CROMPTON GREAVES LTD, MUMBAI V. CIT -6, MUMBAI

ITA 2836/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4119 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 26-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 25-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: PRADEEP N KAPASI
• Keywords: Revision of order; Business expenditure; Opportunity of being heard; Principle of natural justice; Period of limitation; Assessment record; Right to appeal
• Section: 43B; 143(3); 153A; 80G; 12AA; 147; 27; 37; 263; 63; 132; 28; 144; 154

Judgement Text

C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER , , ./ I.T.A. NO. 1994 /MUM/2013 ( / ASSESSMENT YEAR : 2007-08) ./ I.T.A. NO. 2836 /MUM/2014 ( / ASSESSMENT YEAR : 2007-08) M/S CROMPTON GREAVES LTD.,6 TH FLOOR, C.G. HOUSE, DR. A.B. ROAD, WORLI, MUMBAI 400 030. / V. CIT 6,MUMBAI, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AAACC3840K ( ! / APPELLANT ) .. ( '#! / RESPONDENT ) ASSESSEE BY SHRI PRADEEP N. KAPASI REVENUE BY : SHRI C.W. ANGOLKAR $ %&' ( / DATE OF HEARING : 29-10-2015 )*+, &' ( / DATE OF PRONOUNCEMENT : 01-02-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER : THESE TWO APPEALS BY THE ASSESSEE COMPANY ARE RELAT ED TO THE ASSESSMENT YEAR 2007-08, ITA NO. 1994/MUM/2013 IS DIRECTED AGAINST THE ORDER DATED 06.02.2013 PASSED U/S 263 OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) BY THE LEARNED COMMI SSIONER OF INCOME TAX - 6 , MUMBAI (HEREINAFTER CALLED THE CIT) WHILE ITA NO. 2836/MUM/2014 IS ITA 1994MUM/13 & ITA 2836/MUM/14 2 DIRECTED AGAINST THE ORDER DATED 24.02.2014 PASSED U/ 143(3) OF THE ACT READ WITH SECTION 263 OF THE ACT PASSED BY LEARNED ASSES SING OFFICER (HEREINAFTER CALLED THE AO) . BOTH THESE APPEALS ARE HEARD TOG ETHER AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND B REVITY. 2. WE ARE FIRST TAKING UP THE APPEAL FOR THE ASSESS MENT YEAR 2007-08 VIDE ITA NO. 1994/MUM/2013 ARISING FROM THE ORDER DATED 06.02.2013 PASSED U/S 263 OF THE ACT BY THE CIT. THE FOLLOWING GROUND S OF APPEAL HAVE BEEN RAISED BY THE ASSESSEE COMPANY IN THE MEMO OF APPEA L FILED WITH THE TRIBUNAL AS UNDER :- 1. INVALID REVISION U/S 263 A. THE LD. CIT ERRED IN LAW AND FACTS OF THE CASE IN INITIATING REVISIONARY PROCEEDINGS U/S 263 AND THEREAFTER IN PASSING AN ORD ER U/S 263 IGNORING THE FACT THAT THE ORDER PASSED BY THE LD. AO. U/S 143(3) DT. 28.12.2010 WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE IN AS MUCH AS THE LD. A.O. HAD APPLIED HIS M IND AND HAD MADE PROPER INQUIRIES TO HIS SATISFACTION BEFORE PASS ING THE ASSESSMENT ORDER. B. YOUR APPELLANT SUBMITS THAT; I. THE ID. AO HAD COMPLETED THE ASSESSMENT FOR AY.20 07-08 AFTER DETAILED INQUIRY AND APPRECIATION OF THE FACTS, EVIDEN CES AND THE LAW. THE PROVISIONS MADE ON ACCOUNT OF WARRANTY, LIQUIDAT ED DAMAGES, SALES TAX AND EXCISE DUTY REPRESENTED LAWFUL BUSINESS EXPE NDITURES OF THE COMPANY AND PROVISIONS WERE MADE IN ACCORDANCE WITH AS 29 OF THE ICAI AND WERE ALLOWED BY THE AO. ONLY AFTER DUE CONS IDERATION OF THE FACT AND OF THE LAW OF ALLOWABILITY OF SUCH EXPENSES AND IN THAT VIEW OF THE MATTER THE ORDER COULD NOT HAVE BEEN TERMED AS ERR ONEOUS OR PREJUDICIAL TO THE INTEREST OF THE LAW. II. THE COMPANY HAD MADE COMPLETE DISCLOSURE OF THE FACTS IN ITS FINANCIAL STATEMENTS UNDER SCHEDULE 16 WHICH ARE DUL Y AUDITED, AND PARTICULARLY VIDE NOTE NO.33 OF SCHEDULE B OF NOTES TO ACCOUNTS. THE ADEQUACY OF THE PROVISIONS AND THE NEED AND THE JUSTIF ICATION THEREOF WAS ASCERTAINED BY THE AUDITORS AND WAS APPROVED BY TH EM WITHOUT ANY QUALIFICATIONS IN THEIR REPORT. ITA 1994MUM/13 & ITA 2836/MUM/14 3 C. YOUR APPELLANT PLEADS THAT SUCH AN ORDER OF CIT B E HELD TO BE BAD IN LAW AND BE QUASHED. 2. SERIOUS VIOLATION OF NATURAL JUSTICE A. THE LD. CIT ERRED IN LAW AND ON FACTS IN COMPLETI NG THE REVISIONARY PROCEEDINGS IN A COMPLETE HASTE AND WITHOUT GIVING SU FFICIENT TIME AND OPPORTUNITY AND ERRED IN LAW IN IGNORING ALL THE EVI DENCES AND PROOFS AND DOCUMENTS AVAILABLE ON RECORDS AND FURTHER ERRED IN TREATING THE ORDER PASSED BY AO AS ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF THE REVENUE AND SETTING ASIDE THE SAME WITHOUT BRINGING A NY MATERIAL OF WHATSOEVER NATURE IN RECORD. B. YOUR APPELLANT SUBMITS THAT PROPER PROCEDURE AS RE QUIRED BY LAW WAS NOT FOLLOWED BEFORE PASSING OF ORDER U/S 263. C. YOUR APPELLANT PLEADS THAT AN ASSESSMENT MADE IN VI OLATION OF THE PROVISIONS OF NATURAL JUSTICE BE QUASHED. 3. CLAIM FOR DEDUCTION FOR EXPENSES MADE ON ACCOUNT OF WARRANTY, LIQUIDATED DAMAGES, SALES TAX AND EXCISE DUTY. A. THE LD. CIT ERRED IN LAW AND ON FACTS IN DIRECTING LD.AO TO DISALLOW THE CLAIM FOR DEDUCTION FOR EXPENDITURES IN RESPECT OF WARRANTY, LIQUIDATED DAMAGES, SALES TAX AND EXCISE DUTY. B. YOUR APPELLANT SUBMITS THAT; I. DURING THE YEAR THE COMPANY HAD ACCOUNTED FOR EXP ENSES ON WARRANTY AMOUNTING TO RS. 5,53,40,000 (RS.8,47,60,000 - RS.2,94,20,000) AND LIQUIDATED DAMAGES AMOUNTING TO R S. 9,08,90,000. THE ASSESSEE COMPANY GAVE WARRANTIES ON CERTAIN PRO DUCTS AND SERVICES IN THE NATURE OF REPAIRS/REPLACEMENT, WHICH FAIL TO PERFORM SATISFACTORILY DURING THE WARRANTY PERIOD. DEBITED TO A CCOUNT, REPRESENTED THE AMOUNT OF THE EXPECTED COST OF MEETING SUCH OBLIGATION ON ACCOUNT OF RECTIFICATION/REPLACEMENT AND WAS BASED U PON THE SALES MADE DURING THE YEAR. THE COMPANY REGULARLY ACCOUNTS FOR WARRANTY AT VARIED RATES DEPENDING UPON THE PRODUCT SOLD. THE CO MPANY HAD ACCOUNTED FOR WARRANTY EXPENSES IN PROPORTION TO SAL ES. UNUTILIZED AMOUNTS ARE REGULARLY ACCOUNTED AS INCOME. II. EXPENSES FOR LIQUIDATED DAMAGES HAS BEEN MADE ON CONTRACTS WHICH WERE EXECUTED BY THE COMPANY BEYOND THE AGREED DELI VERY DATES AND THE COMPENSATION PAYABLE BY THE COMPANY FOR DELAY WAS COMPUTED IN REASONABLE AND PRUDENT MANNER. III. THESE EXPENSES FOR WARRANTY AND LIQUIDATED DAMA GES HAVE BEEN QUANTIFIED BASED ON PAST EXPERIENCE OF THE COMPANY. I N ADDITION, THE ITA 1994MUM/13 & ITA 2836/MUM/14 4 COMPANY HAS A POLICY TO WRITE BACK ALL THE UNUSED AM OUNTS AND OFFER THE SAME FOR TAXATION ON EXPIRY OF THE RELEVANT PERIOD F OR WARRANTY AND LIQUIDATED DAMAGES. IV. THERE IS NO LEAKAGE OF REVENUE. FURTHER, THE COM PANY IS BEING TAXED AT A FLAT RATE OF 30%. V. DURING THE YEAR THE COMPANY HAS ACCOUNTED FOR SALE S TAX AMOUNTING TO RS. 2,67,00,000 REPRESENTING SALES TAX LIABILITY O N ACCOUNT OF NON- COLLECTION OF DECLARATION FORMS UNDER THE ACT/RULES. VI. DURING THE YEAR THE COMPANY HAS ACCOUNTED FOR EXC ISE DUTY AMOUNTING TO RS. 43,00,000 REPRESENTING THE DIFFERENTIA L DUTY LIABILITY THAT HAS MATERIALIZED IN RESPECT OF MATTERS CONTESTED IN APPEAL. VII. WITHOUT PREJUDICE KINDLY NOTE THAT ALL OF THE EXPE NSES UNDER CONSIDERATION WERE QUANTIFIED AND ACCOUNTED BY FOLLO WING THE SOUND ACCOUNTING PRINCIPLES AND THE POLICIES FOLLOWED WERE MANDATED BY ACCOUNTING STANDARD 29 OF THE ICAI R.W.S. 209 OF THE COMPANIES ACT. VIII. ACCOUNTING WAS COMPULSORY AND STATUTORY AND IN TH E CIRCUMSTANCES THE LIABILITY HAD ARISEN IN RESPECT OF TH E CONCERNED EXPENSES AND IN