The Pune bench of the Income Tax Appellate Tribunal (ITAT) has set aside the Principal Commissioner of Income Tax (PCIT) revision order under Section 263 of the Income Tax Act, 1961, in the case of Bank of Maharashtra for the Assessment Year (AY) 2018-19. The tribunal ruled that the Assessing Officer’s (AO) assessment order was not erroneous, even if it was prejudicial to the interest of revenue.
The assessee, Bank of Maharashtra, a public sector bank, filed its income tax return for AY 2018-19, declaring a total loss of ₹1,612.29 crores under standard provisions. The return was processed under Section 143(1), and later, after scrutiny selection, a full assessment under Section 143(3) read with Section 144B was conducted. The AO determined the profits under Section 115JB at ₹6911.69 crores, which was later rectified to ₹2191.38 crores through an order under Section 154.
The PCIT, upon reviewing the assessment records, invoked Section 263, arguing that the AO erroneously allowed a deduction of ₹1,137.14 crores under Section 36(1)(via) (bad and doubtful debts provision) without adequate verification. According to the PCIT, the actual provision made for rural advances in the accounts was only ₹206.57 crores, and therefore, the excess deduction is to be disallowed.
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The PCIT asserted that the AO failed to properly verify the lousy debt deduction claim under Section 36(1)(viii) and resorted to past ITAT rulings that had restricted similar claims to the actual provision made for rural advances, which was significantly lower than the claimed deduction. The PCIT also stated that the AO accepted the assessee’s computation without independently verifying supporting documents, such as the list of rural branches and details of rural advances.
The revenue stated that the AO had thoroughly examined the claim and allowed the deduction based on past ITAT rulings in favour of the bank. The revenue department challenged the validity of Section 263, stating that it can only be invoked if the order is both erroneous and prejudicial to revenue; mere prejudice to revenue is insufficient.
After thoroughly observing both sides, the tribunal held that AO had correctly examined the deduction under Section 36(1) (via), calling for relevant details and computing the allowable claim in line with previous ITAT rulings since the AO’s order was based on a valid interpretation of the law, it was not erroneous, and therefore, Section 263 was wrongly invoked. The tribunal asserted that merely because an assessment order is prejudicial to revenue does not mean it is incorrect, and both conditions must be met to invoke Section 263 of the Income Tax Act.
The ITAT consisting of R.K. Panda (Vice President ) and Astha Chandra (Judicial Member) quashed the PCIT’s revision order, restoring the AO’s original assessment and allowing the Bank of Maharashtra’s deduction under Section 36(1)(via) of the Income Tax Act.
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