G.S.Alloy Castings Ltd., Vijayawada V. THE Addl.CIT, Vijayawada

ITA 142/VIZ/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2030 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 22-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M BHUPAL REDDYDR
• Keywords: Bad and doubtful debts; Assessment record; Right to appeal
• Section: 143(3); 142(1); 133(6); 263

Judgement Text

ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.142/VIZAG/2015 ( / ASSESSMENT YEAR: 2010-11) G.S. ALLOY CASTINGS LTD. VIJAYAWADA VS. ADDL. CIT, RANGE - 2 VIJAYAWADA [PAN: AAACG 8412D ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI C. SUBRAHMANYAM, AR / RESPONDENT BY : SHRI M. BHUPAL REDDY,DR / DATE OF HEARING : 22.01.20 16 / DATE OF PRONOUNCEMENT : / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT, VIJAYAWADA DATED 25.3.2015 U/S 263 OF THE INCO ME TAX ACT, 1961 (HEREINAFTER CALLED AS THE ACT) AND IT PERTAINS T O THE ASSESSMENT YEAR 2010-11. THE ASSESSEE HAS RAISED THE FOLLOWING GRO UNDS: ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 2 1. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE THE ORDERS PASSED U/S.263 OF THE I.T. ACT ARE ERRONEOUS BOTH ON FACTS AND AS WELL AS IN LAW. 2. THE LEARNED COMMISSIONER OF INCOME TAX (IN SHORT 'C IT') OUGHT TO HAVE KNOWN THAT THE ORDERS PASSED BY THE ASSESSING OFFIC ER (IN SHORT 'AO') U/S.143(3) OF THE I.T. ACT, WHICH ORDER WAS SUBJECT ED TO REVISION, IS NEITHER ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE, THEREFORE, THE ORDER PASSED U/S.263 OF THE I.T. ACT CANNOT STA ND THE TEST OF JUDICIAL SCRUTINY. 3. THE LEARNED CIT FOUND FAULT WITH THE AO FOR HAVING ALLOWED THE CLAIM OF 'BAD DEBTS', FOR THE ALLEGED REASON THAT THE AO ALLOWED THE CLAIM WITHOUT VERIFYING FACTS AND APPLYING SAW, WHEN THE AO, IN S CRUTINY PROCEEDINGS, ALLOWED IT AFTER SATISFYING WITH THE CLAIM AND KEEP ING IN VIEW THE PROVISIONS OF SECTION 36(1)(VII) OF THE I.T. ACT AND THE DECISI ON OF APEX COURT IN THE CASE OF T.R.F. LTD VS. CIT REPORTED IN 323 ITR 397. 4. THE LEARNED CIT OUGHT TO HAVE KNOWN THAT PROVISIONS OF SECTION 36(L)(VII) PROVIDES FOR ALLOWING THE DEDUCTION TOWARDS 'BAD DE BTS' IF SUCH 'BAD DEBTS' OR PART THEREOF IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. WHEN SUCH IS THE RAW, UPHELD BY HON'BLE A PEX COURT IN THE CAGE OF TRY LTD. VS CIT REPORTED IN 323 ITR 397, ANY CON TRARY VIEW EXPRESSED IN THIS REGARD IS AGAINST THE PROVISIONS OF THE ACT. 5. THE LEARNED CIT HAS NOT SPELLED OUT IN HIS ORDER AN Y INSTANCE AS TO HOW THE ORDERS OF THE AO ARE ERRONEOUS TO HAVE BECOME PREJU DICIAL TO THE INTEREST OF REVENUE. 6. BEFORE THE LEARNED CIT, WITH REGARDS TO QUERY RAISE D IN SHOW CAUSE NOTICE, ASSESSEE PRODUCED THE RELEVANT INFORMATION WITH SUP PORTING EVIDENCE OF WHICH THERE WAS NO ADVERSE FINDING. WHEN SUCH IS TH E CASE, DIRECTION OF THE CIT TO EXAMINE THE SAME ISSUES AMOUNTS TO IT DOING THE ASSESSMENT WHICH IS NOT THE SPIRIT BEHIND THE PROVISIONS OF SECTION 263 OF THE I.T. ACT. 7. FOR THESE AND OTHER REASONS THAT ARE TO BE URGED AT THE TIME OF HEARING OF THE APPEAL THE APPELLANT PRAYS THAT THE ORDERS PASS ED BY THE LEARNED CIT ARE ERRONEOUS BOTH ON FACT AND AS WELL AS IN LAW, THERE FORE, THE SAME NEEDS TO BE SET ASIDE IN THE INTEREST OF JUSTICE. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING ROUGH A LLOYS AND STEEL CASTINGS. IT HAS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010- 11 ON 25.9.2010 DECLARING TOTAL INCOME OF RS.2,34,2 0,900/-. THE RETURN ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 3 WAS PROCESSED U/S 143(1) OF THE ACT ON 16.4.2011. T HE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY, NOTICE U/S 1 43(2) & 142(1) OF THE ACT WERE ISSUED. IN RESPONSE TO NOTICE THE AUTHORI ZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISH ED THE INFORMATION CALLED FOR. THE A.O. AFTER CONSIDERING THE EXPLANAT IONS FURNISHED BY THE ASSESSEE, COMPLETED THE ASSESSMENT U/S 143(3) OF TH E ACT AND DETERMINED THE TOTAL INCOME OF RS.2,49,86,603/-. 3. THE CIT, VIJAYAWADA ISSUED A SHOW CAUSE NOTICE U /S 263 OF THE ACT DATED 19.1.2015 AND PROPOSED TO REVISE THE ASSE SSMENT ORDER FOR THE REASON THAT ON EXAMINATION OF ASSESSMENT RECORD S, IT WAS NOTICED THAT THE A.O. HAS ALLOWED THE CLAIM OF BAD DEBTS WI THOUT EXAMINING THE DETAILS WITH REGARD TO WHETHER THE DEBT HAS BECOME BAD OR NOT, WHICH RENDERED THE ASSESSMENT ORDER ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE IN TERMS OF SECTION 263 OF THE ACT. THE CIT, IN THE SAID SHOW CAUSE NOTICE, OBSERVED THAT THE A. O. HAS ERRONEOUSLY ALLOWED THE CLAIM OF BAD DEBT, AS THE BAD DEBT WRIT TEN OFF BY THE ASSESSEE IS FROM THE REPUTED COMPANIES LIKE BHEL, S AIL, L&T AND KCP. THE CIT FURTHER OBSERVED THAT THE A.O. HAS ALLOWED THE CLAIM OF BAD DEBT WITHOUT VERIFYING THE FACTS AND APPLYING THE L AW. THE A.O. FAILED TO OBTAIN PARTICULARS OF SUCH COMPANIES/ENTITIES WITH REGARD TO (1) THE ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 4 NATURE AND SCOPE OF THEIR TRANSACTION WITH THE ASSE SSEE (2) CERTIFIED COPIES OF THE ASSESSEE COMPANYS ACCOUNTS IN THEIR BOOKS OF ACCOUNTS REFLECTING THE TRANSACTIONS MADE (3) WHETHER SUCH D EBTORS CERTIFIED THE FIGURE SHOWN BY THE ASSESSEE OR HAVE THEY ACKNOWLED GED ASSESSEES ACCOUNTS FOR THE RESPECTIVE YEARS, IF YES (4) THE C ERTIFIED COPIES OF THEIR ACCOUNTS WITH THE ASSESSES FOR THE PERIOD FOR WHICH THE ASSESSEE CLAIMED BAD DEBTS TALLY ETC. EITHER FROM THE ASSESS EE OR FROM SUCH COMPANIES OR ENTITIES. THE CIT FURTHER OBSERVED THA T ALTHOUGH INFORMATION WAS SOUGHT FROM 18 SUCH DEBTORS U/S 133 (6) OF THE ACT AFTER THE ASSESSMENT, ONLY 4 HAVE FURNISHED THE INFORMATI ON AS ON DATE. OUT OF WHICH, THE INFORMATION FURNISHED BY BORA BROTHER S INDUSTRIES, VIRGO VALVES AND CONTROLS PRIVATE LIMITED AND PUZZOLANA M ACHINERY FABRICATORS REVEALS THAT THEY HAD REMITTED THE ENTIRE AMOUNT DU E TO THE ASSESSEE OR ON ITS BEHALF TO SOME OTHER PARTY. FROM THE ABOVE FACTS AND CIRCUMSTANCES, IT IS CLEAR THAT THE A.O. AS AN INVE STIGATOR ON THIS ISSUE, HAS SIMPLY ALLOWED THE CLAIM WITHOUT OBTAINING RELE VANT EVIDENCES THROUGH THE ASSESSEE OR WITHOUT CARRYING OUT DUE IN VESTIGATION, WHICH RENDERED THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF T HE REVENUE. ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 5 4. IN RESPONSE TO SHOW CAUSE NOTICE, THE ASSESSEE H AS FILED WRITTEN SUBMISSION ON 6.2.2015 AND CONTENDED THAT THE ASSES SMENT ORDER PASSED U/S 143(3) OF THE ACT IS NOT ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE ASSESSEE FURTH ER SUBMITTED THAT THE A.O. HAS VERIFIED THE ISSUE OF BAD DEBTS WRITTEN OF F AT THE TIME OF ASSESSMENT BY ISSUING A QUESTIONNAIRE. THE ASSESSEE FURTHER SUBMITTED THAT THE A.O. HAS EXAMINED THE BAD DEBT ON FACTUAL AND LEGAL GROUND AND AFTER CONSIDERING THE EXPLANATIONS FURNISHED BY US ALLOWED THE CLAIM OF BAD DEBT. THEREFORE, THE ASSESSMENT ORDER IS NO T ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS WRITTEN OFF BAD DEBTS IN THE BOOKS OF ACCOUNT, AFTER EXAMINATION OF THE LEDGER ACCOUNT COPIES OF THE DEB TORS AND FIND THAT THESE AMOUNTS ARE NOT RECOVERABLE. THE REASON FOR S HORT PAYMENT OF THE AMOUNT BY THE DEBTORS IS THAT OVER A PERIOD OF TIME , THE DEBTORS HAVE