THAT POSITION, EACH OF THE EXPENDITUR E FOR WHICH PROVISIONS WERE MADE SATISFIED THE TEST OF S.37 AND OF S.28 FOR BEING ALLOWED IN COMPUTATION OF TOTAL INCOME FOR THE YEAR UNDE R CONSIDERATION. IX. THE METHOD OF ACCOUNTING FOLLOWED WAS MERCANTILE A ND IN FOLLOWING THE METHOD THE SOUND ACCOUNTING PRINCIPLES AND POLICIES WERE APPLIED BY KEEPING IN MIND THE CONCEPTS OF AS 1 NAMELY 'PRUD ENCE' AND 'CONSERVATISM.' X. THE METHOD FOLLOWED WAS CONSISTENTLY EMPLOYED FR OM YEAR TO YEAR AND THE PROVISIONS WERE MADE THERE UNDER, CONSISTENTL Y AND REGULARLY FOR THE ABOVE MENTIONED EXPENSES AND LIABILITIES. XI. THE COMPANY HAD MADE COMPLETE DISCLOSURE OF THE FACTS IN ITS FINANCIAL STATEMENTS WHICH ARE DULY AUDITED, UNDER SC HEDULE 16 AND PARTICULARLY VIDE NOTE NO.33 OF SCHEDULE B OF NOTES TO ACCOUNTS. THE ADEQUACY OF THE PROVISIONS AND THE NEED AND THE JUSTIF ICATION THEREOF WAS ASCERTAINED BY THE AUDITORS AND WAS APPROVED BY TH EM WITHOUT ANY QUALIFICATIONS IN THEIR REPORT. C. YOUR APPELLANT PLEADS THAT APPELLANT'S CLAIM FOR D EDUCTION ON ACCOUNT OF WARRANTY, LIQUIDATED DAMAGES, SALES TAX A ND EXCISE DUTY BE ALLOWED. ITA 1994MUM/13 & ITA 2836/MUM/14 5 ALL THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PR EJUDICE EACH OTHER. 3. ALTHOUGH, THE ASSESSEE COMPANY HAS RAISED GROUND S 1 TO 3 WITH SUB- CLAUSES, BUT IN SUM AND SUBSTANCE , THE ASSESSEE CO MPANY HAS CHALLENGED THE LEGALITY AND VALIDITY OF THE ORDER DATED 06.02. 2013 PASSED BY THE CIT U/S 263 OF THE ACT. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING, MARKETING AND OPERATING TURNKEY PROJECTS OVER A DIVERSE PORTFOLIO THAT INCLUDES POWER SYSTEMS, INDU STRIAL SYSTEMS AND CONSUMER PRODUCTS, NETWORKING AND TELECOMMUNICATION EQUIPMENTS. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME WITH RE VENUE FOR THE ASSESSMENT YEAR 2007-08 ON 29-10-2007 AND THEREAFTER FILED REV ISED RETURN ON 24-03- 2009. THE CASE WAS SELECTED FOR SCRUTINY AND ASSES SMENT WAS FRAMED BY THE AO VIDE ASSESSMENT ORDER DATED 28.12.2010 PASSED U/ S 143(3) OF THE ACT. THEREAFTER, THE CIT ISSUED NOTICE DATED 06.12.2012 U/S 263 OF THE ACT OBSERVING THAT THE ASSESSMENT U/S 143(3) OF THE ACT WAS MADE BY THE AO IN A ROUTINE AND PERFUNCTORY MANNER. THE CIT OBSERVED T HAT THE A.O. FAILED TO CARRY OUT THE NECESSARY ENQUIRY AS WARRANTED BY THE FACTS AND CIRCUMSTANCES OF THE CASE FOR PROPER COMPLETION OF THE ASSESSMENT U/S 143(3) OF THE ACT. THE CIT NOTICED FROM THE ASSESSMENT RECORDS THAT TH E ASSESSEE COMPANY HAS CLAIMED DEDUCTION FOR EXPENDITURE IN RESPECT OF PRO VISIONS ON ACCOUNT OF WARRANTY, SALES TAX, EXCISE AND LIQUIDATED DAMAGES . THE CIT OBSERVED THAT IT IS A SETTLED PRINCIPLE OF LAW THAT NO EXPEN DITURE IN NATURE OF CONTINGENT EXPENDITURE OR PROVISIONS FOR EXPENDITURE CAN BE AL LOWED U/S 28 OR 37 OF THE ACT , UNLESS THE ASSESSEE COMPANY FOLLOWED MERCANTI LE SYSTEM OF ACCOUNTING AND LIABILITY CLAIMED ON ACCRUAL BASIS HAS CRYSTALL IZED DURING THE PREVIOUS YEAR RELYING ON DECISION OF SHRI SAJJAN MILLS LIMIT ED V. CIT 156 ITR 585(SC). THE CIT NOTICED FROM THE SCHEDULE 16 READ WITH NOTE 33 TO SCHEDULE 13, THAT ITA 1994MUM/13 & ITA 2836/MUM/14 6 THE EXPENDITURE OF RS. 17.72 CRORES CLAIMED BY THE ASSESSEE COMPANY WAS NOTHING BUT PROVISIONS FOR EXPENDITURE. THE CIT O BSERVED THAT THE A.O. FAILED TO MAKE RELEVANT AND MEANINGFUL ENQUIRY TO T HE FACT THAT LIABILITIES IN THIS REGARD (LIABILITY RELATING TO WARRANTY, SALES TAX, EXCISE AND LIQUIDATED DAMAGES ) HAS CRYSTALLIZED TO THE EXTENT DEDUCTION HAS BEEN CLAIMED IN THE RETURN OF INCOME DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08 FOR WHICH DEDUCTION HAS BEEN CLAIMED. THE C IT VIDE NOTICE DATED 6.12.2012 INTENDED TO SET ASIDE THE ASSESSMENT FOR THE ASSESSMENT YEAR 2007-08 FRAMED BY THE AO U/S 143(3) OF THE ACT VIDE ORDERS DATED 28.12.2010 AS IT WAS OBSERVED BY THE CIT THAT THE A.O. HAS ACT ED IN A ROUTINE AND PERFUNCTORY MANNER AND FAILED TO CARRY OUT RELEVANT AND NECESSARY INQUIRIES AND EXAMINATION AS WARRANTED BY THE FACTS OF THE CA SE AND MADE AN ASSESSMENT ORDER WHICH IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE BY RELYING ON THE DECISIONS IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT, 243 ITR 83 (SC), IN THE CASE OF CIT V. MAX INDIA LTD., 295 ITR 282 (SC), CIT V. MANGAL CASTINGS, 303 ITR 23 (P&H) AND CIT V. MEPCO INDUSTRIES LTD., 294 ITR 121 (MAD.). IN REPLY TO THE NOTICE DATED 06.12.2012 U/S 263 OF THE ACT, THE ASSESSEE COMPANY SUBMITTED THAT BOTH ON MERITS AS WELL AS ON TECHNICAL GROUNDS THE ASSESSMENT ORDER DATED 28.12.2010 PASSED U/S 143(3) OF THE ACT BY THE AO WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERE ST OF THE REVENUE. THE ASSESSEE COMPANY RELIED UPON VARIOUS DECISIONS IN SUPPORT OF ITS CONTENTION. THE ASSESSEE COMPANY SUBMITTED THAT PROVISION FOR W ARRANTY AND LIQUIDATED DAMAGES WAS IN ACCORDANCE WITH ACCOUNTING STANDARD 29 READ WITH SECTION 209 OF THE COMPANIES ACT , 1956 AND IT WAS NOT A CO NTINGENT LIABILITY AND IT WAS MADE IN ACCORDANCE WITH THE SETTLED LAW. IN SU PPORT, THE ASSESSEE COMPANY RELIED UPON THE FOLLOWING DECISIONS:- I) CIT V. VINTEC CORPN. (P) LTD. (2005) 146 TAXMAN 313 (DELHI)(HC) ITA 1994MUM/13 & ITA 2836/MUM/14 7 II) ROTORK CONTROLS INDIA P. LTD. V. CIT (2009) 314 ITR 62 (SC) III) CIT V. INFOSYS TECHNOLOGIES LTD, (2012) 349 ITR 610 (KARN)(HC) IV) CIT V. NOKIA SIEMENS NETWORKS INDIA (P) LTD. (2011) 14 TAXMANN.COM 84 (KAR )(HC). THE ASSESSEE COMPANY FURTHER SUBMITTED THAT IN THE EARLIER YEARS , THIS EXPENDITURE WAS CLAIMED AND ALLOWED BY THE A.O.. TH EREFORE, THERE IS NO REASON FOR TAKING A DIFFERENT VIEW FOR THIS ASSESSM ENT YEAR AND IT IS AGAINST THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COUR T IN THE CASE OF CIT V. GOPAL PUROHIT, 336 ITR 237 (BOM-HC) AND HONBLE SUP REME COURT IN THE CASE OF RADHASOAMI SATSANG V. CIT (1992) 193 ITR 321 (SC ). THE ASSESSEE COMPANY ALSO RELIED ON DECISION OF KOLKATA TRIBUNAL IN THE CASE OF HAMILTON RESEARCH AND TECHNOLOGIES (P) LTD. V. ACIT (2005) 1 42 TAXMAN 79 (MAG)(KOL)(TRIB) IN SUPPORT AND CONTENDED THAT EVEN ON ESTIMATE BASIS IF PROVISION FOR WARRANTY WAS MADE BY THE ASSESSEE COM PANY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE EXPENDITURE WA S ALLOWABLE EXPENDITURE AND THE ASSESSMENT ORDER CANNOT BE TREATED AS ERRON EOUS AND PRAYED THAT THE PROCEEDINGS U/S 263 OF THE ACT SHOULD BE DROPPED. 