Income Tax Assessing Officer Cannot Remain Oblivious to Claim Without Enquiry: Kerala HC Dismisses Appeal of Cochin International Airport [Read Order]

The Kerala High Court ruled that an income tax assessing officer cannot remain oblivious to claim without enquiry and dismissed the appeal of Cochin International Airport .

"The role of the assessing officer under the Income Tax Act, 1961 is not only that of an adjudicator but also that of an investigator and he cannot remain oblivious in the face of a claim without any inquiry," noted the Division Bench, which was composed of Justices A.K. Jayasankaran Nambiar and Easwaran S.

According to the terms of the Income Tax Act of 1961, Cochin International Airport Ltd., the appellant, a domestic business involved in the operation and upkeep of the Cochin International Airport, is an assessee.  According to Section 115-JB of the Income Tax Act of 1961, the appellant reported a total income of Rs. 134,43,40,439 for the assessment year 2012–13.  The appellant filed a revised return on December 4, 2013, stating a taxable income of Rs. 11,88,92,410 because the tax payable under the regular provisions of the Act was lower and it had claimed a deduction under Section 80-IA of the Act for the eligible activity of operating and maintaining the airport, which is an infrastructure facility. 

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The return was finished by order dated 27.3.2015 after being chosen for examination under Section 143(3) of the Income Tax Act, 1961.  Because the Department, the first respondent, rejected the deduction claim under Section 80-IA and ordered several other disallowances, the appellant filed an appeal against the ruling, which is now pending.  The appellant deducted Rs. 1,00,33,280 from the amount of trade receivables, short-term loans, and advances during the aforementioned fiscal year in order to make a provision for bad and doubtful debts. 

The appellant considered the provision debited in the profit and loss account as a write-off in the income tax return since it was simultaneously erased from the value of trade receivables, short-term loans, and advances.  However, the Department looked into this throughout the evaluation process and, in a letter dated 3.2.2015, demanded that the provision for bad and doubtful debts be broken up. 

The appellant replied to the said notice by pointing out the decision of the Supreme Court in Vijaya Bank v. Commissioner of Income Tax (CIT).  The appellant contended that it is after considering the said reply that the assessing authority decided to accept the explanation and proceeded to issue the assessment order.  However, the Principal Commissioner of Income Tax-1, Kochi found that the said assessment was erroneous and prejudicial to the interest of the Revenue, and decided to invoke the jurisdiction under Section 263 of the Income Tax Act, 1961 and issued a notice proposing to revise the order of assessment.

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On 21.2.2017, the assessing authority issued revised orders of assessment under Section 143 of the Income Tax Act, 1961, denying the deduction of the claim of dubious debts of Rs. 1,00,33,280/-while the appeal was still pending.  According to the statement, the order is being contested in a different appeal that was filed with the Tribunal.

The appellant's senior counsel argued that the Principal Commissioner of Income Tax-1, Kochi, had no authority to invoke Section 263 of the Income Tax Act, 1961 because he had essentially changed his mind and decided to amend the assessment order, which is illegal. 

On the other hand, the Senior Standing Counsel appearing for the 1st respondent-Department contended that though a provision for bad debts was made in the profit and loss account, the same is not seen obliterated. He further pointed out that even in the profit and loss account, especially clause 2.15.1, it is specifically stated by the appellant that the Company is hopeful of recovering the aforesaid amount at some point of time.

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The court viewed that all orders, which are erroneous, are not liable to be subjected to proceedings under Section 263 of the Income Tax Act, 1961.  To invoke Section 263, the Principal Commissioner of Income Tax must be satisfied that the erroneous order also causes prejudice to the Revenue.  The real purport of Section 263 is to remove the prejudice caused to the Revenue by the erroneous order passed by the assessing officer and it empowers the Commissioner to initiate suo motu proceedings, when either the assessing officer takes a wrong decision without considering materials available on record or renders a decision without enquiry. 

The role of the assessing officer under the Income Tax Act, 1961 is not only that of an adjudicator but also of an investigator and he cannot remain oblivious in the face of a claim without any enquiry.  The assessing officer must exercise a dual role of protecting the interest of the Revenue as well as that of the assessee and that is the reason why he is expected to pass orders with utmost diligence. 

It was evident that the assessing officer did not show any application of mind and mechanically accepted the statement of the assessee.  When the assessee is found to have claimed deduction for Rs.1,00,33,280/- towards the “provision for doubtful assets” for the purpose of computation of book profit under Section 115-JB of the Income Tax Act, 1961, the assessing officer did not state any reason as to why he decided, if at all, to accept the explanation of the assessee despite the fact that the said amount was not debited for the provision for doubtful account and consequently, the provision of doubtful debts account has not been obliterated.

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 The Tribunal  concluded rightly that the order passed by the Commissioner of Income Tax did not suffer from any illegality or perversity.  The court viewed that the order impugned in the appeal does not suffer from any jurisdictional infirmity.

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