AU Small Finance Bank Limited, Jaipur V. Principal Commissioner of Income tax, Jaipur-1

ITA 203/JPR/2022

AI Insights

The case involves appeals by AU Small Finance Bank Ltd. and Avas Financiers Ltd. against the orders of the Principal Commissioner of Income Tax, Jaipur, which had invoked Section 263 of the Income Tax Act, claiming that the assessment orders were erroneous and prejudicial to the interest of the revenue. The Tribunal examined various grounds including the deductions claimed under Section 36(1)(viia)(d) for provisions for bad and doubtful debts, the computation of book profits under Section 115JB, and the claims under Section 35AC. The Tribunal found that the assessments were made after thorough inquiries and were in compliance with the applicable laws and guidelines, thus setting aside the revision orders.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132445 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 29-05-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 24-05-2022
• Other Referred Cases: Malabar Industrial Co. Ltd vs CIT, Nabha Investments (P) Ltd vs Union of India, CIT vs Gabriel India Ltd, Rajmal Kanwar vs CIT-1, Jodhpur, ITO vs D.G. Housing Projects Ltd, CIT vs HCL Comnet Systems & Services Ltd, State Bank of India vs ACIT & Ors, CIT vs Vodafone Essar South Ltd, Kannur Distt. Co-op Bank Ltd vs ACIT, Circle 2(1), Kannur
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Revision of order; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Period of limitation; Question of law; Cost of acquisition; Bad and doubtful debts; Difference of opinion; Change of opinion; Revenue expenditure; TDS; Rule 8D; Set aside
• Section: 145; 263; 10; 139; 143(3); 142(1); 14A; 115JB; 43D; 143(2); 207; 48; 13; 22

Judgement Text

vk;djvihyh; vf/kdj.k] t;iqjU;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR MkWa- ,l-lhrky{eh] U;kf;dlnL; ,oaJhjkBksMdeys'kt;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;djvihy la-@ITA. No. 203/JPR/2022 fu/kZkj.ko"kZ@AssessmentYears : 2017-18 M/s. AU Small Finance Bank Ltd. CP-3-235,Industrial Area, Apparel Park, Mahal Road, Jagatpura, Jaipurm- 302022 cuke Vs. The Pr. CIT Jaipur -1 Jaipur. LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACL 2777 N vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assessee by : Shri Sanjay Jhanwar, Sr. Advocate Shri Rajat Sharma, Advocate, Shri Prateek Sharma, CA & Ms. Shivangi Chitlangia, CA vk;djvihy la-@ITA. No. 211 /JPR/2022 & 289/JPR/2023 fu/kZkj.ko"kZ@AssessmentYears : 2017-18 & 2018-19 Avas Financiers Ltd 201-202, 2 nd Floor, Southend Square Mansarovar Industrial Area, Jaipur 303020 cuke Vs. The Pr. CIT Jaipur -1 Jaipur. LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAJCA2237 M vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assessee by : Shri Sanjay Jhanwar, Sr. Advocate Shri Rajat Sharma, Advocate, Shri Prateek Sharma, CA & Ms. Shivangi Chitlangia, CA jktLo dh vksj ls@Revenue by : Shri James Kurian, CIT lquokbZ dh rkjh[k@Date of Hearing 30/05/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 28/07/2023 ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 2 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM The above mentioned appeals have been filed by the different assessee’s against the orders of the ld. PCIT, Jaipur-1, in the matter of Section 263 of the Act as per details given hereunder:- S.N. ITA No. Name of the assesse/ party Date of Order passed by the ld. PCIT, Jaipur 1 Assessme nt year 1. 203/JPR/2022 AU Small Finance Bank Ltd. 29-03-2022 2017-18 2. 211/JPR/2022 Aavas Financiers Ltd. 29-03-2022 2017-18 3, 289/JPR/2023 Aavas Financiers Ltd. 21-03-2023 2018-19 For the sake of convenience and brevity of the case, first of all, we take up the case of the assesseee namely AU Small Finance Bank Ltd for the assessment year 2017-18. 2. The assessee has assailed this appeal on the following grounds:- ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 3 ‘’1. Under the facts and circumstances of the case and in law, Ld.PCIT, Jaipur-1 has failed to appreciate that the assessment order was neither erroneous nor prejudicial to the interest of Revenue, thus order passed u/s 263 of the Act is perverse, arbitrary, bad in law and without jurisdiction. 2. Under the facts and the circumstances of the case and in law the Ld.PCIT, Jaipur-1 has grossly erred in holding that the assessment order is erroneous and prejudicial to the interest of the Revenue without appreciating the fact that the AO, after conducting due enquiry, has rightly allowed the deduction u/s 36(1)(viia)(d) of the Act. 3. Under the facts and the circumstances of the case and in law the Ld.PCIT, Jaipur-1 has grossly erred in directing the AO for fresh assessment u/s 263 of the Act by holding that the assessment order is liable for revision u/s 263 of the Act to the extent the AO has allegedly allowed excess deduction of Rs.22.69 crores u/s 36(1)(viia)(d) of the Act. 4. Under the facts and the circumstances of the case and in law the Ld.PCIT, Jaipur-1 has grossly erred in directing the AO for fresh assessment for computation of book profit u/s 115JB of the Act even when it is admitted by the ld. PCIT itself that the computation done by the assessee is not prejudicial to the interest of the Revenue. 5. Under the facts and the circumstances of the case and in law the Ld.PCIT, Jaipur-1 has grossly erred in considering the provisions made for unascertained assets as a provision made for unascertained liability and holding that the provision made for standard, bad and not doubtful debts has to be added back while computing book profit for determination of MAT payable by invoking the clause © of Explanation 1 to Section 115JB of the Act. 6. Under the facts and the circumstances of the case and in law the Ld.PCIT, Jaipur-1 has grossly erred in directing the AO for fresh assessment even after appreciating the certificate u/s 35AC(2) of the Act, as submitted during the proceedings u/s 263 of the Act. 7. Under the facts and the circumstances of the case and in law the Ld.PCIT, Jaipur-1 has grossly erred in considering the assessment order as erroneous and prejudicial to the interest of Revenue by alleging reduction of cost of shares sold to the tune of Rs.14.93 crores even when the cost of acquisition of shares sold during the relevant assessment year is in accordance with the Act. 8. Under the facts and the circumstances of the case and in law the Ld.PCIT, Jaipur-1 has grossly erred in directing the AO for fresh assessment merely for verification of provisioning and income recognition for interest on NPA without holding the Assessment order ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 4 passed by the AO as erroneous and prejudicial to the interest of the Revenue with respect to this issue. 9. Under the facts and the circumstances of the case and in law the Ld.PCIT, Jaipur-1 has grossly erred in directing the AO for fresh assessment for verification of provisioning and income recognition for interest on NPA even when the same is done as per the RBI Policy. 10. The appellant company craves leave to add, amend and modify all or any ground of appeal on or before the date of hearing.’’ 3. The fact as culled out from the records is that the assessee company had e-filed the return of income for the assessment year 2017-18 on 31-10-2017 declaring total income at Rs.10,59,16,20,290/-. Subsequently, the case of the assessee bank was selected for scrutiny through CASS and notice u/s 143(2) of the Income Tax Act, 1961 was issued on 17-08-2018 which was duly served upon the assessee through e-file portal. Thereafter, revised return of income was filed on 13-02-201 wherein the total income was declared at Rs.10,59,16,20,290/- for claim of TDS. The assessee is a Non-Banking Finance Company which is engaged in the business of providing small loans, vehicle loans, small and medium enterprises loans in rural and semi-urban areas, issuing debentures etc. It is noted from the assessment order that due to change of incumbent, notice u/s 142(1) along with the questionnaire was issued on 9-11-2019 which was duly served upon the assessee through e-file portal. In response to this, the ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 5 assessee bank filed its reply from time to time through e-file portal. On examination of the details, replies, documents the issues on which there is a detailed observation in the order of the assessment is that the assessee has made investment in subsidiary & associates companies, on such investment the assessee earned the exempt income u/s. 10 of the Act by way of dividend. On this issue a show cause e-notice was issued on 11- 12-2019 to the assessee as to why appropriate disallowance u/s 14A r.wr. 8D should not be made for which the assessee bank filed its reply. The AO considered the reply furnished by the assessee bank but did not find the same tenable. The AO noted that it is evident that the assesse had made certain investments which would generate exempt income i.e. dividend thereon and also received exempt income during the year under consideration. The AO further noted that the assesee had also claimed some expenses which were shown as deductions from the taxable income of the assessee which according to the AO is against the basic principles of the taxation to pay tax on the net income i.e. gross income minus expenses to earn that income. The AO noted that expenses incurred can be allowed only to the extent they are relatable to the taxable income. Hence, the AO, keeping in view ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 6 the provision of Section 14A of the Act and the decision of Hon’ble Supreme Court in the case of CIT vs United General Trust Ltd. and many other decisions of the Coordinate Benches of ITAT, disallowance u/s 14A is called for. The decisions cited by the AO in his assessment order to this effect are as under:- (i) Sothern Petro Chemicals Industries (2005) 93, TTJ 161 (ii) Harish Krishnakanta Bhatt (2004) 91 ITD 311 (iii) S.G. Investments and Industries Ltd. (2004) 89 ITD 44 (iv) Everplus Securities & Finance Ltd. (2006) 285 ITR (AT) 112 The AO thus held that all expenses connected with the exempt income have to be necessarily disallowed regardless of whether they are direct or indirect, fixed or variable and managerial or financial in accordance with law. The AO thus observed that invocation of Section 14A is automatic and comes into operation without any exception as soon as dividend income is claimed exempt. The possibility of incurring certain expenditure under the head administrative expenditure for earning dividend income cannot be ruled out. The AO having regard to the accounts of the assessee of the previous yeas was not satisfied with the correctness of the claim of the assessee that the assessee had not ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 7 incurred any expenditure in relation to investments, therefore, the amount of expenditure in relation to such income is determined in accordance with the provisions of sub-rule (2) of 8D of IT Rules, 1962. Thus, the assessee is liable for disallowance u/s 14A of the Act in the light of the CBDT clarificatory Notification No. 43/2016 dated 2 nd June, 2016. Conclusively the AO worked out the disallowance of Rs.45,90,898/- u/s 14A of the Act by observing as under:- ‘’2.7 Thus total disallowance u/s 14A is worked out to Rs.45,90,898/- and the same is treated as expenditure in relation to earn exempt income. Hence, the amount of Rs.45,90,898/- is disallowed by applying provisions of Section 14A r.w. rule 8D and added back to the taxable income of the assessee.’’ Based on these observations the assessment was completed under section 143(3) of the Act on 22.12.2019. 4. On culmination of the assessment proceeding the ld. PCIT called for the assessment record. On perusal of assessment record, the ld. PCIT observed that while computing income under the head profit and gains of business & profession, assessee added back the entire amount of Rs 22.37 crore debited in books for provision: and claimed deduction of Rs 39.58 crore for provision for bad and doubtful debts u/s 36(1)(viia)(d). The actual provision ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 8 made during the FY 2016-17 was Rs 22.37 crore which includes Rs 5.48 crore for provisions against standard assets. Since the provisions of Section 36(1)(viia) are applicable for bad and doubtful debts only, provisions made against standard assets are to be excluded while computing deduction allowable u/s 36(1)(viia). Thus allowable deduction was to be restricted to Rs 16.89 crore as per CBDT instructions Thus, excess deduction claimed was required to be considered for disallowance for the year under consideration. 4.1 She further observed that under the provisions of section 115 JB of the Act, provisions made for unascertained liability debited in P&L statement, are to be added back while computing book profit for determination of MAT payable. During the assessment year under consideration, an amount of Rs 22.37 crore was debited in the P & L statement on account of provisions made for standard assets and bad and doubtful debts but the same being unascertained liability. was not added back in computing book profit. Thus, addition in book profit by Rs 22.37 crore was required to be considered which the AO failed to do. 4.2 She also noticed that in computation of income, a deduction of Rs. 60,00,000/- was claimed u/s. 35AC However, no certificate ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 9 was submitted alongwith the return of income as required under section 35AC(2) of the Income Tax Act. Thus, deduction of Rs. 60,00,000/- u/s. 35AC was required to be considered for disallowance. 4.3 On further examination of the records, she also noticed that shares of Aavas Financers Limited were sold during the year under consideration and a capital gain of Rs. 636.01crores was declared. During the year, entire holding of 3,75,83,334 equity shares and 9,00,000 bonus shares (out of 52,41,149 allotted) of Aavas Financers Ltd. were sold. While computing capital gain, entire value of Rs. 147.25 crore was taken as cost of acquisition of 3,75,83,334 original equity shares and Zero value as cost of acquisition for 9,00,000 bonus shares. However, in financial statement, cost of remaining 43,41,149 bonus shares is shown at Rs. 14.93 crore instead of zero, which was the value of original equity shares shown in the financial statement as on 31.03.2016. Thus, it appears that the amount of Rs. 14.93 crore was not taken out from financial statement and accordingly. was required to be considered for not allowing as cost of acquisition while computing capital gain. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 10 4.4 The ld. PCIT also noticed that the provision of section 43D was not applicable in assessee's case, being NBFC. In the financial statements, NPA was not categorized and depicted as per the norms laid down in RBI's master direction i.e. into substandard assets, doubtful assets and loss assets as defined and provision for the same was made as per company's own policy which was on higher side and was not in accordance with RBI's master direction dated 01.09.2016. Thus, policy adopted for provisioning and income recognition for interest on NPA, reduced the profit for the FY 2016-17 by Rs. 4.55 crore, (note 2.1 (a) (ii)),which was to be considered for addition in income computed under the head profit and gains of business and profession. 4.5 Based on these observation PCIT noted that the issues having been accepted in a manner contrary to the provision of law, the resultant order is erroneous and prejudicial to revenue and she initiated proceeding u/s. 263 and the show cause notice was issued to the assessee through ITBA on 11.03.2022. The assessee submitted reply on 23.03.2022 on each issue. The PCIT noted that the reply of the assessee was considered but not found ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 11 tenable. She also noted that the assessee stressed citing various case laws that revision proceeding should not be undertaken in the case as the order is not erroneous and prejudicial to the interest of revenue. The PCIT did not agree to the contention of the assessee taken a view that the assessing officer failed to apply his mind and failed to invoke the applicable provisions of law. This is in turn resulted in passing of an erroneous order by the Assessing Officer in the case due to non application of mind and incorrect assumption of facts which has resulted into prejudice to the interest of the revenue and therefore, liable to revision under the explanation (2) clause (b) and clause (a) of section 263 of the Act set aside the order of the assessing officer. To support her view, she has relied upon the decision of apex court in the case of Malabar Industrial Limited vs. CIT wherein the court held that “An incorrect assumption of facts or an incorrect application of law will stratify the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. 5. Feeling dissatisfied from the order of the ld. PCIT, assessee preferred this appeal as per grounds so raised and reiterated in ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 12 para 2 above. The ld. AR of the assessee in support of the grounds so raised, filed a detailed written submission which is reproduced here in below:- ‘’SUBMISSIONS TO GROUNDS OF APPEAL 1. Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has failed to appreciate that the Assessment Order was neither erroneous nor prejudicial to the interest of revenue, thus, order passed u/s 263 of the Act is perverse, arbitrary, bad in law and without jurisdiction. 1. At the very outset, it is humbly submitted that the Ld. PCIT without considering the Assessment Order passed by the Ld. AO and without going through the assessment records wherein inquiries were done in detail, has mechanically invoked the Section 263 of the Act. 2. Section 263 of the Act inter alia empowers the PCIT or Commissioner to examine the record of any proceeding under the Act and in case, it is found that the order passed the by the Ld. AO is erroneous and prejudicial to the interest of revenue, then the PCIT or Commissioner can revise such order or can direct to the AO to pass a fresh Assessment Order. The relevant extract of said section is being reproduced herein below for your ready reference: “Section 263. Revision of orders prejudicial to revenue. 1. The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.” 3. After having going through the above provision it is clear that before invoking the provision of this section following two conditions must be satisfy simultaneously: a. Order passed by the Assessing Officer is erroneous and b. Prejudicial to the interest of the revenue. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 13 4. The expression "erroneous" has not been defined in the Act. However, Black's Law Dictionary defines the word "erroneous" to mean "involving error; deviating from the law". "Erroneous assessment" refers to an assessment that deviates from the law and is, hence, invalid. The erroneous assessment pertains to a defect, which is jurisdictional in nature. 5. Further, an order cannot be termed erroneous unless it can be shown to be an order, which is not in accordance with law. If the Ld. AO, acting in accordance with law, makes certain assessment, the same cannot be termed as erroneous by the Ld. PCIT merely because she wants assessment to be in different manner. Reliance is placed on following judicial pronouncement: NABHA INVESTMENTS (P.) LTD. V. UNION OF INDIA [2000] 112 TAXMAN 465 (DELHI) “It is not necessary that every order passed by the Assessing Officer, which may result in loss of revenue, is to be treated as an erroneous order in as much as it is prejudicial to the interests of the revenue. An order is erroneous if the view taken by the Assessing Officer is not in accordance with law. If an order is in accordance with law, the decision of the ITO cannot be regarded as erroneous merely because in the opinion of the Commissioner it should have been made or written in a different manner.” J.P. SRIVASTAVA & SONS (KANPUR) LTD. VS. COMMISSIONER OF INCOME-TAX [1978] 111 ITR 326 (ALL.) “failure of the ITO to deal with the claim of the assessee in the assessment order might be an error, but an erroneous order by itself was not enough to give jurisdiction to the Commissioner to revise it under section 33B of the 1922 Act. It must further be shown that the order was prejudicial to the interests of the revenue. It is not each and every order passed by the ITO which can be revised under section 33B of the 1922 Act” Commissioner to Income-tax v. Gabriel India Ltd. [1993] 71 TAXMAN 585 (BOM.) “We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The ITO in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of the assessee. Such decision of the ITO cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard.” ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 14 6. In light of the above, the Appellant humbly submits that during the assessment proceedings, various notices were issued including notice u/s 143(2) of the Act dated 27.09.2019 and 09.11.2019 was issued by the Ld. AO specifically asking for information in order to verify the genuineness of expenses debited to P&L A/c and deductions from total income. Also, other detailed information/question/enquiry/reports were asked for by the Ld. AO. The copy of the abovementioned notices is being annexed at Page no. 30 to 33 and 34 to 37 of paper book for your reference. 7. In response to such notices, reply in detail dated 14.11.2019 was filed by the Appellant wherein each and every question raised by the Ld. AO was answered and later on verified by Ld. AO himself. The copy of the reply dated 14.11.2019 is annexed at Page no. 38-48 of paper book. Thereafter, the Ld. AO asked further information in various notices which were duly submitted by the Appellant. 8. Therefore, it is humbly submitted that the Ld. AO after conducting inquiry and after going through the details/information in as much as after verifying the documents produced for verification regarding expenses and deductions took a plausible view for making assessment after accepting the claim of the Appellant. Further, for passing the assessment order Ld. AO also complied with the requisite procedure to be followed by him as per Income Tax Act. Hence, it is evident that the Ld. AO passed an order in accordance with the law and thus, it cannot be termed as erroneous. 9. It is pertinent to mention here that the first notice of the assessment proceedings u/s 142(1) of the Act was issued on 17.08.2018 whereas assessment was completed and assessment order was passed on 22.12.2019 which clarify that ample time was taken by the Ld. AO to analyze, check and verify the assessment documents/ details in all aspects. In this regard, the copy of the assessment order is being enclosed at page no. 49 to 54 of paper book. 10. Furthermore, Explanation 2 to Section 263 provides for 4 clauses when the assessment order shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue. However, it is humbly submitted that the Ld. PCIT has not identified and highlighted the specific clause of the Explanation 2 which is attracted in the present case. Yet in this regard, the Appellant humbly submits that the Ld. AO collected necessary details, examined the same and then finalized the assessment u/s 143(3) of the Act. Undisputedly, necessary details/reply to the questionnaires was filed/produced by the Appellant and the same were examined by the Ld. AO, therefore, it is not a case of wherein the assessment is carried out without ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 15 inquiries or verification as the Ld. AO has made detailed inquiries through multiple notices. Hence, once the Ld. AO has made such inquiries, the Ld. PCIT has grossly erred in invoking the powers u/s 263 as it is a settled law that no revision order can be passed by the Ld. PCIT u/s 263 of the Act, where on part of the Ld. AO detailed enquiry has already been made. For this proposition, reliance can be placed on following judicial pronouncements: Commissioner of Income tax, Central-III v. Nirav Modi [2017] 291 CTR 245 (Bombay) “Once the Assessing Officer was satisfied with regard to the same, there was no further requirement on the part of the Assessing Officer to disclose his satisfaction in the Assessment Order passed thereon. Thus, this objection on the part of the Revenue, cannot be accepted.” Commissioner of Income tax v. Baboori Fibres Ltd [2014] 51 taxmann.com 530 (Allahabad) “By considering the totality of the facts and circumstances of the case, we are satisfied that the A.O. has made necessary inquiry while passing the fresh assessment order in pursuance to the direction issued by the C.I.T. (A). When it is so then there was no occasion for the C.I.T. to pass an order under section 263 of the Act. Therefore, we find no reason to interfere with the impugned order passed by the Tribunal, the same is hereby sustained along with the reasons mentioned herein.” Commissioner of Income-tax v. Sunbeam Auto Ltd [2010] 189 Taxman 436 (Delhi) “There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reasons in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. One has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was any inquiry, even inadequate, that would not, by itself, give occasion to the Commissioner to pass orders under section 263 merely because he has different opinion in the matter.” Anand Poddar v. Assistant Commissioner of Income-tax, Circle - 4, Guwahati [2013] 33 taxmann.com 367 (Guwahati - Trib.) ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 16 “Where there is any inquiry, even inadequate, it will not give jurisdiction to Commissioner to pass revisionary order merely because he has a different opinion on matter.” Small Wonder Industries vs. CIT-24, Mumbai ITANo.2464/Mum/2013 “There is a distinction between “lack of enquiry” and “inadequate enquiry”. If the AO has called for the necessary details and the assessee has furnished the same, the fact that the AO is silent in the assessment order does not mean that he has not applied his mind so as to justify exercise of revisional powers by the CIT u/s 263.” 