5. THE CIT, HOWEVER, HELD THAT THE A.O. WAS REQUIR ED TO EXAMINE THAT PROVISIONS MADE FOR WARRANTY ETC. WAS BASED ON ESTI MATES WHICH WERE REALISTIC AND BASED ON THE PAST EXPERIENCE OF THE ASSESSEE CO MPANY. THE CIT HELD THAT THE A.O. WAS REQUIRED TO EXAMINE THE ACTUAL OUTGOIN G DURING THE YEAR AND THAT EXCESS PROVISIONS IF ANY MADE IN THE EARLIER Y EAR WAS DULY WRITTEN BACK AS INCOME IN THE FOLLOWING YEARS, BUT HE A.O. DID N OT EXAMINE THE BASIS FOR PROVISIONS MADE FOR SALES TAX AND EXCISE DUTY LIABI LITY AND ON WHAT ACCOUNT THESE PROVISIONS WERE JUSTIFIED. FOR CLAIM OF DEDUC TION FOR WARRANTY, THE A.O. HAS NOT EXAMINED THE CONTRACT AND FIND OUT WHEN THE WARRANTY WAS EXPIRING, THE JUSTIFICATION FOR ALLOWING THE PROVISION CANNOT BE MADE OUT. THE CIT HELD THAT THE A.O. WAS REQUIRED TO EXAMINE THE NORMAL RA NGE OF THE FAILURE OF THE PRODUCTS OF THE COMPANY AND IN HOW MANY CASES THE A SSESSEE WAS REQUIRED TO ITA 1994MUM/13 & ITA 2836/MUM/14 8 CARRY OUT REPAIRS/REPLACE THE GOODS AND ONLY THEN T HE A.O. COULD DECIDE ABOUT THE GENUINENESS AND REASONABLENESS OF THE PROVISION OF WARRANTY. HOWEVER, THE A.O. HAS NOT CONSIDERED THESE BASIC DETAILS AND ALLOWED THE CLAIM OF THE ASSESSEE COMPANY IN FULL WITHOUT MAKING THESE ELEME NTARY INQUIRIES AND WITHOUT GOING INTO THE ISSUE AS TO WHETHER ANY DISA LLOWANCE WAS REQUIRED TO BE MADE BY THE A.O. AND IF YES, AS HOW MUCH DISALLO WANCE OUT OF THE CLAIM FOR PROVISIONS FOR WARRANTY ETC. SHOULD HAVE BEEN MADE, BUT THE A.O. DID NOT CARRY OUT ALL THESE RELEVANT INQUIRIES. UNDER THESE CIRCUMSTANCES, THE CIT BY RELYING ON THE CASES OF MALABAR INDUSTRIAL CO. LTD. , MAX INDIA LTD., MANGAL CASTINGS AND MEPCO INDUSTRIES (SUPRA) , TREATED THE ORDER PASSED BY THE A.O. AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REV ENUE AND SET ASIDE THE ASSESSMENT ORDER DATED 28.12.2010 PASSED BY THE AO U/S 143(3) OF THE ACT, BY DIRECTING THE A.O. TO ASSESS THE INCOME OF THE A SSESSEE IN ACCORDANCE WITH THE PROVISIONS OF LAW AFTER GATHERING ALL THE NECES SARY DETAILS TO ARRIVE AT THE CORRECT INCOME AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE COMPANY , VIDE HIS ORDER DATED 6-2-2013 PA SSED U/S 263 OF THE ACT. 6. AGGRIEVED BY THE ORDERS DATED 06.02.2013 PASSED U/S 263 OF THE ACT BY THE CIT, THE ASSESSEE COMPANY IS IN APPEAL BEFORE TRIBU NAL. 7. THE LD. COUNSEL FOR THE ASSESSEE COMPANY REITERA TED ITS SUBMISSIONS AS MADE BEFORE THE CIT AND FURTHER SUBMITTED THAT THE CIT ERRONEOUSLY INVOKED THE PROVISIONS OF SECTION 263 OF THE ACT AND IT CAN NOT BE INVOKED UNTIL THE ORIGINAL ORDER DATED 28.12.2010 U/S 143(3) OF THE A CT IS REVISED BY THE ORDERS OF THE TRIBUNAL IN THE FIRST ROUND AND IT IS ONLY T HE REVISED ORDER U/S 143(3) OF ACT AFTER GIVING APPEAL EFFECT TO THE ORDERS OF THE TRIBUNAL , CAN BE SUBJECT MATTER OF REVISION BY THE CIT U/S 263 OF THE ACT . THE LD. COUNSEL SUBMITTED THAT THE A.O. HAS FRAMED AN ASSESSMENT ORDER DATED 24.02.2014 U/S 143(3) OF THE ACT READ WITH SECTION 263 OF THE ACT, IN PURSUA NCE TO THE ORDER DATED 06.02.2013 PASSED BY THE CIT U/S 263 OF THE ACT, WH EREBY DISALLOWANCE FOR ITA 1994MUM/13 & ITA 2836/MUM/14 9 PROVISIONS FOR WARRANTY, EXCISE DUTY , SALES TAX A ND LIQUIDITY DAMAGES WERE MADE BY THE AO. THE LD. COUNSEL FOR THE ASSESSEE CO MPANY SUBMITTED THAT IN THE FIRST ROUND OF ASSESSMENT FRAMED U/S 143(3) OF THE ACT BY THE AO VIDE ORDERS DATED 28.12.2010, THE A.O. HAS NOT MADE ANY DISALLOWANCE WITH REGARD TO PROVISIONS FOR WARRANTY, EXCISE DUTY , SALES TAX AND LIQUIDITY DAMAGES WHILE IN THE SECOND ROUND, DISALLOWANCE WAS MADE BY THE A O VIDE ORDERS DATED 24.02.2014 PASSED U/S 143(3) OF THE ACT READ WITH S ECTION 263 OF THE ACT ON THE FOLLOWING HEADS:- I. PROVISION FOR WARRANTY RS. 5,53,40,000/- II. PROVISION FOR LIQUIDITY DAMAGES RS. 9,08,90,000/- III. PROVISION FOR SALES TAX RS. 2,67,00,000/- IV. PROVISION FOR EXCISE DUTY RS. 43,00,000/- THE LD. COUNSEL OF THE ASSESSEE COMPANY SUBMITTED T HAT THE ASSESSEE COMPANY HAS NOW CONCEDED WITH RESPECT TO THE DISALL OWANCE MADE BY THE A.O. IN RESPECT OF WARRANTY, EXCISE DUTY AND SALES TAX WHICH IS NOT PRESSED BEFORE THE TRIBUNAL WHILE THE ASSESSEE COMPANY IS C HALLENGING AND CONTESTING THE ADDITIONS ON ACCOUNT OF PROVISIONS FOR LIQUIDAT ED DAMAGES OF RS. 9,08,90,000/- MADE BY THE A.O. U/S 143(3) OF THE AC T READ WITH SECTION 263 OF THE ACT, VIDE ORDERS DATED 24.02.2014 . THE LD. COUNSEL OF THE ASSESSEE COMPANY SUBMITTED THAT THE ORIGINAL ASSESSMENT ORDE R DATED 28.12.2010 PASSED BY THE A.O. U/S 143(3) OF THE ACT IS NEITHER ERRONEOUS NOR IS PREJUDICIAL TO THE INTEREST OF REVENUE , AS THE A.O . HAD CARRIED OUT NECESSARY , PROPER AND DETAILED ENQUIRIES WHILE FRAMING THE ORD ER DATED 28.12.2010 PASSED U/S 143(3) OF THE ACT. THE LD. COUNSEL OF T HE ASSESSEE COMPANY SUBMITTED THAT THE TRIBUNAL IN THE CASE OF COLORCRA FT KASHIMIRA CERAMIC COMPOUND V. ITO [2007] 105 ITD 599 (MUM) PARTLY QUA SHED THE ORDER PASSED U/S 263 OF THE ACT AND HENCE THE TRIBUNAL HAS POWER TO QUASH THE ORDER U/S ITA 1994MUM/13 & ITA 2836/MUM/14 10 263 OF THE ACT DATED 06-2-2013 WITH RESPECT TO THE DIRECTIONS GIVEN BY CIT IN SETTING ASIDE THE ASSESSMENT ORDER DATED 28.12.2010 AND DIRECTING THE AO TO MAKE ENQUIRIES WITH RESPECT TO THE PROVISIONS FOR L IQUIDATED DAMAGES WHILE UPHOLDING THE REST OF THE ORDER U/S 263 OF THE ACT, DATED 06.02.2013 WITH RESPECT TO SET ASIDE OF THE ASSESSMENT ORDERS DATED 28.12.2010 PASSED U/S 143(3) OF THE ACT BY THE AO WITH RESPECT TO THE PRO VISIONS FOR WARRANTY, SALES TAX AND EXCISE DUTY. THE LD. COUNSEL SUBMITTED THA T TRIBUNAL IN THE CASE OF K.C.P. LTD. V. ITO, 34 ITD 50(HYD.SB) HELD THAT SIN CE THERE WAS A BREACH OF CONTRACT BY REASON OF DELAY IN PERFORMANCE, THE DAM AGES AROSE AT THE POINT OF BREACH AND AT THAT POINT OF TIME LIABILITY ACCRUED, PROVISION FOR LIQUIDATED DAMAGES WAS TO BE ALLOWED AS DEDUCTION. THE LD. CO UNSEL OF THE ASSESSEE COMPANY CONTENDED THAT THE ASSESSEE COMPANY HAS BEE N EARLIER ALLOWED IN PRECEDING ASSESSMENT YEAR, THE CLAIM OF LIQUIDITAT ED DAMAGES BY THE REVENUE AND BASED ON THE PRINCIPLES OF CONSISTENCY THE SAME SHOULD BE ALLOWED IN THE CURRENT ASSESSMENT YEAR. IT WAS ALSO CONTENDED THA T NO DISALLOWANCE HAS BEEN MADE IN THE FIRST ROUND WHILE FRAMING OF ASSES SMENT ORDER U/S 143(3) OF THE ACT, DATED 28.12.2010. 8. THE LD. D.R., ON THE OTHER HAND RELIED UPON THE ORDERS OF THE CIT AND SUBMITTED THAT THE CIT HAS RIGHTLY INVOKED THE PROV ISIONS OF SECTION 263 OF THE ACT AS NO ENQUIRY WAS MADE BY THE A.O. WITH RESPECT TO THE CLAIM OF DEDUCTION OF THE ASSESSEE COMPANY WITH RESPECT TO T HE PROVISIONS FOR WARRANTY, SALES TAX, EXCISE DUTY AND LIQUIDITY DAMA GES WHILE COMPUTING INCOME UNDER THE ACT , MADE BY THE ASSESSEE COMPAN Y IN THE BOOKS OF ACCOUNTS AND AS CLAIMED AS DEDUCTION FROM THE INCOM E COMPUTED UNDER THE ACT. THE LD. DR SUBMITTED THAT, ON PERUSAL OF THE ASSESSMENT ORDER DATED 28.12.2010 PASSED U/S 143(3) OF THE ACT BY THE AO, NO ENQUIRY HAS BEEN MADE BY THE A.O. AND THE ASSESSMENT ORDER HAS BEEN PASSED IN A ROUTINE AND PERFUNCTORY MANNER HENCE THE CIT HAS RIGHTLY SET AS IDE THE ORDERS DATED 28.12.2010 PASSED U/S 143(3) OF THE ACT BY THE AO. ITA 1994MUM/13 & ITA 2836/MUM/14 11 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAR EFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO DELIBERATED UPON THE JUDICIAL PRONOUNCEMENTS REFERRED BY THE LOWER AUTHO RITIES AND ALSO CITED BY THE LD. A.R. DURING THE COURSE OF HEARING BEFORE US , IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. WE HAVE OBSERVED THAT THE ORIGI NAL ASSESSMENT ORDER WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER DATED28-12- 2010. ON PERUSAL OF THE SAID ASSESSMENT ORDER DATED 28.12.2010, WE HAVE OBS ERVED THAT THE A.O. HAS NOT MADE