MADE THE SHORT PAYMENTS BECAUSE OF VARIOUS REASONS SUCH AS LATE DELIVERY, VARIATION IN SPECIFICATION, SUB STANDARD QUALITY ETC. IN SPITE OF OUR BEST EFFORTS FOR THE RECOVERY OF THE DEBTS, ITS EFFORTS HAS BECOME FUTILE EXERCISE, THEREFORE, THE ASSESSEE HAS NO OTH ER ALTERNATIVE EXCEPT TO WRITE OFF THE DEBTORS AS IRRECOVERABLE. THE ASSESSE E FURTHER SUBMITTED THAT AS PER THE AMENDED PROVISIONS OF SECTION 36(1) (VII) OF THE ACT, THE ONLY REQUIREMENT OF THE ACT IS THAT THE ASSESSEE NE EDS TO WRITE OFF THE ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 6 DEBT IN THE BOOKS OF ACCOUNTS AND IT NEED NOT TO PR OVE THAT IT BECOME REALLY BAD OR NOT. TO SUPPORT HIS ARGUMENT RELIED U PON THE HONBLE APEX COURT JUDGEMENT IN THE CASE OF T.R.F. LIMITED VS. C IT REPORTED IN (2010) 323 ITR 397 AND ALSO RELIED UPON CBDT CIRCULAR NO.5 51 DATED 23.1.1990 AND SUBMITTED THAT THE BAD DEBTS WILL BE ALLOWED IN THE YEAR IN WHICH SUCH BAD DEBT HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 5. THE CIT, HOWEVER AFTER CONSIDERING EXPLANATIONS SUBMITTED BY THE ASSESSEE SET ASIDE THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT AND REMIT BACK THE ISSUE TO THE FILE OF THE A.O. WI TH A DIRECTION THAT THE A.O. SHALL OBTAIN COPIES OF THE ACCOUNTS FROM OTHER ENTITIES WHICH ARE YET TO COMPLY TO THE REQUIREMENT U/S 133(6) OF THE ACT AND FURNISH COPY OF THE SAME TO THE ASSESSEE AND REQUIRE IT TO ADVANCE ITS EXPLANATIONS WITH RELEVANT EVIDENCE/MATERIAL. WHILE DOING SO, THE CIT OBSERVED THAT AS SEEN FROM THE INFORMATION OBTAINED U/S 133(6) OF TH E ACT, IN FEW COMPANIES THERE IS NO BALANCE OUTSTANDING TO THE AS SESSEE AS PER THE BOOKS OF THE DEBTORS. THEREFORE, IT IS CLEAR THAT T HE A.O. HAS NOT EXAMINED THE CLAIM OF BAD DEBT. ALL THE COMPANIES F ROM WHICH THE DEBTS CLAIMED TO HAVE BEEN WRITTEN OFF ARE VERY REPUTED C OMPANIES. THE ASSESSEE SIMPLY PASSED ENTRIES IN THE BOOKS OF ACCO UNTS AND WRITTEN OFF ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 7 THE BAD DEBT, WITHOUT BEING ANY EFFORT TO RECOVER T HE AMOUNT. THE A.O. FAILED TO OBTAIN PARTICULARS OF SUCH COMPANY/ENTITY WITH REGARD TO THE NATURE AND SCOPE OF THE TRANSACTION WITH THE ASSESS EE AND ALSO THE CERTIFIED COPIES OF THE ASSESSEE COMPANYS ACCOUNTS IN THEIR BOOKS OF ACCOUNTS REFLECTING THE TRANSACTIONS MADE. THE CIT FURTHER OBSERVED THAT THOUGH AMENDED PROVISIONS OF SECTION 36(1)(VII ) OF THE ACT MADE IT CLEAR THAT IT IS NOT NECESSARY TO ESTABLISH THAT TH E DEBT BECOME BAD AND ONLY THE REQUIREMENT IS TO WRITE OFF IN THE BOOKS O F ACCOUNTS. BUT AT THE SAME TIME, THE ASSESSEE CANNOT CONVERT ANY LIVE AMO UNT INTO A BAD DEBT, ONLY ON THE BASIS OF TECHNICAL ROLE OF WRITE OFF. AGGRIEVED BY THE CIT ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SU BMITTED THAT THE ASSESSMENT ORDER IS NOT ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, AS THE A.O. HAS MADE DETAI LED ENQUIRY WITH REGARD TO BAD DEBTS WRITTEN OFF AT THE TIME OF ASSE SSMENT. THE A.R. FURTHER SUBMITTED THAT DURING THE COURSE OF ASSESSM ENT PROCEEDINGS, THE A.O. HAS ISSUED A DETAILED QUESTIONNAIRE. THE ASSE SSEE HAS SUBMITTED THE DETAILS OF BAD DEBTS AND ALSO EXPLAINED UNDER W HAT CIRCUMSTANCES IT WAS COMPELLED TO WRITE OFF THE BAD DEBTS. THE A.R. FURTHER SUBMITTED THAT THE A.O. HAS PASSED THE ASSESSMENT ORDER, AFTE R SATISFIED WITH THE ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 8 EXPLANATIONS OFFERED BY THE ASSESSEE AND ALSO CONSI DERING THE LEGAL AND FACTUAL POSITION OF BAD DEBT. THEREFORE, THE CIT W AS COMPLETELY ERRED IN COMING TO THE CONCLUSION THAT THE A.O. HAS NOT ENQU IRED THE ISSUE OF BAD