11. It is reiterated that, during the assessment proceedings the Ld. AO has made detailed inquiries and verification and the assessment order was passed by the Ld. AO taking the view in the light of relevant law applicable in this regard. However, the different view being taken by the Ld. PCIT on the same issue, cannot be basis to invoke provisions of section 263 of the Act. The Appellant, for this purpose, places reliance on the following judicial precedents:- Commissioner of Income-tax v. Gokuldas Exports [2011] 333 ITR 214 (Karnataka) “By a long catena of judgments of various High Courts and the Supreme Court, it is too well settled that if in the given facts and circumstances of the case, two views are possible and one view has been adopted by the Assessing Officer, then that alone would not be sufficient to exercise the powers under section 263 of the Act by the Commissioner of Income-tax.” Commissioner of Income-tax v. Srinivasa Hatcheries (P.) Ltd. [2015] 60 taxmann.com 207 (Andhra Pradesh and Telangana) “The principle governing the exercise of power in a revision was taken note of. The principle is to the effect that where two views of a particular aspect are possible, for an Income-tax Officer, and he has chosen one, the Commissioner cannot reopen the matter on the ground that another view is possible.” 12. Furthermore, the second limb to invoke Section 263 of the Act is that the order passed by the Assessing Officer should be “prejudicial to the interests of the revenue”. Therefore, the said limb ought to be understood so as to understand what can be classified as ‘prejudicial to the interests of revenue’. As the said phrase hasn’t been defined under the law, legal ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 17 precedents may be perused regarding the same. Some relevant extracts have been reproduced hereunder: The judgement of Delhi High Court in the case of P.C. Puri v. CIT [1984] 18 Taxman 158 (Delhi) [23.02.1984] wherein it was held that: Though not defined, the term 'prejudicial to the interests of the means that the lawful revenue due to the State has not been realised. [Para 6] 13. Thus, in view of the above all the submissions made, it is evident that detailed inquires and requisites notices as prescribed by law have been issued to the Appellant by Ld. AO, in response to which necessary documents have been furnished by the Appellant during the assessment proceedings which have been examined and verified by AO. Further, the recorded issues ain’t also prejudicial to the interests of revenue as they have been based on factual misunderstanding. Thus, the case of the Appellant neither falls within the ambit of the “erroneous” nor in so far as “prejudicial to the interest of revenue” as mentioned in the Section 263 of the Act. Therefore, it is evident that the Ld. PCIT has legally erred in holding that the impugned assessment order was erroneous and prejudicial to the interest of revenue. Hence, the impugned order u/s 263 is without jurisdiction and not maintainable. 2. Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in holding that the Assessment Order is erroneous and prejudicial to the interest of the revenue without appreciating the fact that the Ld. AO, after conducting due enquiry, has rightly allowed the deduction u/s 36(1)(viia)(d) of the Act. Facts in Brief: 1. The Appellant, being an erstwhile non-banking finance company, was eligible to claim deduction u/s 36(viia)(d) of the Act while computing its income under the head business and profession during the relevant assessment year. Having done so, the Appellant duly claimed a deduction of Rs. 39.58 crores under Section 36(1)(viia)(d) of the Act being provision for bad and doubtful debts created for the year AY 2017-18. Thereafter, during the assessment proceedings conducted under Section 143(3) of the Act, Ld. AO sought explanation about the deductions claimed in Schedule BP of the return vide Show Cause Notice (SCN) dated 09.11.2019 issued u/s 142(1) of the Act and notice dated 27.09.2019. The information sought through the said SCN, included, inter-alia, the quantum and eligibility of the deduction allowable u/s 36(1)(viia)(d) of the Act. Notice dated 27.09.2019 Verification if Genuineness of Expenses ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 18 Claim of any other amount allowable as Deduction in Schedule BP Notice dated 09.11.2019 “Justify the large claim of “any other amount allowable as deduction” claimed in Schedule BP of return” . 2. Thereafter, the Appellant explained the amount claimed as deduction under the said section at length vide reply dated 14.11.2019. Notice issued u/s 142(1) of the Act and the response duly submitted in this regard have been annexed in the Paper Book at Page No. 30 to 48. Further, the relevant extract of the reply is as reproduced below: d. Deduction for Provision for Bad and Doubtful assets as per sec. 36(1) (viia)(d): Rs. 39,58,47,267 As per section 36(1) (viia)(d) of the Income Tax Act, 1961, the deduction is allowable to a non-banking financial company, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A). The Assessee has made provision according to the RBI Guidelines and Provisions of Income Tax Act, 1961. Detail and Calculation of the same is endorsed as Annexure-6. AU Small Finance Bank (Formerly known as AU Financiers (India) Limited) AY 2017-18 Computations of Deductions u/s 36(1)(viia)(d) ANNEXURE 6 Particulars Amount (Rs.) Gross Total Income 10603651386 Add: Deductions u/s 36(1)(viia)(d) 395847264 10999498650 5% of the above 549974932.5 Deduction claimed by the Assesse Company to the extent of fresh provisions made during the year 395847264 AU Small Finance Bank (Formerly known as AU Financiers (India) Limited) AY 2017-18 ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 19 Movement of Provision for FY 16-17 Particulars (Rs. In lacs) Opening provision as at 01-Apr-2016 2,734.23 Converted into regular or provision reduced -621.79 Converted into written off -1,048.09 Loans closed during FY 16-17 -617.83 Fresh addition during FY 16-17 3,958.47 Movement of Provision for FY 16-17 4,405.00 Allegation by Ld. PCIT: 3. Ld. PCIT issued a Show Cause Notice dated 11.03.2022 alleging that the quantum of the deduction is in excess of the permissible amount of deduction u/s 36(viia)(d) of the Act. Relevant extract of the said notice has been reproduced hereunder: 2. On examination of the submissions made during assessment proceedings, it is noticed that provision of Rs. 22.37 crores was made in the books of accounts as seen from note 25 of the P&L statements for the year under consideration. This provision included Rs. 5.48 crores for provisions against standard assets. It has been found that while computing income under the head profit and gains of business & profession, deduction of Rs. 39.58 crore for provision for NPA and standard assets was claimed. The allowable deduction u/s. 36(1)(viia) as per CBDT instruction was to be restricted at Rs. 16.89 crores only as provisions of section 36(i)(viia) are applicable for bad and doubtful debts only, provisions made against standard assets are to be excluded while computing deduction allowable u/s. 36(1)(viia). Thus, deduction of Rs. 22.69 cr. was required to be considered for disallowance for the year under consideration. Submissions before Ld. PCIT: 4. That the amount of deduction claimed under the said section ought to be the actual amount of provision created during the year. 5. That CBDT Instruction No. 17/2008 dated 26.11.2008 (F. No. 228/3/3008 – ITA-III) along with the related judicial pronouncements have been interpreted in their true sense by the Appellant. Findings of Ld. PCIT As per the assessee’s own submission, Opening Balance of Provision for bad and doubtful debts as on 01.04.2016 was Rs. 27.34 cr. and closing balance of Provision for bad and doubtful debts as on ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 20 31.03.2017 was Rs. 44.05 cr. So, the provision created during the year under consideration is Rs. 16.71 crores only. The assessee has submitted that since the deduction for bad and doubtful debts which was not allowed to the assessee till F.Y. 2015-16, reversal of provision was created in earlier years, should not be brought to F.Y. 2016-17 also does not hold ground as every year is separate year for the assessment purpose and this would not allow assessee to claim the provisions disallowed in the earlier years. Also, any deduction claimed has to be passed through P&L account, and except weighted deduction, no deduction is allowable more than what has been entered in the books of account. The assessee in its books has created a provision of Rs. 16.89 crores only for bad and doubtful debts and is claiming deduction of Rs. 39.58 crores, which is not allowable in any manner as per the Income Tax Act. The A.O. was required to disallow this excess deduction claimed on provision of bad and doubtful debts, which he failed to do, makes the order erroneous and prejudicial to the interest of revenue. SUBMISSIONS 6. At the outset, the Appellant humbly submits that the Ld. AO had sceptically enquired about the deduction claimed vide Notice dated 09.11.2019 to which a detailed reply was submitted by the Appellant vide reply dated 14.11.2019, thus, the deduction under Section 36(1)(viia)(d) of the Act was duly examined and verified by the Ld. AO and was undisputedly allowed while passing the Order u/s 143(3) of the Act. The said claim of ‘undisputedly allowing’ the said deduction may be substantiated through the Assessment Order dated 22.12.2019 wherein the Ld. AO has mentioned that: “The reply furnished by the assessee has been considered........” 7. It is pertinent to note that the Ld. AO has taken consideration of the submissions made by the Appellant specifically with respect to claim of deduction under Section 36(1)(viia) and made no addition in the relevant section to the returned income. Therefore, it can be drawn that the matter in the case was decided by the Ld. AO by duly applying his mind and examining the information and documents placed before him and thereafter, the proceedings have been concluded by deciding that the deduction u/s 36(1)(viia)(d) of the Act has been aptly claimed and no addition has to be made in this regard. 8. It is pertinent to note that the Assessment Orders ought to necessarily deal only with the claims being disallowed and not with the claims being allowed and thus, where in case, a thorough inquiry has been conducted on the deductions claimed by the assessee and the same has not been negated ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 21 in the final order, it simply implies that the Assessing Officer concurs with the claim made by the assessee and thus, no disallowance has been made in this regard. The said contention can be substantiated by Hon’ble High Court of Gujarat in the case of Commissioner of Income-Tax Vs. Nirma Chemicals Works P. Ltd. (2009) 222 CTR 593 (Guj) [04.02.2008], wherein it was held that: “The contention on behalf of the Revenue that the assessment order does not reflect any application of mind as to the eligibility or otherwise under section 80-I of the Act requires to be noted to be rejected. An assessment order cannot incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic tome. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the Assessing Officer, considering the workload that he carries and the period of limitation within which an order is required to be made; and, secondly, the order is an appealable order. An appeal lies, would be filed, only against disallowances which an assessee feels aggrieved with. As far as absence of discussion in the assessment order is concerned, this is what has been laid down by this court in the case of Rayon Silk Mills v. CIT, [1996] 221 ITR 155 (page 158): “In the first instance it was contended by learned counsel for the assessee that the very premise on which order under section 263 was made against the assessee, namely, that the Income-tax Officer has not at all examined the goodwill account is not existent. According to him, it is apparent from the record that the goodwill account was thoroughly examined by the Income-tax Officer before making the assessment and after examining When he accepted the contention of the assessee its discussion did not find place in the assessment order, as no additions were going to be made or no modifications in the return filed by the assessee were required to be made in that regard. This contention of the assessee appears to be well-founded. It is true that the assessment order does not speak about the examination of goodwill account as such. However, as we have noticed above, the assessee in his reply to the show cause notice under section 263 had specifically mentioned that the entire matter was scrutinised and accepted while passing the assessment order.” [Para 21 & 22] Rayon Silk Mills Versus Commissioner of Income-Tax. (1996) 221 ITR 155 [09.11.1995] The judgement of Hon’ble High Court of Bombay in the case of State Bank of India vs. Assistant Commissioner of Income tax and Ors. [2019] 411 ITR 664 (Bom) [15.06.2018] wherein it was held that: ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 22 “Moreover, the Assessment order in regular assessment proceedings in terms disallowed some of the claims made for deduction under Section 143(3) of the Act. Therefore, in the present facts, we are prima-facie of the view that, the Assessing Officer has by necessary implication allowed the claim. Moreover, the basic document for completing the assessment under Section 143(3) of the Act is the computation of income. Therefore, to the extent the claims made for deduction in the computation of come, were disallowed by the Assessing Officer, discussion on the same is found in the assessment order. It is an accepted position that the assessment orders would necessarily deal only with the claims being disallowed and not with the claims being allowed. This is for the reason as observed by the Gujarat High Court in CIT Vs. Nirma Chemicals Ltd. MANU/GJ/0136/2008 : 309 ITR 67, that if the Assessing Officer was to deal with all the claims which were to be allowed in the assessment order, the result would be an epitome. This is so, as it would cast an impossible burden upon the Assessing Officer considering his workload and the period of limitation. There was also no reason in the present facts for the Assessing Officer to ask any queries in respect of this claim of the petitioner, as the basic document viz. computation of income at note 21 (Assessment Year 2013-14) and note 22 (Assessment Year 2014-15) thereof explained the basis of the claim being made to the satisfaction of the Assessing Officer. Thus, it must necessarily be inferred that the Assessing Officer has applied his mind at the time of passing an assessment order to this particular claim made in the basic document viz. computation of the income by not disallowing it in proceedings under Section 143(3) of the Act as he was satisfied with the basis of the claim as indicated in that very document. Therefore, where he accepts the claim made, the occasion to ask questions on it will not arise nor does it have to be indicated in the order passed in the regular assessment proceedings. Thus, issuing the impugned notices on the above ground would, prima-facie, amount to a change of opinion.” [Para 6] 9. In the present case, the assessment proceedings have been diligently conducted based on cogent arguments, thus, the Ld. PCIT had no jurisdiction to initiate the revisionary proceedings when the Ld. AO has already framed an opinion on the given facts. Rather, assuming power to revise the well-opined assessment order shall mean change of opinion and in no case, can a proceeding be initiated on account of change of opinion. The noble courts of our country at various instances have held that if the assessing officer have passed an order after making an inquiry and after carefully examining the replies of the assessee with proper application of mind, it must not be treated as a case of “no inquiry” and the proceeding u/s 263 of the said Act cannot ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 23 take place. And the order should not be subject to revision just because another view is possible on the issue inquired by the AO. The said contention may be substantiated by the following judgements:  The Hon’ble High Court of Delhi in the case of Commissioner of Income-tax v. Vodafone Essar South Ltd. 2012] 28 taxmann.com 273 (Delhi) [20.11.2012] held that: “It is well settled that if there is some enquiry by the Assessing Officer in the original proceedings even if inadequate that cannot clothe the Commissioner with jurisdiction under section 263 merely because he can form another opinion.” [Para 10] “In the instant case, the assessee was specifically queried regarding the nature and character of the one-time regulatory fee paid by it as well as the bank and stamp duty charges. A detailed explanation and other documents required by the Assessing Officer were produced at the stage of original assessment......Clearly this was not a case of 'no enquiry'. The lack of any discussion on this cannot lead to the assumption that the Assessing Officer did not apply his mind. The proceeding in fact shows that the Assessing Officer directed his mind specifically on this aspect and then concluded that the expenditure was in the revenue field.... The Commissioner did not specifically furnish any reasons to say why the original assessment order was unsupportable in law.” [Para 11]  The Hon’ble High Court of Delhi in the case of Commissioner of Income-tax v. Anil Kumar Sharma [2010] 194 Taxman 504 (Delhi) [24.02.2010] held that: “In view of the above discussion, it is apparent that the Tribunal arrived at a conclusive finding that, though the assessment order does not patently indicate that the issue in question had been considered by the Assessing Officer, the record showed that the Assessing Officer had applied his mind. Once such application of mind is discernible from the record, the proceedings under section 263 would fell into the area of the Commissioner having a different opinion. We are of the view that the findings of facts arrived at by the Tribunal do not warrant interference of this Court. That being the position, the present case would not be one of 'lack of inquiry' and, even if the inquiry was termed as inadequate, following the decision in Sunbeam Auto Ltd.'s case (supra), "that would not by itself give occasion to the Commissioner to pass orders under section 263 of the said Act, merely because he has a different opinion in the matter". No substantial question of law arises for our consideration. Consequently, the appeal is dismissed.” [Para 7]  Commissioner to Income-tax v. Gabriel India Ltd. (Supra) ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 24 “We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The ITO in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of the assessee. Such decision of the ITO cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard.”  Commissioner of Income-tax v. Sunbeam Auto Ltd (Supra) “There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reasons in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. One has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was any inquiry, even inadequate, that would not, by itself, give occasion to the Commissioner to pass orders under section 263 merely because he has different opinion in the matter.” 10. Therefore, despite no identifiable procedural obstruction, the Ld. PCIT assumed its jurisdiction to direct for revision of the assessment order in light of deduction claimed by the Appellant u/s 36(1)(viia)(d) of the Act which was already identified and examined at length by the Ld. AO. Thus, it is humbly submitted that in no manner can the said assessment proceedings be treated as ‘erroneous and prejudicial to the interests of the revenue’. Hence, the order passed by the Ld. PCIT is liable to be quashed. 3. Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in directing the Ld. AO for fresh assessment u/s 263 of the Act by holding that the Assessment Order is liable for revision u/s 263 of the Act to the extent the Ld. AO has allegedly allowed excess deduction of Rs. 22.69 crores u/s 36 (1)(viia)(d) of the Act. 1. Without prejudice, even after assuming the jurisdiction for revision under Section 263 of the Act, it is humbly submitted that the Ld. PCIT has wrongly computed the deduction claimed under Section 36(1)(viia)(d) of the Act. Section 36(1)(viia) provides for allowance of any provision made for bad and doubtful debts by certain entities, as mentioned therein. Clause (d) to the said Section came into force with effect from A.Y. 2017- ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 25 18 vide Finance Act, 2017 which provided that from then on, the non- banking finance companies would be allowed to claim deduction u/s 36(1)(viia)(d) of the Act to the extent of 5% of the Total Income, for the said sub-clause total income shall be computed before making deduction under this clause and Chapter VI-A. Thus, before A.Y. 2017-18, provisions made for bad and doubtful debts by non-banking finance company were not allowed as deduction while computing income under the business and profession and the assessment year under consideration was the first year from which the said allowance of deduction could be claimed. 2. Therefore, in order to quantify the amount of deduction u/s 36(1)(viia)(d) of the Act, the Appellant did the following computation: Particulars Amount (Rs. in Lacs) Gross Total Income prior to deduction under chapter VI-A 1,06,036.50 Add: Deduction claimed by the Company u/s 36(1)(viia)(d) 3,958.47 Gross Total Income prior to deduction u/s 36(1)(viia)(d) and under chapter VI-A 1,09,995.00 Computation @ 5% of total income 5,499.75 Movement of Provision for FY 16-17 Particulars (Rs. In Lacs) Opening provisions as at 01-Apr-2016 2,734.23 Converted into regular or provision reduced -621.79 Converted into written off -1048.09 Loans closed during FY 16-17 -617.83 Fresh addition during FY 16-17 3958.47 Movement of Provision for FY 16-17 4,405.00 3. In this regard, Balance Sheet and P&L Account along with Notes is annexed at Page No. 6-29 of the Paper Book. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 26 4. The said computation has already been furnished before the Ld. AO and Ld. PCIT. However, Ld. PCIT failed to acknowledge the basis of the computation made by the Appellant and has grossly erred in computing the amount of deduction allowable u/s 36(1)(viia)(d) of the Act, wherein, he has wrongly computed the said amount by netting the opening balance of the provision with the closing balance of the provision without considering the amount of provision created/fresh addition during the respective year. 5. The said mechanism of netting of the provision created towards bad and doubtful debt is sheer misinterpretation of law and the same may be substantiated through profuse judgements. Reliance is placed on Judgement pronounced by Hon’ble ITAT Cochin Bench in case of Kannur Distt. Co-op Bank Ltd. v. Assistant Commissioner of Income-tax, Circle - 2(1), Kannur, [2012] 20 taxmann.com 667 (Coch.). The Hon’ble ITAT while dealing with the deductions to be claimed under section 36(1)(viia) of the Act has held that the provision for bad and doubtful debts newly created during the year under consideration should be allowed without netting off. The ITAT has held as under: “The decision to create a provision for bad and doubtful debts is taken on the basis of the quality of 'advances and debts' as are available at the end of a particular year. Similarly, the decision to write back the provision or reverse the provisions that were created in earlier years is taken on the basis of the recovery pattern of the 'advances and debts', against which the provision was created in earlier years. Thus, both the decisions are taken on the basis of different set of facts and, hence, both the decisions constitute independent decisions, which are not related to each other. Hence, the provision for bad and doubtful debts newly created during the year under consideration should not be netted against the amount written back or reversed”. However, there might be a situation that the provision created for a particular debt needs enhancement and in that situation, only the enhanced amount should be treated as the new provision for the purpose of sec. 36(1)(viia) of the Act. We shall explain this proposition with the following example. Name of Debt/ Advance Amount Outstanding Provision as on 1.4.06 New Provision Provision reversed. Person A 50,000 Nil 15000 -- Person B 60,000 6000 8000* 6000* Person C 70,000 14000 -- 10000 20,000 23,000 16,000 Net Provision 7,000 ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 27 (* Additional Provision of Rs.2000/-. In this type of cases, netting off is required) In the above example, the new provision created appears to be Rs. 23,000/-. However, the new provision actually created is only Rs. 17,000/- (i.e. Person A - Rs. 15,000/- and Person-B - Rs. 2,000/-). Hence the claim of quantum of new provision made by the assessee, needs verification at the end of the AO. If the assessee has created a new provision on a particular asset by fully reversing the opening balance of provision relating to that asset, then the net accretion should only be treated as new provision. As stated earlier, it is only an academic exercise in the facts and circumstances of the instant case, which may be carried out if the situation warrants.” 