Vishal Exports Overseas Ltd., Ahmedabad V. The Pr. CIT-3, Ahmedabad

ITA 101/AHD/2021

AI Insights

The case involves Vishal Exports Overseas Ltd., the appellant, contesting an order by the PCIT, Ahmedabad-3, which set aside the original assessment order under section 263. The PCIT had observed that the Assessing Officer did not adequately verify the claims of bad debts written off by the assessee amounting to Rs. 77.55 crores, which included various advances and loans. The PCIT's action was based on the premise that the Assessing Officer had not applied his mind to the facts of the case as required under section 36(2) of the Income Tax Act. However, the Tribunal found that the Assessing Officer had indeed considered the submissions made by the assessee and had partially disallowed some claims after scrutiny. The Tribunal referenced a similar case, DCIT vs. Insilco, where it was held that if the Assessing Officer has considered the details and made a decision, the invocation of section 263 is not justified.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131450 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-03-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 17-05-2021
• Other Referred Cases: DCIT vs. Insilco, ITW Singnode India Ltd. v. Dy. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Question of law; Bad and doubtful debts; Assessment record; Set aside
• Section: 142(1)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Vishal Expo rts Overseas Ltd . 301, Third Floo r Sheel Company, 4, Mayur Co lo ny Mithakhali, Ah medabad -3 80006 PAN: AAACV2 354D (Appellant) Vs PCIT, Ah med abad-3 (Resp ondent) Asses see b y : Shri Bandish Sopa rkar, A. R. & Shri Parin Shah, A. R. Revenue by : Shri A. P. Singh, CIT -D. R. Date of hearing : 22-03 -2 023 Date of pronouncement : 31-03 -2 023 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This is an appeal filed by the assessee against the order of the ld. Principal Commissioner of Income Tax, PCIT, Ahmedabad-3, in proceeding u/s. 263 vide order dated 31/03/2021 passed for the assessment year 2016- 17. ITA No. 101/Ahd/2021 Assessment Year 2016-17 I.T.A No. 101/Ahd/2021 A.Y. 2016-17 Page No. Vishal Exports Overseas Ltd. vs. PCIT 2 2. The assessee has taken the following grounds of appeal:- “1. Ld. Pr. CIT erred in law and on facts revising a scrutiny assessment order which is neither erroneous nor prejudicial to the interest of revenue. 2. This action of Id. Pr. CIT invoking provisions of sec. 263 to revise scrutiny order passed by AO after raising relevant queries and extensive verification of the details submitted during assessment by the appellant is without any justification. 3. Ld. Pr. CIT erred in law and on facts holding that assessment completed without raising any query regarding claim of bad debts / loss written off in the accounts and without application of mind by AO was erroneous and prejudicial overlooked the fact that an explanation on each and every item of claim of bad debts/ advances written off including the amounts stated in the notice u/s 263 issued was submitted during assessment proceedings by the appellant. 4. Ld. Pr. CIT erred in law and on facts in revising order passed u/s 143(3) of the Act not appreciating that some of the amounts claimed as bad debts on which show cause notice was issued was already disallowed by AO when not satisfied with the explanation submitted by the appellant. 5. Ld. Pr. CIT erred in law and on facts revising scrutiny assessment order merely because he held a different opinion than AO in the matter. 6. Ld. Pr. CIT erred in law and on facts holding assessment order as erroneous and prejudicial to the interest of revenue since AO failed to disallow bad debt claimed by the appellant of Loans & Advances written off in the books of accounts. Your appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal before the appeal is heard and decided.” I.T.A No. 101/Ahd/2021 A.Y. 2016-17 Page No. Vishal Exports Overseas Ltd. vs. PCIT 3 3. The brief facts of the case are that on scrutiny of assessment records, the PCIT observed that the assessee had debited an amount of Rs. 77,55.34 crores in the profit and loss account being debit balances written off. However, the Assessing Officer while finalizing the scrutiny assessment disallowed a sum of Rs. 1.21 crores on account of bad debts. The PCIT observed that on further scrutiny of assessment records, it is found that the debit balance written off by the assessee included advances for land, security deposit, loans and advances for business purposes etc. However, the Assessing Officer has allowed these as bad debts (debit balances written off). The PCIT held that on verification of assessment records, it is apparent that no verification of the bad debts written off was done by the Assessing Officer during the course of assessment proceedings to verify whether the claim is in accordance of the provisions of section 36(2) of the Act which shows that the Assessing Officer has not applied his mind to the facts of the case and allowed the claim of deduction of loans and advances written off as bad debts without making any inquiry. Accordingly, the PCIT set aside the assessment order u/s. 263 of the Act for fresh adjudication in the light of the above observations. 