DEBT. THE A.R. FURTHER SUBMITTED THAT THE BAD DEBT HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS AS IT IS IRRECOVERABLE. TH E PARTIES DID NOT MAKE THE PAYMENT BECAUSE OF VARIOUS REASONS SUCH AS LATE DELIVERY OF GOODS, VARIATION IN SPECIFICATION AND SUBSTANDARD QUALITY, ETC. DESPITE PUTTING BEST EFFORTS TO COLLECT THE MONEY, THE DEBTORS HAVE DENIED THE PAYMENT. UNDER THESE CIRCUMSTANCES, THE ASSESSEE WAS COMPELL ED TO WRITE OFF THE DEBT AS IRRECOVERABLE. THE A.R. FURTHER SUBMITTED T HAT THE SALES RELATED TO THESE DEBTORS HAS BEEN ACCOUNTED IN THE EARLIER YEARS AND OFFERED FOR TAXATION. THEREFORE, THE ASSESSEE HAS NO OTHER ALT ERNATIVE EXCEPT TO WRITE OFF THESE BAD DEBTS AS IRRECOVERABLE, THEREFO RE, WRITTEN OFF IN THE BOOKS OF ACCOUNTS. THE A.R. FURTHER SUBMITTED THAT THE CIT COMPLETELY ERRED IN COMING TO THE CONCLUSION THAT THE ASSESSEE REQUIRED TO ESTABLISH THAT THE DEBT BECOMES BAD IN THE YEAR OF WRITE OFF. THE A.R. FURTHER SUBMITTED THAT IT IS A SETTLED POSITION OF LAW THAT THE HONBLE APEX COURT IN THE CASE OF T.R.F. LIMITED VS. CIT (SUPRA), HAS CATEGORICALLY HELD THAT IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRE COVERABLE IN THE ACCOUNTS OF THE ASSESSEE TO CLAIM DEDUCTION OF THE SAME. THE A.R. FURTHER SUBMITTED THAT THE AMENDED PROVISIONS OF SECTION 36 (1)(VII) W.E.F. ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 9 1.4.1989 MADE IT CLEAR THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BECOME IRRECOVE RABLE. THE ONLY REQUIREMENT OF THE ACT IS THAT THE ASSESSEE NEEDS T O WRITE OFF THE DEBT IN THE BOOKS OF ACCOUNTS. THE A.R. FURTHER SUBMITTED T HAT WHEN BAD DEBT WRITTEN OFF IS LAWFUL AND AS PER THE PROVISIONS OF SEC. 36(1)(VII) OF THE ACT AND ALSO IN LINE WITH THE DECISION OF THE APEX COUR T, THE LD. CIT CANNOT FIND FAULT WITH THE ORDER OF THE A.O. TO TERM IT AS ERRONEOUS AND ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE. 7. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORT ED THE ORDER OF THE CIT(A). THE LD. D.R. FURTHER SUBMITTED THAT TH E ASSESSMENT ORDER IS ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE IN TEREST OF THE REVENUE, AS THE A.O. HAS WRONGLY ALLOWED THE CLAIM OF BAD DEBT WITHOUT VERIFYING THE DETAILS WITH RESPECT TO WHETHER THE DEBT BECOME REA LLY RECOVERABLE OR NOT. THE D.R. FURTHER SUBMITTED THAT THE A.O. FAILE D TO OBTAIN THE DETAILS OF THE DEBTS FROM THE DEBTORS AND ALSO CERTIFIED CO PIES OF THE ACCOUNT STATEMENTS OF THE ASSESSEE IN THE BOOKS OF ACCOUNTS OF THE DEBTOR. THEREFORE, THE CIT(A) RIGHTLY ASSUMED THE JURISDICT ION U/S 263 OF THE ACT AND HIS ORDER SHOULD BE UPHELD. ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 10 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE CIT ASSUMED THE JURISDICTION TO REVISE THE ASSESSMENT O RDER FOR THE REASON THAT THE A.O. HAS NOT CONDUCTED PROPER ENQUIRY WITH REGARD TO BAD DEBT AT THE TIME OF ASSESSMENT, THEREBY THE ASSESSMENT O RDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CIT ASSUMED THE JURISDICTION FOR THE SOLE REASON THAT A.O. HAS ALLOWED THE CLAIM OF BAD DEBT WITHOUT VERIFYING THE CLAIM WHETHER THE DE BT BECOME BAD AND IRRECOVERABLE. ON PERUSAL OF THE SHOW CAUSE NOTICE ISSUED BY THE CIT, ASSESSMENT ORDER AND PAPER BOOK FILED BY THE ASSESS EE, WE FIND THAT THE ISSUE OF BAD DEBT WRITTEN OFF QUESTIONED BY THE CIT , WAS ALREADY EXAMINED BY THE A.O. IN THE ASSESSMENT PROCEEDINGS. AS REGARDS THE CLAIM OF BAD DEBT, IT WAS THE CONTENTION OF THE ASS ESSEE THAT AS PER THE AMENDED PROVISIONS OF SECTION 36(1)(VII) OF THE ACT , IT IS NOT NECESSARY FOR THE ASSESSEE TO PROVE IN FACT THE DEBT