Bosch Limited, Bangalore V. DCIT, Bangalore

ITA 571/BANG/2014

• Counselvise Citation: 57121114 RSA 2014
• Duration Of Justice: 1 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 17-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 29-04-2014
• Court: TRIBUNAL
• Assessee Lawyers: K P KUMAR
• Keywords: Revision of order; Depreciation
• Section: 143(3); 10B; 32; 263; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ , ACCOUNTANT MEMBER ITA NO.571/BANG/2014 ASSESSMENT YEAR : 2008-09 BOSCH LIMITED, HOSUR ROAD, AUDOGODI, BANGALORE 560 030. PAN: AAACM 9849P VS. THE DEPUTY COMMISSIONER OF INCOME TAX, LTU, BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI K.P. KUMAR, ADVOCATE RESPONDENT BY : SMT. NEERA MALHOTRA, CIT(DR) DATE OF HEARING : 24.09.2015 DATE OF PRONOUNCEMENT : 28.10.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 7.3.2014 OF THE COMMISSIONER OF INCOME-TAX, LTU [CIT], BANGALOR E PASSED U/S. 263 OF THE INCOME-TAX ACT, 1961 ['THE ACT'] RELATING TO AS SESSMENT YEAR 2008-09. ITA NO.571/BANG/2014 PAGE 2 OF 15 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF MANUFACTURE OF FUEL INJECTION EQUIPMENTS, AUTO ELEC TRIC ITEMS, PORTABLE ELECTRIC POWER TOOLS, ETC. FOR THE AY 2008-09, AN ORDER DATED 22.11.2011 U/S. 143(3) WAS PASSED. ONE OF THE ITEMS OF CLAIM WHICH WAS EXAMINED BY THE AO IN THE SAID ORDER WAS THE CLAIM OF ASSESSEE FOR DEDUCTION U/S. 35(2AB) OF THE ACT OF RS.20,68,01,388. THE DISPUTE WAS AS TO WHETHER DEDUCTION U/S. 35(2AB) HAS TO BE ALLOWED WITH REFER ENCE TO GROSS EXPENDITURE OR ON THE NET EXPENDITURE I.E., GROSS E XPENDITURE MINUS RECEIPTS OF THE ASSESSEE FROM THE ACTIVITY OF R&D. DEDUCTION U/S. 35(2AB) OF THE ACT WAS ALLOWED BY THE AO ONLY ON THE NET AM OUNT AS HE NOTICED THAT IN THE COMPUTATION OF INCOME FILED BY THE ASSESSEE, THE ASSESSEE HAD CLAIMED THE SAID DEDUCTION ONLY ON THE NET AMOUNT. THEREFORE, NO SEPARATE DEDUCTION WAS MADE ON THIS SCORE. 3. THE CIT IN EXERCISE OF HIS POWERS U/S. 263 OF T HE ACT WAS OF THE VIEW THAT DEDUCTION ALLOWED BY THE AO U/S. 35(2AB) WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ACCOR DING TO THE CIT, THE EXPENDITURE INCURRED ON R&D WAS CERTIFIED BY THE DE PARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH (DSIR), GOVT. OF INDIA. HE F OUND THAT THE ASSESSEE HAD TWO EXPORT ORIENTED UNITS (EOU) UNITS AT NAGANA THAPURA AND ANOTHER ONE AT NASHIK AND THE PROFITS OF BOTH THESE UNITS W ERE ENTITLED TO 100% DEDUCTION U/S. 10B OF THE ACT AS THEY WERE EOUS. A CCORDING TO THE CIT, THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURE OF AUTOMOTIVE PARTS SUCH AS FUEL INJECTION EQUIPMENT, AUTO ELECTRIC EQUIPMEN TS THAT ARE