M/s Mag India Industrial Automation Systems Pvt Ltd , Bangalore V. The Principal Commissioner of Income Tax Bangalore-4 , BAngalore

ITA 2218/BANG/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4648 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-10-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 18-07-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Assessee Lawyers: K SOUMYA
• Keywords: Set aside
• Section: 143(3); 263; 2

Judgement Text

ITA NO.2218/BANG/2018 M/S. MAG INDIA INDUSTRIAL AUTOMATION SYSTEMS PVT. L TD., BENGALURU IN THE INCOME TAX APPELLATE TRIBUNAL BBENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.2218/BANG/2018 ASSESSMENTYEAR: 2014-15 M/S. MAG INDIA INDUSTRIAL AUTOMATION SYSTEMS PVT. LTD. NO.67, 1 ST MAIN, 2 ND STAGE INDUSTRIAL SUBURB, YESHWANTHPUR BENGALURU-560 022 PAN NO :AAECM9067F VS. PRINCIPAL COMMISSIONER OF INCOME-TAX BENGALURU APPELLANT RESPONDENT APPELLANT BY : SMT. K. SOUMYA, A.R. RESPONDENT BY : SHRI MUZAFFAR HUSSAIN, D.R. DATE OF HEARING : 20.10.2020 DATE OF PRONOUNCEMENT : 20.10.2020 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE REVISION ORDER PASSED BY LD. PRINCIPAL CIT-4, BENGALURU FOR ASSESSMENT YEAR 2014-15 U/S 263 OF THE INCOME-TAX ACT,1961 ['THE AC T' FOR SHORT]. THE ASSESSEE IS CHALLENGING THE VALIDITY OF REVISIO N ORDER PASSED BY THE PR. CIT. 2. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MARKETING OF INDUSTRIAL MACHINERY AND ALSO PROVIDING SOFTWARE SERVICES TO INDUSTRIAL MACH INERY. THE ITA NO.2218/BANG/2018 M/S. MAG INDIA INDUSTRIAL AUTOMATION SYSTEMS PVT. L TD., BENGALURU PAGE 2 OF 5 ASSESSMENT IN THIS CASE WAS COMPLETED BY THE A.O. U /S 143(3) OF THE ACT ON 21.11.2016. THE A.O. ACCEPTED THE TOTAL INCOME RETURNED BY THE ASSESSEE. 3. THE LD. PRINCIPAL CIT CALLED FOR ASSESSMENT RECO RD AND NOTICED THAT THE ASSESSEE HAS CLAIMED A SUM OF RS.1 ,75,81,254/- AS DEDUCTION TOWARDS PROVISION FOR WARRANTY EXPENSES . THE LD. PRINCIPAL CIT NOTICED THAT THE A.O. DID NOT MAKE AN Y ENQUIRY WITH REGARD TO THE ABOVE SAID CLAIM. SINCE THE AO HAS F AILED TO EXAMINE THIS ISSUE, THE LD PCIT HELD THAT THE ASSESSMENT OR DER IS RENDERED ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. HENCE, HE INITIATED REVISION PROCEEDINGS U/S 263 OF THE ACT. 4. BEFORE LD. PRINCIPAL CIT, THE ASSESSEE MADE DETA ILED SUBMISSION AS TO HOW THE PROVISION FOR WARRANTY IS CREATED IN THE BOOKS OF ACCOUNTS. SINCE THE A.O. HAS NOT CARRIED OUT ANY VERIFICATION OF THE ABOVE SAID ISSUE, AND FURTHER S INCE LD. CIT ALSO NOTICED CERTAIN ERRORS IN THE DETAILS FURNISHED BY THE ASSESSEE, THE LD. PRINCIPAL CIT TOOK THE VIEW THAT THE ASSESSMENT ORDER IS REQUIRED TO BE SET ASIDE AS IT IS ERRONEOUS AND PRE JUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDINGLY, HE SET ASIDE THE ASSESSMENT ORDER AND RESTORED ALL THE ISSUES TO THE FILE OF TH E A.O. WITH THE DIRECTION TO EXAMINE THEM AND RE-DO THE ASSESSMENT AFRESH. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD. PRINCI PAL CIT. 5. BEFORE GOING INTO THE MERITS OF THE ISSUE, WE WOULD LIKE TO DISCUSS ABOUT THE LEGAL POSITION WITH REGARD TO THE POWER OF LEARNED CIT TO INVOKE REVISION PROCEEDINGS UNDER SECTION 26 3 OF THE ACT. THE SCOPE OF REVISION PROCEEDINGS INITIATED UNDER S ECTION 263 OF THE ACT WAS CONSIDERED BY HON'BLE BOMBAY HIGH COURT, IN THE CASE OF GRASIM INDUSTRIES LTD. V CIT (321 ITR 92) BY TAKING INTO ACCOUNT THE LAW LAID DOWN BY THE HON'BLE SUPREME COURT IN T HE CASE OF ITA NO.2218/BANG/2018 M/S. MAG INDIA INDUSTRIAL AUTOMATION SYSTEMS PVT. L TD., BENGALURU PAGE 3 OF 5 MALABAR INDUSTRIAL CO LTD (243 ITR 80). THE RELEVA NT OBSERVATIONS MADE BY HONBLE BOMBAY HIGH COURT ARE EXTRACTED BEL OW: SECTION 263 OF THE INCOME-TAX ACT, 1961 EMPOWERS T HE COMMISSIONER TO CALL FOR AND EXAMINE THE RECORD O F ANY PROCEEDINGS UNDER THE ACT AND, IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN, BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT ERESTS OF THE REVENUE, TO PASS AN ORDER UPON HEARING THE ASSE SSEE AND AFTER AN ENQUIRY AS IS