M/S. BRITISH AGRO PRODUCTS (INDIA) PVT. LTD.,CHENNAI V. PCIT-1, CHENNAI

ITA 1146/CHNY/2025

AI Insights

The case involves M/s. British Agro Products (India) Private Limited, which appealed against the order of the Principal Commissioner of Income Tax-1, Chennai, concerning the assessment year 2020-21. The primary issue was the invocation of revisionary powers under section 263 of the Income Tax Act by the PCIT-1, Chennai, which was contested by the assessee. The assessee had claimed a write-off of trade advances amounting to Rs.8,78,95,397, which was initially allowed by the Assessing Officer after reviewing FIR and court orders. However, the PCIT-1 later found the issue inadequately investigated and invoked section 263, leading to the appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 716897 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2020-2021
• Appeal Filed On: 23-04-2025
• Other Referred Cases: Vikas Polymers vs. Commissioner, Anil Kumar Sharma vs. Commissioner
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BIPIN C.N
• Assessee Lawyers: Y..SRIDHAR; F
• Keywords: Set aside; Opportunity of being heard; Transfer pricing; Business expenditure; Question of law; Bad and doubtful debts; Period of limitation; Capital expenditure; Revision of order
• Section: 143(3); 263; 145; 37

Judgement Text

"आयकर अपीलीय अधिकरण, ’सी’ न्यायपीठ, चेन्नई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: CHENNAI श्री एबी टी. वर्की, न्यायिर्क सदस्य एवं श्री अयिताभ शुक्ला, लेखा सदस्य क े समक्ष BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.1146/Chny/2025 Assessment Years: 2020-21 M/s. British Agro Products (India) Private Limited, No.9, State Bank Officers Colony, Shashtri Nagar, Chennai-600 020. [PAN: AAFCB8238H] Principal Commissioner of Income Tax-1, Chennai. (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थी की ओर से/ Assessee by : Shri Y..Sridhar, F.C.A. प्रत्यर्थी की ओर से /Revenue by : Shri Bipin C.N, CIT सुनवाई की तारीख/Date of Hearing : 09.07.2025 घोषणा की तारीख /Date of Pronouncement : 20.08.2025 आदेश / O R D E R PER AMITABH SHUKLA, A.M : This appeal is filed by the assessee against the order bearing DIN & Order No.ITBA / REV / F / REV5 / 2024-25 / 1074931062(1) dated 24.03.2025 of the Learned Principal Commissioner of Income Tax-1 [herein after “PCIT-1, Chennai for the assessment year 2020 -21. The reference to the word “Act” in this order hereinafter shall mean the Income Tax Act, 1961 as amended from time to time. Printed from counselvise.com ITA No.1146/Chny/2025 Page - 2 - of 13 2.0 The only issue raised by the assessee through its grounds of appeal is regarding the revisionary powers invoked by the Ld.PCIT-1, Chennai u/s 263 of the Act. Brief factual matrix of the case is that the assessee is engaged in the business of trading of agricultural, Horticultural, Floricultural, activities as well as growing of fruits and vegetables etc. Return of Income declaring loss of Rs.(-)8,80,06,919/- was passed by the assessee on 09.02.2021. Order u/s 143(3) was passed by the Ld.AO on 26.09.2022 determining taxable loss at Rs.(-) 2,68,08,267/- after making addition of Rs.6,12,60,652/-. Pertinently, the case was selected in the complete scrutiny category. Among various issues enquired by the Ld.AO included an assessee’s claim of write off of trade advance amounting to Rs.8,78,95,397/-. Before the Ld.AO the assessee had claimed that it had given trade advances of Rs.8,78,95,397/- to one Ms.Subartha, Proprietor of M/s.SSS Export for supply of food grains and that the impugned party subsequently neither supplied the promised products nor returned the money. After protracted court proceedings the party agreed to pay the disputed amount however it soon vanished and is absconding without payment of the amount of Rs.8,78,95,397/-. The Ld.AO allowed the claim of the assessee after merely placing on record copies of FIR and Court Orders. Subsequently, the Ld.PCIT-1, Chennai noted that the said issue was not adequately enquired into and investigated by the Ld.AO. It was noted that the Printed from counselvise.com ITA No.1146/Chny/2025 Page - 3 - of 13 Ld.AO had not even placed on record any agreement between the assessee and the delinquent party even though the same was specifically requested by the Ld.AO. No such evidence was placed before the Ld.PCIT-1, Chennai as well. The Ld.PCIT further noted that there was an abnormal gap between the advances paid by the assessee and the supplies received. Accordingly, concluded that as the Ld.AO failed to make a complete verification and enquiry w.r.t issue at hand, it is a fit case for invocation of provision of section 263. 