TMI Blog2021 (11) TMI 1168X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has a valid point to claim the deduction u/s. 80G of the Act and we observe that nowhere assessee has claimed deduction u/s. 37 of the Act. It is clear that the restriction given in section 37 of the Act is restricted to CSR expenses but similar restrictions are not given in section 80G of the Act. Other expenses to invoke the provisions of section 263 of the Act on bad debts and fish purchases - Assessee has submitted various ledgers relating to fish purchases and supplier s confirmations before the Assessing Officer, all these informations clearly shows that Assessing Officer has verified these expenditures before allowing the same. From the record, we observed that AO has asked for certain informations on these expenditures and assessee has also submitted the informations with supporting documents, it can be inferred that the Assessing Officer has made certain enquiries and Ld. Pr.CIT can invoke the provisions of Explanation 2 to section 263 of the Act only when there is absolutely no verification is carried out by the Assessing Officer. This is not the case in the present impugned Assessment Order. Therefore, in our considered view the order passed by the Ld. Pr.CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure to examine the same has rendered the assessment order dated 24.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue. iii) Assessee has claimed fish purchases of Rs 197.94 crores which is 95% of the sale of fish. Since sale of fish is mainly exports, sale is verifiable. However, since purchase is ultimately from unorganized sector and assessee has mainly done purchases through intermediaries, who also claims 90-95% cost as fish purchase, they need to be verified. Further, payments to most suppliers are irregular and on lumpsum basis, which requires examination of some major suppliers to ascertain the genuineness of the intermediaries. Also to know the correct price of fish purchased, verification of documents relating to movement of fish could be relevant to establish the genuineness of purchases from these_ intermediaries. Assessing Officer has not examined the genuineness of purchases by examining suppliers since this constitutes 95% of the cost.Net profit is not even 1.5% even after taking into account substantial export incentives which raises suspicion that purchases might have been inflated. Failure of the Assessing Officer to examine t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gross profit and net profit from A. Y. 2012-13 to A. Y. 2016-17. AY Turnover Gross profit Gross profit% Net Profit Net Profit % 2016-17 25871744024 268078051 10.36 48819145 1.89 2015-16 3590369214 221634209 6.17 41126649 1.15 2014-15 3394136750 240563777 7.09 75955421 2.24 2013-14 2313911207 212868794 9.98 49904110 2.34 2012-13 1663735034 158534748 9.53 41810806 2.51 8. And as can be seen, the net profit of the company always ranged between 1.15% to 2.51%. Further inspite of gross profit margin being higher in the A. Y. 2016-17, the net profit margin was lower at 1.89% on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the interests of the revenue. Therefore the assessment order passed u/s.143(3) of the I.T. Act., 1961 dated 24.12.2018 without verification of this aspect is erroneous. Since the enquiries with regard to correctness of claim have not been made, the order passed u/s.143(3) of the I.T. Act., 1961 dated 24.12.2018 is prejudicial to the interest of revenue. Thus both the conditions specified u/s.263 of the Act are satisfied in this case and it is a fit case to invoke provisions of the said section. Therefore the order passed u/s.143(3) of the I.T. Act., 1961 dated 24.12.2018 in assessee s case for A.Y. 2016- 17 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 with regard to allowability of deduction claimed u/s.80G of the Act as per law and frame a fresh assessment after affording an opportunity to the assessee of being heard. 5. With regard to second and third issue also Ld. Pr.CIT rejected the contention of the assessee with the following observations: - 6.2 The second issue on which notice issued u/s.263 relates is Assessing Officer's action in allowing the claim of Bad debts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e these aspects. From the submissions made by the assessee during the course of current proceedings u/s 263, it is crystal clear that fish purchases were not properly enquired into by the assessing officer during the assessment proceedings. Failure to examine the same has rendered the assessment order dated 24.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue. Thus both the conditions specified u/s.263 of the Act are satisfied in this case and it is a fit case to invoke provisions of the said section. Therefore the order passed u/s.143(3) of the I.T. Act., 1961 dated 24.12.2018 in assessee s case for A.Y. 2016-17 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 with regard to fish purchases as per law and frame a fresh assessment after affording an opportunity to the assessee of being heard. 6. With the above observations, Ld. Pr.CIT set aside the Assessment Order passed u/s. 143(3) of the Act and directed the Assessing Officer to examine the submissions of the assessee and reframe the assessment afresh after giving proper opportunity to the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the details of purchase of fish, balance sheet of major fish suppliers, details of creditors of Rs. 2 Lakhs as also ledger of fish purchases with confirmations of fish suppliers the deduction was granted by the AO after going thru all the details and all these correspondence was duly placed on the record of the PR Commissioner. Thus, giving directions to the AO to redo the things since PR CIT felt so and thus, imposing his own views on the assessing Officer. hence, the order dated 31.3.2021 passed by the PR. CIT, Mumbai - 2 w/s. 263 of I. T. Act, 1961 needs to be set aside in toto by holding that the assessment order dated 24.12.2018 passed by the AO did not call for revision u/s. 263 since it was not erroneous and prejudicial to the interest of revenue. 