M/s Kennametal India Ltd, Bangalore V. CIT, Bangalore

ITA 601/BANG/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2813 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-01-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 24-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR BENGALURU
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN , ACCOUNTANT MEMBER ITA NO. 601/BANG/2016 ASSESSMENT YEAR : 2010 - 11 M/S. KENNAMETAL INDIA LTD., 8/9 TH MILE, TUMKUR ROAD, BENGALURU 560 073. PAN: AACCK 4472B VS. THE COMMISSIONER OF INCOME-TAX, LTU, BANGALORE. APP ELL ANT RESPONDENT APPELLANT BY : SMT. SHEETAL, ADVOCATE RESPONDENT BY : SHRI PRADEEP KUMAR, CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 29 .0 1 .201 9 DAT E OF PRONOUNCEMENT : 27 . 02 .201 9 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER D ATED 25.01.2016 OF THE COMMISSIONER OF INCOME-TAX [CIT], LTU, BANGA LORE PASSED U/S. 263 OF THE INCOME-TAX ACT, 1961 ['THE ACT'] IN RELATION TO ASSESSMENT YEAR 2010-11. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF MANUFACTURE OF HARD METAL AND HARD METAL PRODUCTS. AN ORDER OF ASSESSMENT U/S. 143(3) R.W.S. 144C OF THE ACT DATED 25.01.2014 WAS ITA NO.601/BANG/2016 PAGE 2 OF 5 PASSED BY THE DCIT, LTU, BANGALORE FOR THE ASSESSME NT YEAR UNDER CONSIDERATION. 3. THE CIT, LTU, BANGALORE IN EXERCISE OF HIS POWER S U/S. 263 OF THE ACT WAS OF THE VIEW THAT THE AFORESAID ORDER OF ASS ESSING OFFICER (AO) WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE FOR THE REASON THAT A SUM OF RS.99,34,777 TOWARDS OVERTIME ALLOWANCE WAS CERTIFIED BY AUDITORS AS UNASCERTAINED LIABILITY IN THE AUDIT REPORT IN F ORM 3CD. SINCE THE AFORESAID LIABILITY WAS UNASCERTAINED, IT WAS CONTI NGENT IN NATURE AND OUGHT NOT TO HAVE BEEN ALLOWED AS A DEDUCTION WHILE DETER MINING INCOME FROM BUSINESS. THE AO HAVING ALLOWED THE DEDUCTION IN T HE ASSESSMENT ORDER, ACCORDING TO THE CIT, IT WAS ERRONEOUS AND PREJUDIC IAL TO THE INTERESTS OF THE REVENUE. ON THIS BASIS, A SHOW CAUSE NOTICE WAS I SSUED U/S. 263 OF THE ACT DATED 04.01.2016 TO THE ASSESSEE. 4. IN REPLY, THE ASSESSEE SUBMITTED THAT THE DEPT. OF FACTORIES, BOILER, INDUSTRY SAFETY OF GOVT. OF KARNATAKA CARRIED OUT A N INSPECTION IN THE ASSESSEES FACTORY PREMISES ON 23.12.2009 AND ISSUE D A SHOW CAUSE NOTICE ON 08.01.2010 POINTING OUT THAT THE OVER TIM E ALLOWANCE [OTA] OUGHT TO HAVE BEEN PAID ON THE GROSS SALARY INCLUDI NG ALLOWANCES LIKE HRA, SPECIAL CONVEYANCE ALLOWANCE, ETC., WHEREAS THE ASS ESSEE WAS MAKING PAYMENT OF OTA ONLY ON THE BASIS OF BASIC WAGES AND DA. THE ASSESSEE SUBMITTED THAT IT IS BECAUSE OF THE INSPECTION BY T HE DEPARTMENT OF FACTORIES, AND SHOW CAUSE NOTICE WAS ISSUED BY THEM , THE OVER TIME WAGES PAYABLE BY THE ASSESSEE WAS CALCULATED AT RS. 99,34,777 AND THIS WAS AN ASCERTAINED LIABILITY. 5. THE CIT, HOWEVER, FOUND THAT THE ASSESSEE HAD FI LED A WRIT PETITION AGAINST THE ORDER OF THE DIRECTOR OF FACTORIES DATE D 20.04.2012 TAKING A STAND THAT OTA HAS TO BE PAID ON GROSS SALARY+SPECI AL ALLOWANCES. THE ITA NO.601/BANG/2016 PAGE 3 OF 5 CIT WAS THEREFORE OF THE VIEW THAT SINCE THE ASSESS EE HAD DISPUTED THE OTA LIABILITY, IT WAS CONTINGENT AND THEREFORE COUL D NOT BE ALLOWED AS A DEDUCTION. THE CIT ALSO HELD THAT THE LIABILITY WA S NOT A PRESENT LIABILITY, WHICH HAD TO BE DISCHARGED IN FUTURE. WITH THESE O BSERVATIONS, THE CIT IN PARA 5 OF THE IMPUGNED ORDER SET ASIDE THE ORDER OF AO ON A DIFFERENT GROUND VIZ., FAILURE OF THE AO TO MAKE ENQUIRIES ON THIS ISSUE WHILE CONCLUDING THE ASSESSMENT. PARA 5 OF THE IMPUGNED ORDER IS AS FOLLOWS:- 5. AS BROUGHT OUT ABOVE, THE ASSESSING OFFICER HAS NOT VERIFIED THIS ISSUE IN DETAIL BEFORE ALLOWING THE E XPENDITURE WHICH IS IN THE NATURE OF PROVISION/UNASCERTAINED LIABILI TY AND NOT ACTUAL EXPENSES INCURRED DURING THE YEAR. BY NOT MAKING T HE REQUIRED ENQUIRIES IN THIS REGARD, THE AO HAS ERRED IN PASSI NG AN ERRONEOUS ORDER CAUSING LOSS OF REVENUE IN THIS CASE. HENCE IT IS HELD THAT THE RECOURSE TO THE PROCEEDINGS U/S. 263 IS VALID. 6. AGGRIEVED BY THE ORDER OF CIT, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE STAND OF THE ASSESSEE AS CONTAINED IN THE REPLY TO THE SHOW CAUS E NOTICE ISSUED U/S. 263 OF THE ACT. IT WAS FURTHER CONTENDED THAT THE LIABILITY WAS A STATUTORY LIABILITY AND HAD TO BE ALLOWED AS A DEDUCTION. IT WAS ALSO CONTENDED THAT THE FACT THAT A WRIT PETITION HAS BEEN FILED CHALLE NGING THE ORDER OF DIRECTOR OF FACTORIES CANNOT BE THE BASIS TO SAY THAT THE LI ABILITY WAS NOT AN ASCERTAINED LIABILITY. 8. THE LD. DR RELIED ON THE ORDER OF CIT. 9. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIV AL SUBMISSIONS. ADMITTEDLY THE AO BEFORE CONCLUDING THE ASSESSMENT PROCEEDINGS DID NOT MAKE ANY ENQUIRIES WITH REGARD TO THE LIABILITY ON ACCOUNT OF OTA WAGES AS TO, WHETHER IT IS ASCERTAINED OR UNASCERTAINED LIAB ILITY. THE LD. COUNSEL FOR ITA NO.601/BANG/2016 PAGE 4 OF 5 THE ASSESSEE COULD NOT SUBSTANTIATE BEFORE US AS TO HOW THE AO MADE ENQUIRIES ON THIS ISSUE BEFORE CONCLUDING THE ASSES SMENT. THE LAW IS WELL SETTLED THAT IF THERE IS A FAILURE ON THE PART OF A O TO MAKE AN ENQUIRY ON THE ISSUE WHICH CALLS FOR AN ENQUIRY, THAT BY ITSELF WI LL RENDER THE ORDER OF ASSESSMENT ERRONEOUS AND PREJUDICIAL TO THE INTERES TS OF THE REVENUE. IT HAS BEEN SO HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF GEE VEE ENTERPRISES VS. DCIT 99 ITR 375 & 386(DELHI). SIN CE THERE WAS A FAILURE ON THE PART OF AO TO MAKE NECESSARY ENQUIRY, WE ARE OF THE VIEW THAT THE CIT INVOKING HIS JURISDICTION U/S. 263 OF THE ACT W AS JUSTIFIED IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. WE, HOWEVER, MA KE IT CLEAR THAT THE OBSERVATIONS OF THE CIT IN PARA 5 OF THE IMPUGNED O RDER WITH REGARD TO LIABILITY OF THE ASSESSEE BEING AN UNASCERTAINED LI ABILITY SHOULD NOT INFLUENCE THE MIND OF THE AO OR THE FIRST APPELLATE AUTHORITY IN DECIDING THIS ISSUE IN THE SET ASIDE PROCEEDINGS. 10. WITH THE ABOVE OBSERVATIONS, THE APPEAL OF THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF FEBRUARY, 2019. SD/- SD/- ( B.R. BASKARAN ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER VICE PRES I DENT BANGALORE, DATED, THE 27 TH FEBRUARY, 2019. / D ESAI S MURTHY / ITA NO.601/BANG/2016 PAGE 5 OF 5 COPY TO: 1. APP ELL ANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.