6. Further, Hon’ble ITAT in case of Asstt. Director of Income-tax, Circle-1(1), (Intl. Tax), New Delhi v. Bank of Tokya Mitsubishi UFJ Ltd., I.T.A.No.1525/Del/2010, held that: “The write back on account of the provisions for bad and doubtful debts could not be charged to tax. Further, the provision for bad and doubtful debts were offered by the assessee for tax. Deduction u/s 36(1)(viia) is a statutory deduction which is allowed on certain percentage of advances or total income assessed, on an ad-hoc basis. This, obviously, cannot be linked with any specific amount of provision for bad and doubtful debts written back” 7. Accordingly, considering the above judgment in the case of Kannur Distt. Co-op Bank Ltd. (Supra) it is humbly submitted that the observation of the Ld. PCIT is not maintainable, and the Appellant has rightly claimed the deduction of Rs. 39.58 Cr towards provision for bad and doubtful debt newly created during the AY 2017-18. 8. Also, the Ld. PCIT has grossly erred in considering the provision for standard asset of Rs. 5.48 Cr for reducing the allowable provision even when the Appellant has itself not claimed the provision on standard assets as deduction in the income tax computation. CBDT Instruction No. 17/2008 dated 26.11.2008 9. Further, reference has been made to the CBDT Instruction No. 17/2008 dated 26.11.2008 (F. No. 228/3/3008 – ITA- III) that was issued to ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 28 provide the Assessing Officers with necessary instructions for completing the assessment of the ‘Banking Companies’. The same can be observed from the extract reproduced from the said circular: “In a recent review of assessment of Banks carried out by C&AG, it has been observed that while computing the income of banks under the head 'Profit and Gains of Business & Profession', deductions of large amounts under different sections are being allowed by the Assessing Officers without proper verification, leading to substantial loss of revenue. It is, therefore, necessary that assessments in the cases of banks are completed with due care and after proper verification. In particular, deductions under the provisions referred to below should be allowed only after a thorough examination of the claim on facts and on law as per the provisions of the Income-tax Act, 1961 :” 10. As the Appellant was operating as a NBFC during the A.Y. 17-18, in the absence of any ambiguity, it can be clearly opined that the said instructions were not applicable on it for the year under consideration. 11. Notwithstanding the above, we wish to submit that the even though the said instructions aren’t relevant, the Appellant has duly complied with it while computing the deduction under Section 36(1)(viia) of the Act. The relevant extract of the aforesaid instructions has been reproduced below: “(iii) Section 36(2)(viia) (a) of the Act provides that in respect of any provisions for bad and doubtful debts of the type referred to in that sub-clause made by a bank, an amount not exceeding 5 percent upto 31st March 2003 and thereafter 7.5. percent of the total income (computed before making any deduction under this clause and Chapter VIA of the Act) and an amount not exceeding 10 percent of the aggregate average advances made by ‘rural branches’ of such banks computed in the manner prescribed under the Income Tax Rules, 1962, shall be allowed as deduction. For this purpose — (a)......... (b) “The deduction for provision for bad and doubtful debts should be restricted to the amount of such provision actually created in the books of the assessee in the relevant year or the amount calculated as per provisions of section 36(1)(viia), whichever is less”. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 29 12. Distinctly, it may be comprehended that the said section read with the instructions allows for the deduction of actual provision created during the year or the maximum permissible limit as mentioned in the Section 36(1)(viia)(d) of the Act, whichever is less. There can be no two ways of analyzing the ‘Actual’ provision created and it certainly cannot be netted with the reversal of the opening balance of the said provision. Therefore, it is humbly submitted that the provision of Rs. 39.58 Crore, i.e. actual provision created during the year, is rightly allowed to the Appellant. No double deduction as Opening Balance not allowed in earlier years 13. Without prejudice to the above, it is humbly submitted that the concept of netting off is not specified under Section 36(1)(viia) and is only applied to avoid the double deduction of provision allowed as expense in the earlier years. 14. However, in the present case it is humbly submitted that the amount of opening balance of the provision was not allowed as deduction in the year of creation of the said provision as the year under consideration was the first year in which the deduction under Section 36(1)(via) become applicable on the Appellant. 15. Therefore, the purpose of netting off is not attracted in the present case and if netting off is done legal claim will be denied to the Appellant. Hence, the observations of the Ld. PCIT is devoid of any substance and legal backing. Conclusion 16. Thus, on the basis of our submissions and at the cost of repetition, we humbly submit that firstly, Ld. PCIT wrongly assumed his jurisdiction in a case where a properly opined order was passed by the Ld. AO and was neither erroneous nor prejudicial to the interests of revenue. Thereafter, he has also grossly erred in interpretation of law without paying attention to the judicial pronouncements and the instructions issued by CBDT. Hence, the order passed by the Ld. PCIT is liable to be quashed. 4. Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in directing the Ld. AO for fresh assessment for computation of book profit u/s 115JB of the Act even when it is admitted by the Ld. PCIT itself that the computation done by the assessee is not prejudicial to the interest of the revenue. AND Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has made a factual error in considering the provisions made for unascertained assets as a provision made for unascertained liability and holding that the provision made for ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 30 standard, bad and doubtful debts has to be added back while computing book profit for determination of MAT payable by invoking the Clause (c) of Explanation 1 to Section 115JB of the Act. Facts in Brief: 1. The Appellant was liable to compute the book profits as required under Section 115JB of the Act. In doing so, as required by clause (a) of the Explanation 1 to the said section, the Appellant increased the book profit by the amount of income tax paid and provision thereof. Allegation by Ld. PCIT: 2. In the Show Cause Notice dated 11.03.2022, Ld. PCIT alleged that the provisions made for unascertained liability debited in the statement are to be added back while computing the book profit for determination of MAT payable. Relevant clause of the said notice has been reproduced hereunder: “Further, under the provisions of section 115 JB of the Act, provisions made for unascertained liability debited in P & L statement, are to be added back while computing book profit for determination of MAT payable. During the assessment year under consideration, an amount of Rs 3.82 crore was debited in the P & L statement on account of provisions made for standard assets and bad and doubtful debts but the same being unascertained liability, was not added back in computing book profit. Thus, addition in book profit by Rs 3.82 crore was required to be considered.” Submissions before Ld. PCIT: 3. That the Appellant will still be liable to pay the taxes under the normal provisions of the Act as MAT will still be lower than the normal tax liability paid. Findings of Ld. PCIT: Relevant extract of the impugned Order passed u/s 263 has been reproduced hereunder: B:- Second issue :- Provisions for unascertained liabilities not added back while computing book profit under section 115JB of the Act :- (a) Under the provisions of section 115 JB of the Act, provisions made for unascertained liability debited in P & L statement, are to be added back while computing book profit for determination of MAT payable. During the assessment year under consideration, an amount of Rs 22.37 crore was debited in the P & L statement on account of provisions made for standard assets and bad and doubtful debts but the same being unascertained liability, was not added back in computing book profit. (b) The assessee’s submission in this regard has been considered but found partly correct only. The assessee’s contention can be considered that for the year under consideration, normal tax liability ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 31 of the assessee company was higher than the MAT tax liabilty, so the order on this issue may not be considered prejudicial to the interest of revenue. However, as discussed above, the order on this issue is also held as erroneous as provisions made for unascertained liability debited in P & L statement, are to be added back while computing book profit for determination of MAT payable, which the AO failed to do. SUBMISSIONS 4. With regard to the MAT computation, it is humbly submitted that even though the addition with respect to provisions, as alleged by the Ld. PCIT, is made to the Book profits then also it would yield no good as the tax liability computed as per the normal provisions of the Act is greater than that computed as per Section 115JB of the Act. The same has been submitted to the Ld. PCIT and has also been computed hereunder: Particulars Amount (in Crores) Profit as per Profit and Loss Account 821.98 Additions: Income-tax under section 40A(a)(ii) 314.94 Deferred Tax liability 6.43 Provisions for unascertained liabilities 22.37 Book profits for computing MAT under the provisions of section 115JB of the Act 1165.72 Tax computed @18.5% on book profits 215.66 Tax computed as per the normal provisions of the Act 261.90 5. The said submission was duly acknowledged by the Ld. PCIT wherein it held that: “(b) The assessee’s submission in this regard has been considered but found partly correct only. The assessee’s contention can be considered that for the year under consideration, normal tax liability of the assessee company was higher than the MAT tax liabilty, so the order on this issue may not be considered prejudicial to the interest of revenue. However, as discussed above, the order on this issue is also held as erroneous as provisions made for unascertained liability debited in P & L statement, are to be added back while computing book profit for determination of MAT payable, which the AO failed to do.” 6. Therefore, at the cost of repetition, it is humbly submitted that an order has to be both ‘erroneous’ and ‘prejudicial to the interests of revenue’, in order to invoke the powers vested u/s 263 of the Act, as discussed supra. In the ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 32 present case, as Ld. PCIT has admitted that the said ground has no impact that could be prejudicial to the interests of revenue. Therefore, in light of the judgement of J.P. SRIVASTAVA & SONS (KANPUR) LTD. (Supra), it is humbly submitted that the revisionary powers vested under the Section 263 cannot be invoked in the present case as twin conditions are not satisfied i.e. the issue is not prejudicial to the interest of revenue as admitted by the Ld. PCIT. 7. At this juncture, the term ‘liability’ may be understood to have an imperative importance and thus, the same may be understood from the Accounting framework which defines the said term under para 10.2 of the Accounting Standard (AS) 29 and para 10 of the Indian Accounting Standard (Ind AS) as: “A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.” [ Para. 10.2, Accounting Standard (AS) 29] “A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.” [Para.10, Indian Accounting Standard (Ind AS) 37] From the above definitions, it is crystal clear that if an item has to be categorized as a liability then there has to be “present obligation”. For the said purpose, it becomes inevitable to analyse the meaning of the term ‘present obligation’, the said has also been defined in the AS and Ind AS, as reproduced hereunder: “An obligating event is an event that creates an obligation that results in an enterprise having no realistic alternative to settling that obligation.” [S. 10.3 Accounting Standard (AS) 29] “An obligating event is an event that creates a legal or constructive obligation that results in an entity having no realistic alternative to settling that obligation.” [S. 10 Indian Accounting Standard (Ind AS) 37] 8. On perusal of the said definitions, it can be clearly understood that for an item to be classified as ‘a liability’, there has to be a present obligation which ought to be settled. As in the present case, the provision is being made towards debtors which implies that there is no obligation in the hand of the Appellant rather it is an obligation of the debtor to pay off the dues, thus, in no manner can it be construed that the the provision made for debtors is a provision made towards liability, rather, it is a provision made for an asset. 9. Without prejudice to the above, it is humbly submitted that Section 115JB of the Act provides for a mechanism for computation of Book profits ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 33 which is deemed to be total income of the assessee for the purpose of computing MAT payable. For the said computation, Explanation 1 to the said section categorically provides for certain additions and reductions to be made from the Book profit. In the present case, Ld. PCIT has not explicitly mentioned the clause which she has perused to alleging addition to the Book Profits, however, the expressions used in the order indicate that Ld. PCIT has erroneously invoked clause (c) of Explanation 1 to the said section. 10. The Ld. PCIT has alleged that the amount of Rs. 22.37 crores was debited in the P&L statement on account of provisions made for standard assets and bad and doubtful debts but the same being unascertained liability was not added back in computing book profit. At this juncture, it is humbly submitted that the provision made for an asset cannot coined as an ‘unascertained liability’. And the same may be substantiated by the following legal precedent: The Hon’ble Supreme Court of India in the case of Commissioner of Income-tax, Delhi v. HCL Comnet Systems & Services Ltd [2008] 174 Taxman 118 (SC) [23.09.2008] held that: “As stated above, the said Explanation has provided six items, i.e., Item Nos. (a) to (f ) which if debited to the profit and loss account can be added back to the net profit for computing the book profit. In this case, we are concerned with Item No. (c) which refers to the provision for bad and doubtful debt. The provision for bad and doubtful debt can be added back to the net profit only if Item (c) stands attracted. Item (c) deals with amount(s) set aside as provision made for meeting liabilities, other than ascertained liabilities. The assessee's case would, therefore, fall within the ambit of Item (c) only if the amount is set aside as provision; the provision is made for meeting a liability; and the provision should be for other than ascertained liability, i.e., it should be for an unascertained liability. In other words, all the ingredients should be satisfied to attract Item (c) of the Explanation to section 115JA. In our view, Item (c) is not attracted. There are two types of "debt". A debt payable by the assessee is different from a debt receivable by the assessee. A debt is payable by the assessee where the assessee has to pay the amount to others whereas the debt receivable by the assessee is an amount which the assessee has to receive from others. In the present case "debt" under consideration is "debt receivable" by the assessee. The provision for bad and doubtful debt, therefore, is made to cover up the probable diminution in the value of asset, i.e., debt which is an amount receivable by the assessee. Therefore, such a provision cannot be said to be a provision for liability, because even if a debt is not recoverable no liability could be fastened upon the assessee. In the present case, the debt is the amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 34 to be a provision for liability. Therefore, in our view Item (c) of the Explanation is not attracted to the facts of the present case. In the circumstances, the Assessing Officer was not justified in adding back the provision for doubtful debts of Rs. 92,15,187 under clause (c) of the Explanation to section 115JA of the 1961 Act.” [Para 8] 11. Accordingly, it is humbly submitted that the revisionary powers vested under the Section 263 cannot be invoked in the present case as twin conditions are not satisfied i.e. the issue is not prejudicial to the interest of revenue as admitted by the Ld. PCIT. 5. Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in directing the Ld. AO for fresh assessment even after appreciating the certificate u/s 35AC(2) of the Act, as submitted during the proceedings u/s 263 of the Act. Facts in Brief: 1. The Appellant had claimed a deduction u/s 35CA of the Act. Further, the provisions of Section 35AC(2) provides for furnishing of Form 58A along with return of income. As the online portal restricts filing of documents along with the return, the said form was furnished as and when questioned. Allegation by Ld. PCIT 4. Also, it is noticed that in computation of income, a deduction of Rs. 60,00,000/- was claimed u/s. 35AC . However, no certificate was submitted alongwith the return of income as required under section 35AC(2) of the Income Tax Act. Thus, deduction of Rs. 60,00,000/- u/s. 35AC was required to be considered for disallowance. Submissions before Ld. PCIT 2. That Online portal does not permit filing of other documents including Form 58A with the return of income, therefore, the same was not submitted before the Ld. AO. 3. That as per Circular No. 09/2006 directs that at the time of filing the return of income, it cannot be accompanied by other documents. Findings of Ld. PCIT The relevant extracts from the impugned order have been reproduced hereunder: 3. The reply of the assessee may be considered tenable to some extent. However, the certificate regarding deduction under section ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 35 35AC(2) of the Income Tax Act was required to be verified/enquired by the AO during assessment proceedings, which he failed to do. The assessment order passed by the AO is held erroneous on this issue also. SUBMISSIONS 4. Section 35AC of the Act provides for allowance of expenditure incurred on eligible projects or schemes. Sub-section (2) of the said section states that the said deduction shall be allowed on furnishing of a certificate from an accountant. However, sub-rule (2) of Rule 12 of Income-tax Rules, 1962 (‘the Rules’) provides that the return of income shall not be accompanied by any documents or a copy of any account or form or report of audit required to be attached with return of income under any of the provisions of the Act. Relevant extracts of the same have been reproduced hereunder: (2) The return of income required to be furnished in Form SAHAJ (ITR-1) or Form No. ITR-2 or Form No. ITR-3 or Form SUGAM (ITR-4) or Form No. ITR-5 or Form No. ITR-6 or Form No. ITR-7 shall not be accompanied by a statement showing the computation of the tax payable on the basis of the return, or proof of the tax, if any, claimed to have been deducted or collected at source or the advance tax or tax on self-assessment, if any, claimed to have been paid or any document or copy of any account or form or report of audit required to be attached with the return income under any of the provisions of the Act: 5. The same can also be substantiated with certain extracts from Circular No. 9/2006: (iii) These returns are not to be accompanied with any other document including any statutory form or report of audit (other than the report under section 92E) which is otherwise requiredto be furnished before the due date or along with the return for making any claim. The provisions of the law shall be deemed to have been complied with in respect of the requirement of the filing of the attachments or documents or reports along with the return. No penalty shall be initiated/ levied for not furnishing such documents. 6. Therefore, on conjoint reading of the extracts reproduced, it may be drawn that as due to technicalities of the portal, it wasn’t possible to furnish the certificate along with the return and the said prescribed conditions mentioned in the deductions shall be deemed to have been complied. Thus, where the Appellant has been a true compliant in the eyes of law, it is against the natural justice to revise a duly complied assessment proceeding. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 36 7. Moreover, Ld. PCIT has unwarrantedly invoked powers vested u/s 263 of the Act as in the said ground he has not substantiated the said order as prejudicial to the interests of the revenue. Relevant extracts from the Order u/s 263 of the Act has been reproduced hereunder: “The assessment order passed by AO is held erroneous on this issue also.” 8. Also, it is humbly submitted that the Ld. PCIT has grossly erred in issuing the direction for fresh assessment even when the required certificates were available on record itself for verification. The said certificates are annexed at Page No. 103-109 of the Paper Book. 9. Therefore, the very jurisdiction assumed by Ld. PCIT is bad in law, as the twin conditions as mandated in the case of Malabar Industrial Co. (Supra) have not been satisfied and it is beyond doubt that the order of the Ld. AO is not prejudicial to the interest of revenue. 2. Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in considering the Assessment Order as erroneous and prejudicial to the interest of revenue by alleging reduction in cost of shares sold to the tune of Rs. 14.93 crores even when the cost of acquisition of shares sold during the relevant assessment year is in accordance with the Act. Facts in Brief 1. During the year under consideration, the Appellant held shares of Aavas Financiers of 3,75,83,334 equity shares and 52,41,149 bonus shares were also received from Aavas Financiers Limited during May 2016. 2. Thereafter, the Appellant sold 3,84,83,334 equity shares during the previous year 2016-17 and declared a capital gain of Rs. 636.01 crores. Allegations by Ld. PCIT “During the year, entire holding of 3,75,83,334 equity shares and 9,00,000 bonus shares ( out of 52,41,149 allotted) of Aavas Financer Ltd. were sold. While computing capital gain, entire value of Rs. 147.25 crore was taken as cost of acquisition of 3,75,83,334 original equity shares and Zero value as cost of acquisition for 9,00,000 bonus shares. However, in financial statement, cost of remaining 43,41,149 bonus shares is shown at Rs. 14.93 crore instead of zero, which was ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 37 the value of original equity shares shown in the financial statement as on 31.03.2016. Thus, it appears that the amount of Rs. 14.93 crore was not taken out from financial statement and accordingly, was required to be considered for not allowing as cost of acquisition while computing capital gain” Submissions before Ld. PCIT 3. That Ld. PCIT has factually erred in computing the cost of acquisition of the shares sold and has assorted the concepts of accounting with that of provisions prescribed under the Act. Findings of Ld. PCIT “The reply of the assessee has been considered but not found tenable as in computation of capital gain, cost of acquisition was to be considered at average cost i.e. on the same principal adopted by the assessee, as the amount of Rs. 14.93 crore was not taken out from the financial statements. 1. As envisaged in para 14 & 17 of AS 13, the carrying amount of investments is the lower of the cost and fair value and long term investments are usually carried at cost. 2. Thus, amount of 14.93 crore was not to be retained in the financial statements as this pertains to non-current investments i.e. long-term investments as per company’s policy. Further carrying cost of remaining bonus shares 4341149 was to be taken ‘Zero’ current investments (held for less than one year). As envisaged in para 21 of AS 13 on disposal of an investment, the difference between the carrying amount and the disposal proceeds, net of expenses, is recognized in the profit and loss statements. In this case, difference of carrying amount( Rs. 153.99 crore for original holding of 37583334 shares) and the disposal proceeds (809.41 crore) was Rs. 655.42 crore instead of 670.35 shown as exceptional item in the statement of Profit Loss. Thus, capital gain was under computed by Rs. 14.93 crore by the AO, hence, the order is held erroneous and prejudicial to the revenue on this issue also.” SUBMISSIONS 4. Section 45 of the Act provides for chargeability of tax on transfer of capital Assets. For the said purpose, Section 45(2A) of the Act read with CBDT Circular No. 768, dated 24-6-1998 provide that the cost of acquisition in case of DEMAT shares shall be determined on the basis of first in first out method. Relevant extracts from the said literature have been reproduced hereunder: “Section 45 (2A) Where any person has had at any time during previous year any beneficial interest in any securities, then, any ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 38 profits or gains arising from transfer made by the depository or participant of such beneficial interest in respect of securities shall be chargeable to income-tax as the income of the beneficial owner of the previous year in which such transfer took place and shall not be regarded as income of the depository who is deemed to be the registered owner of securities by virtue of sub-section (1) of section 10 of the Depositories Act, 1996, and for the purposes of— (i) section 48; and (ii) proviso to clause (42A) of section 2, the cost of acquisition and the period of holding of any securities shall be determined on the basis of the first-in-first-out method.” CIRCULAR NO. 768,DATED 24-6-1998 This sub-section provides that for the purposes of calculating the date of transfer and period of holding in respect of shares held in dematerialised form, the FIFO method would apply. 