Advocate Akhilesh Kumar Sah
Cochin International Airport Ltd appeal: The Commissioner is empowered to initiate suo moto proceedings under section 263 where the AO takes a wrong decision
Section 263 of the Income Tax Act, 1961(for short ‘the Act’) deals with the revision of orders prejudicial to Revenue by the Principal Commissioner or Commissioner of Income Tax .
Recently, in Cochin International Airport Ltd. vs. ACIT [I.T.A. No. 501/Coch/2016, A.Y. 2012-13, decided on 15.03.2018], briefly, the facts of the case were that the assessee filed its return of income for AY 2012-13 on 25/09/2012, declaring total income at Rs.11,88,92,410/-. The assessment was completed under section 143(3) of the Act vide order dated 27/03/2015, determining the total income at Rs.91,56,78,800/-. While examining the records, the CIT found that the assessee debited an amount of Rs.1,00,33,280/- towards provision for doubtful debts which was not added back for the purpose of computation of total income under regular provisions and also for the purpose of computation of book profit under section 115JB of the Act. The CIT noticed that the Assessing Officer(AO) had accepted the argument of the assessee that the said provision made was shown as reduction from the Trade Receivables (Sundry Debtors) a/c in the balance sheet which amounts to write off and eligible for deduction while computing the total income in view Vijaya Bank vs. CIT (323 ITR 166) and no disallowance was made on this account. The CIT further observed that the amount of Rs.1,00,33,280 was provision made during the previous year relating to AY 2012-13 and the same was not debited to provision for doubtful debts account and consequently, the provision for doubtful debts was not obliterated. According to the CIT it was only for disclosure purpose that the amount shown as reduction from the trade receivables in the balance sheet. Hence, the CIT held that the provision for doubtful debts amounting to Rs.1,00,33,280/- was not allowable deduction while computing total income under normal provision as well as while computing book profit under section 115JB i.e. vide clause (i) of 115 JB(2) and in view of Whirlpool India vs. Union of India (355 ITR 51) was not applicable in this case as the facts of the case were different. Hence the CIT held that the assessment was erroneous in so far as it is prejudicial to the interest of revenue and issued notice under section 263 of the Act on 05/09/2016.
Finally in the order passed under section 263 of the Act, the CIT observed that the AO failed to examine whether the claim of the assessee towards provision for doubtful debts was correct or not. Accordingly, he directed the AO to re-examine the issue as the order of the AO was erroneous in so far as it is prejudicial to the interest of the Revenue.
Against the order of the CIT, assessee filed appeal before ITAT, Cochin.
The learned Members of the ITAT considered the facts and circumstances of the case, rival submissions, relevant case laws as well as the legal position.
The learned Members of the ITAT observed that an order passed by the AO becomes erroneous and prejudicial to the interests of the Revenue under Section 263 in the following cases:
(i) The order sought to be revised contains error of reasoning or of law or of fact on the face of it.
(ii) The order sought to be revised proceeds on incorrect assumption of facts or incorrect application of law. In the same category fall orders passed without applying the principles of natural justice or without application of mind.
(iii) The order passed by the AO is a stereotype order which simply accepts what the assessee has stated in his return or where he fails to make the requisite enquiries or examine the genuineness of the claim which is called for in the circumstances of the case.
In the captioned appeal, the CIT was of the opinion that there was no proper enquiry by the AO and he accepted the claim of the assessee without making any enquiry with regard to the bad and doubtful debts. He had not gathered any information and evidence to suggest that the claim of the assessee was right. The AO absolutely closed his eyes and accepted the claim of the assessee toward the provision for bad and doubtful debts amounting to Rs. 1,00,33,280/- both under the normal computation of income as well as under section 115JB of the Act. The AO was required to cause enquiries with regard to the claim of the assessee. Finally, the learned Members of the ITAT held that the CIT was justified in remitting the issue to the file of the AO for re-examination.