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Judgment
PER ANUBHAV SHARMA, JM:
This appeal preferred by the assessee against the order dated 19.03.2025 of Ld. Principle Commissioner of Income Tax, Rohtak (hereinafter referred to as the ‘Revisionary Authority’ for short) in DIN &Order No : ITBA/REV/F/REV5/2024-25/1074717333(1)arising out of the assessment order dated 22.09.2022 u/s 143 r.w.s 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by Assessment Unit, Income Tax Department,for AY: 2020-21.
The assessee had filed return of income declaring income of Rs.14,90,80,390/- and the return of assessee was processed u/s 143(1)(a) of the Act. Thereafter, the case of assessee was picked up for complete scrutiny assessment for following reasons:
“i.Non-compliance of Income Computation & Disclosure Standards.
ii.Assessee has claimed Large “any other amount allowable as deduction” claimed in Schedule BP of return.
iii.Dept has been written off and the debtor has not shown deemed income u/s 41.”
Thereupon assessment was completed u/s 143(3) r.w.s 144B of the Act on 22.09.2022 accepting the income computed by CPC. However, Ld. Revisional Authority was not satisfied and on the basis of assessment record observed that assessee had claimed long term capital loss amounting to Rs.2,30,83,333/- on account of sale of unquoted shares and ld. Revisional Authority was of view that assessing officer had not raised any query in respect of the same.
Further, the ld. Revisional Authority observed that assessee has claimed balance written off of Rs.125.04 lakhs and ld. Revisional Authority having examined the notices issued by the assessing officer observed that although assessee company has filed reply but assessing officer failed to verify the genuineness of the sale transaction to the parties in respect of which the assessee had claimed balance written off and if the same are put to tax by the assessee in previous years.
The assessee’s response available at page No. 4-18 of the paper book was considered by the ld. Revisional Authority, however, the same was found tenable and the impugned assessment order was found to be erroneous so far as prejudicial to the interest of revenue and accordingly, concluded as follows:
“6.I have carefully examined the facts of the case and the submissions of the assessee. Assessee in his reply has requested to drop the revision proceedings initiated u/s 263 stating therein that the entire order passed by AO is silent on computation of long term losses and to be carried forward of Rs. 2,30,83,333/-.
6.1The assessee himself agreed that the long term capital loss of Rs. 2,30,83,333/-declared in the ITR has not been verified during the assessment proceedings. Hence, Assessing Officer has failed to make proper enquires and verification with regard to long term capital loss of Rs. 2,30,83,333/-, whether the loss claimed by the assessee is genuine or not.
6.2In respect to Balance written off amounting to Rs. 1,25,04,820/-, the assessee submitted that proper enquiries and explanation were provided to AO during the assessment proceeding. On perusal of assessment record, it is seen that no verification and confirmation from the parties whose balance was written off during the year under consideration was made. Therefore, Assessing Officer has failed to make proper enquires and verification in respect of balance written off amounting to Rs. 1,25,04,820/-.
7.In view of above facts and in my considered opinion, assessing officer has passed the assessment order without making proper inquiries or verification which should have been made and has made an incorrect assessment of facts which makes the assessment order erroneous. Hence, by invoking the provisions of section 263 of the Income Tax Act, 1961, the order passed by the Assessing Officer shall be revised as the order is passed without making inquiries or verification which should have been made.
7.1In view of the facts discussed in foregoing paras, it is quite clear that the assessment order dated 27.09.2022 is erroneous and prejudicial to the interest of revenue, in as much as the Assessing Officer should have conducted detailed enquiries on the above issues which he clearly failed to do.
8.The Hon’ble Apex Court in the case of Malabar Industrial Co. Ltd V/s CIT in 243 ITR 83(SC) has held that a bare reading of section 263 of the Act, makes it clear that the prerequisite to exercise of jurisdiction by the CIT suo-moto under it is that the order of the ITO is erroneous in so far as it is prejudicial to the interest of revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of AO sought to be revised is erroneous and (ii) it is prejudicial to the interest of revenue. It has also held that the phrase “prejudicial to the interest of revenue” is not an expression of art and is not defined in the Act. Understood in itsordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the ITO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase ‘prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer.