5. On perusal of the said section and circular, it may be drawn that in the present case where the Appellant has been holding the shares bought for consideration and the bonus shares received, the primary holding i.e., the shares held by the Appellant before the allotment of bonus shares shall be considered to be sold first from the entire bunch. In the year under consideration, the Appellant had transferred a total 3,84,83,334 shares during the A.Y. 2017-18, out of which 3,75,83,334 shares were the total original shares held by the Appellant and the balance 9,00,000 shares were the Bonus shares. Consequently, the Appellant, at the end of A.Y. 2017-18, held remaining 43,41,149 bonus shares. 6. The said 43,41,149 bonus shares held by the Appellant at the end of the year shall be considered to have a ‘Nil’ cost of acquisition as per Section 55(2)(aa)(iiia) of the Act while computing the taxability under the head Capital Gain. However, the said shares shall be recognized differently in the Books of Accounts i.e., as prescribed under Accounting Standard 13 (‘AS-13’). AS-13 deals with the Accounting for Investments. As per the provisions of AS-13, the cost of investments to be disposed have to be computed at the average carrying amount of the total holding of the investment. Relevant portion of the said AS has been reproduced hereunder: As per Para 22 of the AS-13: “When disposing of a part of the holding of an individual investment, the carrying amount to be allocated to that part is to be determined on the basis of the average carrying amount of the total holding of the investment”. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 39 7. Ld. PCIT has grossly erred in puzzling the cost computed as per the Accounting Standards with that of provisions of Income-tax Act. Thus, the carrying amount of INR 14.93 crores (approx.) shown as cost of investment in financial statement as on 31 March 2017 is nothing but the cost which is derived as per average carrying amount and not as per the actual cost of acquisition of bonus shares i.e., “Nil”. The computation as per AS-13 has been summarized hereunder: Particulars Number of shares Cost of acquisition (in INR Crores) Average cost / share Total cost (INR in Crores) Original Shares 37583334 147.25 39.18 147.25 Bonus Shares 5241149 - 34.38 Shares sold (both bonus shares and original shares) 38483334 NA 34.38 (132.30) Balance shares left 4341149 - 34.38 14.93 8. Therefore, the facts and figures assumed by the Ld. PCIT are completely inappropriate as the recognition of cost of shares in the Books of Accounts has to be in accordance with the Accounting Standards whereas for the purpose of chargeability of tax, the same has to be in compliance with the provisions of the Income-tax Act. And as explained above, the cost of the said shares shall be considered as zero and the cost of acquisition of the shares transferred has been rightly computed on FIFO basis for the purpose of income tax computation wherein the entire cost of acquisition of the original holding has been considered alongside the Nil value of bonus shares sold. 9. Accordingly, it is humbly submitted that the Ld. AO has thought through the facts and very appropriately applied the law while passing the order, thus, order of the Ld. AO is not erroneous or prejudicial to the interest of revenue. Therefore, Ld. PCIT had no jurisdiction to invoke powers vested u/s 263 of the Act as the twin conditions of Section 263 are not fulfilled, especially, when the very basis of the allegation put by the Ld. PCIT is factually incorrect. 3. Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in directing the Ld. AO for fresh assessment merely for verification of provisioning and income ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 40 recognition for interest on NPA without holding the Assessment Order passed by the Ld. AO as erroneous or prejudicial to the interest of the revenue with respect to this issue. AND Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in directing the Ld. AO for fresh assessment for verification of provisioning and income recognition for interest on NPA even when the same is done as per the RBI policy. FACTS IN BRIEF 1. The Appellant is engaged in lending activities, had obtained its license from Reserve Bank of India (‘RBI’) to operate as a non-deposit accepting Non-Banking Financials Company (NBFC-ND) on 7 November 2000 vide certificate of registration no. B-10-00139 while the Financial Statements of the Appellant have been prepared in accordance with generally accepted accounting principles in India (Indian GAAP). The Appellant has prepared the Financials statements to comply in all materials respects with the Accounting Standards under section 133 of the Companies Act, 2013 (‘the Act’), read with Rule 7 of the Companies (Accounts) Rules, 2014; the Companies (Accounting Standards) Amendment Rules, 2016 and the provisions of the RBI as applicable to a Systemically Important Non- Deposit taking Non-Banking Financial Company (NBFC-ND-SI). Allegation by Ld. PCIT Relevant extracts from the SCN dated 11.03.2022 has been reproduced hereunder: 6. It has also been noticed that the provision of section 43D was not applicable in your case, being NBFC. In the financial statements, NPA was not categorized and depicted as per the norms laid down in RBI's master direction i.e. into substandard assets, doubtful assets and loss assets as defined and provision for the same was made as per company's own policy which was on higher side and was not in accordance with RBI's master direction dated 01.09.2016. Thus, policy adopted for provisioning and income recognition for interest on NPA, reduced the profit for the FY 2016-17 by Rs. 4.55 crore, (note 2.1 (a) (ii)) ,which was to be considered for addition in income computed under the head profit and gains of business and profession. Submissions before Ld. PCIT 2. That NPAs have been categorized and presented as per norms laid down by RBI and accordingly the provisions for NPAs have been made in compliance with RBI. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 41 Findings of Ld. PCIT Thus, it is apparently clear that the bank has not change any of its accounting policy, the bank has only highlighted the impact of the change notified by the RBI. The Bank is constantly following same method of accounting as mentioned in the Section 145 of the Income Tax Act”. 1. The reply of the assessee is considered and apparently appears to be acceptable. However, the same is requires verification. SUBMISSIONS 3. At the outset, it is pertinent to note that Section 43D, at which the Ld. PCIT has assumed jurisdiction to analyse the income recognition on NPAs is not applicable on the Appellant for the year under consideration and the same has been admitted by the Ld. PCIT while passing the order. Relevant extract has been reproduced hereunder: “6. It has also been noticed that the provision of section 43D was not applicable in your case, being NBFC. In the financial statements, NPA was not categorized and depicted as per the norms laid down in RBI's master direction i.e. into substandard assets, doubtful assets and loss assets as defined and provision for the same was made as per company's own policy which was on higher side and was not in accordance with RBI's master direction dated 01.09.2016. Thus, policy adopted for provisioning and income recognition for interest on NPA, reduced the profit for the FY 2016-17 by Rs. 4.55 crore” 4. Without prejudice, it is hereby submitted that the Appellant, being registered with the RBI is bound to comply with the recognition norms of RBI Master Direction DNBR.PD.008/03.10.119/2016-17 dated September 01,2016 which states that Income including interest/ discount/ hire charges/ lease rentals or any other charges on NPA shall be recognised only when it is realized. Further, any income from a NPA may be recognised before the asset becomes non-performing and remaining unrealized shall be reversed. The Appellant has also followed the same income recognition norms, and yet it has been alleged by Ld. PCIT in the notice dated 11.03.2022 that the Appellant has not adopted the policy of income recognition from NPA in accordance with RBI's master direction dated 01.09.2016. Relevant extract of the said notice has been reproduced hereunder: “6. It has also been noticed that the provision of section 43D was not applicable in your case, being NBFC. In the financial statements, NPA was not categorized and depicted as per the norms laid down in RBI's master direction i.e. into substandard assets, doubtful assets and loss assets as defined and provision ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 42 for the same was made as per company's own policy which was on higher side and was not in accordance with RBI's master direction dated 01.09.2016. Thus, policy adopted for provisioning and income recognition for interest on NPA, reduced the profit for the FY 2016-17 by Rs. 4.55 crore, (note 2.1 (a) (ii)) , which was to be considered for addition in income under the head profit and gains of business and profession.” 5. Hence, the jurisdiction assumed by the Ld. PCIT is itself on factually incorrect data. It can also be inferred that the Ld. AO made no mistake in passing the Assessment Order and when the said order was not erroneous, the assumed jurisdiction by the Ld. PCIT is bad in law. 6. Further, the accounting policies adopted in the preparation of the financial statements are consistent with those of previous years. Moreover, the impact highlighted in the annual report of the bank is to highlight the impact of the change notified by the RBI vide Notification DNBR.009/ CGM(CDS)-2015 dated March 27, 2015. As per the above notification, RBI has asked NBFC to systematically reduce the overdue period for identification of NPA, extract of the said notification is reproduced below for your kind reference. “(xix) “non-performing asset” (referred to in these Directions as “NPA”) means: (a) an asset, in respect of which, interest has remained overdue for a period of six months or more; (b) a term loan inclusive of unpaid interest, when the instalment is overdue for a period of six months or more or on which interest amount remained overdue for a period of six months or more; (c) a demand or call loan, which remained overdue for a period of six months or more from the date of demand or call or on which interest amount remained overdue for a period of six months or more; (d) a bill which remains overdue for a period of six months or more; (e) the interest in respect of a debt or the income on receivables under the head ‘other current assets’ in the nature of short term loans/advances, which facility remained overdue for a period of six months or more; (f) any dues on account of sale of assets or services rendered or reimbursement of expenses incurred, which remained overdue for a period of six months or more; Provided that the period of ‘six months or more’ stipulated in sub- clauses (a) to (f) shall be ‘five months or more’ for the financial ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 43 year ending March 31, 2016; ‘four months or more’ for the financial year ending March 31, 2017 and ‘three months or more’, for the financial year ending March 31, 2018 and thereafter” 7. Accordingly, in regard with the RBI vide Notification DNBR.009/ CGM(CDS)-2015 dated March 27, 2015 and RBI Master Direction- Non- Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 issued vide Master Direction DNBR.PD.008/03.10.119/2016-17 dated September 01,2016, the Bank has revised its estimates of provisioning for loan portfolio and impact of the same has been disclosed in Notes to the financial statements vide para 2.1 (a) (ii) as follows: 2.1(a) (ii) Change in provisioning for loan portfolio With effect from April 1, 2016, the Company has revised its estimates of provisioning for loan portfolio, in line with the requirements of the Master Direction DNBR.PD.008/03.10.119/2016-17 dated September 01, 2016. As a result of such change profit of current year is lower by 455.31 lacs (including the effect of income reversal on non performing assets). 8. Thus, it is very `clear that the Appellant has not changed any of its accounting policy, rather, it has only highlighted the impact of the change notified by the RBI. It is imperative to note that the Appellant has constantly followed the same method of accounting as mentioned in the Section 145 of the Income Tax Act. 9. Here it is humbly submitted that the above position of the facts is also accepted by the Ld. PCIT in the order, even then she has directed the Ld. AO for fresh assessment for conducting fishing inquiries which is against the very purpose of Section 263. 10. Therefore, it is humbly submitted that the observations of the Ld. PCIT is factually and legally incorrect and the order of the Ld. AO is neither erroneous nor prejudicial to the interest of revenue. Hence, the order passed by the Ld. PCIT is liable to be quashed. 4. The appellant Company craves leave to add, amend and modify all or any ground of appeal on or before the date of hearing.’’ ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 44 5.1 In addition to the written submission, the ld. AR of the assessee has relied upon the various case laws relating to the contentions raised in the written submission and the list of the other material relied upon as listed here in below: 1. Malabar Industrial Co. Ltd vs CIT 243 ITR 83 (SC) 2. Nabha Investments (P) Ltd, vs Union of India [2000] 112 taxman 465 (Delhi). 3. CIT vs Gabriel India Ltd. [1993] 71 Taxman 585 (Bom.) 4.Rajmal Kanwar vs CIT-1, Jodhpur [2016] 182 TTJ 69 (Jaipur Trib) 5.ITO vs D.G. Housing Projects Ltd. [2012] 343 ITR 329 (Del.) 6. CIT vs Nirav Modi [2017] 291 CTR 245 (Bom.) 7. Flextronics Software Systems Ltd. vs CIT [2010] 128 TTJ 107 (Delhi) 8. P.C. Puri vs CIT [1984] 18 Taxman 158 (Del) 9. J.P. Srivastava & Sons (Kanpur) Ltd vs CIT [1978] 111 ITR 326 (All.) 10. CIT vs Nirmal Chemicals Works (P) Ltd. [2009] 222 CTR 593 (Guj.) 11. State Bank of India vs ACIT & Ors [2019] 411 ITR 664 (Bom.) 12. CIT vs Vodafone Essar South Ltd [2012] 28 taxmann.com 273 (Del.) 13. Kannur Distt. Co-op Bank Ltd vs ACIT, Circle 2(1), Kannur[2012] 20 Taxmann.com 667 (Coch) 14. CBDT Instruction No. 17/2008 dated 26-11-2008 (F.No. 228/3/3008 – ITA-III) 15. CIT vs HCL Comnet Sytesm Ltd. [2008] 174 Taxman 118 SC 16. Rule of Income Tax Rules, 1962 17. CBDT Circular No.9/2006 dated 10-10-2006 18. Zenith Processing Mills Ltd. vs CIT- MANU/GJ/0049/1955 19.CBDT Circular No. 768 dated 24-06-1998 20. Director of Income Tax vs Jyoti Foundation [013] 357 ITR 388 (Del.) 21. Patel L &T Consortium [2016] 65 taxmann.com 48 (Mum.) 22. Sri Mahalakshmi Finance Corpn. Vs ITO 19 ITD 494 (Hyd.)’’ 5.3 The ld. AR of the assessee has relied upon the following evidences to support the contentions raised in this appeal ‘’1. Copy of return of income filed u/s 139 of the Income Tax Act. 2. Copy of computation of returned income. 3. Copy of the audited balance sheet & P&L of the appellant 4. Copy of the notice dated 27-09-2019 issued u/s 143(2) of the Act. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 45 5. Copy of notice dated 09-11-2019 issued u/s 143(2) of the Act. 6. Copy of the reply dated 4-11-2019 filed by the appellant in response to notice dated 09-11-2019 issued u/s 143(2) of the Act. 7. Copy of assessment order dated 22-12-2019 passeed u/s 143(3) of the Act. 8. Copy of show cause notice dated 11-03-2022 by ld. PCIT 9. Copy of reply dated 22-03-2022 filed by the appellant in response to the notice dated 11-03-2022. 10. Copy of order dated 29-03-2022 passed u/s 263 of the Act. 11. Copy of certificates u/s 35AC in Form 58A.’’ 5.4.1 The ld. AR of the assessee in addition to the above written submission, evidences and judicial decision relied upon submitted that while invoking the provision of section 263 of the Act, the twin condition is required to be satisfied which not fulfilled in this case. On the issue observed by the ld. PCIT the sufficient enquiry has already been done by the assessing officer and as regards the debatable issue the ld. AO has taken a plausible view of the matter and for that matter the ld. PCIT cannot invoke the provision of section 263 of the Act. To support this view of the matter and to support the grounds based on the decision relied upon he has summarized the brief in respect of all the grounds and the same is reproduced here in below: Issue Ld. PCIT Summary of Grounds Judgements Paper Book Reference ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 46 Genera l AO has failed to apply his mind + invoke applicable provisions of law a. Twin conditions not satisfied. b. Sufficient enquiry by Ld. AO + detailed submissions made. c. On debatable issues, a plausible view has been opined by the AO. a. Landmark (Twin Cond. + Prejudicial + Two Views):Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) b. Debatable Issue:Flextronics Software System Ltd. [2009] 28 SOT 371 (Delhi) c. Nirav Modi [2017] 291 CTR 245 (Bombay) d. P.C. Puri v. CIT [1984] 18 Taxman 158 (Delhi) PCIT Observation in 263 Order: Page 96 Section 36(1)(v iia)(d) Erro neou s and prej udici al a. AO failed to disallow the excess deduction claimed. b. The deduction u/s 36(1)(viia)(d) w.r.t. provision for bad and doubtful debts ought to be restricted to Rs. 16.89 crores instead of Rs. 39.58 crores. c. He considered only the closing – opening balance for computing deduction. d. For establishing the said computation, CBDT Instruction No. 17/2008 has been perused. a. Sufficient Enquiry by Ld. AO + detailed submissions made. b. Debatable Issue + ITAT Favorable judgments c. Accordance with Law as Provision created has been claimed. d. CBDT Instruction not applicable to NBFC, despite that, it has been complied with. e. Netting off made applicable to avoid double deduction, that is not the case. a. No 263 in case of Enquiry& Reply:Gabriel India Ltd. [1993] 71 Taxman 585 (Bom.) b. Vodafone EssarSouth Ltd. 2012] 28 taxmann.com 273 (Delhi) [20.11.2012] c. Rajmal Kanwar[Jaiput ITAT] d. Nirma Chemicals Works P. Ltd. (2009) 222 CTR 593 (Guj) [04.02.2008] ------- e. Correct claim u/s 36(1)(viia)(d):Kannur Distt. Co- op Bank Ltd. f. No 263 ifAccordance with Law: Nabha Investments (P.) Ltd. (Del. HC) g. No 263 in Debatable Issue:Flextronics Software System Ltd. [2009] 28 SOT 371 (Delhi) h. View of AO in case of Two Views:Malabar Industrial Co. Ltd. i. CBDT Instruction No 17/2008 dated 26.11.2008 Enquiry Notices at Page 30 and 34 Enquiry Reply at Page 38 Provision in Financials: Page 23 pf Paper Book Section 115JB Erro neou s a. Admitted that not prejudicial. b. Provision for standard, bad and doubtful debts are provisions made for unascertained liability and should be added back while computing the Book profit u/s 115JB.ee a. Twin Conditions not satisfied. b. Not Prejudicial to the Interest of Revenue as Normal Tax higher than MAT. c. Provision for bad and doubtful debts is a provision made for an asset. a. Twin Conditions/Not Prejudicial:Malabar Industrial Co. Ltd. (Supra) b. MAT Clause not applicable:HCL Comnet Systems & Services Ltd [2008] 174 Taxman 118 (SC) [23.09.2008] - Section 35AC Erro neou s a. Not held as Prejudicial. b. Form 58A should have been called for by AO. a. Twin Conditions not satisfied. b. No application of mind by Ld. PCIT even when Certificate submitted. c. Not Prejudicial to the interest of revenue d. Certificate not attached in accordance with Rule 12. e. Clerical/Procedural Point a. Twin Conditions not substantiated: Malabar Industrial Co. Ltd. (Supra) b. Inquiry required by PCIT:Jyoti Foundation [2013] 38 taxmann.com 180 (Delhi) c. Certificate to be examined by PCIT: Zenith Processing v. CIT MANU/GJ/0049/1995 Certificates at Page 103 of Paper Book Cost of Acquisi tion of Shares Sold Erro neou s and Prej udici al a. That the capital gain on shares of Aavas sold during the year have been under computed by Rs. 14.93 crores. b. Cost of Acquisition of shares sold a. Wrong Assumption of facts. b. Books maintained as per AS and it cannot be mixed with the IT Act. c. Section 45(2A) + Circular 768 requires a. No 263 if Accordance with Law: Nabha Investments (P.) Ltd. (Del. HC) b. Circular 768 dated 24.06.1998 c. Factual Misunderstanding: Patel L and T Consortium [2016] 65 taxmann.com 48 (Mumbai) d. Sri Mahalakshmi Finance Corp. - ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 47 5.4.2 So far as ground no 2 & 3 raised by the assessee the ld. AR of the assessee submitted that the assessee company was a non- banking financial company till A. Y. 2017-18 and was converted into a bank relevant to A. Y. 2018-19 as precisely it was converted into a bank on 13.04.2017. Based on these facts the governing guideline for the year under consideration shall be considered as applicable to a non-banking financial company. So far as regards the deduction for provision for Bad and Doubtful assets as per section 36(1)(via)(d) for an amount Rs. 39,58,47,267/-, the same is expressly shown in the computation of income. Not only that assessee on being asked has submitted reply in the assessment proceeding (APB-460 vide reply dated 14.11.2019). Based on this submission the ld. AO taken a plausible view of the matter should be reduced by 14.93 crores as the Financials indicate the said amount as value of the balance shares retained (bonus shares). to determine the shares sold on FIFO basis. d. Cost of Acquisition of Bonus shares is to be taken as zero [Section 55(2)(aa)(iiiia)]. [1986] 19 ITD 494 (Hyd.) Provisi oning and Income Recogn ition of Interest on NPA Not class ified a. Considered assessee’s reply acceptable and also that the Bank has not changed the accounting policy. b. Did not substantiate the order as erroneous or prejudicial. c. Remanded back the order merely for verification. a. The reply has been considered and accepted. b. Jurisdiction assumed on factually incorrect data. c. Remanded back for mere verification without proclaiming as erroneous or prejudicial. a. Twin Conditions not substantiated: Malabar Industrial Co. Ltd. (Supra) b. Finding Necessary:Gabriel India Ltd. [1993] 71 Taxman 585 (Bom.) c. No 263 if Accordance with Law: Nabha Investments (P.) Ltd. (Del. HC) - ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 48 therefore, the observation is nothing but a review of the assessment order without pin pointing any specific defects. To support this contention the ld. AR of the assessee relied on the decision of the Bombay High Court in the case of Gabriel India Limited, the relied upon part of the judgment is reproduced here in below. ‘’We may now examine the facts of the present case in light of the powers of the Commissioner set out above. The ITO in the case had made inquiries in regard to the nature of the expenditure incurred by the assessee. The assesee had been given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of the assessee. Such decision of the ITO cannot be held to be ‘’erroneous’ simply because in his order he did not make elaborate discussion in that regard [para 14]’’ Not only that the ld. AR of the assessee submitted that the similar issue was raised by the PCIT, in the order passed u/s. 263 of the Act an assessment order is passed on 25.03.2023 (in the case of Aavas Financiers Ltd) consequent to the order of the PCIT wherein it is held that the view taken by the PCIT was incorrect. The relevant finding of the NeAC in this regard is reproduced here in below : ‘’it is pertinent to note that since the deduction of provision for bad & doubtful debt was not allowed to the assessee till AY 2016-17, reversal of provision which was created in earlier years should also not be brought to tax in year under consideration. The Ld. PCIT has erred by netting off the provision and taxing the past year's provision in the year of reversal. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 49 Accordingly, In light of the above judgments it is humbly submitted that the observation of the 14. PCTT is not maintainable, and the assessee has rightly claimed the deduction of Rs. 3.65 Cr towards provision for bad and doubtful debt newly created during the AY 2017- 18. Even the Ld. AO has correctly allowed the deduction under section 36(1)(viia) of the Act. CBDT Instruction No. 17/2008 dated 26 November 2008 Further, inference has been made to the CBUT Instruction No. 17/2008 dated 26.11.2008 (F No /3/3008-ITA-III) that was issued in provide the Assessing Officers with necessary instructions for completing the assessment of the Wanking Companies. The same can be observed from the extract produced from the said circulat: "In a recent review of assessment of Banks carried out by C&AG, it has been observed that while computing the income of banks under the head Profit and Gains of Business & Profession deduction of large amounts under different sections are being allowed by the Assessing Officers without proper verification, leading to substantial loss of revenue. It is therefore necessary that assessments in the cases of hanks are completed with due care and after proper verification. In particular, deductions under the provisions to below should be allowed only after a through examination of the claim on facts and on law as per the provisions of the Income tax Act, 1961’’  As the assessee was operating as a NBFC during the AY, 17-18, in the absence of any ambiguity, It can be clearly opined that the said instructions were not applicable on it for the year under consideration.  Notwithstanding the shove, we wish to submit that the even though the said instructions aren't relevant, the assessee has duly complied with it while computing the deduction under Section 36(1)(viia)(d) of the Act.  