MANUFACTURED ITA NO.571/BANG/2014 PAGE 3 OF 15 IN ALL THE UNITS INCLUDING THE EOUS NAGANATHAPURA A ND NASHIK. ACCORDING TO THE CIT, BENEFITS OF R&D WOULD ACCRUE TO ALL THE MANUFACTURING UNITS OF THE ASSESSEE. THE CIT FURTHER NOTICED THAT IN THE PROFIT & LOSS ACCOUNT OF EOUS AT NAGANATHAPURA AND NASHIK, THE EXPENDITURE O N SCIENTIFIC RESEARCH CLAIMED AND ALLOWED AS DEDUCTION U/S. 35(2AB) OF TH E ACT HAD NOT BEEN APPORTIONED AND DEBITED TO THE P&L ACCOUNT OF THE T WO EOUS AND THEREBY THE ELIGIBLE DEDUCTION U/S. 10B OF THE ACT WAS ALLO WED IN EXCESS BY THE AO. THE CIT APPORTIONED THE TOTAL R&D EXPENDITURE AND C AME TO THE CONCLUSION THAT HAD THE R&D EXPENDITURE BEEN APPORTION AND DEB ITED TO THE P&L ACCOUNT OF THE TWO EOUS, THEN THEIR PROFITS WOULD S TAND REDUCED TO RS.30,58,36,266 AS AGAINST THE CLAIM U/S. 10B ALLOW ED BY THE AO AT RS. 49,64,24,425. THE CIT WAS OF THE VIEW THAT EXCESS DEDUCTION U/S. 10B OF THE ACT TO THE EXTENT OF RS.19,05,88,159 HAD BEEN A LLOWED TO THE ASSESSEE [RS.49,64,24,425 MINUS 30,58,36,266]. THE CIT WAS THEREFORE OF THE VIEW THAT THE ORDER PASSED BY THE AO WAS ERRONEOUS AND P REJUDICIAL TO THE INTERESTS OF THE REVENUE. 4. IN REPLY TO THE SHOW CAUSE NOTICE U/S.263 OF THE ACT SETTING OUT THE FACTS AS STATED IN PARA-3 ABOVE, THE ASSESSEE SUBM ITTED THAT THE ORDER PASSED U/S 143(3) WAS NOT ERRONEOUS AND IT IS NOT P REJUDICIAL TO THE INTEREST OF THE REVENUE. THE ASSESSEE POINTED OUT THAT IT H AD TWO EOUS ONE AT NAGANATHAPURA AND ANOTHER ONE AT NASHIK. EOU AT N AGANATHAPURA MANUFACTURES PRODUCTS SUCH AS REGULATORS OF VARIOUS TYPES USED IN ALTERNATORS (MR/BR/MFR TYPES) WHICH ARE IN ACCORDAN CE WITH LETTER OF 28TH ITA NO.571/BANG/2014 PAGE 4 OF 15 NOVEMBER, 2002. EOU AT NASHIK MANUFACTURES PRODUCTS SUCH AS COMMON RAIL INJECTOR PARTS AND COMPONENTS THEREOF AS PER T HE LETTER OF PERMISSION - REFERENCE NO PER 50. (2004)/SEEPZ-SEZ/EOU/IA-II/50/ 04-05) DATED 1 ST NOVEMBER, 2004. THE ASSESSEE FURTHER POINTED OUT T HAT IT HAS AN IN HOUSE R&D CENTRE RECOGNISED BY DEPARTMENT OF INDUSTRIAL & SCIENTIFIC RESEARCH, NEW DELHI AND AS PER ORDER OF APPROVAL IN FORM NO.3 CM DATED 10 TH OCTOBER, 2007. THE ASSESSEE POINTED OUT THAT THE OBJECTIVES OF THE R&D WERE AS UNDER: - DEVELOPMENT OF NEW FUEL INJECTION SYSTEMS (VE EDC AND CRS) TO MEET CUSTOMER REQUIREMENTS WITH SPECIFIC RE FERENCE TO FUEL ECONOMY AND ENVIRONMENTAL REGULATIONS IN IN DIA AND ABROAD FOR AUTOMOTIVE (EURO-III, BS-III) AND TRACTO R APPLICATIONS (TIER-III). - DEVELOPMENT OF ELECTRONICALLY CONTROLLED SINGLE CYLINDER PUMPS (EURO-III). - DEVELOPMENT OF SPARK PLUGS FOR THE NEW SL ENGINE S TO MEET THE COMBUSTION REQUIREMENTS OF ENGINES BEING