BECOME I RRECOVERABLE AND THE ONLY REQUIREMENT OF THE ACT IS THAT ASSESSEE IS TO WRITE OFF BAD DEBT IN THE BOOKS OF ACCOUNTS. WE FIND FORCE IN THE ARGUMENT OF THE ASSESSEE FOR THE REASON THAT AS PER THE AMENDED PROVISIONS O F SECTION 36(1)(VII) OF THE ACT W.E.F. 1.4.1989, THE ONLY REQUIREMENT OF THE ACT IS TO WRITE OFF THE DEBT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. IT IS NOT NECESSARY FOR THE ASSESSEE TO PROVE IN FACT THE DEBT BECOME IRREC OVERABLE. WE FURTHER ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 11 OBSERVED FROM THE JUDGEMENT OF HONBLE SUPREME COUR T IN THE CASE OF T.R.F. LIMITED (SUPRA), WHEREIN THE HONBLE APEX CO URT CATEGORICALLY HELD THAT IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF A S IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE TO CLAIM DEDUCTION OF THE SAME. THIS FACT HAS BEEN VERIFIED BY THE A.O. AT THE TIME OF ASSESSMENT PROCEEDINGS AND AFTER EXAMINING THE DETAILS FURNISHED BY THE ASSESS EE HAS ALLOWED THE CLAIM OF BAD DEBT. THE FACTS CLEARLY INDICATE THAT THE A.O. HAS EXAMINED THE ISSUES AT THE TIME OF ASSESSMENT PROCEEDINGS. T HEREFORE, WE ARE OF THE OPINION THAT THE CIT WAS NOT CORRECT IN OBSERVI NG THAT THE A.O. DID NOT CONDUCT PROPER VERIFICATION OF THE ISSUE BEFORE COMPLETION OF THE ASSESSMENT. 9. THE CIT ASSUMED THE JURISDICTION TO REVISE THE A SSESSMENT ORDER, ON THE SOLE GROUND THAT THERE IS A LACK OF ENQUIRY ON THE PART OF THE A.O. IN EXAMINING THE ISSUE OF BAD DEBT. THE CIT WAS OF THE OPINION THAT THE A.O. HAS FAILED TO OBTAIN THE DETAILS OF BAD DEBT F ROM THE DEBTORS. THE CIT FURTHER HELD THAT WHEN INFORMATION SOUGHT FROM 18 SUCH DEBTORS U/S 133(6) OF THE ACT, ONLY 4 HAVE FURNISHED THE INFORM ATION AND THE REMAINING HAVE NOT FURNISHED ANY INFORMATION. OUT O F THE 4 CONFIRMATION RECEIVED, THE INFORMATION FURNISHED BY THE FEW CLEA RLY SHOWS THAT THERE IS NO AMOUNT OUTSTANDING TO THE ASSESSEE. UNDER TH ESE CIRCUMSTANCES, ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 12 THE A.O. FAILED TO EXAMINE THE ISSUE WITH DETAILS. THEREFORE, THE ORDER PASSED BY THE A.O. IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT WAS THE CONTENTION OF THE ASSESSEE THAT THE A.O. HAS EXAMINED THE ISSUE OF BAD DEBT AT THE TIME OF ASSESSMENT. ON VERIFICATION OF THE PAPER BOOK FILED BY THE ASSESSE E, WE FIND THAT THE A.O. HAS ISSUED A SHOW CAUSE NOTICE WITH REGARD TO BAD DEBT. THE ASSESSEE HAS FILED A DETAILED SUBMISSION AND ALSO E XPLAINED HOW THE DEBT BECOME IRRECOVERABLE AND ALSO EXPLAINED UNDER WHAT CIRCUMSTANCES IT WAS COMPELLED TO WRITE OFF THE BAD DEBT. IT WAS THE EXPLANATION OF THE ASSESSEE THAT OVER A PERIOD OF TIME THIS AMOUNT REC EIVABLE FROM THE DEBTORS IS DUE BECAUSE OF VARIOUS REASONS, SUCH AS SHORT SUPPLY OF GOODS, LATE DELIVERY, VARIATION IN SPECIFICATION AN D SUB STANDARD QUALITY, ETC. UNDER THESE CIRCUMSTANCES, ASSESSEE WAS OF TH E OPINION THAT THIS AMOUNT IS NOT RECOVERABLE, THEREFORE, WRITTEN OFF A S BAD DEBT IN THE BOOKS OF ACCOUNTS. THE ASSESSEE HAS FILED THIS EXPL ANATION BEFORE THE A.O. AT THE TIME OF ASSESSMENT. THE ASSESSEE FURTHE R RELIED UPON THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF T .R.F. LIMITED (SUPRA) IN SUPPORT OF ITS CONTENTIONS. THE A.O. AF TER EXAMINING THE LEGAL AND FACTUAL POSITION, ALLOWED THE CLAIM OF BAD DEBT . ONCE THE A.O. EXAMINED THE ISSUE AND COME TO THE CONCLUSION THAT THE CLAIM OF THE ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 13 ASSESSEE IS CORRECT, THE CIT WAS NOT CORRECT IN ASS UMING JURISDICTION TO REVISE THE ASSESSMENT ORDER ON THE GUISE OF LACK OF ENQUIRY. 10. THE CIT HAS POWER TO REVISE THE ASSESSMENT ORDE R U/S 263 OF THE ACT. BUT, TO INVOKE THE PROVISIONS OF SECTION 263 OF THE ACT, THE TWIN CONDITIONS MUST BE SATISFIED (1) THE ORDER OF THE A SSESSING IS ERRONEOUS (2) AND FURTHER IT MUST BE PREJUDICIAL TO THE INTER EST OF THE REVENUE. IN THIS CASE, FROM THE FACTS AVAILABLE ON RECORD WE FI ND THAT THE TWIN CONDITIONS ARE NOT SATISFIED, THEREFORE, THE CIT CA NNOT ASSUME JURISDICTION TO REVISE THE ASSESSMENT ORDER. IT IS NOT NECESSARY THAT EVERY ORDER WHICH IS ERRONEOUS MAY BE PREJUDICIAL TO THE INTEREST OF THE REVENUE OR VICE VERSA. UNLESS, THE A.O. ORDER IS N OT ERRONEOUS NO ACTION CAN BE TAKEN BY THE CIT, THIS IS BECAUSE THE TWIN C ONDITIONS I.E. THE ORDER IS ERRONEOUS AND THE SAME IS ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE ARE CO-EXIST. IN THE PRESENT CASE ON HAND, THE ASSESSING OFFICER HAS CONDUCTED DETAILED ENQUIRY AND ALSO EXAMINED TH E ISSUE OF BAD DEBT ON WHICH THE CIT WANTS FURTHER VERIFICATION. THE AS SESSING OFFICER AFTER VERIFICATION OF BOOKS OF ACCOUNTS AND RELEVANT DETA ILS FURNISHED BY THE ASSESSEE ACCEPTED THE CLAIM OF BAD DEBT. THE CONTE NTION OF THE CIT WAS THAT THE ASSESSING OFFICER HAS NOT CONDUCTED PROPER ENQUIRY AND ALSO NOT APPLIED HIS MIND BEFORE ALLOWING CLAIM. WE DO N OT AGREE WITH THE ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 14 CIT, FOR THE REASON THAT THERE IS A DISTINCTION BET WEEN LACK OF ENQUIRY AND INADEQUATE ENQUIRY. IF THERE IS AN INADEQUATE ENQUIRY THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE CIT TO ASSUME JU RISDICTION U/S 263 OF THE ACT, MERELY BECAUSE HE HAS A DIFFERENT OPINION IN THE MATTER. IN THE PRESENT CASE, THE ASSESSMENT ORDER IS A DETAILED ON E AND ALSO THE ASSESSING OFFICER HAS EXAMINED THE ISSUE OF BAD DEB T BY CALLING FOR REQUISITE INFORMATION. ACCORDING TO THE CIT, THE AS SESSING OFFICER HAS CONDUCTED ENQUIRY BUT IT IS INADEQUATE. THEREFORE, HE WANTED FURTHER ENQUIRY AND THIS FACT WAS NOT DISPUTED BY THE REVEN UE. THE CIT CANNOT INITIATE REVISION PROCEEDINGS WITH A VIEW TO CONDUC T FISHING AND REVOLVING ENQUIRIES ON THE MATTER WHICH ARE ALREADY EXAMINED BY THE ASSESSING OFFICER. 11. HAVING SAID THAT LET US EXAMINE, WHETHER THE AS SESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE ASSESSING OFFIC ER HAS EXAMINED THE ISSUE OF BAD DEBTS WRITTEN OFF AT THE TIME OF ASSES SMENT BY CALLING FOR REQUISITE INFORMATION. THE ASSESSEE HAS FURNISHED D ETAILS OF BAD DEBTS AND ALSO EXPLAINED UNDER WHAT CIRCUMSTANCES IT WAS COMPELLED TO WRITTEN OF THE BAD DEBTS. THE A.O. AFTER CONSIDERIN G THE EXPLANATION, ACCEPTED THE CLAIM OF BAD DEBT. THEREFORE, THE CIT CANNOT TERM IT AS ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 15 ERRONEOUS ORDER. FURTHER, THE ISSUE OF BAD DEBT CLA IMED BY THE ASSESSEE IS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36( 1)(VII) OF THE ACT. AS PER SECTION 36(1)(VII) OF THE ACT W.E.F. 1.4.89, IT IS NOT NECESSARY FOR THE ASSESSEE TO PROVE IN FACT THE DEBT BECOME IRRECOVER ABLE. THE ONLY REQUIREMENT OF THE ACT IS THAT THE ASSESSEE NEEDS T O WRITE OFF THE DEBT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. IN THE PRESE NT CASE ON HAND, THE ASSESSEE HAS WRITTEN OFF BAD DEBT IN THE BOOKS OF A CCOUNTS. THE SALES PERTAINS TO THESE BAD DEBT HAS BEEN OFFERED IN THE PRECEDING YEARS. THESE FACTS ARE NOT DISPUTED BY THE REVENUE. WE, TH EREFORE, OF THE OPINION THAT THE ASSESSMENT ORDER PASSED BY THE ASS ESSING OFFICER, IS NOT ERRONEOUS, IN SO FAR AS PREJUDICIAL TO THE INTE REST OF THE REVENUE. 