Bank of Maharashtra Vs PCIT (ITAT Pune)
Conclusion: PCIT was not justified in assuming jurisdiction u/s 263 in the case of Bank of Maharashtra allowing deduction under Section 36(1)(via) as Assessing Officer’s (AO) assessment order was not erroneous, even if it was prejudicial to the interest of revenue.
Held: Assessee -public sector bank had filed its income tax return for AY 2018-19, declaring a total loss of ₹1,612.29 crores under standard provisions. The return was processed under Section 143(1), and later, after scrutiny selection, a full assessment under Section 143(3) read with Section 144B was conducted. AO determined the profits under Section 115JB at ₹6911.69 crores, which was later rectified to ₹2191.38 crores through an order under Section 154. PCIT, upon reviewing the assessment records, invoked Section 263, arguing that AO erroneously allowed a deduction of ₹1,137.14 crores under Section 36(1)(via) (bad and doubtful debts provision) without adequate verification. According to PCIT, the actual provision made for rural advances in the accounts was only ₹206.57 crores, and therefore, the excess deduction was to be disallowed. PCIT asserted that AO failed to properly verify debt deduction claim under Section 36(1)(viii) and resorted to past ITAT rulings that had restricted similar claims to the actual provision made for rural advances, which was significantly lower than the claimed deduction. PCIT also stated that AO accepted the assessee’s computation without independently verifying supporting documents, such as the list of rural branches and details of rural advances. AO contended that he had thoroughly examined the claim and allowed the deduction based on past ITAT rulings in favour of the bank. AO challenged the validity of Section 263, stating that it could only be invoked if the order was both erroneous and prejudicial to revenue; mere prejudice to revenue was insufficient. It was held that Hon’ble Supreme Court in the case of Malabar Industrial Co Ltd. Vs CIT (supra) had held that in order to invoke the jurisdiction u/s 263, the twin conditions must be satisfied i.e. the order must be erroneous and the order must be prejudicial to the interests of the Revenue. Since in the instant case, Tribunal had already decided the issue in favour of the assessee though it had not been accepted by Revenue and the appeal was pending before the Hon’ble High Court and since AO on the basis of submissions made by assessee and relying on the decision of the Tribunal in assessee’s own case had not made any addition / disallowance, therefore, the order of AO could not be held to be erroneous. Once the order was held not to be erroneous, the twin conditions i.e. the order was erroneous and the order was prejudicial to the interests of the Revenue were not satisfied. Therefore, PCIT was not justified in assuming jurisdiction u/s 263.