DEVELO PMENT BY OEMS. - DEVELOPMENT OF HIGH EFFICIENCY ALTERNATORS TO M EET HIGH CURRENT DEMANDS OF MODERN AUTOMOBILES. - DESIGN OF LIGHTWEIGHT, COMPACT STARTER MOTORS FO R AUTOMOBILE APPLICATIONS ESPECIALLY PASSENGER CARS AND TWO WHEE LERS. - DEVELOPMENT OF START-STOP SYSTEMS TO SAVE FUEL CO NSUMPTION. - DEVELOPMENT OF BODY CONTROL MODULES AND VEHICULAR ELECTRICAL ARCHITECTURE FOR INDIGENOUS PASSENGER CA RS. 5. THE ASSESSEE FURTHER SUBMITTED THAT THE PRODUCTS MANUFACTURED AT EOUS (NAGANATHPURA AND NASHIK) DID NOT REQUIRE ANY R&D SUPPORT AS THE ITA NO.571/BANG/2014 PAGE 5 OF 15 R&D CARRIED OUT IS FOR THE DIFFERENT PRODUCTS WHICH ARE NO WAY RELATED TO PRODUCTS MANUFACTURED AT EOU. THE ASSESSEE POINTED OUT THAT THIS FACT WOULD BE IS EVIDENT FROM THE DOCUMENTS NAMELY THE L ETTERS OF PERMISSION ISSUED BY DEVELOPMENT COMMISSIONER AND FORM 3CM ISS UED BY DSIR. THE ASSESSEE ALSO DREW ATTENTION OF THE CIT TO THE FACT THAT THE ASSESSEE HAD ENTERED INTO A TECHNICAL LICENCE AGREEMENT WITH ROB ERT BOSCH GMBH IN RESPECT OF MANUFACTURE OF COMMON RAIL SYSTEM AND HA D PAID LUMP SUM ROYALTY (I.E. TECHNICAL SERVICE FEE) IN EARLIER YEA RS. SINCE, PORTION OF THE SAID TECHNICAL SERVICE FEE PAID IS ATTRIBUTABLE TO EOU A T NASHIK, DEPRECIATION U/S 32 OF THE INCOME-TAX ACT, ON THE SAID TECHNICAL SER VICE FEE AMOUNTING TO RS. 45,534,758 HAS BEEN RECKONED IN THE CURRENT AY 2008 -09 AND HAS BEEN REDUCED FROM THE PROFIT. THE ASSESSEE POINTED OUT THAT THE EOUS AT NAGANATHAPURA AND NASHIK MANUFACTURE PRODUCTS FOR W HICH NO R&D SUPPORT WAS REQUIRED AND THE FACT THAT THE ASSESSEE HAD TECHNICAL LICENCE AGREEMENT AND CORRESPONDING TECHNICAL SERVICE FEE H AS BEEN APPORTIONED TO RESPECTIVE EOUS, ITSELF WOULD SHOW THAT APPORTIO NING R&D EXPENDITURE TO THE SAID TWO EOUS WAS NOT REQUIRED. 6. THE LD. CIT AFTER CONSIDERING THE REPLY OF THE A SSESSEE CAME TO THE CONCLUSION THAT THE STAND TAKEN BY THE ASSESSEE REQ UIRES RE-EXAMINATION BY THE AO AND ACCORDINGLY SET ASIDE THE ORDER OF AO ON THE DEDUCTION U/S. 35(2AB) OF THE ACT AND RESTORED THE ISSUE FOR FRESH CONSIDERATION BY THE AO. FOLLOWING WERE THE RELEVANT OBSERVATIONS OF TH E LD. CIT IN THIS REGARD:- ITA NO.571/BANG/2014 PAGE 6 OF 15 THE ASSESSEES SUBMISSION IS PERUSED AND CONSIDERE D. ON VERIFICATION IT IS OBSERVED THAT THE ISSUE PERTAINS TO THE ALLOWABILITY OF THE R&D EXPENSES OF THE COMPANY ON A WHOLE WITHOUT EXCLUDING THE PROPORTIONATE EXPENSES ATTRIB UTABLE TO THE EXEMPTED UNITS. THE ASSESSEES SUBMISSION THAT THE EXEMPTED UNITS ARE NOT UNDERTAKING R&D SUPPORT BASED ON THE APPROVALS GRANTED AS EARLY AS 2002 AND 2004 NEEDS VERIFICATIO N AS TO WHETHER THE SAME POSITION EXITS FOR THE SAID FINANC IAL YEAR WHICH MAY BE DULY ENQUIRED BY THE ASSESSING OFFICER BY WR ITING TO THE CONCERNED AUTHORITIES. HENCE THE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER TO CONDUCT SUITABLE ENQUIR IES IN THIS REGARD AND DECIDE THE ISSUE AS PER PROVISIONS OF TH E ACT AFTER PROVIDING AN OPPORTUNITY OF HEARING TO THE ASSESSEE . 