12. NOW IT IS PERTINENT TO MENTION HERE THE CASE LA WS RELIED UPON BY THE ASSESSEE. THE ASSESSEE RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD. VS. CIT (2010) 323 ITR 397. THE HONBLE HIGH COURT, WHILE CONSIDERING THE ISSUE OF BAD DEBT S HAS OBSERVED AS UNDER: AFTER 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECO VERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESS ING OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WRITTE N OFF IN ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKE N BY THE ASSESSING OFFICER. HENCE, THE MATTER IS REMITTED TO THE ASSE SSING OFFICER FOR DE NOVO ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 16 CONSIDERATION OF THE ABOVE MENTIONED ASPECT ONLY AN D THAT TOO ONLY TO THE EXTENT OF THE WRITE OFF. 13. THE HONBLE HIGH COURT OF DELHI IN THE CASE OF ITO VS. DG HOUSING PROJECTS LTD. REPORTED IN (2010) 343 ITR 329 CONSID ERED THE ISSUE OF BAD DEBTS WRITTEN OFF IN THE CONTEXT OF REVISION U/ S 263 OF THE ACT. THE HONBLE HIGH COURT, WHILE CONSIDERING THE ISSUE OF BAD DEBT WRITTEN OFF IN THE CONTEXT OF REVISION U/S 263 OF THE ACT HAS H ELD AS UNDER: REVENUE DOES NOT HAVE ANY RIGHT TO APPEAL TO THE F IRST APPELLATE AUTHORITY AGAINST AN ORDER PASSED BY THE ASSESSING OFFICER. S . 263 HAS BEEN ENACTED TO EMPOWER THE CIT TO EXERCISE POWER OF REVISION AND R EVISE ANY ORDER PASSED BY THE ASSESSING OFFICER, IF TWO CUMULATIVE CONDITIONS ARE SATISFIED. FIRSTLY, THE ORDER SOUGHT TO BE REVISED SHOULD BE ERRONEOUS AND SECOND LY, IT SHOULD BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE EXPRESSION 'PRE JUDICIAL TO THE INTEREST OF THE REVENUE' IS OF WIDE IMPORT AND IS NOT CONFINED TO M ERELY LOSS OF TAX. THE TERM 'ERRONEOUS' MEANS A WRONG/INCORRECT DECISION DEVIAT ING FROM LAW. THIS EXPRESSION POSTULATES AN ERROR WHICH MAKES AN ORDER UNSUSTAINABLE IN LAW. THE ASSESSING OFFICER IS BOTH AN INVESTIGATOR AND A N ADJUDICATOR. IF THE ASSESSING OFFICER AS AN ADJUDICATOR DECIDES A QUEST ION OR ASPECT AND MAKES A WRONG ASSESSMENT WHICH IS UNSUSTAINABLE IN LAW, IT CAN BE CORRECTED BY THE COMMISSIONER IN EXERCISE OF REVISIONARY POWER. AS A N INVESTIGATOR, IT IS INCUMBENT UPON THE ASSESSING OFFICER TO INVESTIGATE THE FACTS REQUIRED TO BE EXAMINED AND VERIFIED TO COMPUTE THE TAXABLE INCOME. IF THE ASSES SING OFFICER FALLS TO CONDUCT THE SAID INVESTIGATION, HE COMMITS AN ERROR AND THE WORD 'ERRONEOUS' INCLUDES FAILURE TO MAKE THE ENQUIRY. IN SUCH CASES, THE ORDE R BECOMES ERRONEOUS BECAUSE ENQUIRY OR VERIFICATION HAS NOT BEEN MADE AND NOT B ECAUSE A WRONG ORDER HAS BEEN PASSED ON MERITS. THUS, IN CASES OF WRONG OPINION OR FINDING ON MERIT S, THE CIT HAS TO COME TO THE CONCLUSION AND HIMSELF DECIDE THAT THE ORDER IS ERRONEOUS, BY CONDUCTING NECESSARY ENQUIRY, IF REQUIRED AND NECESSARY, BEFOR E THE ORDER UNDER S. 263 IS PASSED. IN SUCH CASES, THE ORDER OF THE ASSESSING O FFICER WILL BE ERRONEOUS BECAUSE THE ORDER PASSED IS NOT SUSTAINABLE IN LAW AND THE SAID FINDING MUST BE RECORDED. - CIT CANNOT REMAND THE MATTER TO THE ASSESSING OFFIC ER TO DECIDE WHETHER THE FINDINGS RECORDED ARE ERRONEOUS IN CASE S WHERE THERE IS INADEQUATE ENQUIRY BUT NOT LACK OF ENQUIRY, AGAIN THE CIT MUST GIVE AND RECORD A FINDING THAT THE ORDER/INQUIRY MADE IS ERRONEOUS. THIS CAN HAPPE N IF AN ENQUIRY AND VERIFICATION IS CONDUCTED BY THE CIT AND HE IS ABLE TO ESTABLISH AND SHOW THE ERROR OR MISTAKE MADE BY THE ASSESSING OFFICER, MAKING TH E ORDER UNSUSTAINABLE IN LAW. IN SOME CASES POSSIBLY THOUGH RARELY, THE CIT CAN A LSO SHOW AND ESTABLISH THAT THE FACTS ON RECORD OR INFERENCES DRAWN FROM FACTS ON RECORD PER SE JUSTIFIED AND MANDATED FURTHER ENQUIRY OR INVESTIGATION BUT THE A SSESSING OFFICER HAD ERRONEOUSLY