HENKEL ADHESIVES TECHNOLOGIES, MUMBAI V. THE PR. CIT-6, MUMBAI

ITA 1382/MUM/2021

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 6213 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2014-2015
• Appeal Filed On: 04-08-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: TDS; Set aside
• Section: 263; 154; 2; 143(3); 40(a)(ia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "H" BENCH, MUMBAI SHRI PRAMOD KUMAR, VICE PRESIDENT SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 1382/MUM/2021 (ASSESSMENT YEAR: 2014-15) Henkel Adhesives Technologies India Private Limited 401, 4 th Floor, B Wing, L & T Sea Woods, Tower 1, Grant Central, Sea Woods, Grant Central, Sea Woods, Navi Mumbai, Thane- 400706 [PAN: AAACL1954B] Principal Commissioner of Income Tax – 6, Mumbai Room No. 501, 5 th Floor, Aayakar Bhavan, Maharshi Karve Road, Mumbai - 400020 ............... Vs ................ Appellant Respondent Appearances For the Respondent/ Assessee For the Appellant/Department : Shri Kirit Kamdar (AR) Smt. Neelam Shukla (CIT DR) Date of conclusion of hearing Date of pronouncement of order : : 21.02.2022 23.03.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant/Assessee has challenged the order, dated 31.03.2021, passed by the Ld. Principal Commissioner of Income Tax, Mumbai - 6 [hereinafter referred to as „the PCIT‟] under Section 263 of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟] whereby the Assessment Order, dated 31.10.2018, passed under section 143(3) read with section 144C(13) of the Act was set aside as being erroneous in so far as prejudicial to the interest of revenue with the directions to pass de- novo assessment order. The present appeal, though filed 67 days after the expiry of period of 60 days prescribed in Section 253(3) of the Act, is being treated as ITA. No. 1382/Mum/2021 Assessment Year: 2014-15 2 being filed within limitation as the appeal has been filed within the extended time allowed by the Hon‟ble Supreme Court vide order, dated 23.03.2020 and 27.04.2021 passed in the Suo Motu Writ Petition (Civil) No. 3 of 2020 read with order, dated 23.09.2021, passed in M.A. No. 665 of 2021 in Suo Motu Writ Petition (Civil) No. 3 of 2020. 2. The Brief facts of the case are that the Appellant is a private limited company engaged in the business of manufacturing and trading of industrial, automotive and electronic adhesive segments. The Appellant filed return of income on 29.11.2014 declaring total income of INR 67,63,88,620/-. The case was selected for scrutiny under the Computer Assisted Scrutiny Selection and assessment was framed under Section 143(3) read with Section 144C(13) of the Act vide assessment order, dated 31.10.2018, („hereinafter referred to as „the Assessment Order‟) at assessed total income of INR 1,09,23,55,010/- after making aggregate additions/disallowance of INR 41,59,66,385/-. 3. On 17.03.2021, notice under Section 263 was issued by the PCIT to the Appellant fixing 23.03.2021 as the date „for hearing/making submission online‟. The Appellant filed submission, dated 26.03.2021, along with documents marked as Annexures 1 to 6. On 31.03.2021, the PCIT passed order under Section 263 of the Act [hereinafter referred to as the „the Revision Order‟] setting aside the Assessment Order which has been impugned by way of the present appeal. 4. The Appellant has raised the following grounds of appeal: “On the facts and in circumstances of the case and in law, the Principal Commissioner of Income- tax erred: (A) Grounds on validity of proceedings under section 263: ITA. No. 1382/Mum/2021 Assessment Year: 2014-15 3 1. in making a revision under section 263 to set aside the assessment order dated 31 October 2018 passed under section 143(3). 2. in holding that the assessment order dated 31 October 2018 passed under section 143(3) of the Act is erroneous in so far as it is prejudicial to the interests of the revenue. 3. in not appreciating the fact that the issues which formed a part of revision under section 263 were already examined during the course of the assessment proceedings. 4. In observing that the appellant has not filed any submission during the course of the proceedings under section 263, apart from acknowledgment of the return of income and computation for AY 2011 12 to AY 2014- 15 and Form 3CA for AY 2014-15. 5. in ignoring the detailed submissions made by the appellant vide letter dated 26 March 2021 on the validity of revision under section 263 as well as on the merits of each issue. (B). Grounds on Merits: (I) Deduction of reversal of provision for inventory written-back: Rs. 3,35,50,000: 6. in directing the Assessing Officer to pass a de-novo order in respect of the issue relating to deduction in respect of write-back provision for inventory. 7. in holding that the Assessing Officer ought not to have allowed deduction of reversal of provision for inventory without appreciating the facts of the appellant's case. 8. in not appreciating the fact that write-back of provision for inventory credited to the Profit and Loss Account for the year under consideration, was already disallowed in the earlier years in which the said provisions were created. ITA. No. 1382/Mum/2021 Assessment Year: 2014-15 4 9. in not appreciating the fact that in case the write-back of provision is again taxed in the year under consideration, the same would amount of double disallowance of the amount of provision. (II) Disallowance of regional management charges on account of non- deduction of TDS under section 40(a)(ia): Rs. 5,71,72,025: 10. in directing the Assessing Officer to pass a de-novo order in respect of the issue relating to disallowance under section 40(a)(ia) in respect of regional management charges. 11. in observing that the Assessing Officer has not added back impugned amount of regional management charges in the computation of income without appreciating the facts of the appellant's case. 12. in not appreciating the fact that the Appellant has duly reported the impugned amount of regional management charges under clause 21(A)(b) of the Tax Audit Report in Form 3CD with respect to disallowance under section 40(a)(i), and the same was duly disallowed in the return of income filed.” Thus, the Appellant has challenged the Revision Order on the grounds of invalidity of the revision proceedings [Ground (A)1-4] as well as on merits [Grounds (B)(I)6-9 and Grounds B(II) 10-12]. In total 12 grounds have been raised by the Appellant to support his contention that the Assessment Order was neither erroneous nor prejudicial to the interest of Revenue and therefore, the PCIT had erred in invoking powers of revision under Section 263 of the Act. Accordingly, all the grounds are being taken up together hereinunder. 