8.1Further, it has been held in the case of Venkatakrishna Rice Co. V. CIT (1987) 163 ITR 129 (Mad) it has been held by the Hon’ble Court that the expression prejudicial to the interest of the revenue must be regarded as involving a conception of facts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the ITO which might set a bad trend or pattern for similar assessment which on a broad reckoning the Commissioner might think to be prejudicial to the interest of revenue administration. The scope of the interference under section 263 is not to set aside merely unfavourable orders and bring to tax some more money into the treasury. Nor is the section meant to get at sheer escapement of revenue. The prejudice must be prejudice to the revenue administration.
8.2.Further, in Jubilant Organosys v. CIT[2004] 265 ITR 420/137 Taxman 515(All.), it was held that under section 263, the Commissioner can correct both the errors of fact and error of law. His jurisdiction is not limited to correcting errors of law alone as there is no such express restriction in the language of section 263.
8.3.Also, in Jai Kumar Kankaria vs. CIT, Cal.171 CTR 483, 251 ITR 707, 120 Taxman 810, it was held that where an order has been passed by the Assessing Officer without application of mind or where the Assessing Officer has made an incorrect assessment of facts or an incorrect application of law, that would satisfy the requirement of the order being erroneous. As regards the words “prejudicial to the interests of the Revenue”, if due to an erroneous order of the Assessing Officer the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. Section 263, 68. [370 ITR 140, 231 Taxman 534].
8.4The ratio of the above judicial pronouncements is clearly applicable to the facts of the present case.
9.Keeping in view facts and circumstances of the case as discussed above, it is observed that the AO had passed the order dated 22.09.2022 in casual manner without due diligence and without conducting proper enquiries and verification. Therefore, the assessment completed u/s 143(3) r.w.s. 144B of the Act is erroneous in so far as it is prejudicial to the interest of the revenue in terms of provisions of section 263 of the Act, especially in view of Explanation 2 inserted by the Finance Act, 2015 w.e.f. 01.06.2015. Accordingly, by exercise of power conferred u/s 263 of the Income Tax Act 1961, the assessment order passed by the AO on 22.09.2022 u/s 143(3) r.w.s. 144B of the Act for the A.Y. 2020-21 is set-aside to the above extent, with the direction to pass an order afresh after conducting required enquires and]verification in accordance with law, keeping in view the observation made above and after affording reasonable opportunity of being heard to the assessee.
With these directions, the proceedings u/s 263 are disposed off.”
The assessee has come up in appeal raising following grounds:
“1.That the PCIT has erred in law & facts of the case in passing order u/s 263 of the Income Tax Act holding that the assessment order dated 22.09.2022 is erroneous and prejudicial to the interest of revenue which is highly unjustified, uncalled for and needs to be set aside.
2.That the PCIT has erred in law & facts of the case in invoking the powers u/s 263 and passing the order directing the Assessing Officer to pass the assessment order afresh on the issue of disallowance of bad debt amounting to Rs.1,25,04,820 which islaw and uncalled for.
3.That the PCIT has erred in law & facts of the case in invoking the powers u/s 263 and passing the order directing the Assessing Officer to pass the assessment order afresh on the issue of long term capital loss amounting to Rs.2,30,83,333 which is bad in law and uncalled for.
4.That the appellant craves the leave to add, amend OR modify any ground of appeal on OR before the disposal of the same.”
Now on hearing both sides we find that as with regard to ground No. 3 there is no dispute coming up from the assessee at the stage of ld. Revisional Authority or before us that during the assessment proceedings any inquiry whatsoever was conducted by the assessing officer and in fact during hearing ld. AR has admitted not pressing ground No. 3. Accordingly same is decided against the assesse.
