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PER S. RIFAUR RAHMAN (AM)
1. This appeal is filed by the assessee against order of the Learned Principal Commissioner of Income Tax, Mumbai-2 [hereinafter in short "Pr.CIT"] dated 31.03.2021 for the A.Y.2016-17.
2. Brief facts of the case are that, Ld. Pr.CIT, Mumbai-2 observed from the assessment record of the assessee that assessee has filed return of ITA NO. 490/MUM/2021 (A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., income for the A.Y. 2016-17 declaring total income of ₹.4,25,77,260/- under normal provisions of the Income-tax Act, 1961 (in short "Act") and ₹.97,33,677/- u/s. 115JB of the Act. The assessment u/s.143(3) was completed on 24.12.2018 assessing the total income at ₹.4,30,98,221/- under normal provisions of the Act and ₹.97,33,677/- u/s.115JB of the Act. He observed that the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue and requires revision. Accordingly, a show because notice was issued and served on the assessee with the following observations: -
iii) Assessee has claimed fish purchases of Rs 197.94 crores which is 95% of the sale of fish. Since sale of fish is mainly exports, sale is verifiable. However, since purchase is ultimately from unorganized sector and assessee has mainly done purchases through intermediaries, who also claims 90-95% cost as fish purchase, they need to be verified.
ITA NO. 490/MUM/2021 (A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., Further, payments to most suppliers are irregular and on lumpsum basis, which requires examination of some major suppliers to ascertain the genuineness of the intermediaries. Also to know the correct price of fish purchased, verification of documents relating to movement of fish could be relevant to establish the genuineness of purchases from these_ intermediaries. Assessing Officer has not examined the genuineness of purchases by examining suppliers since this constitutes 95% of the cost.Net profit is not even 1.5% even after taking into account substantial export incentives which raises suspicion that purchases might have been inflated. Failure of the Assessing Officer to examine these aspects has rendered the assessment order dated 24.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue."
Thus, your honour has not come to any conclusion that purchases were inflated. This amounts to nothing but rowing inquiry and not covered by revision U/s. 263.
4. During the course of scrutiny assessment, the assessing officer had called for numerous details and same were duly tendered by us vide ITA NO. 490/MUM/2021 (A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., our letters dated 12.12.2018 / 14.12.2018 / 18.12.2018 (copies enclosed).
ITA NO. 490/MUM/2021 (A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd.,
(i). M/s. FNF India Pvt. Ltd., v. ACIT in ITA.No. 1565/Bang/2019 dated 05.01.2021.
(ii). M/s. Goldman Sachs Services Pvt. Ltd., v. JCIT in IT(TP)A No. 2355/Bang/2019.
10. With regard to grounds of appeal no. (v) & (vi) with respect to the bad debts of ₹.3,76.40,000/- claimed by the assessee during the year, Pr.CIT has dealt with the same in para 6.2 of his order dated 31.3.2021 by observing that no such claim was made by the Assessee in earlier years and that claim of bad debts should have been examined by the assessing officer by making independent inquiry and no specific query was raised by the assessing officer in this regard. In the assessee's submission, the claim of the bad debts was rightly allowed by the Assessing Officer in terms of S.36(1)(vii) of the Act, which does not require the assessee to prove anything. The only condition is that the said debt should have been written off as irrecoverable in the accounts of the assessee. [P.10] Further the said debt should have been taken into account in computing the income of the assessee of the previous year in which the bad debt is written off or any earlier previous year. [S.36 (2)] and further, if the debt or any part of it is subsequently recovered, the same shall be profit and gain in terms of S.41 (4) of the Act. This has been so held by the Hon'ble Supreme Court in TRF Ltd. v CIT [320 ITR 397]. The assessee would like to submit that the said bad debt pertained to one company by the name Keres Trading from France [P._11] and in the ITA NO. 490/MUM/2021 (A.Y: 2016-17) M/s. Naik Seafoods Pvt. Ltd., subsequent year an amount of ₹.1,14,00,000 was received in respect of the same from ECGC and the same was duly shown as income in the Profit and Loss Account for the year ended 31% March, 2017. [P.12]. In the light of the above, it can be seen that the observations made by LD. Pr.CIT were not in accordance with the law and the Assessing Officer had rightly allowed the said deduction.