8. Before us, Ld. AR submitted that Ld. Pr.CIT invoked the provisions of Explanation 2 to section 263 of the Act and set aside the Assessment Order on the issue on which Assessing Officer has made substantial verification and examined the records submitted before him. In support of his contention of the assessee he relied on the decision of the Bank of India v. JCIT [210 TTJ 626 (Mum Tribunal)]. 9. With rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as raised by the assessing officer in this regard. In the assessee s submission, the claim of the bad debts was rightly allowed by the Assessing Officer in terms of S.36(1)(vii) of the Act, which does not require the assessee to prove anything. The only condition is that the said debt should have been written off as irrecoverable in the accounts of the assessee. [P.10] Further the said debt should have been taken into account in computing the income of the assessee of the previous year in which the bad debt is written off or any earlier previous year. [S.36 (2)] and further, if the debt or any part of it is subsequently recovered, the same shall be profit and gain in terms of S.41 (4) of the Act. This has been so held by the Hon'ble Supreme Court in TRF Ltd. v CIT [320 ITR 397]. The assessee would like to submit that the said bad debt pertained to one company by the name Keres Trading from France [P._11] and in the subsequent year an amount of ₹.1,14,00,000 was received in respect of the same from ECGC and the same was duly shown as income in the Profit and Loss Account for the year ended 31% March, 2017. [P.12]. In the light of the above, it can be seen that the observat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e findings of the Hon'ble ITAT. With regard to bad debts he submitted that assessee itself recovered substantial amount in the subsequent assessment year for which assessee has claimed bad debt during this assessment year. Therefore, this clearly shows that the claim of bad debts itself is not proper. He supported the findings of the Ld. Pr.CIT and submitted that Assessing Officer has not made any enquiry before allowing these expenditures. 13. With regard to fish purchases, Ld. Pr.CIT has only directed the Assessing Officer to verify the purchases of fish which is 95% of the expenditure claimed by the assessee and record shows that Assessing Officer has not verified thoroughly before giving the benefit to the assessee. Even the Assessment Order does not whisper anything on the fact that Assessing Officer has carried out any verification. He vehemently argued and supported the finding of the Ld. Pr.CIT. 14. In rejoinder Ld. AR submitted that the recovery of bad debts in the subsequent assessment year is not from the party but from the insurance company, therefore, Ld. DR cannot question the quality of the bad debts claimed by the assessee. 15. Considered the rival subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditure cannot be allowed under the existing provisions of section 37 of the Income-tax Act. Therefore, in order to provide certainty on this issue, it is proposed to clarify that for the purposes of section 37(1) any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and, hence, shall not be allowed as deduction under section 37. However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Act shall be allowed deduction under those sections subject to fulfilment of conditions, if any, specified therein. 13. From the above it is clear that under Income tax Act, certain provisions explicitly state that deductions for expenditure would be allowed while computing income under the head, Income from Business and Profession to those, who pursue corporate social responsibility projects under following sections. Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbiguous, since expenditure incurred under section 30 to 36 are excluded from Explanation 2 to section 37(1) of the Act, they are specifically excluded in clarification issued. There is no restriction on an expenditure being claimed under above sections to be exempt, as long as it satisfies necessary conditions under section 30 to 36 of the Act, for computing income under the head, Income from Business and Profession . 16. For claiming benefit under section 80G, deductions are considered at the stage of computing Total taxable income . Even if any payments under section 80G forms part of CSR payments(keeping in mind ineligible deduction expressly provided u/s.80G), the same would already stand excluded while computing, Income under the head, Income form Business and Profession . The effect of such disallowance would lead to increase in Business income. Thereafter benefit accruing to assessee under Chapter VIA for computing Total Taxable Income cannot be denied to assessee, subject to fulfillment of necessary conditions therein. 17.We therefore do not agree with arguments advanced by Ld.Sr.DR. 18.In present facts of case, Ld.AR submitted that all payments form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lid point to claim the deduction u/s. 80G of the Act and we observe that nowhere assessee has claimed deduction u/s. 37 of the Act. It is clear that the restriction given in section 37 of the Act is restricted to CSR expenses but similar restrictions are not given in section 80G of the Act. 18. With regard to other expenses to invoke the provisions of section 263 of the Act on bad debts and fish purchases, we observe from the record that all the informations relating to these expenses were very much available and submitted before the Assessing Officer. Even Assessing Officer asked the details of these expenditure and assessee has submitted the relevant information in the letter dated 18.12.2018 and explained before the Assessing Officer. Assessee has submitted various ledgers relating to fish purchases and supplier s confirmations before the Assessing Officer, all these informations clearly shows that Assessing Officer has verified these expenditures before allowing the same. From the record, we observed that Assessing Officer has asked for certain informations on these expenditures and assessee has also submitted the informations with supporting documents, it can be inferred th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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