Distinctly, it may be comprehended that the said section read with the instructions allows for the deduction of actual provision created during the year or the maximum permissible limit as mentioned as in the Section 36(1)(viia)(d)) of the Act, whichever is less. There can be no two ways of analysing the Actual provision created and it certainly cannot be setted with the opening balance of the said provision. The assessee has claimed deduction under section (d) of the Act within the permissible limit. The claims is not prejudicial to the interest of revenue.  Thus on the basis of our submissions and at the cost of repetition, we humbly submit that firstly ld. PCIT wrongly assumed his jurisdiction in a ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 50 case where a properly opined order was passed by the ld. AO and was neither erroneous and prejudicial to the interest of revenue. Thereafter she has also grossly erred in interpretation of law without paying attention to the judicial pronouncements and instructions issued by CBDT. Hence, the revision order under section 263 is not maintainable and liable to be reversed.’’ 5.4.3 In the ground no. 4 & 5 the assessee has challenged taking the contention of the PCIT that book profit u/s. 115JB of the Act is not correctly calculated. On this fact of the case the ld. AR of the assessee submitted the observation of the PCIT at page 24 of his order which itself proves that the order on this aspect of the case is neither erroneous nor prejudicial to the interest of the revenue. The said finding is reiterated here in below: (b) The assessee’s submission in this regards has been considered but found partly correct only. The assessee’s contention can be considered that for the year under consideration normal tax liability of the assessee company was higher than the MAT tax liability. Thus, when the view taken by the AO is neither prejudicial nor erroneous action of the PCIT on this count is also not correct. 5.4.4 So far as ground no. 6, the PCIT has contended the as the ld. AO has not verified the claim of the assessee along with the certificate for claim of deduction for a sum of Rs. 60,00,000/- u/s. 35AC of the Act. On this issue the ld. PCIT noted that “the reply of the assessee may be considered tenable to some extent. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 51 However, the certificate regarding deduction u/s. 35AC(2) of the Act was required to be verified / enquired by the AO during the assessment proceeding.” This finding itself shows that on this aspect even though the certificate placed before her could not establish that on this issue the order is prejudicial and erroneous and require to invoke the provision of section 263 of the Act. 5.4.5 The Fourth issue that the PCIT has observed and contended in ground no. 7 by the assessee is calculation of cost of Original Shares and Bonus share calculated in books based on the applicable accounting standard whereas the same has been calculated in the computation of income based on the applicable provision of the Act as given in section 45(2A) & section 55(2)(aa)(iiia). The capital gain is to be calculated on FIFO basis and accordingly in fact there is no error or prejudicial and computation of capital gain is made in accordance with the law. 5.4.6 The ground no. 8 & 9 relates to the issue of NPA provisioning. On the issue of NPA provisioning the ld. PCIT observed that “The reply of the assessee is considered and apparently appears to be acceptable. However, the same require ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 52 verification.” The observation itself suggest that the order is neither prejudicial nor erroneous on this count also. 6. On the other hand, ld. DR representing the Revenue has supported the order of the ld. PCIT and precisely relied upon the following finding of the PCIT: ‘’6. The reply of the assessee has been considered but not found tenable. The assessee has stressed citing various case laws that revision proceedings should not be undertaken in the case as the order is not erroneous and prejudicial to revenue, The same is not found true as the same will be discussed, in the paras below. Further, the assessee has submitted issue wise reply which is being discussed as under:- A-First issue:- Deduction under section 36(1)(viia)(d) of the Act- 1. On perusal of the notes to the financial statements for the year under consideration, as seen from note 25 of the P&L statement, provision made in the books during the year is 22.37 crores( which is worked out by subtracting balances at 31.03.2016 from balances at 31.03.2017) which includes Rs.5.48 crores for provisions against standard assets. The amount of Rs.22.37 crores worked out, was claimed as net provisions made during the year and debited to the Profit & loss statements for the FY 2016-17 and the same is verifiable from the cash flow statement of the year. Thus, amount of Rs 22.37 crores in the financial statements was the actual provision made during the year. As reflected in note 25.3, an amount of Rs. 22.88 crore was written back for the excess provision and thus, actual provision made during the year was Rs. 16.71 crores. However, while computing income under the head profit and gains of business and profession, assessee added back the entire amount of Rs 22.37 crores debited in books for provision and claimed deduction of Rs 39.58 crores for provision for bad and doubtful doubts u/s 36(1)(viia)(d) whereas it was to be restricted to Rs. 16.80 crores only as per CBDT instructions as the actual provision made during the FY 2016-17 was Rs 22.37 crore including Rs 5.48 crore for provisions against standard assets. Since the provisions of Section 36(1)viia) are applicable for bad and doubtful debts only, provisions made against standard assets was required to be excluded while computing deduction allowable u/s 36(1)(viia). The assessee in reply to the show cause notice has submitted that ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 53 "As per the provisions of Section 36(1)(viia) of the Act, a NBFC can claim deduction in respect of any provision for bad and doubtful debts made by an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A)]. The Company has an opening balance of provision for bad & doubtful debts standing as on 1st April 2016 of INR 2734.22 lacs and the entire amount was disallowed by the Company while computing total income in respective previous financial years. Thus, no deduction at the time of computing tax liability has been taken by the company of the INR 2734 22 lac. As per requirement of the section for restricting the amount of deduction to 5% of the total income we compute the upper limit as under for FY 2016-17:- Particulars Amount (INR in lacs) Gross total income prior to deduction under chapter VI-A 1,06,036.50 Add: deduction claimed by the company u/s 36(i)(viia)(d) 3,958.47 Gross Total income prior to deduction u/s 36(i)(viia)(d) and Chapter –VIA 1,09,996.00 Computation @ 5% of total income 5,499.75 Since the Company was eligible to claim a tax deduction of INR 5499.75 Lacs (being the 5% of the eligible profits as per section 36(1)(viia) of the Act), the amount of eligible deduction was restricted to the provisions for bad and doubtful debts created during year, which amounts to INR 3958.47 Lacs, the same is also evident from the Note No 25.3 of the audited financial statements for FY 2016-17. As evident from the above computation, the deduction under section 36(1)(viia) of the Act was computed only respect to provisions created for Bad and Doubtful Debts. The Provisions created for standard assets have never been considered an eligible provision for computing deductions under the aforesaid provisions (c) In this regard, as per CBDT instruction No. 17/2008 dated 2011 2008 (F.No 228/3/2008-ITA-III) which is related to deduction for provision of bad and doubtful debts, as per clause (b); ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 54 ‘’ (b) The deduction for provision for bad and doubtful debts should be restricted to the amount of such provision actually created in the books of the assessee in the relevant year or the amount calculated as per provisions of section 36(1)(viia),whichever is less." Thus, it has been clearly stated in the instruction that the deduction for provision of bad and doubtful debts should be restricted to lesser of the provision actually created in the books or calculated as per provision of sections 36(1)(viia), i.e. 5% in the assessee's case. So, the provision of Rs. 16.89 crores only as the actual provision made during the FY 2016- 17 (Rs.22.37cr -Rs 5.48 cr) as per CBDT instructions is eligible for deduction. 1. As per the assessee's own submission, Opening Balance of Provision for bad and doubtful debts as on 01.04.2016 was Rs.27.34 cr. and closing balance of Provision for bad and doubtful debts as on 31.03.2017 was Rs 44.05 cr. So, the provision created during the year under consideration is Rs 16.71 crores only. The assessee has submitted that since the deduction for bad and doubtful the debts which was not allowed to the assessee till F.Y. 2015-16, reversal of provision was created in earlier years, should not be brought to F.Y. 2016-17 also does not hold ground as every year is separate year for the assessment purpose and this would not allow assessee to claim the provisions disallowed in the earlier years. 2. Also, any deduction claimed has to be passed through P&L account, and except weighted deduction, no deduction is allowable more than what has been entered in the books of account. The assessee in its books has created a provision of Rs.16.89 crores only for bad and doubtful debts and is claiming deduction of Rs. 39.58 crores, which is not allowable in any manner as per the Income Tax Act. The AO was required to disallow this excess deduction claimed on provision of bad and doubtful debts, which he failed to do, makes the order erroneous and prejudicial to the interest of revenue. B. Second issue- Provisions for unascertained liabilities not added back while computing book profit under section 115JB of the Act- (a) Under the provisions of section 115 JB of the Act, provisions made for unascertained liability debited in P&L statement, are to be added back while computing book profit for determination of MAT payable. During the assessment year under consideration, an amount of Rs 22.37 crore was debited in the P&L statement on account of provisions made for standard assets and bad and doubtful debts but the same being unascertained liability, was not added back in computing book profit (b) The assessee's submission in this regard has been considered but found partly correct only. The assessee's contention can be considered ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 55 that for the year under consideration, normal tax liability of the assessee company was higher than the MAT tax liability, so the order on this issue may not be considered prejudicial to the interest of revenue. However, as discussed above, the order on this issue is also held as erroneous as provisions made for unascertained liability debited in P&L statement, are to be added back while computing book profit for determination of MAT payable which the AO failed to do. C- Third issue:- Assessee has not furnished certificates along with return of income to claim deduction under section 35AC of the Act amounting to INR 0.60 crores 1. It is noticed that in computation of income, a deduction of Rs. 60,00,000/- was claimed u/s 35AC, However, no certificate was submitted alongwith the return of income as required under section 35AC(2) of the Income Tax Act. Thus, deduction of Rs.60,00,000/- u/s 35AC was required to be considered for disallowance 2. The assessee in its reply has submitted that CBDT vide its Circular No. 09/2006 dated Oct 10, 2000 has issued various instructions to the assessees while e-filing their tax returns. As per the relevant instructions, the assessees were directed not to enclose any other document which is otherwise required to be furnished before the due date of filing of return of income in order to make any claim for computing any tax liability All the relevant documents should be retained by the tax payer and be furnished in original at the time of scrutiny assessment proceedings. 3 The reply of the assessee may be considered tenable to some extent, However, the certificate regarding deduction under section 35AC(2) of the Income Tax Act was required to be verified/enquired by the AO during assessment proceedings, which he failed to do. The assessment order passed by the AO is held erroneous on this issue also. D-Fourth Issue:- Bonus shares are recorded in the books of account at average cost amounting to INR 14.93 crores: 1 During the year, entire holding of 3,75,83,334 equity shares and 9,00,000 bonus shares (out of 52,41,149 allotted) of Aavas Financers Ltd, were sold. While computing capital gain, entire value of Rs 147.25 crore was taken as cost of acquisition of 3,75,83,334 original equity shares and Zero value as cost of acquisition for 9,00,000 bonus shares. However, in financial statement, cost of remaining 43,41,149 bonus shares is shown at Rs. 14.93 crore instead of zero, which was the value of original equity shares shown in the financial statement as on 31.03.2016. Thus, it appears that the amount of Rs 14.93 crore was not taken out from financial statement and accordingly, was required to be ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 56 considered for not allowing as cost of acquisition while computing capital gain. 2. The assessee in its reply has submitted that Accounting Standard 13 (‘AS-13’) deals with the Accounting for Investments. As per the provisions of AS 13 the cost of investments to be recorded in the Books of account should be the fair value of the securities issued. The fair value may not necessarily be equal to nominal or par value of the securities issued. As per Para 22 of the AS-13 "When disposing of a part of the holding of an individual investment, the carrying amount to be allocated to that part is to be determined on the basis of the average carrying amount of the total holding of the investment" Thus, the carrying amount of INR 14.93 crores (approx) shown as cost of investment in financial statement as on 31 March 2017 is nothing but the cost which is derived as per average carrying amount and not as per the actual cost of acquisition of bonus shares. As already mentioned above, the actual cost of acquiring bonus shares are "NIL" 1. The reply of the assessee has been considered but not found tenable as in computation of capital gain, cost of acquisition was to be considered at average cost i.e. on the same principal adopted by the assessee, as the amount of Rs. 14.93 crore was not taken out from the financial statements. 2. As envisaged in para 14 & 17 of AS 13, the carrying amount of current investments is the lower of the cost and fair value and long term investments are usually claimed at cost. Thus, amount of 14. 93 crore was not to be retained in the financial statements as this pertains to non-current investments i.e long-term investments as per company's policy. Further carrying cost of remaining bonus shares 4341149 was to be taken ‘Zero' being current investments (held for less than one year). 1. As envisaged in para 21 of AS 13 on disposal of an investment, the difference between the carrying amount and the disposal proceeds, net of expenses, is recognized in the profit and loss statements In this case, difference of carrying amount (Rs. 153.90 crore for original holding of 37583334 shares) and the disposal proceeds (809.41 crore) was Rs 655.42 crore instead of 670.35 shown as exceptional item in the statement of Profit and Loss. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 57 Thus, capital gain was under computed by Rs. 14.93 crore by the AO, hence, the order is held erroneous and prejudicial to the revenue on this issue also, E-Fifth Issue: 1. Provision of section 430 was not applicable in assessee's case, being NBFC In the financial statements, NPA was not categorized and depicted as per the norms laid down in RBI's master direction i.e. into substandard assets, doubtful assets and loss assets as defined and provision for the same was made as per company's own policy which was on higher side and was not in accordance with RBIs master direction dated 01.09.2016. Thus, policy adopted for provisioning and income recognition for interest on NPA, reduced the profit for the FY 2016-17 by Rs 4:55 crore 2. The assessee in its reply has submitted that in accordance with the RBI vide Notification DNBR 009/ CGM(CDS) 2015 dated March 27, 2015 and RBI Master Direction-Non-Banking Financial Company Systemically important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 issued vide Master Direction DNBR PD 008/03 10.119/2016-17 dated September 01,2016, the Bank has revised its estimates of provisioning for loan portfolio and impact of the. same has been disclosed in Notes to the financial statements vide para 2.1 (a)(ii). Copy of the RBI Circular attached for your reference. Thus, it is apparently clear that the bank has not changed any of its accounting policy, the bank has only highlighted the impact of the change notified by the RBI. The Bank is constantly following same method of accounting as mentioned in the Section 145 of the Income Tax Act. 1. The reply of the assessee is considered and apparently appears to be acceptable. However, the same is requires verification. 7. As discussed above, the Assessing Officer failed to apply his mind and failed to invoke the applicable provisions of low. This is turn has resulted in passing of an erroneous order by the Assessing Officer in the case due to non-application of mind to relevant material and an incorrect assumption of facts which is prejudicial to the interest of the revenue and hence liable for revision under section 263 of the Income Tax Act. The Hon'ble Supreme Court in the case of Malabar Industrial Limited Vs CIT 243 ITR it has held as under. * .....An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous in the same category fall orders passed without applying the principles of natural justice or without application of mind.’’ ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 58 8. Considering all the facts and circumstances of the case and for the reasons discussed above, the assessment order dated 21-12-2019 for AY 2017-18 passed by the AO is held erroneous in so far as it is prejudicial to the interests of the revenue for the purpose of section 263 of the I.T. Act. The said order has been passed by the Assessing Officer in a routine and casual manner without applying the applicable sections of the Act. The Assessing Officer has not verified the details which were required to be verified under the scope of scrutiny. The order of the Assessing Officer is, therefore, liable to revision under the explanation (2) clause (b) and clause (a) of section 263 of the Income Tax Act. The assessment order is set aside to be made afresh in the light of the observations made in this order, The AO is required to make necessary verification and to determine and finalize the assessment in accordance with the prevailing law to determine the correct income of the assessee liable to tax for the A.Y.2017-18 after allowing reasonable opportunity to the assessee.’’ 6.1 The ld. DR also relied upon the following case laws to support the contentions so raised: 1. CIT vs Bhawal Synthetics (India), Udiapur [2017 81 Taxmann.com 478 (Raj). 2. CIT, Nagpur vs Ballarpur Industries Ld. [2017] 85 taxmann.com 10 (Bom.) 3. CIT vs Amitabh Bachhan [2016] 69 Taxmann.com 170 (SC) 4. CIT vs Jawahar Bhattacharjee [2012] 24 Taxmann.com 215 (Guj.) 5. Rajmandir Estates (P) Ltd.vs PrCIT, Kolkata [2016] 70 taxmann.com 124 (Calcutta) 6. PV Sreenijin vs CIT [2014] 47 Taxmann.com 61 (Kerala) 7. Kirtidevi S. Tejwani vs Pr.CIT [2020] 116 Taxmann.com 965 (Mumbai) 8. Vedanta Ltd. vs CIT[2021] 124 Taxmann.com 435 (Bom.) 9. Pr.CIT, Panaji vs Zuari Maroc Phosphates Ltd. 10. JIalgaon People’s Co-Op Bank Ltd. vs Pr.CIT-2, Nasik [2011] 127 taxman.com 243 (Pune – Trib) 6.2 The ld. DR also filed a detailed report of the AO in connection with the appeal filed by the assessee. The report of the ld. AO is reproduced here in below ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 59 ‘’भारत सरकार / GOVERNMENT OF INDIA काया[लय / OFFICE OF THE आयकर उपाय ु Èत / DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1. Room No. 310, 3rd Floor, एन. सी. आर ǒबिãडंग èटेÍय ू सक[ल / N.C.R. Building, Statue Circle भगवानदास रोड़, जयप ु र-302005/Bhagwandas Road, Jaipur-302005 Phone: [phone]-Ext126,e-mail:Jaipur.dcit1(a) incometax.gov.in ] No. DCIT/Circle-1/JPR/2022-23/1081 Dated: -7-02-2023 To, The Pr. Commissioner of Income Tax -1, Jaipur (through proper channel) Madam, Sub Appeal Before Hon'ble Bench in ITA No 203/JPR/2022 AY 2017-18 in the case of AU Small Financers Bank Ltd and ITA NO 211/JPR/2022 (AY 2017- 18) in the case of Aavas Financers Ltd reg- Your letter No Pr CIT-I/ITO(T&J)/JPR/2022-23/2422 Kindly refer to the subject mentioned above. 2. In this regard it may be stated that Order u/s 263 dated 29.03.2022 was passed by your goodself in case of the assessee M/s AU Small Finance Bank Limited for AY 2017-18. Aggrieved by the order, the assessee has filed an appeal before Honble ITAT, Jaipur. The assessee has filed its submission before the Honble Bench and CIT DREITAT) has sought inputs, if any on assessees argument. 3.It may be noted that the assessee has not raised any new fact related to the case nor has submitted new evidence in support of its claim. Regardless, comments are being furnished on various issues raised in the impugned order dated 29.03.2022. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 60 Issue No 1: Deduction under section 36(1)(viia)(d) of the Act: On perusal of the notes to the financial statements for the year under consideration, as seen from note 25 of the P&L statement, provision made in the books during the year is 22:37 crores( which is worked out by subtracting balances at 31.03.2016 from balances at 31.03.2017) which includes Rs.5.48 crores for provisions against standard assets. The amount of Rs 22.37 crores worked out, was claimed as net provisions made during the year and debited to the Profit & loss statements for the F.Y. 2016-17 and the same is verifiable from the cash flow statement of the year. Thus, amount of Rs. 22.37 crores in the financial statements was the provision made during the year. As reflected in note 25.3, an amount of Rs 22.88 crore was written back for the excess provision and thus, actual provision made during the year was Rs. 16.71 crores, However, while computing income under the head profit and gains of business and profession, assessee added back the entire amount of Rs. 22.37 crores debited in books for provision and claimed deduction of Rs. 39 58 crores for provision for bad and doubtful doubts u/s 36(1)(viia)(d) whereas it was to be restricted to Rs. 16.89 crores only as per CBDT instructions as the actual provision made during the FY 2016-17 was Rs 22.37 crore including Rs 5.48 crore for provisions against standard assets. Since the provisions of Section 36(1)(vila) are applicable for bad and doubtful debts only, provisions made against standard assets was required to be excluded while computing deduction allowable u/s 36(1)(vila). In this regard, as per CBDT instruction No. 17/2008 dated 26.11.2008(F.No. 228/3/2008-ITA- III) which is related to deduction for provision of bad and doubtful debts, as per clause (b): (b) The deduction for provision for bad and doubtful debts should be restricted to the amount of such provision actually created in the books of the assessee in the relevant year or the amount calculated as per provisions of section 36(1)(vila), whichever is less. Thus, it has been clearly stated in the instruction that the deduction for provision of bad and doubtful debts should be restricted to lesser of the provision actually created in the books or calculated as per provision of sections 36(1)(viia), i.e. 5% in the assessees case. So, the provision of Rs. 16.89 crores only as the actual provision made during the FY 2016- 17 (Rs.22.37cr-Rs.5.48 crjas per CBDT instructions is eligible for deduction. The assessee in its books has created a provision of Rs.16.89 crores only for bad and doubtful debts and is claiming deduction of Rs. 39.58 crores, which is not allowable in any manner as per the Income Tax Act. The A.O, was required to disallow this excess deduction claimed on provision of bad and doubtful debts, which he ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 61 failed to do, makes the order erroneous and prejudicial to the interest of revenue. ISSUE NO 2: Provisions for unascertained liabilities not added back while computing book profit under section 11538 of the Act: Under the provisions of section 115 18 of the Act, provisions made for unascertained liability debited in P&L statement, are to be added back while computing book profit for determination of MAT payable. During the assessment year under consideration, an amount of Rs 22:37 crore was debited in the P&L statement on account of provisions made for standard assets and bad and doubtful debts but the same being unascertained liability, was not added back in computing book profit. The order on this issue is also held as erroneous as provisions made for unascertained liability debited in P & L statement, are to be added back while computing book profit for determination of MAT payable, which the AO failed to do. Issue No 3: Assessee has not furnished certificates along with return of income to claim deduction under section 35AC of the Act amounting to INR 0.60 crores: It is noticed that in computation of income, a deduction of Rs. 60,00,000/- was claimed u/s 35AC However, no certificate was submitted alongwith the return of income as required under section 35AC(2) of the Income Tax Act. Thus, deduction of Rs. 60,00,000/- u/s 35AC was required to be considered for disallowance 1. The assessee in its reply has submitted that CBDT vide its Circular No. 09/2006 dated Oct 10, 2006 has issued various instructions to the assessees while e- filing their tax returns. As per the relevant instructions, the assessees were directed not to enclose any other document which is otherwise required to be furnished before the due date of filing of return of income in order to make any claim for computing any tax liability. All the relevant documents should be retained by the tax payer and be furnished in original at the time of scrutiny assessment proceedings. The certificate regarding deduction under section 35AC(2) of the Income Tax Act was required to be verified/enquired by the AO during assessment proceedings, which he failed to do. The assessment order passed by the AO is held erroneous on this issue also. Issue No 4: Bonus shares are recorded in the books of account at average cost amounting to INR 14.93 crores: ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 62 During the year, entire holding of 3,75,83,334 equity shares and 9,00,000 bonus shares (out of 52,41,149 allotted) of Aavas Financers Ltd, were sold. While computing capital gain, entire value of Rs. 147.25 crore was taken as cost of acquisition of 3,75,83,334 original equity shares and Zero value as cost of acquisition for 9,00,000 bonus shares. However, in financial statement, cost of remaining 43,41,149 bonus shares is shown at Rs. 14.93 crore instead of zero, which was the value of original equity shares shown in the financial statement as on 31.03.2016 Thus, it appears that the amount of Rs. 14.93 crore was not taken out from financial statement and accordingly, was required to be considered for not allowing as cost of acquisition while computing capital gain. In computation of capital gain, cost of acquisition was to be considered at average cost ie, on the same principal adopted by the assessee, as the amount of Rs. 14.93 crore was not taken out from the financial statements. As envisaged in para 14 & 17 of AS 13, the carrying amount of current investments is the lower of the cost and fair value and long term investments are usually carried at cost. Thus, amount of 14.93 crore was not to be retained in the financial statements as this pertains to non- current investments .e. long-term investments as per companys policy. Further carrying cost of remaining bonus shares 4341149 was to be taken Zero being current investments (held for less than one year). As envisaged in para 21 of AS 13 on disposal of an investment, the difference between the carrying amount and the disposal proceeds, net of expenses, is recognized in the profit and loss statements. In this case, difference of carrying amount( Rs. 153.99 crore for original holding of 37583334 shares) and the disposal proceeds (809.41 crore) was Rs. 655.42 crore instead of 670.35 shown as exceptional item in the statement of Profit and Loss. Thus, capital gain was under computed by Rs. 14.93 crore by the AD, hence, the order is held erroneous and prejudicial to the revenue on this issue also. Issue No 5: Provision of s 43D was not applicable in assessees case, being NBFC: In the financial statements, NPA was not categorized and depicted as per the norms laid down in RBI's master direction ie. into substandard assets, doubtful assets and loss assets as defined and provision for the same was made as per company's own policy which was on higher side and was not in accordance with RBI's master direction dated 01.09.2016. Thus, policy adopted for provisioning and Income ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 63 recognition for interest on NPA, reduced the profit for the FY 2016-17 by Rs. 4.55 crore. 