M/S. JAYWANT INDS. LTD, KARNATAKA v. THE CIT CEN -I, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J : MUMBAI BEFORE SHRI D.K. AGARWAL (JM) AND SHRI PRAMOD KUMAR ( AM ) ITA NO. 2062/MUM/2008 ASSESSMENT YEAR : 2003 - 04 JAYAWANT IND USTRIES LTD. JAYAWANT HOUSE AZAD ROAD CST HUBLI K ARNATAKA - 500 020. ..( APPELLANT ) P.A. NO. ( AABCJ 4525 B) VS. ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE - II ROOM NO.1001 10 TH FLOOR OLD CGO BLDG. ANNEXE M.K. ROAD MUMBAI - 400 0 20 . ..( RESPONDENT ) APPELLANT BY : SHRI MANISH SANGHAVI RESPONDENT BY : SHRI N.K. BALODIA O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE ASSESSEE IS DIR ECTED AGAINST THE ORDER DATED 22.2.2008 PASSED U/S.263 OF THE INCOME TAX ACT 1961 (THE ACT) BY THE LD. CIT CENTRAL I MUMBAI FOR THE ASSESSMENT YEAR 2003 - 04. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS A MANUFACTURER OF BROOMS AND SCENTED SUPARI . THE RETURN WAS ITA NO. 2062/M/08 A.Y: 03 - 04 2 FILED DECLARING TOTAL LOSS OF RS.1 37 00 570/ - ON 23.3.2004. DURING THE COURSE OF ASSESSMENT IT WAS INTERALIA OBSERVED BY THE AO THAT IN RESPONSE TO THE NOTICE THE ASSESSEE FILED DETAILS CALLED FOR . I N THE F INANCIAL Y EAR 2001 - 02 THE COMPANY SOLD ITS ENTIRE FIXED ASSETS. THERE WAS NO ACTIVITY IN THIS YEAR. THE MAIN COMPONENT OF THE HUGE LOSS DECLARED IN THE P&L ACCOUNT IS WRITE OFF OF BAD DEBTS. ACCORDINGLY THE ASSESSMENT WAS COMPLETED AT A LOSS OF RS.1 37 00 570/ - VIDE ORDER DATED 20.2.2006 PASSED U/S. 143(3) OF THE ACT. IN DOING SO HE DID NOT ALLOW THE SAID LOSS TO BE CARRIED FORWARD AS THE RETURN OF INCOME WAS NOT FILED IN TIME . THE LD. COMMISSIONER OF INCOME TAX HAVING EXAMINED THE RECORDS OF THE ASSESSMENT FOU ND THAT THE AO HAS ACCEPTED THE HUGE CLAIM OF BAD DEBTS PERTAINING TO M/S. J.M. ESSENTIAL OIL CO. RS.1 30 40 000/ - AND M/S. MANMOHAN INDUSTRIES LTD. RS.4 34 575/ - AGGREGATING TO RS.1 35 74 775/ - WHEREAS IN THE BLOCK ASSESSMENT THE ENTIRE SALE PROCEEDS RE CEIVED FROM JAYWANT INDUSTRIES LTD. HAS BEEN TREATED AS J.M. JOSHI S (ONE OF THE GROUP CASES) OWN INCOME . FURTHER THE AO ACCEPTED THE CLAIM OF BAD DEBTS WITHOUT MAKING ANY INVESTIGATION. THE AO COMPLETED THE ASSESSMENT IN A ROUTINE WAY WITHOUT MAKING PRO PER ENQUIRIES AND ALSO WITHOUT DISCUSSING ASSESSEE'S BUSINESS WHICH WAS TREATED AS FALSE AND BOGUS CONSEQUENT TO SEARCH AND SEIZURE ACTION. ASSESSMENT IS TOTALLY BASED ON INCOMPLETE ASSUMPTION OF FACTS AND INCORRECT APPLICATION OF LAW AND ITA NO. 2062/M/08 A.Y: 03 - 04 3 HENCE THE ORDER PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ACCORDINGLY HE ISSUED A SHOW CAUSE NOTICE U/S.263 OF THE ACT TO SHOW CAUSE AS TO WHY ASSESSMENT MADE BY THE AO U/S.43(3) SHOULD NOT BE CANCELLED. IN RESPONSE THE ASSESSEE FI LED ITS EXPLANATION DATED 28.12.2006. THE LD. CIT AFTER CONSIDERING THE ASSESSEE'S EXPLANATION BY ORDER DATED 22.2.2008 CONCLUDED THAT THE ASSESSMENT COMPLETED U/S.143(3) ON 20.2.2006 FOR ASSESSMENT YEAR 2003 - 04 ALLOWING THE CLAIM OF BAD DEBTS IS THEREFO RE CANCELLED BEING ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND DIRECTED THE AO TO MAKE A FRESH ASSESSMENT AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT THE ASSESSEE IS IN APPEAL BEFORE US TAKING FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSMENT ORDER PASSED U/S.143(3) WAS ERRONEOUS AND PREJUDICIAL TO THE IN TEREST OF THE REVENUE AND THEREBY ERRED IN INVOKING THE PROVISIONS OF SECTION 263 AND ERRED IN SETTING ASIDE THE ASSESSMENT MADE FOR ASSESSMENT YEAR 2003 - 04. LOOKING TO THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE APPELLANT SUBMITS THAT O RDER U/S.143(3) WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO INTEREST OF THE REVENUE AND THE ORDER U/S.263 BE QUASHED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ORDER U/S.263 IS BEYOND THE ITA NO. 2062/M/08 A.Y: 03 - 04 4 JURISDICTION OF THE CIT(A) AS THE ISSUE IN QUESTION WAS ALREADY EXAMINED BY THE CONCERNED AO. LOOKING TO THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE APPELLANT SUBMITS THAT ORDER U/S.263 IS BASED PURELY ON THE CHANGE OF THE OPINION AND HENCE BAD IN LAW AND VOID AND NEEDS TO BE Q UASHED. 3. LOOKING TO THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE APPELLANT SUBMITS THAT ORDER U/S.143(3) WAS NOT PREJUDICIAL TO INTEREST OF THE REVENUE AS THE LOSS DETERMINED BY THE A.O. WAS NOT ALLOWED TO BE CARRIED FORWARD AND AS SUCH THE ORDER U/S. 263 IS PURELY ACADEMIC AND OUGHT TO BE QUASHED. 4. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITS THAT THE ASSESSMENT ORDER PASSED U/S.143(3) IS NEITHER ERRONEOUS NO R PREJUDICIAL TO THE INTERESTS OF THE RE VENUE INASMUCH AS THE BUSINESS LOSS AS COMPUTED BY THE AO HAS NOT BEEN ALLOWED TO BE CARRIED FORWARD AND THE TOTAL INCOME WAS COMPUTED AT RS. NIL. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT THE ASSESSEE HAS CORRECTLY WRITTEN OFF THE BAD DEBTS IN THE ACCOUNT OF MANMOHAN INDUSTRIES LTD. RS.5 34 775/ - AS THE BALANCE WAS OUTSTANDING IN THEIR ACCOUNT FROM LAST 10 YEARS. AS REGARDS THE BALANCE OUTSTANDING IN THE NAME OF J.M. ESSENTIAL OIL CO. RS.1 30 40 000/ - HE SUBMITS THAT THE ASSESSEE HAD PURCHA SED GOODS FROM THE SAID PARTY IN THE EARLIER YEAR. DUE TO SOME DISPUTE THE ASSESSEE RETURNED THE GOODS PURCHASED FROM THEM AND THE AMOUNT WAS DEBITED TO THEIR ACCOUNT AND THE PURCHASES RETURNS WERE CREDITED TO PURCHASE ACCOUNT AND AS SUCH OFFERED AS INCOM E IN EARLIER YEARS WHICH WAS ALSO ASSESSED IN ASSESSMENT YEAR 2002 - 03 AFTER COMPLETION ITA NO. 2062/M/08 A.Y: 03 - 04 5 OF BLOCK ASSESSMENT. THE SAID PARTY REFUSED TO ACKNOWLEDGE THE ASSESSEE'S CLAIM AND THEREFORE THE ASSESSEE HAD NO OPTION BUT TO WRITE - OFF THE SAID AMOUNT. THE SAID AM OUNT IS ALLOWABLE AS DEDUCTION AS THE SAME HAS ALREADY BEEN ASSESSED AS INCOME IN EARLIER YEARS. HE FURTHER SUBMITS THAT SINCE THE ASSESSEE HAS PASSED NECESSARY ENTRIES OF BAD DEBTS IN ITS BOOKS OF ACCOUNT THEREFORE THE CLAIM OF BAD DEBT HAS RIGHTLY BEEN ALLOWED BY THE ASSESSING OFFICER AND FOR THIS PROPOSITION RELIANCE WAS ALSO PLACED ON THE RECENT DECISION OF HON BLE SUPREME COURT IN T.R.F. LIMITED VS. CIT IN CIVIL APPEAL NO.5293 AND 5294 OF 2003 DATED 9.2.2010 WHEREIN IT HAS BEEN HELD THAT T HIS POSI TION IN LAW IS WELL SETTLED . AFTER 1 ST APRIL 1989 IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE . HE FU RTHER SUBMITS THAT WHILE FRAMING THE ASSESSMENT FOR THE ASSESSMENT YEAR 2002 - 03 THE AO ASSESSED THE PURCHASES RETURNS TO M/S. J.M. ESSENTIAL OIL COMPANY AS THE INCOME OF THE ASSESSEE AND NOW IT IS NOT OPEN TO THE DEP ARTMENT TO SAY THAT THE LOSS ARISING OU T OF WRITING OFF THE SAID BALANCE IS NOT ALLOWABLE AS SUCH. HE FURTHER SUBMITS THAT IF THIS LOSS IS SOUGHT TO BE DISALLOWED THE IDENTICAL AMOUNT ASSESSED AS INCOME FOR ASSESSMENT YEAR 2002 - 03 MUST ALSO BE REDUCED AND THE NET EFFECT OF THIS WILL BE REVENU E NEUTRAL AND THEREFORE THE AO S ORDER FOR THE ITA NO. 2062/M/08 A.Y: 03 - 04 6 IMPUGNED ASSESSMENT YEAR IS NEITHER ERRONEOUS AND NOR PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN CIT VS. GABRIEL INDIA LTD. (1993) 203 ITR 108 (BOM.) WHEREIN IT HAS BEEN LAID DOWN THAT THE ORDER OF THE AO CANNOT BE HELD TO BE ERRONEOUS ON THE MERE GROUND THAT IT SHOULD HAVE BEEN WRITTEN MORE ELABORATELY. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE TRIBUNAL IN NEELAM MERCANT ILE (P.) LTD. VS. ITO (2009) 31 SOT 278(MUM.) WHEREIN IT HAS BEEN HELD THAT FROM THE POINT OF VIEWS OF BOTH (I) APPLICATION OF MIND OF THE AO; (II) THE EXISTENCE OF TWO VIEWS AND FURTHER IN THE LIGHT OF THE EXISTING EVIDENCES ON RECORDS AS WELL AS THE J UDICIAL PRONOUNCEMENTS THE CIT ASSUMING JURISDICTION IS NOT VALID. HE THEREFORE SUBMITS THAT THE ORDER PASSED BY THE LD. CIT U/S.263 BE CANCELLED. 5. ON THE OTHER HAND THE LD. DR SUBMITS THAT IT IS EVIDENT FROM THE ASSESSMENT ORDER PASSED BY THE AO U/S . 143(3) THAT THE SAME IS HALF PAGE SHORT AND CRYPTIC ORDER PASSED IN A MECHANICAL AND ROUTINE MANNER NOT SAYING ANYTHING THEREFORE THE ORDER PASSED BY THE AO WITHOUT MAKING PROPER ENQUIRY WITH REGARD TO THE CLAIM OF BAD DEBTS IS NOT A VALID ORDER I N THE EYE OF LAW . HE FURTHER SUBMITS THAT THE HON BLE JURISDICTIONAL HIGH COURT IN DIRECTOR OF INCOME TAX(INTL. TAXATION) VS. OMAN INTERNATIONAL BANK (2009) 313 ITR 128(BOM.) HAS INTERALIA HELD THAT THE WRITING OFF IN THE ACCOUNTS NO DOUBT HAS TO BE BON AFIDE . IN ITA NO. 2062/M/08 A.Y: 03 - 04 7 THIS CASE THE ASSESSEE HAS FAILED TO PROVE THE BONAFIDE OF THE CLAIM OF BAD DEBTS . FURTHER AS OBSERVED BY THE LD. CIT IN HIS SHOW CAUSE NOTICE U/S.263 AND IN THE IMPUGNED ORDER THAT IN THE COURSE OF SEARCH OPERATION U/S.132 AT THE PREMISES O F THE ASSESSEE THE PURCHASE S OF ATTAR HEENA ETC. FROM M/S. J.M. ESSENTIAL OIL CO. WERE FOUND TO BE BOGUS. THE ASSESSEE COMPANY IN CLOSE CONNIVANCE WITH SHRI J.M. JOSHI HAD ACTED AS A FACILITATOR AND THE SALE OF ATTAR AND HEENA WAS JUST TO ENABLE SHRI J.M. JOSHI TO INFLATE THE SALE AND ROUTE BACK HIS OWN ACCOUNTED INCOME IN THE BOOKS WHICH IS ULTIMATELY CLAIMED AS EXEMPT U/S.80 - IA OF THE ACT. HE FURTHER SUBMITS THAT THE ASSESSEE HAS GIVEN NO EXPLANATION WITH REGARD TO THE OBSERVATIONS MADE IN THIS RE GARD IN THE NOTICE ISSUED U/S.263 OF THE ACT. THE LD. DR WHILE STRONGLY RELYING ON THE ORDER OF THE LD. CIT ALSO RELIED ON THE DECISION OF THE TRIBUNAL IN ARVEE INTERNATIONAL VS. ADDL. CIT (2006) 101 ITD 495 (MUM.) FOR THE PROPOSITION THAT THE ORDER PASS ED BY THE AO ON AN INCORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW OR WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND OR WITHOUT MAKING REQUISITE ENQUIRIES WOULD SATISFY THE REQUIREMENT OF THE ORDER BEING ERR ONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHIN THE MEANING OF SECTION 263 OF THE ACT. HE THEREFORE SUBMITS THAT THE ORDER PASSED BY THE LD. CIT U/S.263 BE UPHELD. ITA NO. 2062/M/08 A.Y: 03 - 04 8 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE CLAIM OF THE ASSESSEE IS THAT THE ASSESSEE HAS PASSED NECESSARY ENTRIES WITH REGARD TO THE CLAIM OF BAD DEBTS AND ACCORDING TO LAW IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE AND HENCE THE AO HAS CORRECTLY ALLOWED THE CLAIM OF BAD DEBTS. PER CONTRA THE CLAIM OF THE REVENUE IS THAT IT HAS BEEN INTERALIA OBSERVED BY THE LD. CIT IN PARA 4 AND 5 OF HIS NOTICE DATED 18.12.2006 ISSUED U/S.263 OF THE ACT AS UNDER : 4. IT IS SEEN THAT IN THE COURSE OF SEARCH OPERATION U/S.132 AT THE PREMISES OF THE ASSESSEE IT WAS FOUND THAT PURCHASE OF ATTAR HENNA FROM M/S. J.M. ESSENTIAL OIL CO. WAS BOGUS. FURTHER ENQUIRIES CONDUCTED BY THE INVESTIGATION WING AND ASSESS ING OFFICER REVEALED THAT ASSESSEE S CLAIM THAT IT WAS ENGAGED IN THE MANUFACTURING AND SALE OF SCENTED BROOMS USING ATTAR HENNA PURCHASED FROM M/S. J.M. ESSENTIAL OIL COMPANY WAS FALSE AND THE ASSESSEE WAS SHOWING MANUFACTURE AND SALE OF THESE SCENTED B ROOMS MERELY TO PROVIDE ACCOMMODATION ENTRY TO SHRI J.M. JOSHI FOR GENERATING UNACCOUNTED INCOME BY WAY OF SHOWING SALE OF A TTAR HENNA TO ASSESSEE COMPANY. AS M/S. J.M. ESSENTIAL OIL CO. WAS ELIGIBLE FOR 100% DEDUCTION U/S.80IA OF THE ACT NO TAX WAS PAYA BLE BY IT. THUS THE ASSESSEE COMPANY IN CLOSE CONNIVANCE WITH SHRI J.M. JOSHI HAD ACTED AS A FACILITATOR AND THE SALE OF ATTAR AND HEENA WAS JUST TO ENABLE SHRI J.M. JOSHI TO INFLATE THE SALE AND ROUTE BACK HIS OWN UNACCOUNTED INCOME IN THE BOOKS WHICH IS ULTIMATELY CLAIMED AS EXEMPT U/S.80IA OF THE I.T. ACT. 5. THUS IN THE COURSE OF SEARCH OPERATION AND POST SUCH ENQUIRY IT WAS ESTABLISHED THAT INSTEAD OF MAKING ANY SALES OF ATTAR HEENA SHRI J.M. JOSHI ARRANGED TO DEPOSIT HIS OWN UNACCOUNTED CASH IN THE BANK ACCOUNT OF THE ASSESSEE COMPANY AND THEREAFTER THESE AMOUNTS WERE RECEIVED BACK BY HIM THROUGH CHEQUES UNDER THE ITA NO. 2062/M/08 A.Y: 03 - 04 9 GARB OF SALE PRICE OF ATTAR HEENA. IN THIS SITUATION IT IS SHRI. J.M. JOSHI WHO WILL ARRANGE UNACCOUNTED CASH AND GET IT DEPOSITED IN THE ACCOUNT OF ASSESSEE COMPANY AND THEREAFTER ASSESSEE COMPANY WOULD ISSUE A CHEQUE TO SHRI J.M. JOSHI. FURTHER DEPOSIT OF SHRI J.M. JOSHI S UNACCOUNTED MONEY IN THE BANK ACCOUNT OF ASSESSEE COMPANY AND THE REMITTANCE THEREOF BACK TO SHRI JOSHI WOU LD ALSO NOT CREATE ANY DEBIT BALANCE IN THE NAME OF J.M. ESSENTIAL OIL CO. BECAUSE WHATEVER PAYMENTS HAVE BEEN MADE BY THE ASSESSEE COMPANY ARE OUT OF UNACCOUNTED CASH DEPOSITED BY SHRI J.M. JOSHI IN ITS ACCOUNT. IN VIEW OF IT ASSESSING OFFICER S FINDING THAT THE ENTIRE SALE PROCEEDS RECEIVED FROM ASSESSEE COMPANY HAS BEEN TREATED AS J.M. JOSHI S OWN MONEY IN HIS BLOCK ASSESSMENT IS NOT JUSTIFIABLE IN ACCEPTING THE HUGE CLAIM BAD DEBTS OF RS.1 30 40 000/ - . LIKEWISE IN THE CASE OF M/S. MANMOHAN INDUSTRIE S LTD. ALSO NO ENQUIRIES WERE MADE BEFORE ACCEPTING THE CLAIM OF BAD DEBTS OF RS.4 34 575/ - . IN THE LIGHT OF THE ABOVE ACCORDING TO THE LD. CIT SINCE THE AO HAS FAILED TO MAKE ENQUIRIES BEFORE ACCEPTING THE CLAIM OF BAD DEBTS THE ORDER PASSED BY THE AO U/S.143(3) ALLOWING THE CLAIM OF BAD DEBTS IS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST S OF THE REVENUE. 7. IT WILL BE APT TO CONSIDER THE LAW LAID DOWN BY THE HON BLE SUPREME COURT IN RESPECT OF THE APPLICATION OF PROVISION OF SECTION 263(1) OF THE ACT. 8 . I N MALABAR INDUSTRIAL C O . LTD. VS. CIT (2000) 243 ITR 83 (SC) IT HAS BEEN OBSERVED AND HELD AS UNDER (PAGE 8 7 OF ITR ) : A BARE READING OF THIS PROVISION MAKES IT CLEAR THAT THE PREREQUISITE TO THE EXERCISE OF JURISDICTION BY THE COMMISSI ONER SUO MOTU UNDER IT IS THAT THE ORDER OF THE INCOME - TAX OF FICER IS ERRONEOUS IN SO FAR ITA NO. 2062/M/08 A.Y: 03 - 04 10 AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE COMMISSIONER HAS TO BE SATISFIED OF TWIN CONDITIONS NAMELY (I) THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS ; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENT - IF THE ORDER OF THE INCOME - TAX OFFICER IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO T HE REVENUE - RECOURSE CANNOT BE HAD TO SECTION 263(1) OF THE ACT. IT HAS BEEN FURTHER HELD (PAGE 88 OF ITR ) : THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFI CER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FOR EXAMPLE WHEN AN INCOME - TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE ; OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME - TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY T HE INCOME - TAX OFFICER IS UNSUSTAINABLE IN LAW. IT HAS BEEN HELD BY THIS COURT THAT WHERE A SUM NOT EARNED BY A PERSON IS ASSESSED AS INCOME IN HIS HANDS ON HIS SO OFFERING THE ORDER PASSED BY THE ASSESSING OFFICER ACCEPTING THE SAME AS SUCH WILL BE ERRON EOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. RAMPYARI DEVI SARAOGI V. CIT [1968] 67 ITR 84(S C) AND IN SMT. TARA DEVI AGGARWAL V. CIT [1973] 88 ITR 323 ( SC). IN THE INSTANT CASE THE COMMISSIONER NOTED THAT THE INCOME - TAX OFFICER PASSED THE ORDER OF NIL ASSESSMENT WITHOUT APPLICATION OF MIND. INDEED THE HIGH COURT RECORDED THE FINDING THAT THE INCOME - TAX OFFICER FAILED TO APPLY HIS MIND TO THE CASE IN ALL PERSPECTIVE AND THE ORDER PASSED BY HIM WAS ERRONEOUS. IT APPEARS THAT THE RESOLUTION PASS ED BY THE BOARD OF THE APPELLANT - COMPANY WAS NOT PLACED BEFORE THE ASSESSING OFFICER. THUS THERE WAS NO MATERIAL TO SUPPORT THE CLAIM OF THE APPELLANT THAT THE SAID AMOUNT REPRESENTED COMPENSATION FOR LOSS OF AGRICULTURAL INCOME. HE ACCEPTED THE ENTRY IN THE STATEMENT OF THE ACCOUNT FILED BY THE APPELLANT IN THE ABSENCE OF ANY SUPPORTING MATERIAL AND WITHOUT ITA NO. 2062/M/08 A.Y: 03 - 04 11 MAKING ANY INQUIRY. ON THESE FACTS THE CONCLUSION THAT THE ORDER OF THE INCOME - TAX OFFICER WAS ERRONEOUS IS IRRESISTIBLE. WE ARE THEREFORE OF THE O PINION THAT THE HIGH COURT HAS RIGHTLY HELD THAT THE EXERCISE OF THE JURISDICTION BY THE COMMISSIONER UNDER SECTION 263(1) WAS JUSTIFIED. 9. FOR THE SAKE OF CLARITY THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT AT THE RELEVANT TIME ARE AS UNDER : - 36(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 (I) TO (VI) XXX XXX XXX (VII) SUBJECT TO THE PROVISIONS OF SUB - SECTION (2) THE AMOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. 10. IN T.R.F LIMITED VS. CIT (SC) ( SUPRA) THEIR LORDSHIPS WHILE HOLDING THAT AFTER 1 ST A PRIL 1989 IT IS NOT N ECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BECOME IRREVOCABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FURTHER HELD THAT IN THE PRESENT CASE THE AO HAS NOT EXAMINED WHETHER IN FACT THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE AND HENCE REMITTED THE MATTER TO THE AO FOR DENOVO CONSIDERATION OF THE ABOVE MENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF WRITE - OFF. ITA NO. 2062/M/08 A.Y: 03 - 04 12 11 . IN DIRECTOR OF INCOME TAX (INT ERNATIONAL TAXATION) VS. OMAN INTERNATIONAL BANK (SUPRA) IT HAS BEEN HELD AT PLACITUM 22 APPEARING AT PAGE - 136 OF ITR AS UNDER : CONSIDERING THE ABOVE DISCUSSION IN OUR OPINION TO TREAT THE DEBT AS BAD DEBT HAS TO BE COMMERCIAL OR BUSINESS DECISION OF THE ASSESSEE BASED ON THE RELEVANT MATERIAL IN POSSESSION OF THE ASSESSEE. ONCE THE ASSESSEE RECORDS THE DEBT AS BAD DEBT IN HIS BOOKS OF ACCOUNT THAT WOULD PRIMA FACIE ESTABLISH THAT IT IS A BAD DEBT UNLESS THE ASSESSING OFFICER FOR GOOD REAS ONS HOLDS OTHERWISE. THE WRITING OFF IN THE ACCOUNTS NO DOUBT HAS TO BE BONA FIDE. ONCE THAT BE THE CASE THE ASSESSEE IS NOT CALLED UPON TO DISCHARGE ANY FURTHER BURDEN. IN OUR OPINION THEREFORE WE ARE IN AGREEMENT WITH THE VIEW TAKEN BY THE MAJORITY CONSTITUTING THE BENCH OF THE LEARNED TRIBUNAL. 12. APPLYING THE RATIO OF LAW LAID DOWN BY THE HON BLE APEX COURT AND HON BLE JURISDICTIONAL H IGH C OURT TO THE FACTS OF THE PRESENT CASE WE FIND THAT THE LD. CIT NOTED THAT THE AO PASSED THE ORDER IN ACCE PTING THE CLAIM OF BAD DEBTS WITHOUT MAKING ANY INVESTIGATION AND APPLICATION OF MIND. INDEED AS OBSERVED BY THE LD. CIT IN HIS NOTICE THAT IN THE COURSE OF SEARCH OPERATION U/S.132 AT THE PREMISES OF THE ASSESSEE THE PURCHASE S OF ATTAR AND HEENA FROM J .M. ESSENTIAL OIL CO. WERE FOUND TO BE BOGUS AND THE ASSESSEE COMPANY WAS INVOLVED AS A FACILITATOR HENCE HE HELD THAT THE AO FAILED TO APPLY HIS MIND TO THE CASE IN ALL PERSPECTIVE AND THE ORDER PASSED BY HIM WAS ERRONEOUS IN SO FAR AS IT IS PREJUDICI AL TO THE INTEREST OF THE REVENUE . IT APPEARS THAT THE AO WITHOUT CONSIDERING THE RELEVANT MATERIAL FOUND DURING THE ITA NO. 2062/M/08 A.Y: 03 - 04 13 COURSE OF SEARCH AND POST SEARCH MADE NO ENQUIRY IN THIS REGARD AND HAS PASSED THE IMPUGNED ORDER AND ACCEPTED THE CLAIM OF BAD DEBTS. S IN CE THE BONAFIDE OF CLAIM OF BAD DEBTS HAS NEITHER BEEN PROVED BY THE ASSESSEE AND NOR HAS BEEN EXAMINED BY THE AO THEREFORE THE DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE IN TRF LIMITED (SC) GABRIEL INDIA LTD.(BOM.) AND NEELAM MERCANTILE (P .) LTD.(MUM) (SUPRA) ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE . IN THIS VIEW OF THE MATTER WE ARE OF THE VIEW THAT THE LD. CIT WAS FULLY JUSTIFIED IN HOLDING THAT THE ORDER PASSED BY THE AO U/S.143(3) IN SO FAR AS THE CLAIM O F BAD DEBTS IS CONCERNED WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST S OF THE REVENUE AND IN DIRECTING THE AO TO MAKE A FRESH ASSESSMENT AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY THE SAME IS UPHELD. THE GROUNDS TAK EN BY THE ASSESSEE ARE THEREFORE REJECTED. 13. IN THE RESULT THE ASSESSEE S APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.4.2010. SD/ - SD/ - ( PRAMOD KUMAR ) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED: 21.4. 20 10 . JV. ITA NO. 2062/M/08 A.Y: 03 - 04 14 COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI.