TMI Blog2023 (6) TMI 812X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the assessee had explained that the debts arose as a result of debit note raised on purchase due to quality issues. The argument that, AO failed to carry out enquiries regarding the debit notes. AO did not enquire when the assessee had sold the entire stock purchased and he did not enquire as to how the purchases were accounted for in the earlier years how the stock was adjusted. This argument would stand negated by the fact that no discrepancy has been pointed out either by AO or by Pr. CIT in the purchases made by the assessee or stock maintained by the assessee. The only allegation in the revisionary order is that certain items claimed by the assessee could not be held to be revenue in nature since this would be allowed only when the assessee is a going concern. No other doubt, whatsoever, has been raised against the claim so made by the assessee. Allegation that the amounts were written-off so as to avoid capital gains on slum sale is bereft of any concrete material on record. Therefore, this argument also could not be accepted. CIT-DR also referred to the recent decision in the case of Khyati Realtors Pvt. Ltd. [ 2022 (8) TMI 1141 - SUPREME COURT] fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest of the revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. The said principal has been reiterated by Hon ble Court in its subsequent judgment titled as CIT V/s Max India Ltd. (295 ITR 282). Similar principal has been followed in Grasim Industries Ltd. V/s CIT (321 ITR 92). 1.2 The Hon ble Delhi High Court in CIT V/s Vikas Polymers (supra), further observed that as regards the scope and ambit of the expression erroneous , Hon ble Bombay High Court in CIT vs. Gabriel India Ltd. [1993 203 ITR 108 (Bombay)] , held with reference to Black's Law Dictionary 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 and thus it is clear that an order cannot be termed as err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only in cases of lack of inquiry that the Commissioner is empowered to exercise his revisional powers by calling for and examining the records of any proceedings under the Act and passing orders thereon. In Gabriel India Ltd. (supra), it was expressly observed:- The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasijudicial controversies as it must in other spheres of human activity [Parashuram Pottery Works Co. Ltd. vs. ITO, (1977) 106 ITR 1 (SC)]. It was further observed as under:- From the aforesaid definitions as it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue to deal with a concluded assessment, therefore, must be understood in the context of the provisions of the relevant sections. While doing so, it must also be borne in mind that the legislature had not vested in the revenue any specific power to question an order of assessment by means of an appeal. Regarding applicability of Section 263, what has to be seen is that a satisfaction that an order passed by the Authority under the Act is erroneous and prejudicial to the interest of the revenue is the basic pre-condition for exercise of jurisdiction under section 263. Both are twin conditions that have to be conjointly present. Once such satisfaction is reached, jurisdiction to exercise the power would be available subject to observance of the principles of natural justice which is implicit in the requirement cast by the section to give the assessee an opportunity of being heard. Further, there could be no doubt that so long as the view taken by the Assessing Officer is a possible view, the same ought not to be interfered with by the Commissioner under Section 263 merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer u/s 143(3) of the Act dated 28.12.2019. 3. For that the order of the Learned Principal Commissioner of Income tax-4, Chennai has erred in holding that the Assessing Officer has failed to make necessary enquiry to bring on record all facts without appreciating that specific query was raised during the assessment proceedings on issue under consideration of claim of bad debts u/s 36(1)(vii) of the Act and all relevant details in response thereof was filed by the appellant and accepted by the assessing officer. 4. For that the order of the Learned Principal Commissioner of Income tax, Chennai has set aside the assessment with a direction to examine the issue of claim of bad debts u/s 36(1)(vii) of the Act thereby the PCIT is not justified in invoking his jurisdiction u/s 263 of the Act. As is evident, the assessee has contested the validity of revisional jurisdiction u/s 263 as exercised by Ld. Pr. CIT on the ground that there was no error in the order and the conditions of Sec.263 were not fulfilled. During the course of original scrutiny assessment proceedings, Ld. AO raised a specific query on the issue of bad debts claimed by the assessee and all the relevant det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ten-off as under: - Write-off of Bad Debts amounting to Rs.201,30,97,206 The Appellant, during the subject Assessment Year, had written off Bad debts to the tune of Rs. 201,30,97,206/- relating to quality rejections on purchases made, the breakup of which is as enclosed as Annexure 1 . The Company had made purchases from various parties in earlier years, out of which certain materials were rejected due to quality issues and a debit note was issued in this regard and the same was debited to the P L Account of the assessee in respective years. However, when there was a transfer of assessee's business in the current