TMI Blog2024 (2) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the Assessing Officer vis- -vis irregularities noted by him initially, there can be no case for exercising any revisionary power u/s 263 of the Act. The provisions of the section are very clear. The concerned authorities can exercise revisionary powers only on fulfillment of the essential conditions of finding error in the order sought to be revised and the error being such as causing prejudice to the Revenue. In the absence of any of the two conditions the power of revision u/s 263 of the Act cannot be exercised. See Malabar Industrial Co. Ltd. Vs. CIT [ 2000 (2) TMI 10 - SUPREME COURT] . In the present case, with the ld. PCIT s recording of satisfaction vis- -vis explanation of the assessee regarding the alleged errors noted by him in the assessment order, it can be safely said that as per the ld. PCIT, there was no error in the assessment order. And having found no error in the assessment order himself , there was possibly no scope of the issue being examined again by the AO, an officer junior in Rank to the Ld. PCIT . There was no case therefore, we hold, for the Ld. PCIT to exercise any revisionary power u/s 263 of the Act on the issue. Merely because the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Assessing Officer u/s 263 of the Act. 4. Having noted so, we shall now proceed to bring out the facts relating to the case. As transpires from the order of the ld. PCIT, jurisdiction for revision of the assessment order was assumed u/s. 263 of the Act noting three irregularities in the same as under:- i) incorrect allowance of interest accrued but not paid on loans from PFC; ii) wrong claim of Bad Debts; iii) incorrect allowance of provision on account of Leave Encashment. These facts find mention at paragraph nos. 2 to 2.2 of the order of the ld. PCIT as under:- 2. Incorrect allowance of Interest accrued but not paid on loans from PFC:- On going through the assessment records, it is seen that the assessee company has shown an amount of Rs. 5,79,50,223/- on account of interest accrued but not paid on loans from ADFC. Power Finance Corporation (PFC) has been declared as a public finance institution and the interest payable to PFC is covered u/s. 43B(d) of the I.T. Act, 1961. As per section 43B(d) of the Act, interest payable to any public finance institution is only allowed when it is actually paid, it is clearly mentioned that the interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. PCIT as under:- With reference to the captioned subject, we have been asked to show cause as to why the assessment already completed under section 143(3) of the IT Act for the Asst. Year 2013-14 should not be enhanced or cancelled and a fresh assessment may be made. While issuing the notice under section 263 of the IT Act, it has been indicated that the total income has been under-assessed on account of certain issues, as discussed hereinafter, while completing assessment under section 143(3) of the IT Act. At the outset, it is submitted that the impugned notice under section 263 of the Act is void ab-initio in as much as the same is issued without verification of the records. This is because all the details and relevant information relating to the issues was submitted at the time of assessment and the same were verified and examined at length before passing the assessment order under section 143(3) of the IT Act. The point-wise explanation are as under: 1) Incorrect allowance of interest accrued but not paid on loans from PFC It has been stated in the notice that there was interest amounting to Rs. 5,79,50,223/- accrued but not due on loans from PFC, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs. 1545 Lacs will be converted into Grant upto 50% on fulfilment of stipulated conditions. If conditions are not fulfilled, the loan will be repayable in 150 equal monthly instalments over a period of 15 years of Rs. 7.62 Lacs each, starting from June 2014 Applicable Rate of Interest was 9% p.a. The copy of the relevant Sanction Loan/Agreement is enclosed for immediate reference in Annexure-II. As a matter of fact, the said loan now has been converted into Capital Grant. This apart, even the Tax Auditor in its Report for the year under consideration has categorically reported that such interest accounted in the books has not been routed through Profit Loss Account. Hence there is no applicability of section 43B of the IT Act In view of the facts, it is clear that as per the terms of sanction of Loan by PFC the Company was not liable to pay any instalment either of principle or interest at least till June 2014 which was beyond the date of filing of IT Return of the year under consideration. It was only because the Company is following the mercantile system of accounting and as per the Companies Act and various Accounting Standards, it has to mandatorily recognize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the deduction on account of Bad Debts and the same does not require any revision. (3) Provision for Leave Encashment: It has been stated in the notice that the Company has wrongly offered the disallowance on account of provision for Leave Encashment. It is submitted that for the year under consideration, the opening balance of Leave Encashment was Rs. 84,88,77,625/- as on 01.04.2012. There was fresh addition of accrual (including provision of Rs. 7,40,52,271/-) during the year amounting Rs. 15,89,19,530/- which was rightly added back in statement of income and also as reported in the Tax Audit Report vide Form 3CD serial no.21(i)B)(b) (Copy enclosed in Annexure-III). Further, payment during the year was made for an amount Rs. 8,48,67,259/- which was also disclosed in Form 3CD of Tax Audit Report in serial no. 21(1)(A)(a) (Refer Annexure-III). The closing balance of Leave Encashment was Rs. 92,29,29,896/- as on 31.03.2013 which is summation of Long Term and Short Term Leave Encashment amounting Rs. 8136.10 Lacs and Rs. 1093.20 Lacs respectively reflecting in the Note no. 8 and 12 of the Audited Annual Accounts. The details are tabulated as under. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company has been perused and the clarification given on the issues referred above appear to be in order in view of supporting filed during 263 proceedings. 8. Having so noted, the ld. PCIT goes on to hold the assessment order erroneous merely for the reason that these explanations and documents were not filed to the Assessing Officer during assessment proceedings and therefore, the Assessing Officer did not make proper inquiries on these issues. His findings, in this regard, are as under:- However the assessment record does not show that these were submitted before the assessing officer. Further, the AO failed to examine and verify the facts as now presented by the assessee company. The assessing officer, at the time of assessment proceedings, thus did not make proper enquiries on these three issues and passed the assessment order. The assessee company has submitted that it has rightly claimed the Bad Debts, Leave Encashment and has not debited the amount of Interest due to PFC during the year. The assessee company has also submitted documentary evidences in support of its claims. The assessing officer should have examined the same at the time of assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. It has been interpreted so by the Hon ble Apex Court in the case of Malabar Industrial Co. Ltd. Vs. CIT, [2000] 243 ITR 83 (SC). In the present case, with the ld. PCIT s recording of satisfaction vis- -vis explanation of the assessee regarding the alleged errors noted by him in the assessment order, it can be safely said that as per the ld. PCIT, there was no error in the assessment order. And having found no error in the assessment order himself , there was possibly no scope of the issue being examined again by the AO, an officer junior in Rank to the Ld. PCIT. There was no case therefore, we hold, for the Ld. PCIT to exercise any revisionary power u/s 263 of the Act on the issue. 12. Merely because the Assessing Officer had not examined these issues during assessment proceedings does not make the assessment order erroneous particularly when the ld. PCIT finds, on the basis of explanation and documents furnished to him, that the assessee s claim was eligible as per law. At the cost of repetition, it may be stated that the powers of revision can be exercised only when the orders are found to be in error with regard to any application of law or assumption of fact noted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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