3.0 It is the case of the assessee that the matter of write off of trade advance was fully investigated by the Ld.AO before allowing the same to the assessee. The Ld.Counsel has further argued, while placing a detailed paper book on record, that the trade advances were paid by it through banking channels and that the same are genuine business transactions. The Ld.Counsel argued that they are eligible to be allowed as bad debts u/s 36(1)(vii). It was further submitted that the impugned trade advances are admissible for allowance u/s 37 also. Thus it was argued when the claim of the assessee per se is legally permissible under the provisions of the Act and the same was enquired into by the Ld.AO, the same cannot be revisited through the revisionary powers of the Ld.PCIT u/s 263 of the Act. It was accordingly pleaded that the 263 order may be set aside and quashed. Printed from counselvise.com ITA No.1146/Chny/2025 Page - 4 - of 13 4.0 Per contra, the Ld.DR argued in favour of the revisionary order of Ld.PCIT u/s 263. 5.0 We have heard the rival submissions in the light of material available on records. Before proceeding further, we deem it appropriate to briefly examine the statutory provisions u/s 263, 36(1)(vii) and section 37 which are seminal to the controversy. “……..Section - 263, Income-tax Act, 1961 - FA, 2025 E.-Revision by the 28[Principal Commissioner or] Commissioner* Revision of orders prejudicial to revenue. 29 263. (1) The 28[ 30[Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or] Commissioner may call for and examine 31 the record 32 of any proceeding under this Act, and if he considers that any order 32 passed therein by the 33[Assessing] Officer 34[or the Transfer Pricing Officer, as the case may be,] is erroneous 32 in so far as 32 it is 32prejudicial to the interests of the revenue 32, 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, 32pass such order thereon as the circumstances of the case justify, 35[including,- (i) an order enhancing or modifying the assessment or cancelling the assessment 32 and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said section]. 36[ 37[Explanation 1.]-For the removal of doubts 38, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed 39[on or before or after the 1st day of June, 1988] by the Assessing Officer 40[or the Transfer Pricing Officer, as the case may be,] shall include- (i) an order of assessment made by the Assistant Commissioner 41[or Deputy Commissioner] or the Income-tax Officer on the basis of the directions issued by the 42[Joint] Commissioner under section 144A; (ii) an order made by the 42[Joint] Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer 40[or the Transfer Pricing Officer, as the case may be,] conferred on, or assigned to, him under the orders or directions issued by the Board or by the 43[Principal Chief Commissioner or] Chief Commissioner or 43[Principal Director General or] Director General or 43[Principal Commissioner or] Commissioner authorised by the Board in this behalf under section 120; 44[(iii) an order under section 92CA by the Transfer Pricing Officer;] Printed from counselvise.com ITA No.1146/Chny/2025 Page - 5 - of 13 (b) 45“record” 46[shall include and shall be deemed always to have included] all records relating to any proceeding under this Act available at the time of examination by the 43[Principal 47[Chief Commissioner or Chief Commissioner or Principal] Commissioner or] Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer 44[or the Transfer Pricing Officer, as the case may be,] had been the subject matter 48 of any appeal 49[filed on or before or after the 1st day of June, 1988 48], the powers of the* 50[Principal Commissioner or] Commissioner under this sub-section shall extend 49[and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.] 51[Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 52[or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal 53[Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made 48; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.] 54[Explanation 3.-For the purposes of this section, “Transfer Pricing Officer” shall have the same meaning as assigned to it in the Explanation to section 92CA.] 55[(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.] (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, 56 the High Court or the Supreme Court. Explanation.-In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and 56a[the period commencing on the date on which stay on any proceeding under this section was granted by an order or injunction of any court and ending on the date on which certified copy of the order vacating the stay was received by the jurisdictional Principal Commissioner or Commissioner] shall be excluded. Other deductions. 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- ------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- 59(vii) subject to the provisions of sub-section (2), the amount of 60[any 61bad Printed from counselvise.com ITA No.1146/Chny/2025 Page - 6 - of 13 debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year]: 62[Provided that in the case of 63[an assessee] to which clause (viia) applies, the amount of the deduction relating to 61any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause:] 64[Provided further that where the amount of such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof becomes irrecoverable or of an earlier previous year on the basis of income computation and disclosure standards notified under sub-section (2) of section 145 without recording the same in the accounts, then, such debt or part thereof shall be allowed in the previous year in which such debt or part thereof becomes irrecoverable and it shall be deemed that such debt or part thereof has been written off as irrecoverable in the accounts for the purposes of this clause.] 