As with regard to ground No. 2 we find that assessee has placed on record copies notice issued by NFAC and at page No. 19 there is a notice dated 24.03.2022 by which assessing officer has called the response of the assessee on this issue and for completeness we reproduce the relevant part of the query raised by assessing officer:
“3.On verification of the financial statement it was noticed that the assessee has included under the head 'Other Expenses" an amount of Rs.1,25,04,820/- as 'sundry balances w/off. The assessee company was requested to furnish the certain details as to the admissibility of the claim along with documentary evidence in respect of the above expenses claimed along with other details by vide notice under section 142(1):
The assessee furnished reply to the notice under section142(1) on 16/12/2021 as under:
“Q.No.7. it is seen that under the head "Other Expenses" included "Sundry balances w/off" it is requested to furnish explanations and supporting evidences as to the admissibility of the same.
Sundry balances written off. Writ of due to reconciliation.”
Inspite of specific question put by the Department, the assessee company failed to furnish explanations along with supporting evidences for the admissibility of the claim. Hence the amount of Rs.1,25,04,820/- is proposed to be disallowed and added to the total income of the assessee for the year under consideration.”
The reply to the same has been provided by assessee at page No. 21-23 wherein assessee had provided details of the parties against whom the amounts were written off. Again at page No. 41-44 assessee has provided copy of notice in regard to the issue and for convenience we reproduce relevant query:
“2.Kindly refer to the query on "Balance written off Rs. 1,25,04,820/-and your reply vide response dated 08.04.2022. In this regard, it is noticed that you have not furnished details in Col.No.47 in Schedule A-P& Profit and Loss Account (which is meant for the bad debts written off) for the financial year 2019-20 of ITR as to PAN, Aadhaar, amount etc. On examination of the ledger folios submitted it is seen that in the cases of Gurugram Wines, Great Wine and Lake Forest Wines that:
1.The sales were made in the FY 2018-19
2.You had allowed discounts even though there were no receipts from business
3.Even without a single payment by the party, you had made sales further also.
Therefore you are requested to furnish reasons why the amount of Rs. 1,25,04,820/-should not be disallowed.”
This was also responded by the assessee and the copy of the reply available at page 45 -46 of the paper book. Assessee had specially responded to the query of the assessing officer as to why sales were made to these parties even when there was no receipts of earlier sales by submitting to the assessing officer that the business decision of the assessee cannot be questioned.
Thus, there is no dispute that relevant queries were raised by the assessing officer and responded by the assessee. The impugned order of ld. Revisional Authority also shows that with regard to raising of the queries there was no dispute. However, what has been questioned is that there is no verification and confirmation from the parties whose balance was written off during the year under consideration, but what is material is that ld. Revisional Authority has relied explanation 2 inserted by the Finance Act, 2015 w.e.f 01.06.2015 in Section 263 of the Act to hold assessment order erroneous in so far as prejudicial to the interest of revenue. We are of the considered view that assessing officer has raised relevant queries and assessee had also responded to the same so invoking this explanation 2 doesn’t appear to be justified as the queries raised indicate sufficiently that ld. AO was aware of the issue and applied his mind to the same.
Now as far as the issue raised by ld. Revisional Authority is concern that assessing officer has not examined, as to if bad debt have been taken into account in computing the income of assessee of previous years the fact was verifiable which could have been even countered by any finding of ld. Revisional Authority. Assessee in the reply filed on 08.04.2022 copy of which is available at page 21 of the paper book provided, copies of accounts, statement of the parties. Thus, with regard to the issue in hand we are of the considered view there is no substance in the conclusion of ld. Revisional Authority that there was failure of making relevant verifications. When. Ld. Revisional Authority asserts that inquiries were raised but same were not verified then the onus is on the revisional authority to bring on record some iota of fact and evidence from the assessment record or otherwise that the verification would have resulted in disproving the claim of assessee. Merely allegation that verification has not been done is not sufficient to hold the assessment order erroneous in so far as it is prejudicial to the interest of revenue. Thus, we sustain ground No. 2.
As a consequence of aforesaid discussion the appeal is allowed partly with a consequence to follow as per the determination of ground above.