5. The Authorised Representative advancing arguments on behalf of the Appellant stated that the PCIT has proceeded to issue notice under Section 263 of the Act and thereafter, to set aside the ITA. No. 1382/Mum/2021 Assessment Year: 2014-15 5 Assessment Order on incorrect premise. The PCIT arrived at a conclusion that the reversal of provisions of inventory for INR 3,35,50,000/- made during the relevant previous year ought to have been brought to tax without appreciating that the same pertains to provisions for inventory created in earlier years which have been disallowed in the computation of income of the respective years, and thus, offered to tax in the earlier years. In case reversal of the provision for inventory for INR 3,35,50,000/- is treated as income, the same would lead to double taxation in the hands of Appellant. He further submitted that the PCIT has concluded that Regional Payment Charges of INR 5,71,72,025/- should have been disallowed under Section 40(a) of the Act without appreciating that disallowance for the same has already been made by the Appellant in his return of income. He relied upon the submission/documents forming part of the paper-book to contend that the submission/documents were placed before the PCIT, however, in the Revision Order the PCIT has recorded that no submission have been filed. Therefore, the Appellant was constrained to move application under Section 154 of the Act for rectification of the Revision Order which has also been rejected by PCIT vide order, dated 15.07.2021. In response, the Ld. Departmental Representative relied upon the Revision Order and submitted the PCIT was correct in exercising powers under Section 263 of the Act as the Assessing Officer had not examined the issue pertaining to write-back of Provision of Inventory and disallowance of the Regional Payment Charges during the assessment proceedings. 6. We have considered the rival submissions and perused the material on record. We find merit in the contentions raised by the Appellant. A perusal of the material on record shows that the Appellant had filed a submission, dated 26.03.2021 (along with 6 Annexure) before the PCIT. E-Proceedings Response Acknowledgement generated on 26.03.2021 has also been placed on record. The fact that the aforesaid submission/documents have been filed by the Appellant ITA. No. 1382/Mum/2021 Assessment Year: 2014-15 6 before PCIT has also been acknowledged by the PCIT in order, dated 15.07.2021, whereby the application filed by the Appellant under Section 154 for rectification of the Revision Order was rejected. 6.1. Perusal of the submission along with annexures filed before PCIT shows that the Assessment Order is neither erroneous nor prejudicial to the interest of revenue. The Acknowledgement of Return/Revised Return along with computation of income for the Assessment Year 2011-12, 2012-13 and 2013-14 show the disallowance of provisions for inventory of INR 1,57,45,000/- (AY 2011-12), 1,79,64,000/- (AY 2012-13) and INR 77,87,305/- (AY 2013-14) was made by the Appellant in the computation of taxable income on the respective years. Though the Provisions of Inventory were created in Assessment Years 2011-12, 2012-13 and 2013-14, deduction for the same was not claimed while computing taxable income of the respective previous years. Write-back of the Provision of Inventory during the relevant previous year does not give rise to taxable income in the hands of the Appellant as no deduction was claimed in the earlier years for Provision of Inventory. We are of the considered view that INR 3,35,00,000/-, being write-back of Provisions of Inventory credited to Profit and Loss Account, was correctly excluded in the computation of income by the Appellant, and therefore, the Assessment Order cannot be considered as erroneous on this count. 6.2. Similarly, perusal of the relevant extract of return of income in ITR -6 for the relevant Assessment Year 2014-15 shows that disallowance of Regional Payment Charges of INR 5,71,72,025/- has been made by the Appellant in Schedule BP - Part A at Serial No. 16 and deduction in respect of the same has not been claimed. Accordingly, the Assessing Officer was not required to add back Regional Payment Charges of INR 5,71,72,025/-. The PCIT had clearly moved on incorrect premise that the Appellant had claimed deduction of the same. The conclusion drawn by the PCIT is contrary to the ITA. No. 1382/Mum/2021 Assessment Year: 2014-15 7 assessment record. Accordingly, the Assessment Order cannot be considered to be erroneous on this count as well. 6.3. As regards invocation of provisions of Explanation 2 to Section 263(1) of the Act, the opinion formed by the PCIT must have some factual and/or legal basis. In the present case, we are of the view, that the opinion formed by the PCIT is based upon incorrect appreciation of underline facts and is contrary to the material on record. The provisions of Explanation 2 to Section 263(1) of the Act have been invoked by the PCIT without inquiring into the basic facts and seemingly in undue haste. 7. In view of the above, we hold that the Assessment Order is neither erroneous in so far as it is prejudicial to the interest of revenue, nor can it be deemed to be so in terms of Section 263 of the Act. The PCIT lacked the jurisdiction to exercise powers under Section 263 of the Act in the facts and circumstances of the present case. The order, dated 31.03.2021, passed by the PCIT under Section 263 of the Act is set aside and the Assessment Order, dated 31.10.2018, passed under Section 143(3) of the Act is reinstated. Accordingly, Ground No. (A)1& 2, Ground No. (B)(I)6 and Ground No. B(II)10 are decided in favour of the Appellant and against the Revenue. Rest of the grounds raised are disposed off as being infructuous. In result, the appeal of the Assessee is allowed. Order pronounced on 23.03.2022. S/d S/d (Pramod Kumar) Vice President (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 23/03/2022