Pennar Industries Limited Vs DCIT (ITAT Hyderabad)
The Hyderabad ITAT considered the assessee’s appeal against the Principal Commissioner’s order passed under Section 263 of the Income-tax Act for AY 2020-21, whereby the assessment completed under Section 143(3) read with Section 144B was set aside for fresh assessment on issues relating to reversal of provision for onerous contracts, bad debts, buy-back tax under Section 115QA, and amortisation and lease-related adjustments under Ind AS 116. Before examining the merits, the Tribunal condoned a delay of 15 days in filing the appeal after accepting the assessee’s explanation that the delay occurred due to its counsel’s illness and held that the delay had arisen for bona fide reasons.
The Tribunal reiterated that invocation of Section 263 requires the assessment order to be both erroneous and prejudicial to the interests of the Revenue. It also observed that where the Assessing Officer (AO) has made enquiries and adopted a permissible view, revision cannot be invoked merely because the Principal Commissioner prefers another view.
On the issue of reversal of provision for onerous contracts amounting to ₹2,36,20,000, the Tribunal found that the AO had neither raised any specific query nor carried out verification during assessment. It therefore held that the Principal Commissioner was justified in directing the AO to examine the deduction claimed in the computation of income. However, the Tribunal observed that if a provision had been disallowed in an earlier year and was subsequently reversed, the corresponding credit could not again be taxed, nor could its reduction from income be disallowed, as that would amount to double taxation. Since the relevant factual details were not available on record, the Tribunal directed the AO to verify whether the provision had been disallowed in the earlier year and to decide the issue accordingly. With regard to the ₹10,00,000 credited to the profit and loss account on reversal of provision, the Tribunal observed that if the original provision had not been allowed as deduction earlier, its reversal would not give rise to taxable income, whereas if deduction had been allowed earlier, the reversal would be taxable under Section 41(1). It directed the AO to verify the factual position and adjudicate the matter accordingly.