NECESSARY, ENHANCING OR MODIFYING THE ASSESSMENT OR CANCELLING THE ASSESSME NT AND DIRECTING A FRESH ASSESSMENT. THE KEY WORDS THA T ARE USED BY SECTION 263 ARE THAT THE ORDER MUST BE CONSIDERED BY THE COMMISSIONER TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE RE VENUE. THIS PROVISION HAS BEEN INTERPRETED BY THE SUPREME COURT IN SEVERAL JUDGMENTS TO WHICH IT IS NOW NECES SARY TO TURN. IN MALABAR INDUSTRIAL CO. LTD. V. CIT [2 000] 243 ITR 83, THE SUPREME COURT HELD THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SEC TION WILL BE ATTRACTED. THE SUPREME COURT HELD THAT AN INCOR RECT ASSUMPTION OF FACT OR AN INCORRECT APPLICATION OF L AW, WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONE OUS. AN ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATU RAL JUSTICE OR WITHOUT APPLICATION OF MIND, WOULD BE AN ORDER FALLING IN THAT CATEGORY. THE EXPRESSION PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE SUPREME COURT HELD, IT IS OF WIDE IMPORT AND IS NOT CONFINE D TO A LOSS OF TAX. WHAT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE IS EXPLAINED IN THE JUDGMENT OF THE SUPREME COURT (HEADNOTE) : THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS O RDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF RE VENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFIC ER, CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS O F THE REVENUE, FOR EXAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND I T HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS A RE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CA NNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. ITA NO.2218/BANG/2018 M/S. MAG INDIA INDUSTRIAL AUTOMATION SYSTEMS PVT. L TD., BENGALURU PAGE 4 OF 5 THE PRINCIPLE WHICH HAS BEEN LAID DOWN IN MALABAR INDUSTRIAL CO. LTD. [2000] 243 ITR 83 (SC) HAS BE EN FOLLOWED AND EXPLAINED IN A SUBSEQUENT JUDGMENT O F THE SUPREME COURT IN CIT V. MAX INDIA LTD. [2007] 295 I TR 282. 6. THE HONBLE SUPREME COURT HAS HELD THAT THE EXISTENCE OF TWIN CONDITIONS, VIZ., THE ASSESSMENT ORDER SHOU LD BE ERRONEOUS AND IT SHOULD BE PREJUDICIAL TO THE INTER ESTS OF REVENUE, SHOULD BE SHOWN IN THE REVISION ORDER PASS ED U/S 263 OF THE ACT. THE HONBLE APEX COURT HAS FURTHER HELD THAT NON-APPLICATION OF MIND ON THE PART OF THE INCOME-T AX OFFICER WOULD MAKE THE ASSESSMENT ORDER ERRONEOUS. IN THE INSTANT CASE, WE NOTICE THAT THE ASSESSING OFFICER DID NOT CONDUCT ANY ENQUIRY AT ALL WITH REGARD TO THE CLAIM OF PROVISI ON FOR WARRANTY EXPENSES MADE BY THE ASSESSEE. THE LD A .R ALSO COULD NOT DEMONSTRATE THAT THE AO DID CONDUCT ENQUI RY AND HAS TAKEN A POSSIBLE VIEW. 7. HENCE, WE ARE OF THE VIEW THAT THE AO HAS PA SSED THE ORDER WITHOUT MAKING ANY ENQUIRY ON THIS ISSUE AND THE SAME WOULD RENDER THE ORDER ERRONEOUS AND IN VIEW OF ITS TAX IMPLICATIONS, THE SAME WOULD CAUSE PREJUDICE TO THE INTERESTS OF REVENUE. BEFORE US, THE LD A.R SUBMITTED THAT T HE ASSESSMENT ORDER CANNOT BE CONSIDERED TO BE PREJUDI CIAL TO THE INTERESTS OF REVENUE AS THE CLAIM OF THE ASSESSEE I S SUPPORTED BY THE DECISION RENDERED BY HONBLE SUPREME COURT I N THE CASE OF ROTORK CONTROLS INDIA (P) LTD VS. CIT (2009 )(180 TAXMAN 422)(SC). HOWEVER, THE FACT REMAINS THAT TH E AO HAS NOT MADE ANY ENQUIRY WITH THE REGARD TO THE IMPUGNE D CLAIM AND HENCE EXPLANATION 2 TO SEC.263(1) SHALL APPLY T O THE FACTS OF THE PRESENT CASE. THERE SHOULD NOT BE ANY DOUBT THAT, UNLESS THE FACTS RELATING TO THE CLAIM ARE EXAMINED , THE ITA NO.2218/BANG/2018 M/S. MAG INDIA INDUSTRIAL AUTOMATION SYSTEMS PVT. L TD., BENGALURU PAGE 5 OF 5 QUESTION OF APPLICATION OF THE DECISION RENDERED BY HONBLE SUPREME COURT CANNOT BE EXAMINED. 8. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THERE IS NO INFIRMITY IN THE REVISION ORDER PA SSED BY LD PR. CIT. ACCORDINGLY WE UPHOLD THE SAME. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH OCT, 2020 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 20 TH OCT, 2020. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.