NOT UNDERTAKEN THE SAME. HOWEVER, THE S AID FINDING MUST BE CLEAR, UNAMBIGUOUS AND NOT DEBATABLE. THE MATTER CANNOT BE REMITTED FOR A FRESH ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 17 DECISION TO THE ASSESSING OFFICER TO CONDUCT FURTHE R ENQUIRIES WITHOUT A FINDING THAT THE ORDER IS ERRONEOUS. FINDING THAT THE ORDER IS ERRONEOUS IS A CONDITION OR REQUIREMENT WHICH MUST BE SATISFIED FOR EXERCISE OF JURISDICTION UNDER S. 263 OF THE ACT. IN SUCH MATTERS, TO REMAND THE MATTER/ISSUE TO THE ASSESSING OFFICER WOULD IMPLY AND MEAN THE CIT HAS NOT EXAMINED AND D ECIDED WHETHER OR NOT THE ORDER IS ERRONEOUS BUT HAS DIRECTED THE ASSESSING O FFICER TO DECIDE THE ASPECT/QUESTION. THIS DISTINCTION MUST BE KEPT IN MIND BY THE CIT WH ILE EXERCISING JURISDICTION UNDER S. 263 OF THE ACT AND IN THE ABSENCE OF THE F INDING THAT THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E, EXERCISE OF JURISDICTION UNDER THE SAID SECTION IS NOT SUSTAINABLE. IN MOST CASES OF ALLEGED 'INADEQUATE INVESTIGATION', IT WILL BE DIFFICULT TO HOLD THAT T HE ORDER OF THE ASSESSING OFFICER, WHO HAD CONDUCTED ENQUIRIES AND HAD ACTED AS AN INV ESTIGATOR, IS ERRONEOUS, WITHOUT CIT CONDUCTING VERIFICATION/INQUIRY. THE OR DER OF THE ASSESSING OFFICER MAY BE OR MAY NOT BE WRONG. CIT CANNOT DIRECT RECON SIDERATION ON THIS GROUND BUT ONLY WHEN THE ORDER IS ERRONEOUS. AN ORDER OF R EMIT CANNOT BE PASSED BY THE CIT TO ASK THE ASSESSING OFFICER TO DECIDE WHETHER THE ORDER WAS ERRONEOUS. THIS IS NOT PERMISSIBLE. AN ORDER IS NOT ERRONEOUS, UNLE SS THE CIT HOLD AND RECORDS REASONS WHY IT IS ERRONEOUS. AN ORDER WILL NOT BECO ME ERRONEOUS BECAUSE ON REMIT, THE ASSESSING OFFICER MAY DECIDE THAT THE OR DER IS ERRONEOUS. THEREFORE CIT MUST AFTER RECORDING REASONS HOLD THAT THE ORDE R IS ERRONEOUS. THE JURISDICTIONAL PRECONDITION STIPULATED IS THAT THE CIT MUST COME TO THE CONCLUSION THAT THE ORDER IS ERRONEOUS AND IS UNSUSTAINABLE IN LAW. IT MAY BE NOTICED THAT THE MATERIAL WHICH THE CIT CAN RELY INCLUDES NOT ONLY T HE RECORD AS IT STANDS AT THE TIME WHEN THE ORDER IN QUESTION WAS PASSED BY THE A SSESSING OFFICER BUT ALSO THE RECORD AS IT STANDS AT THE TIME OF EXAMINATION BY T HE CIT. NOTHING BARS/PROHIBITS THE CIT FROM COLLECTING AND RELYING UPON NEW/ADDITI ONAL MATERIAL/EVIDENCE TO SHOW AND STATE THAT THE ORDER OF THE ASSESSING OFFI CER IS ERRONEOUS. 14. IN THE PRESENT CASE ON HAND, FROM THE FACTS AVA ILABLE ON RECORDS, IT IS ABUNDANTLY CLEAR THAT BAD DEBT CLAIMED BY THE AS SESSEE IS IN LINE WITH THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT AND ALSO WHICH IS SUPPORTED BY THE JUDGEMENT OF HONBLE SUPREME COURT OF INDIA IN THE CASE OF T.R.F. LIMITED (SUPRA). IN THIS VIEW OF THE MATTER AND ALSO APPLYING THE RATIOS OF THE JUDGEMENTS DISCUSSED ABO VE, WE ARE OF THE OPINION THAT THE ASSESSMENT ORDER PASSED BY THE ASS ESSING OFFICER U/S 143(3) OF THE ACT IS NOT ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THEREFORE, THE ORDER PASSE D BY THE CIT U/S 263 ITA NO.142/VIZAG/2015 G.S. ALLOY CASTINGS LTD., VIJAYAWADA 18 OF THE ACT IS NOT MAINTAINABLE. ACCORDINGLY, WE QU ASH THE ORDER OF CIT AND RESTORE THE ASSESSMENT ORDER. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 18 TH MAR16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 18.03.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT M/S. G.S. ALLOY CASTINGS LTD., D .NO.40-25-48/4, PARUCHURIVARI STREET, VIJAYAWADA-520 014. 2. / THE RESPONDENT ADDL. CIT, RANGE-2, VIJAYAWADA 3. + / THE CIT, VIJAYAWADA 4. + ( ) / THE CIT (A), VIJAYAWADA 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM