ORDER–Proper enquiry made.
Ratio:
Certain deductions were allowed by assessing officer after making proper detailed enquiries and considering the facts of the case, therefore assessment order could not be said erroneous and prejudicial.
Held:
The claim to deduct urban land tax the demand itself was made only on 23-6-1988 in the previous year ended 31-1-1982 for the first time and, therefore, the assessee was right in making the provision for that amount even though it related to the earlier accounting periods. Similarly, with regard to the expenditure incurred as damages for delayed payment of provident fund the delay was due to reasons beyond the assessee’s control, namely due to temporary closure of the business and the company becoming sick. Moreover, there being a separate provision for criminal prosecution and imposition of fine under the Employees Provident Fund Act, the damages recovered under section 148 of that Act amounts only to compensatory interest for the delay in payment of law. This is view taken in the nature of a penalty for any contravention of law. This is the view taken in the case of –Anglo-French Textiles Ltd. v. ITO (1984) 8 ITD 161 (Mad). In the light of that decision and the facts of this case this claim for deduction also is rightly allowed by the Income Tax Officer in the original assessment. With regard to the claim for bad debts the company having become sick it was reopened under a rehabilitation plan with the Industrial Reconstruction Bank of India and the bad debts were written off by a resolution of the Board of Directors in which there were nominees of the bank. It is hardly possible to consider that the Board of Directors so constituted would have written off the debts which had not actually become bad. In the circumstances, the acceptance of claim of bad debts by the Income Tax Officer was also correct and was not required to be reviewed particularly when he had done so after obtaining the reply of the company ndt. 25-1-1985 to his queries in that regard. In the circumstances, the order of the Commissioner under section 263 was without jurisdiction in as much as the orders of assessment were correct and could nt be regarded as erroneous or prejudicial to the revenue.
Case Law Analysis:
Anglo French Textiles Ltd. v. ITO (1984) 8 ITD 161 (Mad) relied on.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263
ORDER
T.N.C. Rangarajan, Judicial Member
1. These appeals are directed against the common orders made by the Commissioner under Section 263 of the Income-tax Act, 1961.
2. On a review of the assessments for the assessment years 1982-83 and 1984-85, the Commissioner was of the opinion that the assessment had failed to verify and determine the admissibility of certain deductions and, therefore, they were required to be re-done by the ITO. The items which are under consideration are, for the assessment year 1982-83 the disallowance of urban land tax provided for earlier years and for the assessment year 1984-85 the disallowance of an expenditure incurred for delayed payment of provident fund and the admissibility of the claim for bad debts.
3. In these appeals it was pointed out on behalf of the assessee that in giving effect to the orders of the Commissioner, the ITO has stated in his fresh order dated 19-12-1988,
b. Regarding disallowance of Urban Land Tax provided for earlier years, the assessee’s representative represented that an appeal before the Income-tax Appellate Tribunal has been filed against this point and the decision of the Tribunal has to be awaited.
As this point is agitated before the IT AT and their decision is awaited, I am not passing any orders as to the admissibility or otherwise of this expense.
Similarly, in the fresh assessment order for the assessment year 1984-85 also he has refrained from dealing with the other two disallowances. It was contended on behalf of the assessee that since the period of limitation for making the fresh assessments prescribed under Section 153(2A), namely two years from the end of the financial year in which the order under Section 263 was made, had run out as the date of the order under Section 263 was 27-3-1987 and the ITO had not made any assessment in regard to these items, the order under Section 263 had spent itself and was required to be cancelled. This was opposed by the revenue on the ground that the order under Section 263 being the subject of appeal, there was still time to make an assessment after the disposal of the appeal. But this defence of the revenue ignores the fact that the operation of the order under Section 263 had not been stayed to get the benefit of the extension of time as given in the Explanation 1 under Section 153(3). However, instead of cancelling the order under Section 263 on this ground, we prefer to deal with the issues on merits.
4. The main issue with regard to the jurisdiction of the Commissioner is whether he was right in assuming that the ITO had failed to verify and determine the admissibility of the claims of the assessee. In this regard it is pointed out on behalf of the assessee that the queries had been raised by the ITO on these issues in respect of which the assessee had given its representation and details of the claim before the ITO which were considered before making the assessments. We find such representations on record and, therefore, we are unable to sustain the finding of the Commissioner that the assessments had failed to verify the admissibility of the claims.
5. Even with reference to each individual item, we find that with regard to the claim to deduct urban land tax the demand itself was made only on 23-6-1981 in the previous year ended 31-1-1982 for the first time and, therefore, the assessee was right in making the provision for that amount even though it related to the earlier accounting periods. Similarly, with regard to the expenditure incurred as damages for delayed payment of provident fund we find that the delay was due to reasons beyond the assessee’s control, namely due to temporary closure of the business and the company becoming sick. Moreover, there being a separate provision for criminal prosecution and imposition of fine under the Employees Provident Fund Act, the damages recovered under Section 14B of that Act amounts only to compensatory interest for the delay in payment of the contribution and is not in the nature of a penalty for any contravention of law. This is the view taken in the case of Anglo-French Textiles Ltd. v. ITO [1984] 8 ITD161 (Mad.). In the light of that decision and the facts of this case this claim for deduction also is rightly allowed by the ITO in the original assessment. With regard to the claim for bad debts, we find that the company having become sick it was re-opened under a rehabilitation plan with the Industrial Reconstruction Bank of India and the bad debts were written off by a resolution of the Board of Directors in which there were nominees of the bank. It is hardly possible to consider that the Board of Directors so constituted would have written off the debts which had not actually become bad. In the circumstances, the acceptance of the claim of bad debts by the ITO was also correct and was not required to be reviewed particularly when he had done so after obtaining the reply of the company dated 25-1-1985 to his queries in that regard. In the circumstances, we are of the opinion that the order of the Commissioner under Section 263 was without jurisdiction inasmuch as the orders of assessment were correct and could not be regarded as erroneous or prejudicial to the revenue. His order is cancelled.
6. The appeals are allowed.