Without fulfilling the dual prerequisites, revision under Section 263 is not viable.

Fact and issue of the case

That the Id. Pr. CIT is wrong in passing order u/s 263 to set-aside the claim of deduction u/s 80IC by ignoring the fact that said deduction was allowed by the Id. A.O. after making enquiries or verification as required by law and also covered by the Hon’ble SC judgment in the case of CIT vs CM. Knitting Industries (P) Ltd.: 376 ITR 456, so assessment order passed by Id. A.O. is neither erroneous nor prejudicial to the interest of revenue.

The brief facts of the case are that assessee is a Limited Company and has been engaged in the manufacturing of aluminum rolled products, such as aluminum sheets. The assessee had e-filed its return of income on 26.10.2017, declaring total income of Rs. 11,21,66,380/-. Subsequently, the return of income was revised by the assessee on 07.09.2018, declaring income of Rs.7,97,20,580/- after claiming deduction u/s 80-IC amounting to Rs.3,24,45,802/-. The case was selected for scrutiny under CASS for the following reasons:- “Large deductions claimed u/s 80IA/80IAB/80IA C/80IB/80IC/80IBA/ 80ID/80IE/10A/10AA in comparison to preceding year”.

The scrutiny assessment u/s 143(3) of the IT. Act, 1961 was completed on 27.12.2019 at an income of Rs.7,99,81,360/-by making an addition of Rs.2,60,781/- on account of disallowance of VAT receivable written off.

Thereafter, the Ld. PCIT on scrutinizing the assessment records, observed: “A perusal of assessment records revealed that the assessing officer had accepted the assessee’s explanation regarding Large deductions claimed u/s80IA/80IAB/80IAC/80IB/80IC/80IBA/80ID/80IE/10A/10AA, in comparison to preceding year, even though the assessee had not furnished the requisite audit report in form 10CCB either at the time of filing of original ITR on 26.10.2017, or at the time of filing of revised ITR on 07.09.2018. It was further noted that the assessee had debited an amount of Rs. 1,66,70,246/- on account of amount written off in the case of one M/s Metalmine Enterprises Pvt. Ltd. The assessing officer had accepted the assessee’s claim of deduction u/s 80IC without the audit report having been filed in time, and the claim of write off of Rs. 1,66,70,246/- without conducting any enquires whatsoever. The order passed u/s 143(3) of the Income Tax Act, 1961, therefore, appeared to be erroneous, and thus prejudicial to the interest to the revenue.”

Thereafter, the Ld. PCIT show caused the assessee as to why the assessment order dated 27.12.2019 for the assessment year 2017-18 under section 143(3) of the Act should not be cancelled by invoking the provisions of section 263 of the Act. The Ld. PCIT in the impugned order has discussed the issues point wise and has also reproduced the reply to of the assessee to each of the issue, which is discussed in brief hereunder: (i) The Ld. PCIT in respect of the issue of bad debts written off had observed that even after squaring off certain payments received from M/s Metalmine Enterprises against debit balance Rs. 1,67,99,67 in the year 2015, certain payments were made by the assessee to said party raising the debit balance to Rs. 1,66,70,246/-as on 31.03.2016 and then suddenly the said debit entry has been written off on 31.03.2017, for no apparent rhyme or reason. In reply, the assessee submitted as under: “In respect to the observation of your goodself that 3 payments were made by the assessee to the said party when the account of the party has been squared-off, it is submitted that it is not the case that after squaring-off the outstanding balance on 10.12.2015, the assessee had made 3 payments to the same party for creating debit balance of Rs. 1,66,70,246/- which is subsequently written-off in the next financial year. These three entries on dated 20.12.2015, 20.12.2015 and 14.01.2016 are debit entries due to reversal of above stated unrealized cheques and not due to payments made to party. Actually, these 3 entries are reversal entries. It is not a case, where payments were made to the party and which were subsequently written-off being irrecoverable. Here is a case, where debit balance became outstanding due to reversal of cheques which were earlier received by the assessee company against sales. Also, the cheque numbers in the receipt entry as well as payment entry are same with each other, thus evidencing our claim that these 3 entries are not fresh payments, but reversal of entries. In respect to the observation of our goodself that amount of Rs. 1,676,70,246/-has been written-off without any reason, it is submitted that assessee company had written-off the outstanding debit balance amounting to Rs. 1,66,70,246/- on 31.03.2017 as the assessee company could not recover the outstanding balance from the said party. The outstanding amount relates to the sale made to the party in the earlier assessment year 2014-15 and said amount was not received by the assessee company till the relevant assessment year. Thus, considering the outstanding amount of Rs. 1,66,70,246/- to be irrecoverable, assessee company had written-off the amount in thn books of account. Since the outstanding balance which has been written-off reflates to the sales made by the assessee during the preceding assessment years which were taken into account in computing the income of those preceding years by including in turnover of those preceding years, so the amount n ritten-off is in compliance with the provisions of section 36. (ii) The Ld. PCIT noted that the assessee had not responded to the queries raised by the Assessing Officer on the issue of bad debts written off and further that the Assessing Officer had also remained aloof to the failure of the assessee to explain the given entry of write off, and did not choose to conduct any worthwhile further enquiry.

Observation of the court

The observation of the ld. Pr. CIT that cheque of Rs.56,66,776/-issued by M/s. Metalmine Enterprise Pvt. Ltd., to the assessee was dishonored on12/03/2015 and the assessee still further credited an amount of Rs.1,29,425/- in the account of M/s. Metalmine Enterprise Pvt. Ltd., on 25/11/2015 seemed to be factually incorrect. A perusal of the ledger account as reproduced in the order of the ld. Pr. CIT, itself shows that the credit entry of the amount of Rs.56,66,776/- is dated 10/12/2015, received vide cheque no. 005261, which is after the journal transfer entry dated 25/11/2015 of Rs.1,29,425/-. However, the said cheque was dishonoured, for which reversal entry for the said amount is dated 14/01/2016 and not 12/03/2015. The assessee has duly explained about the credit and debit entries in his reply and we do not find any discrepancy in the same. It has been duly explained by the assessee that the amount of Rs.1,66,70,246/- was written off on 31/03/2017 as the assessee company could not recover the outstanding balance from the said party. The fact that the cheques issued by the said party got dishonoured, itself, proves the contention of the assessee that he could not recover the outstanding amount from the said party.

So far as the contention of the ld. Pr. CIT that the assessing officer had not made adequate enquiries is concerned, the assessee has duly explained in his reply that the Assessing Officer duly examined and verified about the aforesaid issue. Our attention has been invited to page 104 of the paper book, which is a copy of the show cause notice dt. 20/12/2019, issued by the Assessing Officer, whereby, the assessing officer has duly enquired from the assessee about the bad debts written off including the amount of Rs.1,66,70,246/-. Whereupon, the assessee furnished a detailed reply to the Assessing Officer, copy of which had been uploaded on the portal of the income tax department and is also placed at page no. 34 of the paper book, whereby, the assessee interalia has duly explained that the aforesaid debt had become bad and since the assessee was not able to recover the same from the concerned party, the same was written off in the accounts of the assessee.

We further note that on the one hand, the ld. Pr. CIT has noted that the Assessing Officer had not made proper enquiries relating to identity of the concerned M/s. Metalmine Enterprise Pvt. Ltd., but at the same time the, ld. Pr. CIT in its question no. 3 of the show cause notice, herself, has observed that it was obvious from the given transactions that there was a regular give-and-take between the assessee and M/s. Metalmine Enterprise Pvt. Ltd., and that there was a relationship of deep trust based on which the assessee was regularly transferring such huge amounts to the concern. The aforesaid observations of the ld. Pr. CIT are self-contradictory. It is undisputed that there was a regular business transactions of the assessee with the said concern and the amount outstanding was on account of trade receivables and that there were regular business transactions, even in earlier years, between the parties. It was duly explained before the ld. Pr. CIT that the assessee had not made any fresh payment of Rs.1,66,70,246/- to M/s. Metalmine Enterprise Pvt. Ltd. during the Assessment Year 2017-18 and that these amounts were brought forward balances of the preceding years. It was also explained that these were the old outstanding balances on account of sales which were written off.

So far as the observation of the ld. Pr. CIT that the assessee had not even reflected under the head “bad debts” in the relevant column of ITR is concerned, we find that the assessee had duly replied to the ld. Pr. CIT, that though it was mistakenly omitted, however, the assessee company had given the due disclosure of the amount written off in the audited profit and loss account. Moreover, the issue has not only been brought to the notice of the assessing officer, but the same has also been examined and verified by the assessing officer and under the circumstances there remains no prejudice to the revenue of not reflecting of the aforesaid amount of bad debt under the relevant column of the online ITR form.

The issue is otherwise squarely covered by the decision of the Hon’ble Supreme Court in the case of TRF Ltd. vs CIT (supra) wherein, the Hon’ble Supreme Court has held that it is not necessary for the assessee to establish that the debt, income, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Moreover, in this case, as observed above, the dishonor of cheques and thereby reversal entries, itself, show that the said debt had become bad. In this case the assessing officer had duly made enquiries and verification and showcaused the assessee in this aspect and the assessing officer has allowed the claim after being satisfied with the explanations offered by the assessee.

So far as the issue relating to the claim of deduction u/s 80IC of the Act is concerned, the only contention raised by the ld. Pr. CIT is that the assessee had not uploaded the audit report in Form 10CCB along with the return of income. The ld. Pr. CIT in this respect has placed reliance on the relevant provisions of Section 80IA(7) r.w.s. 80IC(7) of the Act, which require the assessee to furnish the audit report along with his return of income to claim deduction u/s 80IA or 80IC of the Act, as the case may be.

We find that the ld. Pr. CIT had misconceived herself about the relevant provisions of the Act. In this case, the revised return of income was filed by the assessee on 07/09/2018 and the requisite audit report in Form 10CCB was filed on 11/09/2018. However, pertinent fact is that the due date of filing of the return was 31/03/2019. It shows that the assessee not only filed the revised return which was also within the due date but also uploaded the audit report within four days of filing of the revised ITR i.e., on 11/09/2018 itself, much before the due date for filing of the same. So not only the return of income but also the audit report was filed much prior to the expiry of due date of furnishing the return. The intention of the legislature, that the audit report should also be filed along with the return of income, cannot be strictly construed to say that even if due to certain reasons the audit report is filed/uploaded a few days after the uploading of the return of income, but much prior to the last date of filing of the return of income, then under such circumstances, the audit report has to be ignored, rather, the intention of the legislature, in this respect is that the return of income as well as the audit report should be filed before the due date meant for filing of the same.

Nowadays, we come across many cases, wherein, because of certain technical glitches or non-work or slow working of Internet or due to high traffic on the website of the Department, certain technical errors creep in because of which, even the ITRs could not be uploaded on the given date. Under the circumstances, due consideration is given to such difficulties, as the system of online assessment, is itself, in developing stage. In this case, the assessee has uploaded the return of income and audit report much prior from the last date of filing of the same and both the documents were available with the Assessing Officer not only at the time of scrutiny assessment u/s 143(3) of the Act, but also at the time of processing of the return u/s 143(1) of the Act. Even the Hon’ble Apex Court in the case of CIT vs. G.M.Knitting Industries (P) Ltd. & Others and in the case of M/s Aks Alloys (P) Ltd. (supra), vide a consolidated order has held that even though, necessary certificate in Form 10CCB along with the return of income has not been filed, but, the same was filed before the final order of assessment, the assessee, even in such circumstances, was entitled for claim of deduction u/s 80IB of the Act. The facts of the assessee’s case are on much better footing. The assessee has duly filed the audit report before the due date of filing of the return of income which was very much part of the return of income as on the due date of filing of the return of income. Therefore, the contention of the ld. Pr.CIT that the audit report must have been filed along with the return of income is mis-conceived and unjustified.

So far as the reliance placed by the ld. Pr. CIT on the decision of the Co-ordinate Bench of the ITAT Delhi in the case of Pardeep Kumar Batra vs DCIT,CPC, New Delhi (supra) is concerned, we find that the ld. Pr. CIT, herself, has noted that the Tribunal denied deduction to the assessee for non-filing of the audit report in electronic manner “in time” (on or before the due date of filing of the return of income), whereas, in the instant case, since the assessee has filed the audit report on or before the due date of filing of the return, the aforesaid decision of the Co-ordinate Bench of ITAT Delhi, can be applied in favour of the assessee only. Even otherwise, it has been held that time and again that the Income Tax Authorities must charge the legitimate taxes from the tax payers. If the assessee is entitled to certain deductions under the provisions of the Income Tax Act, the same should not be disallowed, merely because of any bonafide mistake or error on the part of the tax payer, rather, the Income Tax Authorities should assist the concerned assessees in filing their correct return of income. This is not the case of the Department that the assessee was not entitled to the deduction claimed u/s 80IC of the Act. We find that the assessee having answered and explained to each of the query of the ld. Pr. CIT in detail, the ld. Pr. CIT mistook herself to hold that the order of the Assessing Officer was erroneous. Even as held by the Hon’ble Supreme Court in the case of NTPC vs. CIT (1998) 97 Taxman 358 (SC), that even an issue relating to a legal claim which arises from the facts can be entertained at appellate stage also, even though the same could not be raised before the lower authorities.

Even otherwise, the ld. Pr. CIT in this case has proceeded to substitute her own view with the views of the Assessing Officer whereas, the view adopted by the Assessing Officer was a legally possible view, in the light of the decisions of the Hon’ble Supreme Court on both the issues and hence the order of the Assessing Officer cannot be considered under these circumstances, to be erroneous.

At this stage, the ld. D/R has relied upon the recent judgment of the Hon’ble Supreme Court in the case of PCIT vs. Wipro Ltd. reported in [2022] 140 com 223 (SC). The facts in that case were that the assessee was a 100 per cent export oriented unit and filed its original return u/s 139(1) of the Act declaring loss and claiming exemption u/s 10B of the Act. However, later on the assessee filed a declaration before the Assessing Officer, prior to completion of the assessment proceedings, stating that it did not want to avail the benefit u/s 10B(8). The assessee thereafter filed the revised return, wherein, instead of claiming exemption u/s 10B, the assessee claimed carry forward of loss. It is under such circumstances that the Hon’ble Supreme Court held that the assessee can file a revised return in a case where there is omission or wrong statement but a revised return of income u/s 139(5) cannot be filed to withdraw the claim of exemption and subsequently to claim carry forward or set off of any loss and that the revised return filed by the assessee u/s 139(5) of the Act can only substitute its original return u/s 139(1) of the Act and cannot transform it into a return u/s 139(3) of the Act in order to avail the benefit of carry forward or set off of any loss u/s 80 of the Act. 13.1. We find that the Hon’ble Apex Court considered the decision in the case of CIT v. G.M. Knitting Industries (P.) Ltd.(supra) and held that the revised return can be filed in a case where there remains some omission or wrong statement. The ratio laid down by the Hon’ble Supreme Court in the case of PCIT vs. Wipro Ltd. (supra) is of no help to the revenue. Even otherwise the ld. Pr. CIT has not found any error in the order of the Assessing Officer in this respect. The ld. D/R cannot put additional plea or ground to improvise the impugned order of the ld. Pr. CIT.

In view of this, the action of the ld. Pr. CIT in holding the assessment order is erroneous and thereby setting aside the order for de-novo assessment cannot be held to be justified. Hence the order passed u/s 263 of the Act is quashed. 15. In the result, appeal of the assessee stands allowed.

Read the full order from here

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