65[ 66[Explanation 1].-For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts 67 made in the accounts of the assessee.] 68[Explanation 2.-For the removal of doubts, it is hereby clarified that for the purposes of the proviso to clause (vii) of this sub-section and clause (v)of sub-section (2), the account referred to therein shall be only one account in respect of provision for bad and doubtful debts 69 under clause (viia) and such account shall relate to all types of advances, including advances made by rural branches;] …………………………………………………………………………………………. 30(2) In making any deduction for a bad debt or part thereof, the following provisions shall apply- 31[(i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;] ii) if the amount ultimately recovered on any such debt or part of debt is less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made; General. 36 37. 37 (1) 38Any expenditure 39 (not being expenditure of the nature described in sections 30 to 3640[***] and not being in the nature of capital expenditure 41 or personal expenses of the assessee), laid out or expended wholly and exclusively 41 for the purposes of the business 41 or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession”…..” Printed from counselvise.com ITA No.1146/Chny/2025 Page - 7 - of 13 6.0 The first argument taken by the Ld. Counsel is regarding the non-applicability of section 263 of the Act in this case. It has been argued that the Ld.AO has done all the enquiries in the issue of trade advances and therefore no action under section 263 of the Act lies in this case. Sub-clause(a) of Explanation-2 to Section 263 postulates that a PCIT shall be entitled to draw his conclusions of an order passed by an assessing officer as erroneous in so far as it is prejudicial to the interest of Revenue if the order is passed without making inquiries or verification which should have been made. The law thus stipulates that if an assessing officer is found to have made enquiries in a case, the revisionary authority cannot be exercised by a supervisory commissioner. It is in this context that the nature of enquiries made by the Ld.AO in this case assumes significance. The Ld.AO has accepted the assessee’s claim of about Rs.8,78,95,397/- by placing on record copies of FIR and Court Orders which were at the opportune time seminal to the controversy. The said documents firmly alluded that the party namely Mrs.Subartha prop M/s S.S.S.Export had indeed received trade advances from the assessee for supply of some items and that neither were the agreed items supplied nor were the advances returned. The said documents possessed sufficient credibility to allude towards truthfulness of hypothesis propounded by the assessee. Consequently we are not in agreement with the conclusions drawn by the Ld.PCIT that the Ld.AO has Printed from counselvise.com ITA No.1146/Chny/2025 Page - 8 - of 13 failed to conduct necessary enquiries in this case and proceeded in drawing his conclusions of the assessment order passed by the assessing officer being erroneous in so far as it is prejudicial to the interest of Revenue and consequently directing the AO for making fresh enquiries and verification and assessment of income. 7.0 We have noted that the Hon’ble Delhi High court in the case of Vikas Polymers 194 taxmann 57 have held that there is distinction between “lack of enquiry” and “inadequate enquiry. Whereas the former can be a case for exercise of revisionary authority, the latter cannot be a ground for initiating action u/s 263 by the supervisory commissioner. The Hon’ble High Court ruled that. “…This is for the reason that if a query is raised during the course of scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision. In the instant case, for example, the Commissioner has observed in the order passed by him that the assessee has not filed certain documents on the record at the time of assessment. Assuming it to be so, in our opinion, this does not justify the conclusion arrived at by the Commissioner that the Assessing Officer had shirked his responsibility of examining and investigating the case. ….”. Printed from counselvise.com ITA No.1146/Chny/2025 Page - 9 - of 13 In the instant case the evidence on record vividly suggests that the Ld.AO did make enquiries in the case. It is not the case of the Revenue that no enquiries were made but rather that the Ld.AO ought to have collected and considered for verification different set of evidences 8.0 Again in the case of Anil Kumar Sharma 194 taxman 504, Hon’ble Delhi High Court have ruled that once it is inferred from the records that the Ld.AO had applied his mind, action u/s 263 cannot be taken. Merely because the Ld. Commissioner holds a different opinion on the view taken by the Ld.AO would not make his order erroneous in as much as prejudicial to the interest of Revenue as mandated u/s 263 of the Act. Thus Hon’ble Delhi High Court held as under:- “…..7. 