4. The assessee is in appeal before us against the aforesaid order passed by PCIT setting aside the assessment order on the ground that the same is erroneous and prejudicial to the interest of the Revenue. Before us, the counsel for the assessee at the outset drew our attention to the show cause notice issued by the PCIT and submitted that the ld. PCIT has given a table containing party-wise details of advances and security deposits written off by the assessee during the year under consideration. The PCIT initiated 263 I.T.A No. 101/Ahd/2021 A.Y. 2016-17 Page No. Vishal Exports Overseas Ltd. vs. PCIT 4 proceedings on the ground that the Assessing Officer has failed to verify the details, the documentary evidences as well as the allowability of the claim of bad debts (debit balance written off) in view of the provisions of section 36(2) of the Act. However, the counsel for the assessee submitted that a perusal of the assessment order itself shows that each of the parties which have been mentioned in the table reproduced in 263 notice issued by PCIT were analysed by the Assessing Officer in detail during the course of assessment proceedings. The same is evident from pages 4 to 8 of the assessment order where this issue has been dealt in detail by the Assessing Officer. Further, the counsel for the assessee drew our attention to pages 18 to 99 of the paper book where all details in respect of the aforesaid parties were submitted before the Assessing Officer vide submission dated 19-09- 2018. Further, the counsel for the assessee also drew out attention to pages 100 to 105 of the paper book where again the assessee gave further explanation with respect to allowability of the claim of bad debts of the assessee during the course of assessment proceedings vide letter dated 13- 12-2018. Therefore, the submission of the counsel for the assessee before us is that details of each of the parties with respect to whom the 263 proceedings were initiated had been submitted by the assessee during the course of assessment proceedings and after due consideration of the details filed by the assessee, the ld. Assessing Officer made a disallowance of Rs. 1.21 crores u/s. 36(2) of the Act. Therefore, the order passed by the Assessing Officer is not erroneous and prejudicial to the interest of the revenue. I.T.A No. 101/Ahd/2021 A.Y. 2016-17 Page No. Vishal Exports Overseas Ltd. vs. PCIT 5 5. In response, the ld. Departmental Representative placed reliance on the observations made by PCIT in 263 order. Further, the Departmental Representative submitted that Assessing Officer has not appreciated the facts from the correct perspective and has not given a detailed finding as to why the claim of the assessee should be allowed u/s. 36(2) of the Act with respect to some of the parties. 6. We have heard the rival contentions and perused the material on record. We observe that 263 proceedings were initiated by the ld. PCIT and the assessment order was held to be erroneous and prejudicial to the interest of Revenue on the ground that there was an evident lack of inquiry by the Assessing Officer with regard to the allowbility of claim of deduction u/s. 36(2) of the Act. However, we observe that for each of the parties which have been mentioned by the PCIT in the 263 notice, a specific submission was made by the assessee during the course of assessment proceedings and the same was also duly considered by the Assessing Officer as part of the assessment order itself. Thereafter, after taking into consideration, the written submission filed by the assessee, the ld. Assessing Officer made part disallowance in respect of seven parties amounting to Rs. 1.21 crores u/s. 36(2) of the Act and allowed the balance claim of the assessee. Therefore, in our considered view, in the instant set of facts, we see that there is no apparent lack of inquiry by the Assessing Officer. The Assessing Officer had issued a notice u/s. 142(1) of the Act on 26-09-2018 and another notice on 08-10-2018 in respect of allowability of the debit balances of Rs.77.55 crores written off by the assessee u/s. 36(2)(i) of the Act. In response thereto, the assessee filed submissions dated 19-09-2018 and another I.T.A No. 101/Ahd/2021 A.Y. 2016-17 Page No. Vishal Exports Overseas Ltd. vs. PCIT 6 submission dated 13-12-2018 giving details as called for by the Assessing Officer. The same were duly considered by the Assessing