7. AGGRIEVED BY THE ORDER OF CIT, THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 8. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE, WHO REITERATED THE FACTUAL ASPECTS HIGHLIGHTED BEFO RE THE CIT. OUR ATTENTION WAS DRAWN TO THE APPROVAL DATED 28.11.2002 GRANTED BY THE OFFICE OF THE DEVELOPMENT COMMISSIONER, COCHIN, SPECIAL ECONOMIC ZONE FOR PERMISSION TO SET UP 100% EXPORT ORIENTED SCHEME FO R MANUFACTURE AND EXPORT OF REGULATORS OF VARIOUS TYPES USED IN ALTE RNATORS. THIS WAS THE APPROVAL FOR THE ASSESSEES 100% EOU PLANT AT NAGAN ATHAPURA. HE HIGHLIGHTED THE FACT THAT THE EXPENDITURE INCURRED ON R&D WHICH WAS CLAIMED AS A DEDUCTION U/S. 35(2AB) OF THE ACT WAS CARRIED OUT IN THE INHOUSE R&D CENTRE OF THE ASSESSEE WHICH WAS RECOGN IZED BY THE DSIR, NEW DELHI, BY ORDER DATED 10.10.2007. HE BROUGHT T O OUR NOTICED THAT THE AFORESAID APPROVAL WAS IN RESPECT OF DEVELOPMENT OF NEW FUEL INJECTION ITA NO.571/BANG/2014 PAGE 7 OF 15 SYSTEMS, ELECTRONICALLY CONTROLLED SINGLE CYLINDER PUMPS, ETC. INCLUDING DEVELOPMENT OF HIGH EFFICIENCY ALTERNATORS TO MEET HIGH CURRENT DEMANDS OF MODERN AUTOMOBILES. HE POINTED OUT THAT 100% EOU A T NAGANATHAPURA WAS ONLY FOR MANUFACTURE OF PRODUCTS SUCH AS REGUL ATORS OF VARIOUS TYPES USED IN ALTERNATORS AND NOT MANUFACTURE OF ALTERNA TORS. THE R&D CARRIED OUT BY THE ASSESSEE THE EXPENDITURE IN RELATION TO WHICH WAS CLAIMED AS DEDUCTION U/S. 35(2AB) OF THE ACT WAS IN CONNECTION WITH THE DEVELOPMENT OF HIGH EFFICIENCY ALTERNATORS OF VARIOUS TYPES USE D IN ALTERNATORS AND IT HAD NOTHING TO DO WITH REGULATORS USED IN ALTERNATORS. HE SUBMITTED THAT THIS FINE DISTINCTION WHICH WAS POINTED OUT TO THE CIT H AS NOT BEEN APPRECIATED BY HIM. ACCORDING TO THE LD. COUNSEL FOR THE ASSES SEE, THE CIT HAS PROCEEDED ON THE BASIS THAT 100% EOU AT NAGANATHAPU RA WAS IN THE MANUFACTURE OF ALTERNATORS AND THE R&D UNIT EXPENDI TURE INCURRED BY THE ASSESSEE WHICH WAS CLAIMED AS DEDUCTION U/S. 35(2AB ) ALSO RELATED TO ALTERNATORS AND CAME TO A WRONG CONCLUSION THAT THE R&D IN QUESTION WOULD ALSO BENEFIT THE NAGANATHAPURA UNIT. 9. AS FAR AS 100% EOU AT NASHIK IS CONCERNED, HE PO INTED OUT THAT THE APPROVAL FOR SETTING UP OF THIS UNIT WAS GRANTED BY THE GOVT. OF INDIA, OFFICE OF DEVELOPMENT COMMISSIONER, SEEPZ, SEZ DATED 1.11. 