financial year, the said debt was not taken by the acquirer and left with the assessee. Further, the said claim was not accepted by the supplier and hence the same was written off as irrecoverable as 'Bad Debts' in the P L account of the company in the subject year. In this regard, it is submitted that the CBDT vide circular No. 12/2016 dated 30-05- 2016 amended the provisions of section 36(2) of the Income Tax Act, 1961 so as to eliminate the litigation on the issue of allowability of bad debts by removing the condition of establishing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chose not to raise any further query in this regard and accepted the claim so made by the assessee. In the background of above facts, it could be stated that a view was taken by Ld. AO in the matter and while taking that view, the ratio of binding judicial precedents was followed. Thus, it was a case where Ld. AO, making certain enquiries, accepted the claim of the assessee with due application of mind and the said view could not be said to be contrary to any law or not sustainable under law. Revisionary Proceedings 4.1 Subsequently, upon perusal of case records, Ld. Pr. CIT held that the assessment order was erroneous and prejudicial to the interest of the revenue and accordingly, the assessee was put to a show cause notice. The Ld. Pr. CIT observed that the claim made by the assessee was not in accordance with the provisions of Sec.36(1)(vii) since the claims includes items like TDS payable, advance premium deposit, unpaid wages, salary and wages payable, loan given to various parties, prepaid expenses, DEPB receivable, duty drawback receivable, electricity deposit, provision for bad and doubtful debts etc. These items were not revenue in nature and since the business w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the bad debts was written-off to avoid capital gains on transfer of business on slum sale basis u/s 2(42C), it was submitted that the business was sold pursuant to Business Transfer Agreement dated 14.07.2016. In terms of Schedule-6, the receivables attributable to quality claims were specifically excluded from the agreement on account of them being non-recoverable. The decision to exclude these receivables were taken as part of the due diligence exercise conducted by the transferee company under the agreement. Therefore, the said allegation was incorrect. Alternatively, the claim would be allowable as business loss u/s 37 r.w.s. 28 of the Act and therefore, the revenue was not prejudiced in any manner. 4.5 However, not convinced, Ld. Pr. CIT ordered for revision of the order with following observations: - 5. The submissions of the assessee company and the argument of the AR of the assessee company were carefully considered. The submissions of the assessee that The company RCIPL incorporated on 10.6.2016 has been formed as a new company to take over RIPL's business including Assets and Liabilities is to be considered. However, it is seen that the AO has not made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It could very well be said that the aforesaid view was not contrary to any law or not sustainable under law. 6. We find that Ld. Pr. CIT seek revision of the order by observing that some of the items claimed by the assessee was not in accordance with the provisions of Sec.36(1)(vii). These items were not revenue in nature and since the business was sold during the year, the said items could not be classified as revenue loss since it could be claimed only in case of a going concern. However, we find that the business of the assessee had not closed down and the assessee has merely sold an undertaking on slump sale basis which has been offered to capital gains tax as per the extant provisions. Therefore, the items not taken over by the acquirer were left with the assessee and the same belonged to the assessee only. Hence, it could not be said that the expenditure was not revenue in nature and any loss arising there from could not be claimed as business loss. Further, the sale of business undertaking is duly backed up by the business transfer agreement, which is not under doubt. The allegation that the impugned claim was intended to avoid capital gains is not supported by any concr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the requisite details were furnished by the assessee and no comments have been made on the conduct of the assessee in the assessment order, in this regard. Therefore, the plea raised by Ld. CITDR could not be accepted. 9. Another line of argument is that certain items as pointed out in the revisional order could not be allowed u/s 36(1)(vii). It has been submitted that the assessee had explained that the debts arose as a result of debit note raised on purchase due to quality issues. The AO failed to carry out enquiries regarding the debit notes. The Ld. AO did not enquire when the assessee had sold the entire stock purchased and he did not enquire as to how the purchases were accounted for in the earlier years how the stock was adjusted. This argument would stand negated by the fact that no discrepancy has been pointed out either by Ld. AO or by Ld. Pr. CIT in the purchases made by the assessee or stock maintained by the assessee. The only allegation in the revisionary order is that certain items claimed by the assessee could not be held to be revenue in nature since this would be allowed only when the assessee is a going concern. No other doubt, whatsoever, has been raise ..... X X X X Extracts X X X X X X X X Extracts X X X X
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