2020 (12) TMI 1277 - HC - Income Tax

High Court remits tax appeal, emphasizes accurate estimation, and adherence to legal principles

BHARAT FRITZ WERNER LTD. Versus THE JOINT COMMISSIONER OF INCOME-TAX (OSD), CIRCLE-11 (2), THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-11 (2), THE COMMISSIONER OF INCOME-TAX, BENGALURU

The High Court remitted the matter back to the Commissioner of Income Tax (Appeals) for fresh adjudication, finding that the appellant's provision for ... Disallowance of the provision - Whether Tribunal erred in holding that the Appellant had failed to demonstrate either before the lower authorities or before it that the liability had accrued during the year, arrived at a finding that was contrary to the material placed on record and thus perverse? - HELD THAT:- As assessee had produced a comparative statement showing the sales in which erection is pending, the corresponding provisioning, the actual expenses incurred in the next year for financial years 2005-06 to 2011-12 and ledger account extracts of the provisions for erection and commissioning, which evidences reversals as on the last day of financial year. However, the CIT(Appeals) has not taken note of the aforesaid material produced by the assessee. Tribunal has held that the assessee has failed to demonstrate either before the CIT (A) or before the tribunal that liability has accrued during the year and the fact that the substantial provision was reversed in subsequent years. The aforesaid finding is contrary to the material available on record. Therefore, in the facts of the case, the material produced by the assessee before the Commissioner of Income Tax (Appeals) as well as the tribunal needs factual adjudication - Remit the matter to the Commissioner of Income Tax (Appeals) to adjudicate the aforesaid issue afresh in the light of materials produced by the assessee and in view of law laid down in CALCUTTA CO. LTD. [1959 (5) TMI 3 - SUPREME COURT], BHARAT EARTH MOVERS [2000 (8) TMI 4 - SUPREME COURT] and ROTORN CONTROLS INDIA PVT. LTD. [2009 (5) TMI 16 - SUPREME COURT] Issues:1. Disallowance of provision for erection and commissioning.2. Failure to demonstrate that liability had accrued during the year.3. Reversal of substantial provisions in subsequent years.4. Applicability of legal principles from Supreme Court decisions.Analysis:Issue 1: Disallowance of provision for erection and commissioningThe appellant, engaged in the business of machine tools, created a provision for erection and commissioning of machinery sold but not installed by the end of the financial year. The Assessing Officer disallowed the provision, stating it was estimated and not scientifically calculated. The Commissioner of Income Tax (Appeals) upheld the disallowance, leading to an appeal before the tribunal. The tribunal affirmed the disallowance, prompting the appellant to approach the High Court. The appellant argued that the provision was scientific, based on historical data, and consistently followed for nearly a decade. The High Court found that the material produced by the appellant was not considered by the lower authorities and remitted the matter back to the Commissioner of Income Tax (Appeals) for fresh adjudication.Issue 2: Failure to demonstrate that liability had accrued during the yearThe tribunal held that the appellant failed to demonstrate that the liability for erection and commissioning had accrued during the year. However, the High Court observed that the material presented by the appellant, including a comparative statement and ledger account extracts, evidenced the accrual of liability. The High Court quashed the tribunal's order and directed a fresh adjudication considering the material and legal precedents.Issue 3: Reversal of substantial provisions in subsequent yearsThe tribunal noted the reversal of provisions in subsequent years and held that the liability had not been estimated with reasonable accuracy. The appellant argued that the method of provisioning was scientific and fair, with minimal variance between provisions and actual expenses. The High Court found the tribunal's finding contrary to the material on record and ordered a fresh adjudication by the Commissioner of Income Tax (Appeals).Issue 4: Applicability of legal principles from Supreme Court decisionsThe appellant contended that the legal principles enunciated in Supreme Court decisions were applicable to the case. The High Court agreed, citing the need for factual adjudication in light of the law laid down in relevant Supreme Court judgments. The High Court quashed the orders of the lower authorities and remitted the matter for fresh consideration in accordance with the legal principles established by the Supreme Court.In conclusion, the High Court disposed of the appeal without addressing the substantial questions of law framed, directing a fresh adjudication by the Commissioner of Income Tax (Appeals) based on the material presented by the appellant and in line with the legal precedents established by the Supreme Court.