4. It may also be noted that the assessee was given reasonable opportunity of being heard and assessees submission was duly considered before passing of Order u/s 263 by the Ld Pr CIT-1 Jalpur. 5. Further. Order u/s 263 dated 29.03.2022 was passed by your goodself in case of the assessee M/s Aavas Financers Ltd for AY 2017-18. Aggrieved by the order, the assessee has filed an appeal before Honble ITAT, Jaipur. The assessee has filed its submission before the Honble Bench and CIT DR(ITAT) has sought inputs, if any on assessees argument. 6. It may be noted that the assessee has not raised any new fact related to the case nor has submitted new evidence in support of its claim. Regardless, comments are being furnished on various issues raised in the impugned order dated 29.03.2022 Issue No 1 :-Deduction under section 36(1)(vila)(d) of the Act: On perusal of the notes to the financial statements for the year under consideration, as per point no.2.25.12 "Provision and Contingencies’’ Provision towards NPA(nonperforming assets) has been created at Rs. 218.66 lakhs. However, while computing income under the head profit and gains of business and profession, assessee added back the entire amount of Rs. 3.82 crore debited in books for provision and claimed deduction of Rs. 3.65 crores for provision for bad and doubtful doubts u/s 36(1)(viia)(d) whereas it was to be restricted to Rs. 2.19 crores only as per CBDT instructions In this regard, as per CBDT instruction No. 17/2008 dated 26.11.2008(F.No. 228/3/2008-ITA-III) which is related to deduction for provision of bad and doubtful debts, as per clause (b) "[b]The deduction for provision for bad and doubtful debts should be restricted to the amount of such provision actually created in the books of the assessee in the relevant year or the amount calculated as per provisions of section 36(1)(viia), whichever is less." ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 64 Thus, it has been clearly stated in the Instruction that the deduction for provision of bad and doubtful debts should be restricted to lesser of the provision actually created in the books or calculated as per provision of sections 36(1) (villa), I.e. 5% in the assessee's case. So, the provision of Rs. 2,18,66,320/- actually created in the books is eligible for deduction. The assessee in its books has created a provision of Rs.218.66 lakhs and is claiming deduction of Rs. 364,66 lakhs, which is not allowable in any manner as per the Income Tax Act. The A.0, was required to disallow this excess deduction claimed on provision of bad and doubtful debts, which he failed to do, makes the order erroneous and prejudicial to the interest of revenue. Issue No 2: Under computation of book profit under section 115JB of the Act Under the provisions of section 115 JB of the Act, provisions made for unascertained liability debited in P&L statement, are to be added back while computing book profit for determination of MAT payable. During the assessment year under consideration, an amount of Rs 3.82 crore was debited in the P & L statement on account of provisions made for standard assets and bad and doubtful debts but the same being unascertained liability, was not added back in computing book profit. As held by Hon'ble High Court of Madras in EID Parry (India) Ltd. vs. Assistant Commissioner of Income- tax, Company Circle-1(1), Chennai, [[2019] 108 taxmann.com 199 (Madras) "Provision for bad and doubtful debts was a provision for unascertained liability, and, thus, same could not be excluded while computing book profits under section 115JA". The Hon'ble High Court also relied upon decision of division bench in the case of the case of Dy. CIT v. Beardsell Ltd. [2001] 116 Taxman 149/[2000] 244 ITR 256. In the said decision, it was held that if a debt had become irrecoverable the same could be written off and deducted from the profit of the business. A debt, the recovery of which was doubtful could not be termed to be an ascertained liability as mentioned under Section 115) of the Act and could not be excluded from the book profits. As discussed above, the order on this issue is also held as erroneous as provisions made for unascertained liability debited in P & L statement, are to be added back while computing book profit for determination of MAT payable, which the AO failed to do. Issue No 3: Deduction under section 36(1)(viii) of the Act: Profit on Mutual Fund In computation of income, a deduction of Rs. 12.86 crore (equal to 20 percent of business income as stipulated u/s 36(1) (vili) of the IT Act) was claimed for special reserve u/s 29C of the NHB Act. It has been noticed that income of Rs. 71.80 crore.computed under the head 'Profit and gains of business or profession' which ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 65 includes Rs. 9.13 crore from profit on redemption of liquid mutual fund units which was earned from investment in mutual funds for short period and thus, cannot be considered as income or profit earned from eligible business. As has been clearly mentioned in the sub-section (2) of section 29 of NHB Act, no appropriation of sum from the reserves fund shall be made except for purpose as may be specified by the National Housing Bank, so the investment out of these reserve fund cannot be considered as incidental to the business and income from such investment cannot be the business income of the assessee. The investments in the liquid fund and income thereon has to be treated as capital gain and not business income of the assessee. Also, for the purpose of section 36(1)(vii), as per explanation (b) to section 36(1)(vii), "eligible business" for the housing finance company (as in the case of the assessee) means, "the business of providing long term finance for the construction or purchase of houses in india for residential purposes". The eligible business has been clearly defined in the explanation. Thus it is held that the amount of Rs. 9.13 crore from profit on redemption of liquid mutual fund units which was earned from investment in mutual funds for short period was required to be disallowed for the purpose of calculation of deduction u/s. 36(1)(vii) which the AO failed to do, making the order erroneous and prejudicial to the interest of revenue. Issue No 4:- Deduction under section 36(1)(vill) of the Act: Housing Loan Segment Business It is noticed that while computing proportionate business income from housing loan segment, weight- age of housing loan to total long-term loan was taken 75.95% instead of 73.95% (non-current (long term) housing loan: Rs. 1523.12 crore, total longterm loan: Rs. 2059.46 crore) and accordingly. proportionate business income from housing loan was incorrectly worked out to Rs.64.30 crore instead of Rs. 62.61 crore. Also, period of repayment of long-term housing loan was not furnished during the assessment proceedings. As per Schedule 2.11 -Loans and Advances of audited financial statement, the non-current (long term Jhousing loan has been mentioned as Rs. 1523.12 crores and total long term loan has been mentioned as Rs.2059.46 crore, thereby proportionate weightage of Housing loan to total long term loan comes to 73.95% the assessee has claimed deduction u/s 36(1)(viii) of Rs 12,85,91,785/-. However the same should have been restricted to Rs 12,52,10,247/- as per above computation. This has resulted in under computation of ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 66 income by Rs 33,81,538/- which ought to be added to the total income of the assessee but the A.O. failed to do so, making the order erroneous and prejudicial to revenue. Issue No 5:- Deduction under section 35AC(2) of the Act: It is noticed that in computation of Income, a deduction of Rs. 2,50,000/- was claimed u/s 35AC However, no certificate was submitted alongwith the return of income as required under section 35AC(2) of the Income Tax Act. Thus, deduction of Rs. 2,50,000/- u/s. 35AC was required to be considered for disallowance. copy of form 58A should have been called for by the AO. As discussed above, the Assessing Officer failed to apply his mind and failed to invoke the applicable provisons of law. This turn has resulted in passing an erroneous order by the assessing Officer in the case due to non-application of relevant material and an incorrect assumption of facts which is prejudicial to the interest of revenue. 7.It may also be noted that the assessee was given reasonable opportunity of being heard and assessees submission was duly considered before passing of Order u/s 263 by the td Pr CIT-1 Jaipur. 8. Report is being submitted for your perusal and further necessary action. Yours faithfully. Prateek Sharma DCIT, Circle-1 Jaipur. ‘’ Based on the decision so relied and report of the ld. AO, ld. DR supported the finding of the ld. PCIT. Therefore, he reiterated that the ld. AO on the issues so raised either not made any efforts to bring any material on record and so made the same is not based on the adequate enquiry that ought to have been made. As regards the claim of deduction not a single query raised by the ld. AO. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 67 7. We have careful consideration the factual matrix as well as argument advanced by both the parties and judicial decision relied upon by both the parties to drive home to their respective contentions raised in this appeal. 7.1 As regards the Ground No. 2 & 3 of the assessee, the fact is that the assessee being an erstwhile non-banking finance company for the year under consideration and eligible to claim deduction u/s. 36(viia)(d) of the Act while computing the income chargeable to tax. In the assessment proceeding the ld. AO sought explanation vide Show cause notice / notice dated 09.11.2019 & 27.09.2019. In response the assessee furnished the reply (APB-30 to 48). On perusal of the submission we note that the assessee has made the provision according to the RBI Guidelines and Provisions of the Act. The relevant calculation were also explained. We also note that the ld. PCIT had assumed its jurisdiction to direct for revision of the assessment order in light of the deduction claimed by the assessee u/s 36(1)(viia)(d) of the Act which was already identified and examined by the AO. Thus in no manner, it can be said that assessment proceedings should be treated as erroneous and prejudicial to the interest of the revenue and that ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 68 too there is no apparent error or prejudice expressly clear from the order of the ld. PCIT. We also note that the ld. PCIT while applying the provisions of Section 263 of the Act in the case of the assessee bank mentioned that the AO failed to disallow the excess deduction claimed and the deduction u/s 36(1)(viia)(d) w.r.t. provisions for bad and doubtful debts ought to be restricted to Rs.16.89 crores instead of Rs.39.58 crores. He noted that the AO considered only the closing and opening balance for computing deduction. The ld. PCIT thus observed that for establishing the said computation, CBDT instruction No. 17.2008 has been perused. It may be noted that reference has been made to the CBDT Instruction No. 17/2008 dated 26.11.2008 (F. No. 228/3/3008 – ITA- III) which was issued to provide the Assessing Officers with necessary instructions for completing the assessment of the ‘Banking Companies’. Whereas the case for the year under consideration is related to non-banking company. The same can be observed from the extract reproduced from the said circular: “In a recent review of assessment of Banks carried out by C&AG, it has been observed that while computing the income of banks under the head 'Profit and Gains of Business & Profession', deductions of large amounts under different sections are being allowed by the Assessing Officers without proper verification, leading to substantial loss of revenue. It is, therefore, necessary that assessments in the cases of banks are completed with due care and ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 69 after proper verification. In particular, deductions under the provisions referred to below should be allowed only after a thorough examination of the claim on facts and on law as per the provisions of the Income-tax Act, 1961 :” As it is not disputed that the assessee was operating as a NBFC during the A.Y. 2017-18 and in the absence of any ambiguity, it can be clearly opined that the said instructions were not applicable on it for the year under consideration. It is also imperative to mention that the purpose of netting off is not attracted in the present case and if netting off is done then the legal claim will be denied to the assessee. Thus, it is not the case of the revenue that the issue is not enquired vide notice dated 09.11.2019 to which a detailed reply was submitted by the assessee vide reply dated 14.11.2019 pursuant the information available on record the ld. AO considered the claim of the assessee. It is habitually observed that the assessment order necessarily deal only with the claim being disallowed and not with the claim being allowed. This contention is confirmed by the Hon’ble Gujarat High Court in the case of Commissioner of Income Tax Vs. Nirmal Chemicals Works P. Ltd. [ 222 CTR 593 ] and high court of Bombay in the case of State Bank of India Vs. ACIT [ 411 ITR 664 ]. Thus, it is beyond doubt that the ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 70 issue that is raised has been raised by the ld. AO he has applied his mind while passing the order. Thus, issuing notice u/s. 263 would prima facie amount to change of opinion and it is not permitted. From the arguments of the ld. AR of the assessee the bench also note that the similar issue was raised by the PCIT in the case of Aavas Financiers Limited ( PAN NO. AAJCA2237M) U/S. 263 of the Act and in that case the ld. AR of the assessee produced an assessment order passed u/s. 143(3) r.w.s. 263 r.w.s. 144B of the Act wherein no adjustment is proposed. Hence taking into consideration entire conspectus of the case, we do not concur with the findings of the ld. PCIT on the issue in question. Thus Ground Nos. 2 & 3 of the assessee are allowed. 7.2 As regards the Ground Nos. 4 & 5 of the assessee, the ld.AR of the assessee with regard to the MAT computation submitted that even though the addition with respect to provisions, as alleged by the Ld. PCIT, is made to the Book profits then also it would yield no better position as the tax liability computed as per the normal provisions of the Act is greater than that computed as per Section 115JB of the Act. The same has been submitted to the Ld. PCIT and has also been computed hereunder: ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 71 Particulars Amount (in Crores) Profit as per Profit and Loss Account 821.98 Additions: Income-tax under section 40A(a)(ii) 314.94 Deferred Tax liability 6.43 Provisions for unascertained liabilities 22.37 Book profits for computing MAT under the provisions of section 115JB of the Act 1165.72 Tax computed @18.5% on book profits 215.66 Tax computed as per the normal provisions of the Act 261.90 He also submitted that the said submission was duly acknowledged by the Ld. PCIT wherein it held that: “(b) The assessee’s submission in this regard has been considered but found partly correct only. The assessee’s contention can be considered that for the year under consideration, normal tax liability of the assessee company was higher than the MAT tax liabilty, so the order on this issue may not be considered prejudicial to the interest of revenue. However, as discussed above, the order on this issue is also held as erroneous as provisions made for unascertained liability debited in P & L statement are to be added back while computing book profit for determination of MAT payable, which the AO failed to do.” Therefore, at the cost of repetition, it is submitted that an order has to be both ‘erroneous’ and ‘prejudicial to the interests of revenue’, in order to invoke the powers vested u/s 263 of the Act, as mentioned above. However, in the present case, as ld. PCIT has admitted that the said ground has no impact that could be prejudicial to the interests of revenue. Therefore, in light of the ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 72 judgement of J.P. SRIVASTAVA & SONS (KANPUR) LTD vs CIT [1978] 111 ITR 326 (All). , the ld. AR submitted that the revisionary powers vested under the Section 263 cannot be invoked in the present case as twin conditions are not satisfied i.e. the issue is not prejudicial to the interest of revenue as admitted by the Ld. PCIT. He further submitted that at this juncture, the term ‘liability’ may be understood to have an imperative importance and thus, the same may be understood from the Accounting framework which defines the said term under para 10.2 of the Accounting Standard (AS) 29 and para 10 of the Indian Accounting Standard (Ind AS) as: “A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.” [ Para. 10.2, Accounting Standard (AS) 29] “A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.” [Para.10, Indian Accounting Standard (Ind AS) 37] The ld. AR further submitted that from the above definitions, it is crystal clear that if an item has to be categorized as a liability then there has to be “present obligation”. For the said purpose, it becomes inevitable to analyse the meaning of the term ‘present ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 73 obligation’, the said has also been defined in the AS and Ind AS, as reproduced hereunder: “An obligating event is an event that creates an obligation that results in an enterprise having no realistic alternative to settling that obligation.” [S. 10.3 Accounting Standard (AS) 29] “An obligating event is an event that creates a legal or constructive obligation that results in an entity having no realistic alternative to settling that obligation.” [S. 10 Indian Accounting Standard (Ind AS) 37] He further submitted that on perusal of the said definitions, it can be clearly understood that for an item to be classified as ‘a liability’, there has to be a present obligation which ought to be settled. As in the present case, the provision is being made towards debtors which implies that there is no obligation in the hand of the assessee rather it is an obligation of the debtor to pay off the dues, thus, in no manner can it be construed that the provision made for debtors is a provision made towards liability, rather, it is a provision made for an asset. The ld. AR further submitted that without prejudice to the above, Section 115JB of the Act provides for a mechanism for computation of Book profits which is deemed to be total income of the assessee for the purpose of computing Minimum Alternate Tax (MAT) payable. For the said computation, Explanation 1 to the said section categorically provides for certain additions and reductions to be made from the Book profit. In the ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 74 present case, Ld. PCIT has not explicitly mentioned the clause which she has perused alleging addition to the Book Profits, however, the expressions used in the order indicate that Ld. PCIT has erroneously invoked clause (c) of Explanation 1 to the said section. Thus the Ld. PCIT has alleged that the amount of Rs. 22.37 crores was debited in the P&L statement on account of provisions made for standard assets and bad and doubtful debts but the same being unascertained liability was not added back in computing book profit. At this juncture, the ld. AR submitted that the provision made for an asset cannot coined as an ‘unascertained liability’. Accordingly, it is submitted that for invoking the revisionary powers vested under the Section 263 cannot be invoked in the present case as twin conditions are not satisfied as the issue is not prejudicial to the interest of revenue as admitted by the Ld. PCIT in her itself. After hearing both the parties and perusing the materials available on record, it is noted that the ld. PCIT had considered the submissions but found partly correct on the issue in question and held that assessee’s contention can be considered for the year under consideration that normal tax liability of the assessee company was higher than the MAT tax liability, so the order on this issue cannot be considered ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 75 prejudicial to the interest. The bench finds that the revisionary power vested u/s 263 cannot be invoked in the present case as twin conditions are not satisfied i.e. the issue is not prejudicial to the interest of revenue as mentioned by the ld. PCIT in her order (supra). Hence, in view of the above, deliberation, we do not concur with the findings of the ld. PCIT to invoke the provision of section 263 of the Act as the issue is not prejudicial to the interest of the revenue. Thus, the Ground No. 4 & 5 of the assessee are allowed. 7.3 As regards the Ground No. 6 of the assessee, it is noted that the assessee had claimed deduction u/s 35CA of the Act. Further, the Provisions of Section 35AC(2) provides for furnishing of Form 58A along with the return of income. The ld. PCIT noticed that the assessee had not furnished certificates along with return of income to claim deduction u/s 35AC of the Act amounting to INR 0.60 crores. The observation of the ld. PCIT in his order is as under:- ‘’It is noticed that in computation of income, a deduction of Rs. 60,00,000/- was claimed u/s. 35AC . However, no certificate was submitted alongwith the return of income as required under section 35AC(2) of the Income Tax Act. Thus, deduction of Rs. 60,00,000/- u/s. 35AC was required to be considered for disallowance. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 76 Thus the ld. PCIT found that the certificate regarding deduction u/s 35AC(2) of the Act was required to be verified / enquired by the AO during the assessment proceedings which he failed to do. Based on these observation she is of the view that the assessment order passed by the AO is erroneous. To this effect, the ld. AR of the assessee filed the following written submission with the prayer that the ld. PCIT has grossly erred in issuing the direction for fresh assessment even when the required certificates were available on record itself for verification and it is available at pages 103 to 109 of the paper book. ‘’4. Section 35AC of the Act provides for allowance of expenditure incurred on eligible projects or schemes. Sub-section (2) of the said section states that the said deduction shall be allowed on furnishing of a certificate from an accountant. However, sub-rule (2) of Rule 12 of Income-tax Rules, 1962 (‘the Rules’) provides that the return of income shall not be accompanied by any documents or a copy of any account or form or report of audit required to be attached with return of income under any of the provisions of the Act. Relevant extracts of the same have been reproduced hereunder: (2) The return of income required to be furnished in Form SAHAJ (ITR-1) or Form No. ITR-2 or Form No. ITR-3 or Form SUGAM (ITR-4) or Form No. ITR-5 or Form No. ITR-6 or Form No. ITR-7 shall not be accompanied by a statement showing the computation of the tax payable on the basis of the return, or proof of the tax, if any, claimed to have been deducted or collected at source or the advance tax or tax on self-assessment, if any, claimed to have been paid or any document or copy of any account or form or report of audit required to be attached with the return income under any of the provisions of the Act: 5. The same can also be substantiated with certain extracts from Circular No. 9/2006: ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 77 (iii) These returns are not to be accompanied with any other document including any statutory form or report of audit (other than the report under section 92E) which is otherwise requiredto be furnished before the due date or along with the return for making any claim. The provisions of the law shall be deemed to have been complied with in respect of the requirement of the filing of the attachments or documents or reports along with the return. No penalty shall be initiated/ levied for not furnishing such documents. 6. Therefore, on conjoint reading of the extracts reproduced, it may be drawn that as due to technicalities of the portal, it wasn’t possible to furnish the certificate along with the return and the said prescribed conditions mentioned in the deductions shall be deemed to have been complied. Thus, where the Appellant has been a true compliant in the eyes of law, it is against the natural justice to revise a duly complied assessment proceeding. 7. Moreover, Ld. PCIT has unwarrantedly invoked powers vested u/s 263 of the Act as in the said ground he has not substantiated the said order as prejudicial to the interests of the revenue. Relevant extracts from the Order u/s 263 of the Act has been reproduced hereunder: “The assessment order passed by AO is held erroneous on this issue also.” 8. Also, it is humbly submitted that the Ld. PCIT has grossly erred in issuing the direction for fresh assessment even when the required certificates were available on record itself for verification. The said certificates are annexed at Page No. 103-109 of the Paper Book. 9. Therefore, the very jurisdiction assumed by Ld. PCIT is bad in law, as the twin conditions as mandated in the case of Malabar Industrial Co. Ltd. vs CIT, 243 ITR 83 have not been satisfied and it is beyond doubt that the order of the Ld. AO is not prejudicial to the interest of revenue. ‘’ On this issue after hearing both the parties and perusing the materials available on record, the Bench noticed that when required certificates are available on record for verification at ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 78 pages No. 103 to 109 of the paper book then there is no question from the side of the ld. PCIT by holding that assessment order passed by the AO is held erroneous on this issue also. The ld. PCIT has noted the similar observation in the case of Aavas Financiers Limited (Pan No. AAJCA2237N) wherein pursuant to 263 the order is passed by the ld. AO and no adverse interference drawn. Therefore, considering the overall facts and material placed on the record and from the above scenario of the case, we do not concur with the findings of the ld. PCIT. Thus Ground No. 6 of the assessee is allowed. 7.4 As regards the Ground No. 7 of the assessee, it is noted that the assessee during the year under consideration held Aavas Financiers Ltd. 3,75,83,334 equity shares and 52,41,149 bonus shares were also received from Aavas Financiers during May, 2016. Thereafter, the assessee sold 3,84,83,334 equity shares during the previous year 2016-17 and declared a capital gain of Rs.636.01 crores. In the proceedings of Section 263 of the Act, the ld. PCIT alleged as under:- “During the year, entire holding of 3,75,83,334 equity shares and 9,00,000 bonus shares ( out of 52,41,149 allotted) of Aavas Financer Ltd. were sold. While computing capital gain, entire value of Rs. 147.25 crore was taken as cost of acquisition of 3,75,83,334 original equity ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 79 shares and Zero value as cost of acquisition for 9,00,000 bonus shares. However, in financial statement, cost of remaining 43,41,149 bonus shares is shown at Rs. 14.93 crore instead of zero, which was the value of original equity shares shown in the financial statement as on 31.03.2016. Thus, it appears that the amount of Rs. 14.93 crore was not taken out from financial statement and accordingly, was required to be considered for not allowing as cost of acquisition while computing capital gain” The assessee on this issue filed a detailed reply in the proceeding pursuant to section 263 of the Act but the ld. PCIT did not find the reply of the assessee tenable and found the order of the AO as erroneous and prejudicial to the interest of revenue by holding as under:- “1. The reply of the assessee has been considered but not found tenable as in computation of capital gain, cost of acquisition was to be considered at average cost i.e. on the same principal adopted by the assessee, as the amount of Rs. 14.93 crore was not taken out from the financial statements. 2. As envisaged in para 14 & 17 of AS 13, the carrying amount of investments is the lower of the cost and fair value and long term investments are usually carried at cost. Thus, amount of 14.93 crore was not to be retained in the financial statements as this pertains to non-current investments i.e. long-term investments as per company’s policy. Further carrying cost of remaining bonus shares 4341149 was to be taken ‘Zero’ current investments (held for less than one year). 1. As envisaged in para 21 of AS 13 on disposal of an investment, the difference between the carrying amount and the disposal proceeds, net of expenses, is recognized in the profit and loss statements. In this case, difference of carrying amount( Rs. 153.99 crore for original holding of 37583334 shares) and the disposal proceeds (809.41 crore) was Rs. 655.42 crore instead of 670.35 shown as exceptional item in the statement of Profit Loss. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 80 Thus, capital gain was under computed by Rs. 14.93 crore by the AO, hence, the order is held erroneous and prejudicial to the revenue on this issue also.” During the course of hearing, the ld. AR of the assessee prayed that the facts and figures assumed by the ld. PCIT are completely inappropriate as the recognition of the cost of shares in the Books of account shall be in accordance with the Accounting Standards whereas for the purpose of chargeability of tax, the same has to be in compliance with the provisions of Income Tax Act. He further submitted that the cost of the bonus shares shall be considered as zero and the cost of acquisition of the shares transferred had been righty computed on FIFO basis for the purpose of income tax computation wherein entire cost of acquisition of the original holding has been considered alongside the Nil value of bonus shares sold. Thus the Order of the AO is not erroneous or prejudicial to the interest of the Revenue. The detailed submissions of the ld.AR of the assessee on this issue is reiterated here in below:- ‘’4. Section 45 of the Act provides for chargeability of tax on transfer of capital Assets. For the said purpose, Section 45(2A) of the Act read with CBDT Circular No. 768, dated 24-6-1998 provide that the cost of acquisition in case of DEMAT shares shall be determined on the basis of first in first out method. Relevant extracts from the said literature have been reproduced hereunder: “Section 45 (2A) Where any person has had at any time during previous year any beneficial interest in any securities, then, any profits or ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 81 gains arising from transfer made by the depository or participant of such beneficial interest in respect of securities shall be chargeable to income- tax as the income of the beneficial owner of the previous year in which such transfer took place and shall not be regarded as income of the depository who is deemed to be the registered owner of securities by virtue of sub-section (1) of section 10 of the Depositories Act, 1996, and for the purposes of— (i) section 48; and (ii) proviso to clause (42A) of section 2, the cost of acquisition and the period of holding of any securities shall be determined on the basis of the first-in-first-out method.” CIRCULAR NO. 768,DATED 24-6-1998 This sub-section provides that for the purposes of calculating the date of transfer and period of holding in respect of shares held in dematerialised form, the FIFO method would apply. 5. On perusal of the said section and circular, it may be drawn that in the present case where the Appellant has been holding the shares bought for consideration and the bonus shares received, the primary holding i.e., the shares held by the Appellant before the allotment of bonus shares shall be considered to be sold first from the entire bunch. In the year under consideration, the Appellant had transferred a total 3,84,83,334 shares during the A.Y. 2017-18, out of which 3,75,83,334 shares were the total original shares held by the Appellant and the balance 9,00,000 shares were the Bonus shares. Consequently, the Appellant, at the end of A.Y. 2017-18, held remaining 43,41,149 bonus shares. 6. The said 43,41,149 bonus shares held by the Appellant at the end of the year shall be considered to have a ‘Nil’ cost of acquisition as per Section 55(2)(aa)(iiia) of the Act while computing the taxability under the head Capital Gain. However, the said shares shall be recognized differently in the Books of Accounts i.e., as prescribed under Accounting Standard 13 (‘AS-13’). AS-13 deals with the Accounting for Investments. As per the provisions of AS-13, the cost of investments to be disposed have to be computed at the average carrying amount of the total holding of the investment. Relevant portion of the said AS has been reproduced hereunder: As per Para 22 of the AS-13: “When disposing of a part of the holding of an individual investment, the carrying amount to be allocated to that part is to be determined on the basis of the average carrying amount of the total holding of the investment”. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 82 7. Ld. PCIT has grossly erred in puzzling the cost computed as per the Accounting Standards with that of provisions of Income-tax Act. Thus, the carrying amount of INR 14.93 crores (approx.) shown as cost of investment in financial statement as on 31 March 2017 is nothing but the cost which is derived as per average carrying amount and not as per the actual cost of acquisition of bonus shares i.e., “Nil”. The computation as per AS-13 has been summarized hereunder: Particulars Number of shares Cost of acquisition (in INR Crores) Average cost / share Total cost (INR in Crores) Original Shares 37583334 147.25 39.18 147.25 Bonus Shares 5241149 - 34.38 Shares sold (both bonus shares and original shares) 38483334 NA 34.38 (132.30) Balance shares left 4341149 - 34.38 14.93 8. Therefore, the facts and figures assumed by the Ld. PCIT are completely inappropriate as the recognition of cost of shares in the Books of Accounts has to be in accordance with the Accounting Standards whereas for the purpose of chargeability of tax, the same has to be in compliance with the provisions of the Income-tax Act. And as explained above, the cost of the said shares shall be considered as zero and the cost of acquisition of the shares transferred has been rightly computed on FIFO basis for the purpose of income tax computation wherein the entire cost of acquisition of the original holding has been considered alongside the Nil value of bonus shares sold. 9. Accordingly, it is humbly submitted that the Ld. AO has thought through the facts and very appropriately applied the law while passing the order, thus, order of the Ld. AO is not erroneous or prejudicial to the interest of revenue. Therefore, Ld. PCIT had no jurisdiction to invoke powers vested u/s 263 of the Act as the twin conditions of Section 263 are not fulfilled, especially, when the very basis of the allegation put by the Ld. PCIT is factually incorrect.’’ After careful persuasion of the rival contentions and material ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 83 placed on record, the Bench noted that ld. PCIT conclusively noted that the capital gain was under computed by Rs.14.93 crores by the AO, hence, the same order is held to be erroneous and prejudicial to the revenue on this issue also. We have considered facts matrix of the issue on hand after carefully perusing the para 7,8 & 9 of the written submission of the assessee it is noted that the carrying amount of INR 14.93 crores (approx.) shown as cost of investment in financial statement as on 31 March 2017 is nothing but the cost which is as per books of account and the same has been computed in accordance with the applicable disclosure standards applicable. average carrying amount and not as per the actual cost of acquisition of bonus shares i.e., “Nil”. The computation as per AS-13 has been summarized above. Hence, the written submission advanced by the ld. AR of the assesee has substance to counter the order of the ld. PCIT and thus we do not find that the order of the AO is erroneous and prejudicial to the interest of the Revenue and we do not find any ambiguity in the submissions of the ld. AR of the assesseee. In view of the above deliberation, the Ground No. 7 of the assessee is allowed. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 84 7.5 As regards the Ground Nos. 8 & 9 of the assessee, brief facts of the case are that the assessee is engaged in lending activities and it had obtained its license from Reserve Bank of India (‘RBI’) to operate as a non-deposit accepting Non-Banking Financials Company (NBFC-ND) on 7 November 2000 vide certificate of registration no. B-10-00139 while the Financial Statements of the Assessee have been prepared in accordance with generally accepted accounting principles in India (Indian GAAP). The assessee has prepared the Financials statements to comply in all materials respects with the Accounting Standards under section 133 of the Companies Act, 2013 (‘the Act’), read with Rule 7 of the Companies (Accounts) Rules, 2014; the Companies (Accounting Standards) Amendment Rules, 2016 and the provisions of the RBI as applicable to a Systemically Important Non-Deposit taking Non-Banking Financial Company (NBFC-ND- SI). It is noticed from the pages 55 to 57 of the paper book wherein the ld. PCIT had issued show cause notice dated 11-03-2022. The relevant extracts from the SCN dated 11-03-2022 is reproduced as under:- ‘’6. It has also been noticed that the provision of section 43D was not applicable in your case, being NBFC. In the financial statements, NPA was not categorized and depicted as per the norms laid down in RBI's master direction i.e. into substandard assets, doubtful assets and loss ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 85 assets as defined and provision for the same was made as per company's own policy which was on higher side and was not in accordance with RBI's master direction dated 01.09.2016. Thus, policy adopted for provisioning and income recognition for interest on NPA, reduced the profit for the FY 2016-17 by Rs. 4.55 crore, (note 2.1 (a) (ii)) ,which was to be considered for addition in income computed under the head profit and gains of business and profession. The assessee before the ld. PCIT submitted that NPAs have been categorized and presented as per norms laid down by RBI and accordingly the provisions for NPAs have been made in compliance with RBI. However, the ld. PCIT in his finding observed that ‘’Thus, it is apparently clear that the bank has not changed any of its accounting policy, the bank has only highlighted the impact of the change notified by the RBI. The Bank is constantly following same method of accounting as mentioned in the Section 145 of the Income Tax Act”. 1. The reply of the assessee is considered and apparently appears to be acceptable. However, the same is requires verification. During the course of hearing, the ld. AR of the assessee submitted that the observations of the ld. PCIT is factually and legally incorrect and the order of the AO is neither erroneous nor prejudicial to the interest of Revenue and the order of the ld. PCIT ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 86 needs to be quashed. However, the written submission of the assessee is reproduced as under:- ‘’3. At the outset, it is pertinent to note that Section 43D, at which the Ld. PCIT has assumed jurisdiction to analyse the income recognition on NPAs is not applicable on the Appellant for the year under consideration and the same has been admitted by the Ld. PCIT while passing the order. Relevant extract has been reproduced hereunder: “6. It has also been noticed that the provision of section 43D was not applicable in your case, being NBFC. In the financial statements, NPA was not categorized and depicted as per the norms laid down in RBI's master direction i.e. into substandard assets, doubtful assets and loss assets as defined and provision for the same was made as per company's own policy which was on higher side and was not in accordance with RBI's master direction dated 01.09.2016. Thus, policy adopted for provisioning and income recognition for interest on NPA, reduced the profit for the FY 2016-17 by Rs. 4.55 crore” 4. Without prejudice, it is hereby submitted that the Appellant, being registered with the RBI is bound to comply with the recognition norms of RBI Master Direction NBR.PD.008/03.10.119/2016-17 dated September 01,2016 which states that Income including interest/ discount/ hire charges/ lease rentals or any other charges on NPA shall be recognised only when it is realized. Further, any income from a NPA may be recognised before the asset becomes non-performing and remaining unrealized shall be reversed. The Appellant has also followed the same income recognition norms, and yet it has been alleged by Ld. PCIT in the notice dated 11.03.2022 that the Appellant has not adopted the policy of income recognition from NPA in accordance with RBI's master direction dated 01.09.2016. Relevant extract of the said notice has been reproduced hereunder: “6. It has also been noticed that the provision of section 43D was not applicable in your case, being NBFC. In the financial statements, NPA was not categorized and depicted as per the norms laid down in RBI's master direction i.e. into substandard assets, doubtful assets and loss assets as defined and provision for the same was made as per company's own policy which was on higher side and was not in accordance with RBI's master direction dated 01.09.2016. Thus, policy adopted for provisioning and income recognition for interest on NPA, reduced the profit for the FY 2016-17 by Rs. 4.55 crore, (note 2.1 (a) (ii)) , which was to be considered for addition in income under the head profit and gains of business and profession.” ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 87 5. Hence, the jurisdiction assumed by the Ld. PCIT is itself on factually incorrect data. It can also be inferred that the Ld. AO made no mistake in passing the Assessment Order and when the said order was not erroneous, the assumed jurisdiction by the Ld. PCIT is bad in law. 6. Further, the accounting policies adopted in the preparation of the financial statements are consistent with those of previous years. Moreover, the impact highlighted in the annual report of the bank is to highlight the impact of the change notified by the RBI vide Notification DNBR.009/ CGM(CDS)-2015 dated March 27, 2015. As per the above notification, RBI has asked NBFC to systematically reduce the overdue period for identification of NPA, extract of the said notification is reproduced below for your kind reference. “(xix) “non-performing asset” (referred to in these Directions as “NPA”) means: (a) an asset, in respect of which, interest has remained overdue for a period of six months or more; (b) a term loan inclusive of unpaid interest, when the instalment is overdue for a period of six months or more or on which interest amount remained overdue for a period of six months or more; (c) a demand or call loan, which remained overdue for a period of six months or more from the date of demand or call or on which interest amount remained overdue for a period of six months or more; (d) a bill which remains overdue for a period of six months or more; (e) the interest in respect of a debt or the income on receivables under the head ‘other current assets’ in the nature of short term loans/advances, which facility remained overdue for a period of six months or more; (f) any dues on account of sale of assets or services rendered or reimbursement of expenses incurred, which remained overdue for a period of six months or more; Provided that the period of ‘six months or more’ stipulated in sub-clauses (a) to (f) shall be ‘five months or more’ for the financial year ending March 31, 2016; ‘four months or more’ for the financial year ending March 31, 2017 and ‘three months or more’, for the financial year ending March 31, 2018 and thereafter” 7. Accordingly, in regard with the RBI vide Notification DNBR.009/ CGM(CDS)-2015 dated March 27, 2015 and RBI Master Direction- Non- Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 issued vide Master Direction DNBR.PD.008/03.10.119/2016-17 dated September 01,2016, the Bank has revised its estimates of provisioning ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 88 for loan portfolio and impact of the same has been disclosed in Notes to the financial statements vide para 2.1 (a) (ii) as follows: 2.1(a) (ii) Change in provisioning for loan portfolio With effect from April 1, 2016, the Company has revised its estimates of provisioning for loan portfolio, in line with the requirements of the Master Direction DNBR.PD.008/03.10.119/2016-17 dated September 01, 2016. As a result of such change profit of current year is lower by 455.31 lacs (including the effect of income reversal on non performing assets). 8. Thus, it is very `clear that the Appellant has not changed any of its accounting policy, rather, it has only highlighted the impact of the change notified by the RBI. It is imperative to note that the Appellant has constantly followed the same method of accounting as mentioned in the Section 145 of the Income Tax Act. 9. Here it is humbly submitted that the above position of the facts is also accepted by the Ld. PCIT in the order, even then she has directed the Ld. AO for fresh assessment for conducting fishing inquiries which is against the very purpose of Section 263. 10. Therefore, it is humbly submitted that the observations of the Ld. PCIT is factually and legally incorrect and the order of the Ld. AO is neither erroneous nor prejudicial to the interest of revenue. Hence, the order passed by the Ld. PCIT is liable to be quashed.’’ On the other hand, the ld. DR supported the order of the ld. PCIT, on ground no. 8 & 9. After hearing both the parties and perusing the materials available on record. It is noted from the order of the ld. PCIT wherein she observed that :- ‘’provision of section 43D was not applicable in your case, being NBFC. In the financial statements, NPA was not categorized and depicted as per the norms laid down in RBI's master direction i.e. into substandard assets, doubtful assets and loss assets as defined and provision for the same was made as per company's own policy which ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 89 was on higher side and was not in accordance with RBI's master direction dated 01.09.2016. Thus, policy adopted for provisioning and income recognition for interest on NPA, reduced the profit for the FY 2016-17 by Rs. 4.55 crore.’’ It is noted from the submission of the assessee that the Assessee, being registered with the RBI is bound to comply with the recognition norms of RBI Master Direction NBR.PD.008/03.10.119/2016-17 dated September 01,2016 which states that Income including interest/ discount/ hire charges/ lease rentals or any other charges on NPA shall be recognised only when it is realized. Further, any income from a NPA may be recognised before the asset becomes non-performing and remaining unrealized shall be reversed. The Assessee has also followed the same income recognition norms, and yet it has been alleged by Ld. PCIT in the notice dated 11.03.2022 (supra) that the Assessee has not adopted the policy of income recognition from NPA in accordance with RBI's master direction dated 01.09.2016. It is also noted from the submissions of the assessee that the accounting policies adopted in the preparation of the financial statements are consistent with those of previous years. Moreover, the impact highlighted in the annual report of the bank is to highlight the impact of the change notified by the RBI vide ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 90 Notification DNBR.009/ CGM(CDS)-2015 dated March 27, 2015. As per the above notification, RBI has asked NBFC to systematically reduce the overdue period for identification of NPA whose extract is mentioned hereinabove. Thus, from the records, it is noticed that the assessee had not changed any of the accounting policy and it has consistently followed the same method of accounting as mentioned in Section 145 of the Income Tax Act. It is pertinent to mention that the ld. PCITs mentioned as under:- ”. 