2004 AND THE SAID APPROVAL IS FOR MANUFACTURE OF COMMON RAIL INJECTOR PARTS AND COMPONENTS THEREOF. ITA NO.571/BANG/2014 PAGE 8 OF 15 10. HE SUBMITTED THAT THE R&D ACTIVITY CARRIED OUT BY THE ASSESSEE FOR WHICH DEDUCTION U/S. 35(2AB) WAS CLAIMED HAD NOTHIN G TO DO WITH COMMON RAIL INJECTOR PARTS AND COMPONENTS. HE FURTHER DRE W OUR ATTENTION TO THE REPORT IN FORM 56G OF THE NASHIK UNIT AS WELL AS NA GANATHAPURA UNIT IN WHICH THE AUDITORS HAD CERTIFIED THE NATURE OF ACTI VITY IN THE NAGANATHAPURA UNIT AS MANUFACTURE OF REGULATORS OF VARIOUS TYPES USED IN ALTERNATORS AND THE ACTIVITY IN THE NASHIK UNIT AS MANUFACTURE OF CRI PARTS AND COMPONENTS. 11. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE LIGHT OF THE AFORESAID EXPLANATION GIVEN BY THE ASSESSEE IN REPL Y TO SHOW CAUSE NOTICE U/S 263 OF THE ACT, THE CIT HAS NOT GIVEN A FINDING THAT THE DETAILS GIVEN BY THE ASSESSEE ARE INCORRECT. THE CIT HAS ALSO NOT C OME TO THE CONCLUSION IN THE IMPUGNED ORDER THAT THE CLAIM MADE BY THE ASSES SEE IS ERRONEOUS. IT WAS SUBMITTED BY HIM THAT JURISDICTION U/S. 263 OF THE ACT CAN BE EXERCISED BY THE CIT ONLY ON SATISFACTION OF TWO CONDITIONS V IZ., THE ORDER SOUGHT TO BE REVISED SHOULD BE ERRONEOUS AND SECONDLY, IT SHOULD BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ACCORDING TO HIM, THE CI T HAS NOT COME TO THE CONCLUSION THAT THE ORDER OF AO IS ERRONEOUS AND TH EREFORE JURISDICTION U/S. 263 OF THE ACT OUGHT NOT TO HAVE BEEN EXERCISED BY THE CIT. 12. OUR ATTENTION WAS DRAWN TO THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. KANDA RICE MILLS, 178 ITR 446 (P&H) . THE HONBLE HIGH COURT IN THE AFORESAID CASE WHI LE EXAMINING THE ITA NO.571/BANG/2014 PAGE 9 OF 15 CORRECTNESS OF AN ORDER PASSED U/S. 263 OF THE ACT, HELD THAT THE COMMISSIONER CANNOT SET ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO MAKE FRESH ASSESSMENT, WITHOUT GIVING HIS OPINION O N THE CONTENTIONS PUT FORTH BY THE ASSESSEE IN REPLY TO THE SHOW CAUSE NO TICE U/S. 263 OF THE ACT. THE HONBLE HIGH COURT FURTHER HELD THAT CIT BY MER ELY OBSERVING THAT CERTAIN POINTS DESERVED CONSIDERATION, CANNOT EXERC ISE POWERS U/S. 263 OF THE ACT. 13. OUR ATTENTION WAS ALSO DRAWN TO THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. D.G. GOPALA GOWDA, 354 ITR 501 (KARN) , WHEREIN IT WAS OBSERVED THAT THE ORDER PASSED U/S . 263 SHOULD INDICATE THE ERROR COMMITTED BY THE ASSESSING AUTHO RITY AND CONSEQUENTLY PREJUDICE CAUSED TO THE REVENUE. IT WAS FURTHER HE LD THAT AFTER FINDING THAT THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTER ESTS OF REVENUE, THE REVISIONAL AUTHORITY CANNOT SIMPLY REMAND THE ISSUE TO THE AO FOR FRESH CONSIDERATION, BUT SHOULD SET OUT THE FACTS WHICH S HOW THE ERRONEOUS NATURE OF THE ORDER AND CONSEQUENTIAL PREJUDICE CAU SED TO THE REVENUE WHICH CONFER JURISDICTION ON THE REVISIONAL AUTHORI TY. 14. THE LD. DR, ON THE OTHER HAND, POINTED OUT THAT THE AO WHILE COMPLETING THE ASSESSMENT DID NOT CONSIDER THIS ASP ECT AT ALL AND THIS WAS THE REASON FOR PROMPTING AN ACTION U/S. 263 OF THE ACT. IT WAS FURTHER SUBMITTED THAT FAILURE TO MAKE AN ENQUIRY BY THE AO RENDERS THE ORDER ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. IT WAS FURTHER ITA NO.571/BANG/2014 PAGE 10 OF 15 SUBMITTED THAT SINCE THE FACTS WERE REQUIRED TO BE EXAMINED IN DETAIL, THE CIT HAD REMANDED THE ISSUE TO THE AO FOR FRESH CONS IDERATION. THE LD. DR REFERRED TO THE FOLLOWING DECISIONS LAYING DOWN THE PROPOSITION WHEN DETAILED EXAMINATION IS REQUIRED, THE CIT HAS THE P OWER TO REMAND THE ISSUE TO THE AO FOR FRESH CONSIDERATION:- CIT V. SHRI BHAGWAN DAS, 272 ITR 367 (ALL) BANK OF INDIA V. CIT, 152 TTJ 546 (CHENNAI) 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FROM THE FACTUAL DETAILS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE WHI CH WAS ALSO POINTED OUT IN THE REPLY TO SHOW CAUSE NOTICE U/S. 263 OF THE A CT BEFORE THE CIT(A), IT IS CLEAR THAT THE R&D ACTIVITY WHICH WAS CARRIED OUT B Y THE ASSESSEE IN BANGALORE HAD NOTHING TO DO WITH THE ACTIVITIES CAR RIED ON BY THE ASSESSEE AT 100% EOUS AT NAGANATHAPURA AND NASHIK. NAGANATHA PURA UNIT OF THE ASSESSEE WAS MANUFACTURING REGULATORS OF VARIOUS TY PES USED IN ALTERNATORS AND THE NASHIK UNIT WAS MANUFACTURING C OMMON RAIL INJECTOR PARTS AND COMPONENTS. FROM THE PERUSAL OF THE ACTI VITIES CARRIED OUT AT BANGALORE BY THE ASSESSEE, THE EXPENDITURE IN RESPE CT OF WHICH DEDUCTION WAS CLAIMED U/S. 35(2AB) OF THE ACT, IT IS CLEAR TH AT NONE OF THE ACTIVITIES SO CARRIED OUT RELATED TO THE ACTIVITIES CARRIED ON BY THE ASSESSEE AT NAGANATHAPURA AND NASHIK UNITS. IN SUCH CIRCUMSTA NCES, THE QUESTION OF APPORTIONMENT OF R&D EXPENDITURE UNDER THE TWO UNIT S FOR WHICH DEDUCTION U/S. 10B WAS CLAIMED AND ALLOWED DOES NOT ARISE FOR CONSIDERATION AT ALL. ITA NO.571/BANG/2014 PAGE 11 OF 15 AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASS ESSEE, ONE OF THE ITEMS OF R&D CARRIED OUT BY THE ASSESSEE IS DEVELOPMENT O F HIGH EFFICIENCY ALTERNATORS. NAGANATHAPURA UNIT WAS NOT MANUFACTUR ING ALTERNATORS, BUT WAS ONLY MANUFACTURING REGULATORS USED IN THE ALTER NATORS. R&D ACTIVITY FOR MANUFACTURE OF ALTERNATORS CANNOT BE EQUATED WITH R EGULATORS USED IN ALTERNATORS. IT APPEARS TO US THAT THIS FINE DISTI NCTION HAD NOT BEEN APPRECIATED BY THE CIT, THOUGH POINTED OUT BY THE A SSESSEE IN REPLY TO SHOW CAUSE NOTICE U/S. 263 OF