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….”. Printed from counselvise.com ITA No.1146/Chny/2025 Page - 10 - of 13 In the instant case Ld.PCIT has not assailed the order of the Ld.AO for non-application of mind but has merely contended that the Ld.AO did not make enquiries in a particular fashion. 9.0 Even on the merits of the case the Ld. Counsel for the assessee has vehemently argued that the trade advances which have been claimed by the assessee were allowable u/s 36(1)(vii) and / or section 37 of the Act. It has been submitted that therefore there was no case for invocation of revisionary authority u/s 263 by the Ld.PCIT. Coming to the argument of the Counsel that the impugned trade advances were otherwise eligible for allowance of deduction u/s 36(1)(vii) of the Act. We do not subscribe to the arguments put forth by the Ld.Counsel. As regards allowance u/s 36(1)(vii) is concerned we have noted that the critical limb of any income being offered in earlier years is missing in this case. Section 36(1)(vii) permits allowance of a claim in a particular year only if the taxpayer has offered income qua the impugned transaction in any earlier year. In the present case, the impugned trade advance were never offered or rather could have never been offered as income in any earlier years and therefore Section 36(1)(vii) would not apply at all. The argument of the assessee regarding admissibility of deduction u/s 36(1)(vii) thus is not supported by the statutory provisions mandating write off bad debts. Printed from counselvise.com ITA No.1146/Chny/2025 Page - 11 - of 13 10.0 Another argument taken by the assessee is that alternatively the impugned trade advances are allowable as trade losses within the meanings of section 37 of the Act. As per the method of accounting trade advances are taken to the balance sheet as Sundry Debtors (Current Assets) and are therefore an item in the balance sheet. It is accepted principle of accounting as confirmed by Hon’ble High Courts and the Apex Court that a capital loss cannot be allowed u/s 37(1). The impugned section 37 clearly prohibits allowance of any capital expenditure. The question that however arises is as to whether the impugned trade advances fall into the category of capital items or not. The only test that can resolve this question is as to the very nature of the trade advances. In the instant case as per the plain facts the assessee had in May 2017 started trade deals of procurement of food grains from said Ms Subartha and had started giving trade advances to the party in normal course of its business. Business went well and regular supplies were made by the party in FY 2017-18. The Assesee had earned total turnover (domestic & overseas) of Rs 37.40 app. crores in FY 2017-18 on which profit of Rs 72.19 lacs app. was declared. However strangely in FY 2018-19 the party started falling back on its commitments and trade advances, without corresponding supplies, started mounting. From the above facts it is clear that the trade advances which were given by the assessee to the delinquent party had direct nexus with the business Printed from counselvise.com ITA No.1146/Chny/2025 Page - 12 - of 13 income or Revenue income of the assessee. Accordingly, the trade advances of Rs.8.78 Crores app. would fall in the category of a pure business loss and not a capital loss. Pertinently, section 37 of the Act allows business expenses which are not personal or capital in nature. The assessee thus succeeds in its arguments qua admissibility and allowability of the impugned trade advances under section 37 of the Act. 11.0 We are therefore of the considered view that in the light of statutory provisions authorizing invocation of revisionary authority u/s 263, judicial precedents discussed herein above, the exercise of revisionary authority u/s. 263 by the order of Ld.CIT-1, Chennai is not in order. The order of Ld.CIT-1, Chennai dated 24.03.2025 is therefore set aside and all the grounds of appeal raised by the assessee are therefore allowed. 12.0 In the result, the appeal of the assessee is allowed. Order pronounced on 20th , Aug-2025 at Chennai. Sd/- (एबी टी. वर्की) (ABY T VARKEY) न्याधयक सदस्य / Judicial Member Sd/- (अधमताभ शुक्ला) (AMITABH SHUKLA) लेखा सदस्य /Accountant Member चेन्नई/Chennai, धदनांक/Dated: 20th , Aug-2025. KB/- Printed from counselvise.com ITA No.1146/Chny/2025 Page - 13 - of 13 आदेश की प्रतितिति अग्रेतिि/Copy to: 1. अिीिार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT - Chennai/Coimbatore/Madurai/Salem. 4. तिभागीय प्रतितिति/DR 5. गार्ड फाईि/GF Printed from counselvise.com "