 represents the net amount credited to the profit and loss account. Now it is required to be seen from the explanation that how that net amount has been arrived at. Gross lease income is ₹ 984,312,859/ . From that assessee has reduced the expenditure of interest amounting to ₹ 154,684,234/ . The assessee has increased the above sum by ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have any jurisdiction to revise such issues. We have carefully considered this aspect and find that the matter must be considered and decided by the CIT A for ousting the jurisdiction of the learned principal Commissioner of income tax u/s 263 of the act. In the present case the assessee has merely filed an appeal against the order of the learned assessing officer wherein ground number 3 raised is as Under:- 3. Deduction u/s 36 (1) (viii) of the act (para 5, pages 11 to 16 of the assessment order) 3.1 on the facts and circumstances of the case and in law, the assessing officer erred in restricting the deduction of special reserve claimed u/s 36 (1) (viii) by not allowing the interest cost of ₹ 1,339,096,784 apportioned by the appellant to its non-fund-based income relating to trading and rental thereby resulting in decreasing profit derived from eligible businesses. 3.2 the assessing officer ought to have appreciated that his predecessor in para 15 of the order passed u/s 13 (3) read with Section 14C (3) on March 25, 2015 has considered the working of special reserve and has allowed deduction of special reserve at 514,43,59,610 hence the reassessment on the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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