THE ACT. 16. AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE, WHEN THE ABOVE FACTS WERE BROUGHT TO THE NOTICE OF THE CIT(A PPEALS) IN REPLY TO THE SHOW CAUSE NOTICE U/S. 263, IT WAS INCUMBENT ON THE PART OF CIT BEFORE REMANDING THE ISSUE TO THE AO FOR FRESH CONSIDERATI ON, TO COME TO THE CONCLUSION THAT THE ASSESSEES REPLY WAS NOT ACCEPT ABLE. WITHOUT GIVING SUCH A FINDING, IT WAS NOT OPEN TO THE CIT TO SET A SIDE THE ORDER OF AO. 17. THE DECISION RENDERED BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KANDA RICE MILLS (SUPRA) CLEARLY SUPPORT THE ARGUMENTS PUT FORTH BY THE LD. COUNSEL FOR THE ASSESSEE BEFORE US . AS LAID DOWN BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF D.G. GOPALA GOWDA (SUPRA) , IT WAS INCUMBENT ON THE PART OF CIT EXERCISING PO WER U/S. 263 OF THE ACT TO BRING OUT THE ERRONEOUS NATURE OF THE OR DER OF AO IN LIGHT OF THE REPLY GIVEN BY THE ASSESSEE IN THE IMPUGNED ORDER. IN CIT VS. GABRIEL INDIA LTD. 203 ITR 108 (BOM) IT WAS HELD THAT FROM A READ ING OF SUB-SECTION (1) ITA NO.571/BANG/2014 PAGE 12 OF 15 OF SECTION 263 OF THE ACT, IT IS CLEAR THAT THE POWER OF SUO MOTU REVISION CAN BE EXERCISED BY THE COMMISSIONER ONLY IF, ON EX AMINATION OF THE RECORDS OF ANY PROCEEDINGS UNDER THIS ACT, HE CONSI DERS THAT ANY ORDER PASSED THEREIN BY THE INCOME-TAX OFFICER IS 'ERRONE OUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE'. IT IS NOT AN ARBITRARY OR UNCHARTERED POWER. IT CAN BE EXERCISED ONLY ON FULF ILMENT OF THE REQUIREMENTS LAID DOWN IN SUB-SECTION (1). THE CONS IDERATION OF THE COMMISSIONER AS TO WHETHER AN ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, MUST B E BASED ON MATERIALS ON THE RECORD OF THE PROCEEDINGS CALLED FOR BY HIM. IF THERE ARE NO MATERIALS ON RECORD ON THE BASIS OF WHICH IT CAN BE SAID THAT TH E COMMISSIONER ACTING IN A REASONABLE MANNER COULD HAVE COME TO SUCH A CONCL USION, THE VERY INITIATION OF PROCEEDINGS BY HIM WILL BE ILLEGAL AN D WITHOUT JURISDICTION. THE COMMISSIONER CANNOT INITIATE PROCEEDINGS WITH A VIE W TO STARTING FISHING AND ROVING ENQUIRIES IN MATTERS OR ORDERS WHICH ARE ALREADY CONCLUDED. SUCH ACTION WILL BE AGAINST THE WELL-ACCEPTED POLIC Y OF LAW THAT THERE MUST BE A POINT OF FINALITY IN ALL LEGAL PROCEEDINGS, TH AT STALE ISSUES SHOULD NOT BE REACTIVATED BEYOND A PARTICULAR STAGE AND THAT LAPS E OF TIME MUST INDUCE REPOSE IN AND SET AT REST JUDICIAL AND QUASI-JUDICI AL CONTROVERSIES AS IT MUST IN OTHER SPHERES OF HUMAN ACTIVITY. 18. THE LEARNED DRS RELIANCE ON THE DECISION OF T HE HONBLE ALLAHABAD HIGH COURT AND THAT OF THE ITAT CHENNAI IN CIT V. SHRI BHAGWAN DAS, 272 ITR 367 (ALL) AND BANK OF INDIA V. CIT, 152 TTJ 546 (CHENNAI) , IN OUR VIEW, ITA NO.571/BANG/2014 PAGE 13 OF 15 WILL NOT HELP THE CASE OF THE REVENUE. FAILURE TO MAKE ENQUIRES WHICH THE AO OUGHT TO HAVE MADE IN THE GIVEN FACTS AND CIRCUM STANCES OF A CASE MIGHT RENDER THE ORDER OF THE AO ERRONEOUS. IN THE PRESENT CASE HOWEVER THE ASSESSEE HAS DEMONSTRATED THAT THE ENQUIRIES CO NTEMPLATED BY THE CIT IN THE SHOW CAUSE NOTICE U/S.263 OF THE ACT, WERE N OT REQUIRED AT ALL AND THIS FACT IS ALSO ACCEPTED BY THE CIT IN THE IMPUGN ED ORDER. HE HAS ONLY REMANDED THE ISSUE TO AO FOR VERIFICATION OF AN INS IGNIFICANT ISSUE WHETHER OF APPROVAL OF THE NAGANATHAPURA UNIT AND THE NASHI K UNIT CONTINUES EVEN DURING THE PREVIOUS YEAR AND HAS BEEN DEMONSTRATED BY THE ASSESSEE BEFORE CIT WITH SUFFICIENT DOCUMENTARY EVIDENCE. I N SUCH CIRCUMSTANCES, THERE WAS NO NECESSITY TO HAVE REMANDED THE ISSUE T O AO FOR FRESH CONSIDERATION. 19. IT IS FURTHER SEEN THAT THE CIT IN THE IMPUGNE D ORDER HAS ACCEPTED THAT IF R&D ACTIVITY AND THE ACTIVITY CARRIED ON AT THE 100% EOUS WERE DIFFERENT, THEN THERE WAS NO NEED TO APPORTION THE R&D EXPENSES OF THE TWO EOUS. HIS APPREHENSION IS ONLY THAT THE APPROVALS FOR 100% EOUS WERE GRANTED AS EARLY AS 2002 AND 2004 AND AS TO WHETHER THOSE UNITS WERE CARRYING ON THE SAME ACTIVITY REQUIRED TO BE EXAMIN ED. IN THIS REGARD, AS RIGHTLY POINTED OUT BY THE LD .COUNSEL FOR THE ASSE SSEE, CERTIFICATE OF THE CHARTERED ACCOUNTANT GIVEN IN FORM 56G FOR BOTH THE SE UNITS CLEARLY MENTION THE NATURE OF ACTIVITIES OF THOSE TWO UNITS FOR THE PREVIOUS YEAR RELEVANT TO AY 2008-09 ARE THE SAME ACTIVITY FOR WH ICH THE APPROVALS WERE GRANTED TO THESE 100% EOUS. IT HAS THUS BEEN CLEAR LY DEMONSTRATED BY ITA NO.571/BANG/2014 PAGE 14 OF 15 THE ASSESSEE BEFORE THE CIT(A) THAT THE EXPENDITURE ON R&D HAD NO CONNECTION WHATSOEVER WITH THE 100% EOUS AT NAGANAT HAPURA AND NASHIK. IN THE GIVEN CIRCUMSTANCES OF THE CASE, W E ARE OF THE VIEW THAT THERE WAS NO NECESSITY FOR THE CIT TO HAVE SET ASID E THE ORDER OF AO FOR SUITABLE ENQUIRIES AND DECIDING THE ISSUE AFRESH. 20. WE THEREFORE HOLD THAT THE ORDER OF THE ASSESSI NG OFFICER U/S. 143(3) ON THE ISSUE OF DEDUCTION U/S. 35(2AB) OF THE ACT I NSOFAR IT RELATES TO THOSE EXPENSES BEING NOT RELATED TO NAGANATHAPURA AND NAS HIK UNITS IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. WE THEREFORE QUASH THE IMPUGNED ORDER U/S. 263 OF THE ACT AND AL LOW THE APPEAL OF THE ASSESSEE. 21. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF OCTOBER, 2015. SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 28 TH OCTOBER, 2015. /D S/ ITA NO.571/BANG/2014 PAGE 15 OF 15 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.