ANY ENQUIRY WITH RESPECT TO THE CLAIM OF D EDUCTION OF THE ASSESSEE COMPANY WITH RESPECT TO PROVISIONS FOR WARRANTY CHA RGES, EXCISE DUTY, SALES TAX AND LIQUIDITY DAMAGES AMOUNTING TO RS.17.72 CRO RES CLAIMED AS DEDUCTION BY THE ASSESSEE COMPANY FROM THE INCOME OF THE ASSE SSEE COMPANY AND THE CLAIM MADE BY THE ASSESSEE COMPANY WAS ACCEPTED BY THE A.O. WITHOUT ANY FURTHER ENQUIRY, EXAMINATION OR VERIFICATION AS WAS WARRANTED . FURTHER, ON PERUSAL OF THE AUDITED ACCOUNTS OF THE ASSESSEE COM PANY REFLECTS THAT THE SAID EXPENSES OF RS.17.72 CRORES WAS REFLECTED UNDER THE HEAD OTHER PROVISIONS IN SCHEDULE 16 AND SCHEDULE 33 REFLECTING DISCLOSURES OF PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS IN PU RSUANCE TO ACCOUNTING STANDARD 29. IT WAS ALL THE MORE INCUMBENT ON THE A O TO HAVE MADE PROPER AND NECESSARY ENQUIRIES , EXAMINATION AND VERIFICAT IONS AS THE AMOUNT IS REFLECTED UNDER THE HEAD PROVISIONS AND CONTINGENT LIABILITIES AS PROVISIONS AND CONTINGENT LIABILITIES PRIMA-FACIE CANNOT BE CL AIMED AS EXPENSES AS IT IS SETTLED LAW UNDER THE ACT THAT DEDUCTIONS WHILE COM PUTING INCOME UNDER THE ACT CAN ONLY BE CLAIMED FOR KNOWN AND ASCERTAINED L IABILITIES HAVING CRYSTALLIZED DURING THE ASSESSMENT YEAR WHICH ARE I NCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. SECTION 2 63 OF THE ACT STIPULATES AS UNDER: E.REVISION BY THE [PRINCIPAL COMMISSIONER OR] CO MMISSIONER ITA 1994MUM/13 & ITA 2836/MUM/14 12 REVISION OF ORDERS PREJUDICIAL TO REVENUE. 263. (1) THE [PRINCIPAL COMMISSIONER OR] COMMISSIONER M AY CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDE RS THAT ANY ORDER PASSED THEREIN BY THE [ASSESSING] OFFICER IS ERRONEOUSIN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BE ING HEARD AND AFTER MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR MODIF YING THE ASSESSMENT, OR CANCELLING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. [ EXPLANATION 1. ] FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED T HAT, FOR THE PURPOSES OF THIS SUB-SECTION, (A) AN ORDER PASSED [ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988] B Y THE ASSESSING OFFICER SHALL INCLUDE (I) AN ORDER OF ASSESSMENT MADE BY THE ASSISTANT COMMIS SIONER 2 [OR DEPUTY COMMISSIONER] OR THE INCOME-TAX OFFICER ON THE BASI S OF THE DIRECTIONS ISSUED BY THE [JOINT] COMMISSIONER UNDER SECTION 144A ; (II) AN ORDER MADE BY THE [JOINT] COMMISSIONER IN EXERCISE OF THE POWERS OR I N THE PERFORMANCE OF THE FUNCTIONS OF AN ASSESSING OFFICE R CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR DIRECTIONS ISSUED BY THE BO ARD OR BY THE [PRINCIPAL CHIEF COMMISSIONER OR] CHIEF COMMISSIONER OR [PRINCIPAL DIRECTOR GENERAL OR] DIRECTOR GENERAL OR [PRINCIPAL COMMISSIONER OR] COMMISSIONER AUTHORISED BY THE BOARD IN THIS BEHALF UNDER SECTION 120 ; (B) 'RECORD' [SHALL INCLUDE AND SHALL BE DEEMED ALWAYS TO HAVE I NCLUDED] ALL RECORDS RELATING TO ANY PROCEEDING UNDER THIS ACT AVAILABLE AT THE TIME OF EXAMINATION BY THE [PRINCIPAL COMMISSIONER OR] COMMISSIONER; (C) WHERE ANY ORDER REFERRED TO IN THIS SUB- SECTION AND PASSED BY THE ASSESSING OFFICER HAD BEE N THE SUBJECT MATTER OF ANY APPEAL [FILED ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1 988], THE POWERS OF THE [PRINCIPAL COMMISSIONER OR] COMMISSIONER UNDER TH IS SUB- SECTION SHALL EXTEND [AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED] TO SU CH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL.] ITA 1994MUM/13 & ITA 2836/MUM/14 13 [ EXPLANATION 2.FOR THE PURPOSES OF THIS SECTION, IT IS HEREBY DECLARED THAT AN ORDER PASSED BY THE ASSESSING OFFICER SHALL BE DEEMED TO BE ERRO NEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, IF, IN THE OPINION OF THE PRINCIPAL COMMISSIONER OR COMMISSIONER, (A) THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VER IFICATION WHICH SHOULD HAVE BEEN MADE; (B) THE ORDER IS PASSED ALLOWING ANY RELIEF WITHOUT INQ UIRING INTO THE CLAIM; (C) THE ORDER HAS NOT BEEN MADE IN ACCORDANCE WITH ANY ORDER, DIRECTION OR INSTRUCTION ISSUED BY THE BOARD UNDER SECTION 119 ; OR (D) THE ORDER HAS NOT BEEN PASSED IN ACCORDANCE WITH AN Y DECISION WHICH IS PREJUDICIAL TO THE ASSESSEE, RENDERED BY THE JURISDICTIONAL HIGH COURT OR SUPR EME COURT IN THE CASE OF THE ASSESSEE OR ANY OTHER PERSON. ] [(2) NO ORDER SHALL BE MADE UNDER SUB-SECTION (1) AFTER THE EXPIRY OF TWO YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE ORDER SOUGHT TO BE REVISED WAS PASSED.] (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTI ON (2), AN ORDER IN REVISION UNDER THIS SECTION MAY BE PASSED AT ANY TIME IN THE CASE OF AN ORDER WHICH HAS BEEN PASSED IN CONSEQUENCE OF, OR TO GIVE EFFECT TO, ANY FINDING O R DIRECTION CONTAINED IN AN ORDER OF THE APPELLATE TRIBUNAL, [NATIONAL TAX TRIBUNAL,] THE H IGH COURT OR THE SUPREME COURT. EXPLANATION.IN COMPUTING THE PERIOD OF LIMITATION FOR THE PURPOSES OF SUB-SECTION (2), THE TIME TAKEN IN GIVING AN OPPORTUNITY TO THE ASSESSEE TO BE REHEARD UNDER THE PROVISO TO SECTION 129 AND ANY PERIOD DURING WHICH ANY PROCEEDING UNDER T HIS SECTION IS STAYED BY AN ORDER OR INJUNCTION OF ANY COURT SHALL BE EXCLUDED. WE HAVE OBSERVED THAT W.E.F. 1ST JUNE, 2015 BY FINA NCE BILL 2015, EXPLANATION 2 TO SECTION 263 WAS INSERTED TO DECLARE THE LAW WHIC H READS AS UNDER:- [ EXPLANATION 2.FOR THE PURPOSES OF THIS SECTION, IT IS HEREBY DECLARED THAT AN ORDER PASSED BY THE ASSESSING OFFICER SHALL BE DEEMED TO BE ERRO NEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, IF, IN THE OPINION OF THE PRINCIPAL COMMISSIONER OR COMMISSIONER, (A) THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VER IFICATION WHICH SHOULD HAVE BEEN MADE; ITA 1994MUM/13 & ITA 2836/MUM/14 14 (B) THE ORDER IS PASSED ALLOWING ANY RELIEF WITHOUT INQ UIRING INTO THE CLAIM; (C) THE ORDER HAS NOT BEEN MADE IN ACCORDANCE WITH ANY ORDER, DIRECTION OR INSTRUCTION ISSUED BY THE BOARD UNDER SECTION 119 ; OR (D) THE ORDER HAS NOT BEEN PASSED IN ACCORDANCE WITH AN Y DECISION WHICH IS PREJUDICIAL TO THE ASSESSEE, RENDERED BY THE JURISDICTIONAL HIGH COURT OR SUPREME COURT IN THE CASE OF THE ASSESSEE OR ANY OTHER PERSON. ] WE WOULD LIKE TO REFER AT THIS STAGE TO THE MEANING OF EXPLANATION AS INSERTED IN THE ACT WHEREBY THE HONBLE SUPREME COURT IN THE CASE OF SUNDARAM PILLAI V. PATTABIRAM REPORTED IN (1985) 1 SCC 591, WHEREBY FAZAL ALI , J CULLED OUT FROM EARLIER CASES THE FOLLOWING AS OBJECTS OF AN E XPLANATION TO A STATUTORY PROVISION (REFERENCE PAGE 214-215,PRINCIPLES OF STA TUTORY INTERPRETATION BY JUSTICE G.P.SINGH ,13 TH ED.):- (A) TO EXPLAIN THE MEANING AND INTENDMENT OF THE ACT IT SELF , (B) WHERE THERE IS ANY OBSCURITY OR VAGUENESS IN THE MA IN ENACTMENT TO CLARIFY THE SAME SO AS TO MAKE IT CONSISTENT WITH T HE DOMINANT OBJECT WHICH IT SEEMS TO SUBSERVE, (C) TO PROVIDE AN ADDITIONAL SUPPORT TO DOMINANT OBJECT OF THE ACT IN ORDER TO MAKE IT MEANINGFUL AND PURPOSEFUL, (D) AN EXPLANATION CANNOT IN ANY WAY INTERFERE WITH OR CHANGE THE ENACTMENT OR ANY PART THEREOF BUT WHERE SOME GAP IS LEFT WHICH IS RELEVANT FOR