1. The reply of the assessee is considered and apparently appears to be acceptable. However, the same is requires verification.’’ This remarks of the ld. PCIT indicates that there is ambiguity in her version i.e. the reply of the assessee is considered and apparently appears to be acceptable, however, the same requires verification. There should not be dubious thought by directing the AO for fresh assessment for conducting fishing inquiries which is against the very purpose of Section 263 of the Act. In view of the above deliberation, the Bench finds that the order of the AO is neither erroneous nor prejudicial to the interest of the Revenue. Thus Ground Nos. 8 & 9 of the assessee is allowed. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 91 8. Based on the discussion we see that the order of the AO on various issues considered the records and the submission of the assessee which may not be discussed in the order and but has considered the explanations of the assessee and taken plausible view on the matter. In fact the provision of section 263 of the Act nowhere allow to challenge the judicial wisdom of the ld. AO or to replace the wisdom of the PCIT in the guise of revision unless the view taken by the ld. AO is not at all sustainable in the law and to invoke the provision the twin condition needs to be satisfied. The extent of the enquiry can be stretched to any level by forcing the AO to go through the assessment process again and again and that case there cannot be finality of the issue. The bench further note that the prerequisite exercise of jurisdiction by the learned Principal CIT under section 263 of the Act is that the order of the AO is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The ld. PCIT has to be satisfied of twin conditions, namely (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent i.e., if the assessment order is not erroneous but it is prejudicial to the Revenue, provision of section 263 cannot be invoked. This provision cannot be invoked to correct ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 92 each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to Revenue's interest, then the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. It is pertinent to mention that if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the Pr. CIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. In this process even the AO has no power to review his own. In this regard, we draw strength from the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1: (2000) 243 ITR 83 (SC). We also draw strength from the decision of the Hon'ble Supreme Court in the ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 93 case of CIT vs. Max India Ltd. (2007) 213 CTR (SC) 266: (2007) 295 ITR 282 (SC) wherein it was held that: "The phrase 'prejudicial to the interests of the Revenue' in s. 263 of the IT Act, 1961, has to be read in conjunction with the expression 'erroneous' order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when the AO adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the AO is unsustainable in law." Thus, based on this decision it is also noteworthy to mention that one of the pre-requisite before invoking S. 263 and the allegation of the Ld. PCIT is that there has been incorrect assumption of fact and law by the Assessing Officer. However, despite our deep and careful consideration of the material on record including the finding recorded in the subjected Assessment order and in the findings recorded in the order under challenge, we do not find any incorrectness and incompleteness in the appreciation of facts made by the AO. In the light of these observations, we do not agree on this aspect to this extent with Ld. Pr. CIT. Even on facts we have discussed that on the issues raised there is error or prejudice caused to the revenue and does not attract the clause (a) or (b) to explanation 2 of section 263 of the Act and thus, it is nothing but a ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 94 change of opinion which is not permitted in the eyes of the law. In the light of the aforesaid discussion, we hold that the order of the PCIT is not in accordance with the provisions of section 263 of the Act. Based on the aforesaid discussion and finding the appeal of the assessee in ITA NO. 203/JPR/2022 is allowed. 9. Now we take up the appeals of the assessee namely Aavas Financiers Ltd. for the assessment year 2017-18 & 2018-19 for adjudication as under:- Grounds of appeal in ITA NO. 211/JP/2022 –A.Y. 2017-18 1. Under the facts and circumstances of the case and in law, Ld. PCIT, Jaipur-1 has failed to appreciate that the Assessment Order was neither erroneous nor prejudicial to the interest of revenue, thus, order passed under Section 263 of the Act is perverse, arbitrary, bad in law and without jurisdiction. 2. Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in holding that the Assessment Order is erroneous and prejudicial to the interest of the revenue without appreciating the fact that the Ld. AO, after conducting due enquiry, has rightly allowed the deduction under Section 36(1)(viia)(d) of the Act. 3. Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in invoking the power under Section 263 of the Act and directing the Ld. AO for fresh assessment by holding that the order of Ld. AO dated 21.12.2019 is liable for revision under Section 263 of the Act to the extent the Ld. AO has allegedly allowed excess deduction of Rs. 1.46 crores under Section 36 (1)(viia)(d) of the Act. 4. Under the facts and circumstances of the case and in law, the L. PCIT, Jaipur-1 has grossly erred in directing the fresh assessment while not following the established judicial precedents and procedures laid by CBDT Instruction No. 17/2008 dated 26.11.2008 for computing deduction under Section 36(1)(viia)(d) of the Act. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 95 5. Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in directing the Ld. AO for fresh assessment to compute the book profit. under Section 115JB of the Act even when it is admitted by the Ld. PCIT that the computation done by the Appellant is not prejudicial to the interest of the revenue. 6.Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has made a factual error in considering the provisions made for unascertained assets as a provision made for unascertained liability and holding that the provision made for standard, bad and doubtful debts has to be added back while computing book profit for determination of MAT payable by invoking the Clause (c) of Explanation 1 to Section 115JB of the Act. 7. Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in holding. that the Assessment Order is erroneous and prejudicial to the interest of the revenue without appreciating the fact that the Ld. AO, after conducting due enquiry, has rightly allowed the deduction under Section 36(1)(viii) of the Act. 8. Under the facts and circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in facts while computing the amount of deduction allowed under Section: 36(1)(viii) of the Act and restricted it by Rs. 1.69 crores. Consequentially, Ld. PCIT has directed the Ld. AO for fresh assessment under Section 263 of the Act. 9. Under the facts and circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in holding that the profit of Rs. 9.13 crores earned on redemption of liquid mutual fund will not be considered while computing the profit for computation of deduction under Section 36(1)(viii) of the Act. 10. Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in facts and law by holding that the investment in liquid fund and income thereon has to be treated as capital gain and not business income of the Appellant and further disregarding the said investment as incidental to the business of the Appellant. 11. Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in law by not directing the Ld. AO to consider the cost incurred for investment in mutual funds while computing profit derived from eligible business for deduction under Section 36(1)(viii) of the Act. 12. Under the facts and the circumstances of the case and in law, the Ld. PCIT, Jaipur-1 has grossly erred in directing the Ld. AO for fresh assessment even after appreciating the certificate under Section ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 96 35AC(2) of the Act, as submitted during the proceedings under Section 263 of the Act. Grounds of appeal for ITA No, 289/JP/2023 – A.Y. 2018-19 1. Under the facts and circumstances of the case and in law, Ld. PCIT, has failed to appreciate that the Assessment Order was neither erroneous nor prejudicial to the interest of revenue, thus, order passed u/s 263 of the Act is perverse, arbitrary, bad in law and without jurisdiction. 2. Under the facts and the circumstances of the case and in law, the Ld. PCIT, has grossly erred in directing the Ld. AO for fresh assessment u/s 263 of the Act without holding how the Assessment Order is erroneous in so far as prejudicial to the interest of the revenue and without appreciating the fact that the Ld. AO has duly inquired and verified the deduction u/s 36(1)(viii) of the Act. 3. Under the facts and circumstances of the case and in law, the Ld. PCIT, has grossly erred in facts while computing the amount of deduction allowable u/s 36(1)(viii) of the Act with respect to special reserve and restricting it by Rs.3.55 crores. Consequentially Ld. PCIT has grossly erred in directing the Ld. AO for fresh assessment u/s 263 of the Act. 4. Under the facts and circumstances of the case and in law, the Ld. PCIT, has grossly erred in alleging that the profit of Rs. 21.17 crores earned from redemption of liquid mutual fund will not be considered while computing the profit for computation of deduction under Section 36(1)(viii) of the Act. 5. Under the facts and the circumstances of the case and in law, the Ld. PCIT, has grossly erred in law by not directing the Ld. AO to consider the cost incurred for investment in mutual funds while computing profit derived from eligible business for deduction under Section 36(1)(viii) of the Act. 6. Under the facts and the circumstances of the case and in law, the Ld. PCIT, has grossly erred in directing the Ld. AO for fresh assessment u/s 263 of the Act without holding how the Assessment Order is erroneous in so far as prejudicial to the interest of the revenue and without appreciating the fact that the Ld. AO has duly inquired and verified the Form 10DA furnished with respect to deduction of Rs. 1.15 Crores: claimed u/s 80JJAA of the Act with respect to additional employee cost. 7. Under the facts and the circumstances of the case and in law, the Ld. PCIT, has grossly erred in directing the Ld. AO for fresh assessment u/s 263 of the Act, even when the Ld. AO has correctly ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 97 allowed deduction of Rs. 1.15 Crores u/s 80JJAA of the Act with respect to additional employee cost. 8. Under the facts and the circumstances of the case and in law, the Ld. PCIT, has grossly erred in directing the Ld. AO for fresh assessment u/s 263 of the Act, even when the Ld. AO has correctly allowed deduction of Rs. 1.78 crores towards writing off of non- performing advances/bird debts after reversal of opening provision. 10. Both the appeals 211/JPR/2022 and 289/JPR/2023 filed by the asseessee are similar, thus, we are taking up both the appeals together. 11. First appeal No. 211/JPR/2022 pertains to AY 2017-18. In this regard, it is relevant to highlight that in the said appeal the AO has already carried out the second round of assessment proceedings pursuant to direction u/s 263 and passed the order dated 25.03.2023 wherein the observation of the AO is reiterated here in below : 3.4 Reasons for inference drawn that no variation is required on this issue: I have gone through the submission made by the assessee on 14.02.2023 and submission made during VC on 17.02.2023 and I am satisfied with the submission made by the assessee and is found to be acceptable. Therefore, accepting the submission made by the assessee, no variation to the total income disclosed by the assessee in tis return of income is required to be made.” 12. Based on the above observation, the ld AR submitted the assessment order passed in second round pursuant to the order ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 98 u/s 263 and highlighted that all the issues are allowed in favour of the assessee as the deductions were correctly availed and therefore, the observations of the ld. PCIT even after the second round not prejudicial or erroneous. We have considered the said order and our observations on the issues are dealt here below paras. 13. In this appeal, Ground No. 1 is general and the remaining grounds are dealt in following paras. 13.1 First Issue: The ld. PCIT has objected the deduction of provision for bad and doubtful debts claimed by assessee under Section 36(1)(viia)(d) of the Act. The assessee objected this issue in its Ground No. 2, 3 & 4. It is observed that on this issue specific enquiry was conducted by the Assessing Officer vide notice dated 09.11.2019. The assessee in its reply dated 14.11.2019 before the AO has explained the deduction claimed. We observe that the AO has carried out due enquiry on this issue. Further, the ld. PCIT has merely relied upon the CBDT Instruction ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 99 no. 17/2008 which is not applicable on the assessee being a NBFC. Thus, on this issue, the order of AO is neither erroneous nor prejudicial to the interest of revenue i.e. the twin conditions are not satisfied. Accordingly, in absence of satisfaction of twin conditions, the AO's order does not require revision. Hence, the PCIT was not correct in exercising jurisdiction u/s 263. 13.2 Second Issue: The assessee objected the second issue raised by PCIT in its Ground No. 5 & 6. It relates to provision for unascertained liabilities not added back while computing book profit under Section 115JB of the Act, the Appellant submitted that the issue is not prejudicial to the interest of revenue as even after proposed adjustment the normal tax liability is much higher than the MAT liability. This position, that the order is not prejudicial on this issue, is also admitted by the PCIT in the order u/s 263. Thus, we observe that twin conditions are not satisfied by the PCIT. Accordingly, in absence of satisfaction of twin conditions, the AO's order does not require revision. Hence, the PCIT was not correct in exercising jurisdiction u/s 263. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 100 13.3 Third Issue: The ld. PCIT has objected the deduction of special reserve under Section 36(1)(viii) of the Act. The assessee objected this issue in its Ground No. 7 to 11. It is observed that on this issue specific enquiry was conducted by the Assessing Officer vide notice dated 09.11.2019. The assessee in its reply dated 14.11.2019 before the AO has explained the deduction in detail. We observe that the AO has carried out due enquiry on this issue. Further, the AR submitted that the PCIT has erred in considering the profit from sale of mutual fund as not a part of housing business. The assessee in its written submissions stated that: 7.3 The profits derived from the ‘eligible business’ of the Appellant include profits from redemption of liquid mutual fund units as the said investment and income earned therefrom is imperative for smooth functioning of the long term housing finance of the Appellant and is an inevitable part of said eligible business. The same can be substantiated by the very fact that as per the NHB Guidelines on Asset Liability Management (ALM) for Housing Finance Companies (HFC’s) i.e., Guideline No. NHB/ND/DRS/Pol-No.35/2010-11 dated 11 October 2010, all the HFC’s are mandatorily required to follow ALM Guidelines wherein HFC’s are required to maintain liquidity and interest rate risk. 7.4 The Appellant has invested into mutual funds as per the requirement of aforesaid guidelines in order to maintain liquidity and internal rate risk, which is a business exigency. The amounts are mandatorily required to be parked at the domain cited in the guidelines and gains are incidental thereon. Therefore, the said income is an inevitable part of the housing finance business of the Appellant. Accordingly, the said income has been factored while computing profits derived from eligible business under section 36(1)(viii) of the Act. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 101 On this issue the ld. DR relied upon the order of PCIT. We observe that the profit from sale of mutual fund is integral part of the housing business of the Appellant as it is done for compliance with NHB Act and the assessee needs to maintain the liquidity of funds due to business exigency. Thus, we hold that order of the AO is not erroneous. Further, the AR submitted that the PCIT has erred in considering the amount of long term housing loan for the purpose of Section 36(1)(viii). The assessee in its written submissions stated that: 6.5 Here, the Appellant humbly submits that the facts and figures in the above table used by Ld. PCIT are of no relevance for the purpose of computing ‘profits derived from eligible business’ under Section 36(1)(viii) of the Act as the said schedule has been structured to provide information by way of classifying the loans into ‘Current’ and ‘Non- Current’ as prescribed in the framework of financial statements and accounting standards. The classification of loans as non-current represents the installment amount of housing loan which is receivable after a period of 12 months. Thus, typically, the said schedule cannot serve the purpose of providing the figures of long-term housing loans, i.e. loans having term of 5 years or more, for the purpose of Section 36(1)(viii). Hence, it is humbly submitted that the Ld. PCIT has grossly erred in analysing the facts of the present case and forming an opinion which is not maintainable. We have considered the submission of the AR and observe that the PCIT has erred in considering the wrong facts for alleging the mistake in amount of long term housing loans for the purpose of Section 36(1)(viii) of the Act. Thus, we hold that the order of the ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 102 AO cannot be said to be erroneous bases on assumption of wrong facts by the PCIT.Accordingly, we observe that the PCIT has not satisfied the twin conditions with respect to this issue. In absence of satisfaction of twin conditions, the AO's order does not require revision. Hence, the PCIT was not correct in exercising jurisdiction u/s 263. 13.4 Fourth Issue: The assessee objected the fourth issue raised by PCIT in its Ground No. 12. It relates to non-furnishing of certificate u/s 35AC along with return of income, the Appellant submitted that the said certificate cannot be furnished along with return of income as there is no functionality available. Further, from the perusal of the records available before PCIT, it is noted that the said certificate was available before the PCIT. However, PCIT does not point out any prejudice caused to the revenue and merely it has been stated in the order u/s 263 that the certificate was required to be verified by the AO. We observe that the PCIT has not satisfied the twin conditions with respect to this issue i.e. how the issue is prejudicial to the interest of revenue. Also, the certificate is available on records with the PCIT, however, that is not considered by the PCIT. As the certificate is on records, the ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 103 PCIT should have verified the certificate and must have satisfied the twin conditions so as to invoke the provision of section 263 of the Act. Accordingly, in absence of satisfaction of twin conditions, the AO's order does not require revision. Hence, the PCIT was not correct in exercising jurisdiction u/s 263. 14. Thus, in the entirety of facts and circumstances of the case, we are of the view that the order passed by AO during first round under section 143(3) cannot be held to be an erroneous order which is prejudicial to the interest of revenue. Also, the PCIT has not satisfied the twin conditions as discussed in above paras. Hence, the impugned orders issued by PCIT under section 263 lacks the inherent jurisdiction and thus cannot be sustained. 15. Now we take up the appeal no 289/JPR/2023. In the said appeal Ground No. 2 to 5 relating to deduction u/s 36(1)(viii) of the Act are same as Ground No. 7 to 11 discussed above. Thus, the same is allowed in favour of the assessee in terms of the our observations so recorded here in above. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 104 16. Coming to Ground No. 6 & 7 with respect to issue relating to deduction u/s 80JJAA of the Act. The assessee submitted that the Form 10DA was duly filed along with ITR and AO had specifically enquired at length about the deduction claimed vide Notice dated 03.12.2020 to which a detailed reply was submitted by the Appellant vide reply dated 24.12.2020. The assessee in its written submissions also submitted that: 7.4 Herein, it is imperative to underline that the Ld. PCIT has alleged that the Form 10DA is incomplete as the amount of emoluments paid or payable to additional employees during the course of year was not furnished. The said allegation is not only incorrect but also baseless as Form 10DA is complete in all aspects. Perusal of Form 10DA annexed to the Paper Book at Page No. 348-350 clearly shows that all the particulars including the details of emoluments paid or payable to additional employees during the course of year were properly furnished by the Appellant. We observe that the AO has carried out due enquiry on this issue. Further, from the perusal of the records available before PCIT, it is noted that the said certificate was available before the AO as well as the PCIT. However, PCIT does not point out any prejudice caused to the revenue. Also, it has been stated in the order u/s 263 that the issue was not inquired by the AO which is factually incorrect. We observe that the PCIT has not satisfied the twin conditions with respect to this issue i.e. how the issue is prejudicial ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 105 to the interest of revenue. As the certificate is on records, the PCIT should have verified the certificate and must have satisfied the twin conditions. Accordingly, in absence of satisfaction of twin conditions, the AO's order does not require revision. Hence, the PCIT was not correct in exercising jurisdiction u/s 263. 17. Now coming to the Ground 8 relating to claim of bad debts written off. On this issue the contention of the assessee is as under : 8.9 In light of the above submission, it is humbly submitted that the allegation of the Ld. PCIT is clearly verifiable from the computation of total income of the Appellant i.e. Appellant has claimed only the net write off after reversing the provision. Thus, the Ld. PCIT has grossly erred in directing for again verification by the Ld. AO as the same is already verified by the Ld. AO from the computation. 8.10 Even otherwise, it evident that the Appellant has correctly claimed the write off of bad debts of Rs. 1.78 Cr after reversing the provision of Rs. 1.62 Cr in the computation of total income. The same is also not objected by the Ld. PCIT in the order passed u/s 263. Thus, it is humbly submitted that the Ld. PCIT has grossly erred in not satisfying the twin conditions of Section 263 of the IT Act. Hence, it is humbly submitted that the order of the Ld. PCIT is not maintainable as the assessment order is neither erroneous nor prejudicial to the interest of revenue. The PCIT has alleged that the provision is not adjusted with the bad debts written off. However, on perusal of the computation of income available on records before PCIT, we observe that the ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 106 assessee has reversed the provision of Rs. 1.62 Cr against the claim of bad debts written off of Rs. 1.78 Cr. The same is also highlighted before the PCIT. However, the PCIT does not point out any prejudice caused to the revenue. We observe that the PCIT has not satisfied the twin conditions with respect to this issue i.e. how the issue is prejudicial to the interest of revenue even when the assessee has adjusted the provision against the claim of bad debts. The PCIT should have satisfied the twin conditions. Accordingly, in absence of satisfaction of twin conditions, the AO's order does not require revision. Hence, the PCIT was not correct in exercising jurisdiction u/s 263. 18. In the entirety of facts and circumstances of the case, we are of the view that the order passed by AO under section 143(3) cannot be held to be an erroneous order which is prejudicial to the interest of revenue. Also, the PCIT has not satisfied the twin conditions as discussed in above paras. Hence, the impugned orders issued by PCIT under section263 lacks the inherent jurisdiction and thus cannot be sustained. ITA No. 203/JPR/2022, 211/JPR/2022&289/JPR/2023 M/s. AU Small Finance Bank Limited & Avas Financiers Limited 107 19. In the result both the appeals filed by the assessee in ITA NO. 211/JP/2022 and 289/JP/2023 are allowed and the orders u/s 263 are set-aside. 20. In the result, the appeals of the respective assessee are allowed Order pronounced in the open Court on 28 /07/2023. Sd/- Sd/- ¼ MkWa-,l-lhrky{eh½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (RATHOD KAMLESH JAYANTBHAI) U;kf;d lnL;@Judicial Member ys[kk lnL; @Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 28/07/2023. *Mishra vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. vihykFkhZ@The Appellant- AU Small Finance Bank Ltd and Avas Financiers Ltd, Jaipur. 2. izR;FkhZ@ The Respondent- The PCIT, Jaipur-1 . 3. vk;dj vk;qDr@ CIT 4. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur. 5. xkMZ QkbZy@ Guard File { ITA No. 203/JPR/2022, 211/JP/2022 & 289/JP/2023} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar