The Income Tax Appellate Tribunal (ITAT), Mumbai Bench held that no proceedings relating to revision of orders prejudicial to revenue under Section 263, if AO took one of the possible views and allowed the claim after proper examination and due application of mind.
The assessee, Vodafone India Ltd. is engaged in provision of wireless telecommunications services to individual and corporate customers in India. It is primarily engaged in providing telecommunication services to its customers/subscribers located in Mumbai circle.
The assessee company has claimed deduction on account of bad debt is allowable if the amount of bad debt has been written off as irrecoverable in the accounts. The deduction claimed on account of bad debt directly in the computation of income should have been disallowed. As per section 36(1)(vii), the deductions shall be allowed in computing the income in respect of 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.
The PCIT has also stated that the assessee company has capitalized an amount of Rs. 35,22,38,00,000 in the books of accounts whereas the amount capitalized for income tax purpose was Rs. 35,77,10,81,245 for acquisition of 3G spectrum.
Thus, the assessee has capitalized an excess amount of Rs. 54,72,81,245 for income-tax purpose on account of 3G spectrum and has claimed excess deduction on account of depreciation on this excess amount.
The order of the AO suffered from error within the meaning of Section 263 of the Income Tax Act, 1961. This error has resulted in prejudice to the revenue within the meaning of Section 263 in as much as the claim of the assessee is allowed in excess and income of the assessee has been under assessed.
Accordingly, in respect of the aspects, provision of Section 263 of the Income Tax Act, 1961 were to be invoked. Therefore, a show cause notice was first issued and a final show cause notice was issued.
The petitioner argued that the PCIT erred in assuming jurisdiction and initiating proceeding under section 263 of the Income Tax Act, 1961 since the order passed by the Assessing Officer was neither ‘erroneous’ nor ‘prejudicial’ to the interest of the revenue as the AO had not only made adequate inquiries, but had also undertaken necessary verification on basis the of the details sought from the assessee during the course of the assessment proceedings and had taken one of the permissible views.
The two member bench of Judicial Member, Ram Lal Negi and Accountant member, R.C. Sharma observed that AO had conducted enquiries during the course of proceedings, however, the CIT merely changed its opinion by reappraising evidence that is not within the parameters of revisional jurisdiction under section 263.
“It is also well settled that where two views are possible and the AO has taken one of the possible views which might result in prejudice to the revenue, then also proceedings under section 263 of the Act cannot be initiated,” the ITAT said.
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