THE PURPOSE OF THE EXPLANATION, IN ORD ER TO SUPPRESS THE MISCHIEF AND ADVANCE THE OBJECT OF THE ACT IF IT CA N HELP OR ASSIST THE COURT IN INTERPRETING THE TRUE PURPORT AND INTENDME NT OF THE ENACTMENT, AND (E) IT CANNOT, HOWEVER , TAKE AWAY A STATUTORY RIGHT WI TH WHICH ANY PERSON UNDER A STATUTE HAS BEEN CLOTHED OR SET AT N AUGHT THE WORKING OF AN ACT BY BECOMING AN HINDRANCE IN THE INTERPRET ATION OF THE SAME. ITA 1994MUM/13 & ITA 2836/MUM/14 15 IT IS PROFITABLE AT THIS STAGE TO REFER TO THE MEMO RANDUM TO FINANCE BILL 2015 AND NOTES TO CLAUSES TO FINANCE BILL, 2015 WHICH AR E AS UNDER: MEMORANDUM TO FINANCE BILL 2015 REVISION OF ORDER THAT IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE THE EXISTING PROVISIONS CONTAINED IN SUB-SECTION (1 ) OF SECTION 263 OF THE INCOME- TAX ACT PROVIDES THAT IF THE PRINCIPAL COMMISSIONER OR COMMISSIONER CONSIDERS THAT ANY ORDER PASSED BY THE ASSESSING OFFICER IS ERRONE OUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MAKING AN ENQUIRY PASS AN ORD ER MODIFYING THE ASSESSMENT MADE BY THE ASSESSING OFFICER OR CANCELLING THE ASS ESSMENT AND DIRECTING FRESH ASSESSMENT. THE INTERPRETATION OF EXPRESSION 'ERRONEOUS IN SO F AR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE' HAS BEEN A CONTENTIOUS ON E. IN ORDER TO PROVIDE CLARITY ON THE ISSUE IT IS PROPOSED TO PROVIDE THAT AN ORDER PASSED BY THE ASSESSING OFFICER SHALL BE DEEMED TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, IF, IN THE OPINION OF THE PRINCIPAL COMMISSIONER OR COMMISSIONER, (A) THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VERIFICATION WHI CH, SHOULD HAVE BEEN MADE; (B) THE ORDER IS PASSED ALLOWING ANY RELIEF WITHOUT INQ UIRING INTO THE CLAIM; (C) THE ORDER HAS NOT BEEN MADE IN ACCORDANCE WITH ANY ORDER, DIRECTION OR INSTRUCTION ISSUED BY THE BOARD UNDER SECTION 119; OR (D) THE ORDER HAS NOT BEEN PASSED IN ACCORDANCE WITH AN Y DECISION, PREJUDICIAL TO THE ASSESSEE, RENDERED BY THE JURISDICTIONAL HIGH C OURT OR SUPREME COURT IN ITA 1994MUM/13 & ITA 2836/MUM/14 16 THE CASE OF THE ASSESSEE OR ANY OTHER PERSON. THIS AMENDMENT WILL TAKE EFFECT FROM 1 ST DAY OF JUNE, 2015. NOTES ON CLAUSES FINANCE BILL 2015 CLAUSE 65 OF THE BILL SEEKS TO AMEND SECTION 263 OF THE INCOME-TAX ACT RELATING TO REVISION OF ORDERS PREJUDICIAL TO REVENUE. THE EXISTING PROVISIONS CONTAINED IN SUB-SECTION (1 ) OF SECTION 263 PROVIDE THAT IF THE PRINCIPAL COMMISSIONER OR COMMISSIONER CONSIDERS TH AT ANY ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS P REJUDICIAL TO THE INTEREST OF REVENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MAKING OR CAUSING TO BE MADE AN ENQUIRY, AS HE DEEMS NECESSAR Y, PASS AN ORDER MODIFYING THE ASSESSMENT MADE BY THE ASSESSING OFFICER OR CANCELL ING THE ASSESSMENT AND DIRECTING FRESH ASSESSMENT. IT IS PROPOSED TO AMEND SUB-SECTION (1) OF THE AFOR ESAID SECTION TO INSERT AN EXPLANATION SO AS TO PROVIDE THAT AN ORDER PASSE D BY THE ASSESSING OFFICER SHALL BE DEEMED TO BE ERRONEOUS IN SO FAR AS IT IS PREJUD ICIAL TO THE INTERESTS OF THE REVENUE, IF, IN THE OPINION OF THE PRINCIPAL COMMISSIONER OR COMMISSIONER, (A) THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VER IFICATION WHICH, SHOULD HAVE BEEN MADE; (B) THE ORDER IS PASSED ALLOWING ANY RELIEF WITHOUT INQ UIRING INTO THE CLAIM; (C) THE ORDER HAS NOT BEEN MADE IN ACCORDANCE WITH ANY ORDER, DIRECTION OR INSTRUCTION ISSUED BY THE BOARD UNDER SECTION 119; OR (D) THE ORDER HAS NOT BEEN PASSED IN ACCORDANCE WITH AN Y DECISION WHICH IS PREJUDICIAL TO THE ASSESSEE, RENDERED BY THE JURISD ICTIONAL HIGH COURT OR ITA 1994MUM/13 & ITA 2836/MUM/14 17 SUPREME COURT IN THE CASE OF THE ASSESSEE OR ANY OT HER PERSON. THIS AMENDMENT WILL TAKE EFFECT FROM 1ST JUNE, 2015 . NOW, AS CAN BE SEEN ABOVE , THE AMENDMENT TO SECTIO N 263 OF THE ACT BY INSERTION OF EXPLANATION 2 TO SECTION 263 OF THE ACT IS DECLARAT ORY & CLARIFICATORY IN NATURE AND IS INSERTED TO PROVIDE CLARITY ON THE ISSUE AS TO W HICH ORDERS PASSED BY THE AO SHALL CONSTITUTE ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF REVENUE ,IT IS , INTER-ALIA, PROVIDED THAT IF THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VER IFICATIONS BY AO WHICH, SHOULD HAVE BEEN MADE OR THE ORDER IS PASSED ALLOWING ANY RELIEF WITHOUT INQUIRING INTO THE CLAIM; THE ORDER SHALL BE DEEMED TO BE ERRONEOUS AND PREJU DICIAL TO THE INTEREST OF REVENUE. THE HONBLE SUPREME COURT IN THE C ASE OF MALABAR INDUSTRIAL COMPANY LIMITED V. CIT (2000)109 TAXMAN 66 (SC) HELD THAT IF THE AO HAS ACCEPTED THE ENTRY IN THE STATEMENT OF ACCOUNT FILED BY THE TAXPAYER WITHOUT MAKING ENQUIRY , THE SAID ORDER OF THE AO SHALL BE DEEMED TO BE ERRONEOUS IN SO F AR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE . IN OUR CONSIDERED OPINION, THE FACTS OF THE CASE OF THE ASSESSEE COMPANY ARE SIMILAR TO THE FACTS IN THE CASE OF MALABAR INDUSTRIAL CO. LIMITED(SUPRA) WHEREBY NO ENQUIRY/VE RIFICATION IS MADE BY THE AO WHATSOEVER WITH RESPECT TO CLAIM OF DEDUCTION OF RS . 17.72 CRORES WITH RESPECT TO THE PROVISIONS FOR WARRANTY, EXCISE DUTY , SALES TAX AN D LIQUIDATED DAMAGES . MOREOVER, NOW EXPLANATION 2 TO SECTION 263 OF THE ACT IS INSE RTED IN THE STATUTE WHICH IS DECLARATORY AND CLARAFICATORY IN NATURE TO DECLARE THE LAW AND PROVIDE CLARITY ON THE ISSUE WHEREBY IF THE A.O. FAILED TO MAKE ANY ENQUIRY OR N ECESSARY VERIFICATION WHICH SHOULD HAVE BEEN MADE, THE ORDER BECOMES ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. A PROVISO ADDED FROM 01-04-1988 TO SECTION 43B OF T HE ACT FROM 01-04- 1984 CAME UP FOR CONSIDERATION IN ALLIED MOTORS PRIVATE LIMIT ED V. CIT (1997) 91 TAXMAN 205(SC) BEFORE HONBLE SUPREME COURT AND IT WAS GIV EN RE TROSPECTIVE EFFECT FROM THE INCEPTION OF THE SECTION ON THE REASONING THAT THE PROVISO WAS ADDED TO REMEDY ITA 1994MUM/13 & ITA 2836/MUM/14 18 UNINTENDED CONSEQUENCES AND SUPPLY AN OBVIOUS OMISS ION SO THAT THE SECTION MAY BE GIVEN A REASONABLE INTERPRETATION AND THAT IN FA CT THE AMENDMENT TO INSERT THE PROVISO WOULD NOT SERVE ITS OBJECT UNLESS IT IS CON STRUED AS RETROSPECTIVE . IN CIT V. PODAR CEMENT PVT. LIMITED (1997) 92 TAXMAN 541(SC) , THE HONBLE SUPREME COURT HELD THAT AMENDMENT INTRODUCED BY THE FINANCE ACT,1 987 IN SO FAR THE RELATED T O SECTION 27(III) ,(IIIA) AND (IIIB) WHICH REDEFINED THE EXPRESSION OWNER OF HOUSE PROPERTY, IN RESPECT OF WHICH THERE WAS A SHARP DI VERGENCE OF OPINION AMONGST THE HIGH COURTS, WAS CLARIFICATORY AND DECLARATORY IN N ATURE AND CONSEQUENTLY RETROSPECTIVE. SIMILARLY , IN BRIJ MOHAN DAS LAXMAN DAS V. CIT (19 97) 90 TAXMAN 41(SC), EXPLANATION 2 ADDED TO SECTION 40 OF THE AC T WAS HELD TO BE DECLARATORY IN NATURE AND , THEREFORE , RETROSPECTIVE.(REFERENCE P AGE 569- 570,PRINCIPLES OF STATUTORY INTERPRETATION BY JUSTICE G.P.SINGH ,13 TH ED.). IN OUR CONSIDERED VIEW, THE CIT HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 263 OF THE ACT AS THE A.O. FAILED TO MAKE PROPER ENQUIRY, EXAMINATION AND VERIFICATIONS AS WARRANTED FOR THE PROPER COMPLETION OF THE ASSESSME NT, WITH RESPECT TO CLAIM OF DEDUCTION OF RS.17.72 CRORES WITH RESPECT TO THE PR OVISIONS FOR WARRANTY, EXCISE DUY,SALES TAX AND LIQUIDATED DAMAGES. REGARDING TH E CONTENTIONS OF THE ASSESSEE COMPANY THAT THE CIT SHOULD HAVE SET ASIDE THE ORDE RS PASSED BY THE AO AFTER GIVING APPEAL EFFECT TO THE ORDERS OF THE TRIBUNAL IN THE FIRST ROUND HAS TO BE REJECTED AS THE BASIC FACTS REMAINS THAT THE AO HAS NOT MADE ANY ENQUIRY, EXAMINATION OR VERIFICATION OF THE CLAIM OF THE ASSESSEE COMPANY W ITH RESPECT TO CLAIM OF DEDUCTION OF PROVISION OF RS 17.72 CRORES WITH RESPECT TO PRO VISIONS FOR WARRANTY, SALES TAX, EXCISE DUTY AND LIQUIDATED DAMAGES , THE ORDER OF T HE TRIBUNAL WOULD HAVE ADJUDICATED ISSUES ARISING OUT OF THE ORDERS OF THE AUTHORITIES BELOW WHEREBY THE FACTS STILL REMAINS THAT THE AO HAS NOT MADE ANY EN QUIRY, EXAMINATION OR VERIFICATION OF THE CLAIM OF THE ASSESSEE COMPANY W ITH RESPECT TO CLAIM OF DEDUCTION OF PROVISION OF RS 17.72 CRORES WITH RESPECT TO PRO VISIONS FOR WARRANTY, SALES TAX, EXCISE DUTY AND LIQUIDATED DAMAGES. THE ORDER OF TH E TRIBUNAL IN THE FIRST ROUND OF ITA 1994MUM/13 & ITA 2836/MUM/14 19 LITIGATION HAS NOT BEEN INCIDENTALLY ENCLOSED BY TH E ASSESSEE COMPANY IN THE DOCUMENTS/PAPER BOOK FILED WITH THE TRIBUNAL. IT IS AN ESTABLISHED PRINCIPLE UNDER THE ACT THAT PROVISIONS AND CONTINGENT EXPENSES ARE NOT ALLOWED AS DEDUCTION WHILE COMPUTING THE INCOME OF THE ASSESSEE. IT IS ONLY A N ASCERTAINED LIABILITY WHICH HAS CRYSTALLIZED DURING THE YEAR AND WHICH IS WHOLLY AN D EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY , IS AL LOWED AS DEDUCTION WHILE COMPUTING INCOME UNDER THE ACT. THE A.O. WAS UNDER DUTY TO MAKE NECESSARY AND PROPER ENQUIRY, EXAMINATION AND VERIFICATIONS WITH RESPECT TO PROVISIONS OF RS. 17.72 CRORES WITH RESPECT TO THE CLAIM OF DEDUCTIO N OF THE ASSESSEE COMPANY FOR PROVISIONS FOR LIQUIDITY DAMAGES, WARRANTY, SALES TAX AND EXCISE DUTY, WHILE ON PERUSAL OF THE ASSESSMENT ORDERS U/S 143(3) OF THE ACT DATED 28.12.2010 AND OTHER DOCUMENTS FILED BEFORE US, WE HAVE OBSERVED THAT TH E AO HAS NOT MADE ANY ENQUIRY WHATSOEVER WITH RESPECT TO THE CLAIM OF DEDUCTION O F EXPENSES OF RS.17.72 CRORES TOWARDS PROVISION FOR WARRANTY, SALES TAX AND EXCIS E DUTY AND LIQUIDATED DAMAGES CLAIMED BY THE ASSESSEE COMPANY WHILE COMPUTING THE INCOME OF THE ASSESSEE COMPANY AND THE CLAIM OF THE ASSESSEE COMPANY WAS A CCEPTED WITHOUT ANY INQUIRY, EXAMINATION OR VERIFICATION WHATSOEVER BY THE AO AN D IN THE ABSENCE THEREOF OF ENQUIRY, EXAMINATION AND VERIFICATION OF THE CLAIM OF THE ASSSESEE COMPANY FOR DEDUCTION OF PROVISIONS FOR WARRANTY, SALES TAX AND EXCISE DUTY AND LIQUIDATED DAMAGES AMOUNTING TO RS.17.72 CRORES , WE FIND NO INFIRMITY IN THE ORDER DATED 06.02.2013 OF THE CIT PASSED U/S 263 OF THE ACT SE TTING ASIDE THE ASSESSMENT ORDER DATED 28.12.10 PASSED U/S 143(3) OF THE ACT AS ERRO NEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND DIRECTING THE AO TO ASSESS THE INCOME OF THE ASSESSEE COMPANY AFTER MAKING NECESSARY ENQUIRIES, EXAMINATION AND VERIFICATIONS , WHICH ORDER OF THE CIT DATED 06.02.2013 , WE UPHOLD . WE ORDER ACCORDINGLY. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE COMPA NY IS DISMISSED. ITA NO. 2836/MUM/2014 FOR A.Y. 2007-08. ITA 1994MUM/13 & ITA 2836/MUM/14 20 11. THIS APPEAL FILED BY THE ASSESSEE COMPANY IS AR ISING OUT OF THE ORDERS U/S 143(3) READ WITH SECTION 263 OF THE ACT DATED 24-2- 2014 PASSED BY THE AO IN PURSUANCE TO THE ORDER DATED 06.03.2013 PASSED U/S 263 OF THE ACT. 12. THE ASSESSEE COMPANY HAS RAISED THE FOLLOWING G ROUNDS OF APPEAL IN THE MEMO OF APPEAL FILED WITH THE TRIBUNAL:- DISALLOWANCE OF CLAIM FOR DEDUCTION OF LIQUIDATED DAMAGES OF RS. 9,08,90,000 A. THE LD. A.O. ERRED IN LAW AND ON FACTS IN DISALL OWING THE CLAIM FOR DEDUCTION FOR EXPENDITURE/LOSS IN RESPECT OF LIQUIDATE D DAMAGES OF RS. 9,08,90,000 BY CARRYING OUT DIRECTION OF CIT IN HIS O RDER DT. 06.02.2013 PASSED U/S. 263 WITHOUT APPLYING HIS MIND TO THE FACTS OF THE CASE. B. YOUR APPELLANT SUBMITS THAT : I. DURING THE YEAR THE COMPANY HAD ACCOUNTED FOR EXP ENSES/LOSS ON, LIQUIDATED DAMAGES AMOUNTING TO RS. 9,08,90,000/- TOW ARDS DELAYED EXPECTATION OF CONTRACTS WHICH WERE EXECUTED BY THE COMP ANY BEYOND THE AGREED DELIVERY DATES AND THE COMPENSATION PAYAB LE BY THE COMPANY FOR DELAY WAS COMPUTED IN A REASONABLE AND PRUDENT MANNER BASED ON PAST EXPERIENCE OF THE COMPANY AND THE COMP ANY HAS A POLICY TO WRITE BACK THE UNUSED AMOUNTS AND OFFER THE SAME FO R TAXATION ON EXPIRY OF THE RELEVANT PERIOD FOR CLAIM OF DAMAGES AN D THERE IS NO LEAKAGE OF REVENUE AS THE COMPANY IS BEING TAXED AT A FLAT RATE OF 30%. II, THE CLAIM UNDER CONSIDERATION WERE QUANTIFIED AND ACCOUNTED BY FOLLOWING THE SOUND ACCOUNTING PRINCIPLES AND THE POL ICIES FOLLOWED WERE MANDATED BY ACCOUNTING STANDARD 29 OF THE ICAI R. W.S. 209 OF THE COMPANIES ACT. C. YOUR APPELLANT PLEADS THAT APPELLANT'S CLAIM FOR D EDUCTION ON ACCOUNT OF LIQUIDATED DAMAGES OF RS. 9,08,90,000 BE ALLOWED. 2. DISALLOWANCE OF CLAIM FOR DEDUCTION FOR EXPENSES ON ACCOUNT OF SALES TAX OF RS. 2.67.00,000 A. THE LD. A.O. ERRED IN LAW AND ON FACTS IN DISALL OWING THE CLAIM FOR DEDUCTION FOR EXPENDITURE ON SALES TAX OF RS. 2,67,00, 000 BY CARRYING OUT THE DIRECTIONS OF THE CIT, WITHOUT APPLICATION OF MI ND, ISSUED WHILE PASSING ORDER DT. 06.02.2013 U/S. 263 OF THE ACT. ITA 1994MUM/13 & ITA 2836/MUM/14 21 B. YOUR APPELLANT SUBMITS THAT DURING THE YEAR THE COM PANY HAS ACCOUNTED FOR SALES TAX AMOUNTING TO RS. 2,67,00,000 R EPRESENTING SALES TAX LIABILITY ON ACCOUNT OF NON- COLLECTION OF DECLARATION FORMS UNDER THE ACT/RULES WHICH EXPENSES UNDER CONSIDERATIO N WAS QUANTIFIED AND ACCOUNTED BY FOLLOWING THE SOUND ACCOUN TING PRINCIPLES AND THE POLICIES FOLLOWED WERE MANDATED BY ACCOUNTIN G STANDARD 29 OF THE ICAI R.W.S. 209 OF THE COMPANIES ACT. C. YOUR APPELLANT PLEADS THAT APPELLANT'S CLAIM FOR D EDUCTION ON ACCOUNT OF SALES TAX OF RS. 2,67,00,000 BE ALLOWED. DISALLOWANCE OF CLAIM FOR DEDUCTION FOR EXPENSES ON ACCOUNT OF EXCISE DUTY OF RS. 43,00,000. A THE LD. AO. ERRED IN LAW AND ON FACTS IN DISALLOWI NG THE CLAIM FOR DEDUCTION FOR EXPENDITURES IN RESPECT OF EXCISE DUTY OF RS. 43,00,000 WITHOUT APPLICATION OF MIND BY CARRYING OUT THE DIRECTIO NS OF THE CIT VIDE HIS ORDER DT. 06.02.2013 PASSED U/S. 263 OF THE ACT. B. YOUR APPELLANT SUBMITS THAT DURING THE YEAR THE COM PANY HAS ACCOUNTED FOR EXCISE DUTY AMOUNTING TO RS. 43,00,000 REPRESENTING THE DIFFERENTIAL DUTY LIABILITY THAT HAS MATERIALIZED IN RESPECT OF MATTERS CONTESTED IN APPEAL AND THE EXPENSES UNDER CONSIDER ATION WERE QUANTIFIED AND ACCOUNTED BY FOLLOWING THE SOUND ACCOUN TING PRINCIPLES AND THE POLICIES FOLLOWED WERE MANDATED BY ACCOUNTIN G STANDARD 29 OF THE ICAI R.W.S. 209 OF THE COMPANIES ACT. C. YOUR APPELLANT PLEADS THAT APPELLANT'S CLAIM FOR D EDUCTION ON ACCOUNT OF EXCISE DUTY OF RS. 43,00,000 BE ALLOWED. 4. LEVY OF INTEREST U IS. 234 D A. THE LD. AO. ERRED IN LAW AND ON FACTS IN LEVYING INTEREST U/S. 234D OF RS. 37,93,211 WITHOUT GIVING ANY OPPORTUNITY OF HEARI NG AND FURTHER ERRED IN LAW IN NOT PASSING ANY SPEAKING ORDER FOR THE LEVY OF INTEREST. B. YOUR APPELLANT DENIES ANY LIABILITY OF PAYMENT OF INTEREST AND FURTHER SUBMITS THAT THE INTEREST WAS CHARGED IN VIOLATION OF THE PROVISION OF NATURAL JUSTICE IN AS MUCH AS NO OPPORTUNITY FOR HEA RING WAS GIVEN. C. YOUR APPELLANT PLEADS THAT THE INTEREST LEVIED BE DE LETED. 5. SERIOUS VIOLATION OF NATURAL JUSTICE A. THE LD. AO. ERRED IN LAW AND ON FACTS IN COMPLETIN G THE PROCEEDINGS IN A COMPLETE HASTE AND WITHOUT GIVING SUFFICIENT TIM E AND OPPORTUNITY ITA 1994MUM/13 & ITA 2836/MUM/14 22 AND ERRED IN LAW IN IGNORING ALL THE EVIDENCES AND PROOFS AND DOCUMENTS AVAILABLE ON RECORDS. FURTHER ERRED IN TREATI NG THE ORDER PASSED BY A.O. AS ERRONEOUS AND PREJUDICIAL TO THE IN TEREST OF THE REVENUE AND SETTING ASIDE THE SAME WITHOUT BRINGING A NY MATERIAL OF WHATSOEVER NATURE IN RECORD. B. YOUR APPELLANT SUBMITS THAT PROPER PROCEDURE AS RE QUIRED BY LAW WAS NOT FOLLOWED BEFORE PASSING OF ORDER. C. YOUR APPELLANT PLEADS THAT AN ASSESSMENT MADE IN V IOLATION OF THE PROVISIONS OF NATURAL JUSTICE BE QUASHED. ORDER PASSED IN PURSUANCE OF AN INVALID ORDER U/S 2 63 THE LD. A.O. ERRED IN LAW AND FACTS OF THE CASE IN PA SSING AN ORDER DT. 24.02.2014 TO GIVE EFFECT TO AN ORDER U/S 263 DT. 06.02 .2013 IGNORING THE FACT THAT THE ORDER PASSED BY THE LD. A.O. U/S 143 (3) DT. 28.12.2010 WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE IN AS MUCH AS THE LD. A.O. HAD APPLIED HIS MIND AND HA D MADE PROPER INQUIRIES TO THE SATISFACTION BEFORE PASSING THE ASSE SSMENT ORDER. B. YOUR APPELLANT SUBMITS THAT; I. THE ID. AO HAD COMPLETED THE ASSESSMENT FOR A.Y. 2007-08 VIDE HIS ORDER DT. 28.12.2010 AFTER DETAILED INQUIRY AND APPRE CIATION OF THE FACTS, EVIDENCES AND THE LAW. THE PROVISIONS MADE ON ACCOUNT OF LIQUIDATED DAMAGES, SALES TAX AND EXCISE DUTY REPRES ENTED LAWFUL BUSINESS EXPENDITURES OF THE COMPANY AND PROVISIONS WERE MADE IN ACCORDANCE WITH AS 29 OF THE ICAI AND WERE ALLOWED B Y THE A.O. ONLY AFTER DUE CONSIDERATION OF THE FACT AND OF THE LAW OF ALLOWABILITY OF SUCH EXPENSES AND IN THAT VIEW OF THE MATTER THE ORDER COULD NOT HAVE BEEN TERMED AS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF TH E LAW. II. THE COMPANY HAD MADE COMPLETE DISCLOSURE OF THE FACTS IN ITS FINANCIAL STATEMENTS WHICH ARE DULY AUDITED, UNDER SC HEDULE 16 AND PARTICULARLY VIDE NOTE NO.33 OF SCHEDULE B OF NOTES TO ACCOUNTS. THE ADEQUACY OF THE PROVISIONS AND THE NEED AND THE JUSTIF ICATION THEREOF WAS ASCERTAINED BY THE AUDITORS AND WAS APPROVED BY TH EM WITHOUT ANY QUALIFICATIONS IN THEIR REPORT. C. YOUR APPELLANT PLEADS THAT THE ORDER DT. 24.02.2014 PASSED BY LD A.O. U/S. 143(3) R.W.S. 263 BE HELD TO BE BAD IN LAW AND BE QUASHED. 13. WE HAVE OBSERVED THAT THE A.O. HAS PASSED AN O RDER DATED 24.02.2014 U/S 143(3) OF THE ACT READ WITH SECTION 263 OF THE ACT, IN PURSUANCE TO THE ITA 1994MUM/13 & ITA 2836/MUM/14 23 DIRECTIONS VIDE ORDER DATED 06-02-2013 OF THE CIT U /S 263 OF THE ACT . WE HAVE OBSERVED THAT THE ASSESSEE COMPANY HAS PREFER RED AN FIRST APPEAL DIRECTLY BEFORE THE TRIBUNAL AGAINST THE ORDER DATE D 24.02.2014 PASSED U/S 143(3) READ WITH SECTION 263 OF THE ACT. A BARE PER USAL OF SECTION 253(1) OF THE ACT WILL REVEAL THAT FOLLOWING APPEALS CAN BE F ILED BEFORE THE TRIBUNAL:- APPEALS TO THE APPELLATE TRIBUNAL. 253. (1) ANY ASSESSEE AGGRIEVED BY ANY OF THE FOLLOWIN G ORDERS MAY APPEAL TO THE APPELLATE TRIBUNAL AGAINST SUCH ORDER (A) AN ORDER PASSED BY A [DEPUTY COMMISSIONER (APPEALS )] [BEFORE THE 1ST DAY OF OCTOBER, 1998] { OR, AS THE CASE MAY BE, A COMMISSIONER (APP EALS)] UNDER [***] [ SECTION 154 ], [***] SECTION 250 , [ SECTION 271 , SECTION 271A OR SECTION 272A ]; OR [(B) AN ORDER PASSED BY AN ASSESSING OFFICER UNDER CLAUS E (C) OF SECTION 158BC , IN RESPECT OF SEARCH INITIATED UNDER SECTION 132 OR BOOKS OF ACCOUNT, OTHER DOCUMENTS OR ANY ASSETS REQUISITIONED UNDER SECTION 132A , AFTER THE 30TH DAY OF JUNE, 1995, BUT BEFORE THE 1ST DAY OF JANUARY, 1997; OR] [(BA) AN ORDER PASSED BY AN ASSESSING OFFICER UNDER SUB-S ECTION (1) OF SECTION 115VZC ; OR] (C) AN ORDER PASSED BY A [PRINCIPAL COMMISSIONER OR] C OMMISSIONER [UNDER SECTION 12AA [OR UNDER CLAUSE (VI) OF SUB-SECTION (5) OF SECTION 80G ] OR] UNDER SECTION 263 [OR UNDER SECTION 271 ] [OR UNDER SECTION 272A ] [***] OR AN ORDER PASSED BY HIM UNDER SECTION 154 AMENDING HIS ORDER UNDER SECTION 263 ] [OR AN ORDER PASSED BY A [PRINCIPAL CHIEF COMMISSIONER OR] CHIEF COMMISSIONER OR A [PRINCIPAL DIRECTOR GENERA L OR] DIRECTOR GENERAL OR A [PRINCIPAL DIRECTOR OR] DIRECTOR UNDER SECTION 272A ; [OR]] [(D) AN ORDER PASSED BY AN ASSESSING OFFICER UNDER SUB-S ECTION (3), OF SECTION 143 OR SECTION 147 [OR SECTION 153A OR SECTION 153C ] IN PURSUANCE OF THE DIRECTIONS OF THE DISPUTE RES OLUTION PANEL OR AN ORDER PASSED UNDER SECTION 154 IN RESPECT OF SUCH ORDER;] (E) [***] FOLLOWING CLAUSE (E) SHALL BE INSERTED AFTER CLAUSE (D) OF SUB-SECTION (1) OF SECTION 253 BY ITA 1994MUM/13 & ITA 2836/MUM/14 24 THE FINANCE ACT, 2013, W.E.F. 1-4-2016 : (E) AN ORDER PASSED BY AN ASSESSING OFFICER UNDER SUB-S ECTION (3) OF SECTION 143 OR SECTION 147 OR SECTION 153A OR SECTION 153C WITH THE APPROVAL OF THE 33 [ PRINCIPAL COMMISSIONER OR]COMMISSIONER AS REFERRED TO IN SUB-SECTION (12) OF SECTION 144BA OR A N ORDER PASSED UNDER SECTION 154 OR SECTION 155 IN RESPECT OF SUCH ORDER; [ (F) AN ORDER PASSED BY THE PRESCRIBED AUTHORITY UNDER S UB-CLAUSE (VI)OR SUB-CLAUSE (VIA )OF CLAUSE (23C)OF SECTION 10 . ] WE HAVE OBSERVED THAT AN APPEAL ARISING FROM THE OR DER U/S 143(3) OF THE ACT READ WITH SECTION 263 OF THE ACT DOES NOT FIND PLAC E IN SECTION 253(1) OF THE ACT WITH RESPECT TO THE APPEAL AGAINST THE ORDERS P ASSED U/S 143(3) OF THE ACT READ WITH SECTION 263 OF THE ACT . HOWEVER, ON A PERUSAL OF SECTION 246A OF THE ACT, W E HAVE OBSERVED THAT APPEALS AGAINST THE ORDERS PASSED U/S 143(3) OF THE ACT SHALL LIE WITH THE COMMISSIONER OF INCOME TAX(APPEALS) (HEREINAFTER CA LLED THE CIT(A)) . THE SECTION 246A OF THE ACT READS AS UNDER:- [ APPEALABLE ORDERS BEFORE COMMISSIONER (APPEALS). 246A. (1) ANY ASSESSEE 39 [OR ANY DEDUCTOR] 39A [ OR ANY COLLECTOR ] AGGRIEVED BY ANY OF THE FOLLOWING ORDERS (WHETHER MADE BEFORE OR AFTER THE APPOINTED DAY) MAY APPEAL TO THE COMMISSIONER (APPEALS) AGAINST (A) AN ORDER [PASSED BY A JOINT COMMISSIONER UNDER CLA USE (II) OF SUB-SECTION (3) OF SECTION 115VP OR AN ORDER] AGAINST THE ASSESSEE WHERE THE ASSESSEE DENIES HIS LIABILITY TO BE ASSESSED UNDER THIS ACT OR AN INTIMATION UNDER SUB- SECTION (1) OR SUB-SECTION (1B) OF [ SECTION 143 OR [ SUB-SECTION (1) OF SECTION 200A OR SUB-SECTION (1) OF SECTION 206CB , WHERE THE ASSESSEE OR THE DEDUCTOR OR THE COLLECTOR ] OBJECTS] TO THE MAKING OF ADJUSTMENTS, OR ANY ORDER OF ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 [[EXCEPT AN ORDER PASSED IN ITA 1994MUM/13 & ITA 2836/MUM/14 25 PURSUANCE OF DIRECTIONS OF THE DISPUTE RESOLUTION P ANEL [***] [ OR AN ORDER REFERRED TO IN SUB-SECTION (12) OF SECTION 144BA]]] OR SECTION 144 , TO THE IN COME ASSESSED, OR TO THE AMOUNT OF TAX DETERMINED, OR TO THE AMOUNT OF LOSS COMPUTED, OR TO THE STATUS UNDER WHICH HE IS ASSESSED; [(AA) AN ORDER OF ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 115WE OR SECTION 115WF , WHERE THE ASSESSEE, BEING AN EMPLOYER OBJECTS TO THE VALUE OF FRINGE BENEFITS ASSESSED; (AB) AN ORDER OF ASSESSMENT OR REASSESSMENT UNDER SECTION 115WG ;] (B) AN ORDER OF ASSESSMENT, REASSESSMENT OR RECOMPUTATI ON UNDER SECTION 147 [[EXCEPT AN ORDER PASSED IN PURSUANCE OF DIRECTIONS OF THE DISPUTE RE SOLUTION PANEL [***] [ OR AN ORDER REFERRED TO IN SUB-SECTION (12) OF SECTION 144BA ]]] OR SECTION 150 ; [(BA) AN ORDER OF ASSESSMENT OR REASSESSMENT UNDER SECTION 153A [[EXCEPT AN ORDER PASSED IN PURSUANCE OF DIRECTIONS OF THE DISPUTE RESOLUTION P ANEL]] [***] [ OR AN ORDER REFERRED TO IN SUB-SECTION (12) OF SECTION 144BA ];] [(BB) AN ORDER OF ASSESSMENT OR REASSESSMENT UNDER SUB-SE CTION (3) OF SECTION 92CD ;] (C) AN ORDER MADE UNDER SECTION 154 OR SECTION 155 HAVING THE EFFECT OF ENHANCING THE ASSESSMENT OR REDUCING A REFUND OR AN ORDER REFUSIN G TO ALLOW THE CLAIM MADE BY THE ASSESSEE UNDER EITHER OF THE SAID SECTIONS [***] [ EXCEPT AN ORDER REFERRED TO IN SUB- SECTION (12) OF SECTION 144BA ]; (D) AN ORDER MADE UNDER SECTION 163 TREATING THE ASSESSEE AS THE AGENT OF A NON-RESIDE NT; (E) AN ORDER MADE UNDER SUB-SECTION (2) OR SUB-SECTION (3) OF SECTION 170 ; (F) AN ORDER MADE UNDER SECTION 171 ; (G) AN ORDER MADE UNDER CLAUSE (B) OF SUB-SECTION (1) O R UNDER SUB-SECTION (2) OR SUB- SECTION (3) OR SUB-SECTION (5) OF SECTION 185 IN RESPECT OF AN ASSES SMENT FOR THE ASSESSMENT YEAR COMMENCING ON OR BEFORE THE 1ST DAY OF APRIL, 1992; (H) AN ORDER CANCELLING THE REGISTRATION OF A FIRM UNDE R SUB-SECTION (1) OR UNDER SUB- SECTION (2) OF SECTION 186 IN RESPECT OF ANY ASSESSMENT FOR THE ASSESSMENT YEAR COMME NCING ON OR BEFORE THE 1ST DAY OF APRIL, 1992 OR ANY EARLIER AS SESSMENT YEAR; [(HA) AN ORDER MADE UNDER SECTION 201 ;] ITA 1994MUM/13 & ITA 2836/MUM/14 26 [(HB) AN ORDER MADE UNDER SUB-SECTION (6A) OF SECTION 206C ;] (I) AN ORDER MADE UNDER SECTION 237 ; (J) AN ORDER IMPOSING A PENALTY UNDER (A) SECTION 221 ; OR (B) SECTION 271 , SECTION 271A , 58 [SECTION 271AAA ,] 59 [ SECTION 271AAB ,] SECTION 271F , 60 [ SECTION 271FB ,] SECTION 272AA OR SECTION 272BB; (C) SECTION 272 , SECTION 272B OR SECTION 273 , AS THEY STOOD IMMEDIATELY BEFORE THE 1ST DAY OF APRIL, 19 89, IN RESPECT OF AN ASSESSMENT FOR THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1988, OR ANY EARLIER ASSES SMENT YEARS; [(JA) AN ORDER OF IMPOSING OR ENHANCING PENALTY UNDER SUB -SECTION (1A) OF SECTION 275 ;] (K) AN ORDER OF ASSESSMENT MADE BY AN ASSESSING OFFICER UNDER CLAUSE (C) OF SECTION 158BC , IN RESPECT OF SEARCH INITIATED UNDER SECTION 132 OR BOOKS OF ACCOUNT, OTHER DOCUMENTS OR ANY ASSETS REQUISITIONED UNDER SECTION 132A ON OR AFTER THE 1ST DAY OF JANUARY, 1997; (L) AN ORDER IMPOSING A PENALTY UNDER SUB-SECTION (2) O F SECTION 158BFA ; (M) AN ORDER IMPOSING A PENALTY UNDER SECTION 271B OR SECTION 271BB ; (N) AN ORDER MADE BY A DEPUTY COMMISSIONER IMPOSING A P ENALTY UNDER SECTION 271C 62 [, SECTION 271CA ], SECTION 271D OR SECTION 271E ; (O) AN ORDER MADE BY A DEPUTY COMMISSIONER OR A DEPUTY DIRECTOR IMPOSING A PENALTY UNDER SECTION 272A ; (P) AN ORDER MADE BY A DEPUTY COMMISSIONER IMPOSING A P ENALTY UNDER SECTION 272AA ; (Q) AN ORDER IMPOSING A PENALTY UNDER CHAPTER XXI; (R) AN ORDER MADE BY AN ASSESSING OFFICER OTHER THAN A DEPUTY COMMISSIONER UNDER THE PROVISIONS OF THIS ACT IN THE CASE OF SUCH PERSON O R CLASS OF PERSONS, AS THE BOARD MAY, HAVING REGARD TO THE NATURE OF THE CASES, THE COMPL EXITIES INVOLVED AND OTHER RELEVANT CONSIDERATIONS, DIRECT. ON PERUSAL OF SECTION 246A OF THE ACT, WE HAVE OB SERVED THAT APPEAL AGAINST THE ORDERS PASSED U/S 143(3) READ WITH SECTION 263 OF T HE ACT SHALL LIE WITH THE CIT(A) ITA 1994MUM/13 & ITA 2836/MUM/14 27 U/S 246A(1)(A) OF THE ACT BEING AN ORDER PASSED BY LEARNED ASSESSING OFFICER U/S 143(3) OF THE ACT. APPEAL UNDER THE ACT IS A STATUTORY RIGHT WHICH EM ANATES ONLY FROM THE STATUTE. THE ASSESSEE DOES NOT HAVE A VESTED RIGHT TO APPEAL UNLESS PROVIDED FOR IN THE STATUTE . REFERENCE IS DRAWN TO THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF CIT V. ASHOKA ENGINEERING CO. (1992) 194 ITR 645(SC ) WHEREBY THE HONBLE SUPREME COURT HELD THAT : 7. WE HAVE HEARD THE COUNSELS FOR BOTH THE PARTIES. T HE QUESTION AT ISSUE IS REGARDING A RIGHT OF APPEAL. IT IS TRUE THAT THERE IS NO INHE RENT RIGHT OF APPEAL TO ANY ASSESSEE AND THAT IT HAS TO BE SPELT FROM THE WORDS OF THE STATU TE, IF ANY, PROVIDING FOR AN APPEAL. BUT IT IS AN EQUALLY WELL-SETTLED PROPOSITION OF LAW TH AT, IF THERE IS A PROVISION CONFERRING A RIGHT OF APPEAL, IT SHOULD BE READ IN A REASONABLE, PRACTICAL AND LIBERAL MANNER. HENCE, IN OUR CONSIDERED VIEW , THIS INSTANT APPEAL BEARING ITA NO. 2836/MUM/2014 CANNOT BE ADJUDICATED BY THE TRIBUNAL AS THE FIRST APPEAL AGAINST THE ORDERS DATED 24.02.2014 PASSED BY THE AO U/S 14 3(3) OF THE ACT READ WITH SECTION 263 OF THE ACT SHALL LIE AND FALL WITH IN THE JURISDICTION OF THE CIT(A) U/S 246A(1)(A) OF THE ACT. WE HAVE OBSERVED THAT THE F IRST APPEAL IS FILED DIRECTLY BY THE ASSESSEE COMPANY IN ITA NO. 2836/MUM/2014 BEFORE TH E TRIBUNAL, WHICH THE TRIBUNAL IS NOT COMPETENT TO ADJUDICATE AS PER PRO VISIONS OF SECTION 253(1) OF THE ACT BECAUSE THE FIRST APPEAL LIES BEFORE THE CIT(A ) U/S 246A(1)(A) OF THE ACT AND HENCE THE APPEAL FILED BY THE ASSESSEE COMPANY IS H EREBY DISMISSED. HOWEVER, THE ASSESSEE COMPANY IS AT LIBERTY TO FILE AN APPEAL BE FORE THE CIT(A) U/S 246A(1)(A) OF THE ACT FOR ADJUDICATION ON MERITS . THE CIT(A) SHA LL CONSIDER THE RELEVANT FACT THAT IN THE INTERVENING PERIOD THE ASSESSEE COMPANY WAS PURSUING THE APPEAL WITH THE TRIBUNAL ALBEIT AT WRONG FORUM WITH THE TRIBUNAL IN STEAD OF FILING THE FIRST APPEAL WITH THE CIT(A) AS PROVIDED U/S 246A(1)(A) OF THE A CT , WHICH RELEVANT FACT SHALL BE CONSIDERED LIBERALLY BY THE CIT(A) WHILE ADJUDICATI NG THE CONDONATION APPLICATION, IF ITA 1994MUM/13 & ITA 2836/MUM/14 28 FILED BY THE ASSESSEE COMPANY , WHILE ADJUDICATING THE APPEAL ON MERITS . WE ORDER ACCORDINGLY. 14. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E COMPANY IN ITA NO. 2836/MUM/2014 IS DISMISSED. 15. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE COMPANY ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON IST FEBRUAR Y, 2016. &)*+, -$ . 01-02-2016 *&/% SD/- SD/- (SHAILENDRA KUMAR YADAV) (RAMIT KOCHAR) JUDICIALMEMBER ACCOUNTANTMEMBER % MUMBAI ; -$ DATED 01-02-2016 [ .$../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&' &$ / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT. 3. ?' ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. ?' / CIT- CONCERNED, MUMBAI 5. BC /''$DE , (DE , , % / DR, ITAT, MUMBAI H BENCH 6. / FGH % / GUARD FILE. ! / BY ORDER, # B''' //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , % / ITAT, MUMBAI