Officer at the time of passing original assessment order and the claim of the assessee was partly allowed and disallowance amounting to Rs. 1.21 crores was made with respect to seven parties u/s. 36(2) of the Act. Therefore, in the instant facts, we observe that neither it is a case of lack of inquiry nor it is a case of non-application of mind by the Assessing Officer on the issue of allowability of claim of deduction by the assessee u/s. 36(2)(i) of the Act. In the case of DCIT vs. Insilco 12 taxman.com 251, the assessee claimed bad debts on the ground that the amount were irrecoverable. During the course of original assessment proceedings, the assessee had given all details of debts and steps were taken by the assessee for recovery of those amounts, which he ultimately failed to recover. The Assessing Officer allowed the deduction after taking into consideration the details filed by the assessee. The Pr. CIT initiated 263 proceedings on the ground that the claim was not allowable u/s. 36(2) of the Act. In appeal before Tribunal, the ITAT held that the assessee had categorically submitted the details of bad debts before the Assessing Officer during the course of assessment proceedings and the same were considered by the Assessing Officer. Accordingly, the ITAT set aside the 263 order passed by the PCIT. In further appeal to the High Court by the Department, the High Court held that the PCIT in the instant facts was not justified in setting aside the order of the Assessing Officer and invoking revisional power u/s. 263 of the Act. While passing the order, the Delhi High Court made the following observations:- I.T.A No. 101/Ahd/2021 A.Y. 2016-17 Page No. Vishal Exports Overseas Ltd. vs. PCIT 7 “The assessee had also filed the copies of the documents in respect of the legal cases against each of the parties for recovery of the amounts to justify its claim for bad debts before the Assessing Officer. The assessee had filed party-wise details. The record also showed that there had been discussion on various dates thereafter. There was a further reference to the issue of bad debts. The Assessing Officer also maintained order sheets which showed that he had taken the detailed notes of the discussion that took place before finalizing the assessment with regard to the claim of bad debts. In the circumstances, it should not be said that there was lack of inquiry conducted by the Assessing Officer. The assessee had made an alternate prayer also in respect of claim of business loss in the event the Commissioner (Appeals ) felt that the claim was not allowable under section 36(1)(vii) . However, the Commissioner (Appeals) rejected the contentions of the assessee only on the ground that the Assessing Officer had not properly examined the details furnished. The non-recording of all details and the detailed discussion which had taken place in the course of assessment proceedings could not be faulted on the assessee or it could not be said that the assessing authority had not applied his mind on the details filed. It did not give occasion to the Commissioner for invoking the powers under section 263. [Para 8] The Tribunal further observed that the decision of the Assessing Officer was based on the decision of Coordinate Bench in the case of ITW Singnode India Ltd. v. Dy. CIT [IT Appeal Nos. 560 and 566 (Hyd.) of 2002, dated 23-3-2007], which is to the effect that in respect of inter-corporate deposits, the amount is capable of being treated as a bad debt and allowable as such. Thus, the view of the Assessing Officer was also supported by the decision of their Coordinate Bench. The Tribunal also observed that it could not be said that there was an error, much less an error prejudicial to the interest of the revenue, in the assessment order and, thus, set aside the order of the Commissioner passed under section 263 of the Act. [Para 9] Tribunal had rightly observed that the assessee had given all the details to the Assessing Officer regarding the debts and also the steps taken for recovery of those amounts and ultimately failing to recover the same. [Para 11] I.T.A No. 101/Ahd/2021 A.Y. 2016-17 Page No. Vishal Exports Overseas Ltd. vs. PCIT 8 Therefore, no substantial question of law arose and, hence, the appeal was to be dismissed. [Para 12]” 6.1 In the light of the above observations and the judicial precedents as discussed above, we are of the considered view that the ld. PCIT has erred in facts and in law in holding that the order passed by the ld. Assessing Officer is erroneous and prejudicial to the interest of revenue. Accordingly, the order of the ld. PCIT passed u/s. 263 of the Act is hereby dismissed. 7. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 31-03-2023 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 31/03/2023 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद