TaxTMI 
TaxTMI 
2016 (2) TMI 169
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....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 grounds of appeal have been raised by the assessee company in the memo of appeal 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 order 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 mind and had made proper inquiries to his satisfaction before passing the assessment order. b. Your appellant submits that; i. The Id. AO had completed the assessment for AY.2007-08 after detailed inquiry and appreciation of the facts, evidences and the law. The provisions made on account of warranty, liquidated damages, sales tax and excise duty represented lawful business expenditures of the company and provisions were made in accordance with AS 29 of the ICAI and were allowed by the AO. only after due consideration of the fact and of the law of allow....
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....ccounted for warranty expenses in proportion to sales. 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 delivery dates and the compensation payable by the company for delay was computed in reasonable and prudent manner. iii. These expenses for warranty and liquidated damages have been quantified based on past experience of the company. In addition, the company has a policy to write back all the unused amounts and offer the same for taxation on expiry of the relevant period for warranty and liquidated damages. iv. There is no leakage of revenue. Further, the company is being taxed at a flat rate of 30%. v. During the year the company has accounted for sales tax amounting to Rs. 2,67,00,000 representing sales tax liability on account of noncollection of declaration forms under the Act/Rules. vi. During the year the company 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. vii. Without prejudice ki....
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....ent 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 that 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 the assessee company has claimed deduction for expenditure in respect of provisions on account of "Warranty, Sales Tax, Excise and Liquidated Damages". The CIT observed that it is a settled principle of law that no expenditure in nature of contingent expenditure or provisions for expenditure can be allowed u/s 28 or 37 of the Act , unless the assessee company followed mercantile system of accounting and liability claimed on accrual basis has crystallized during the previous year relying on decision of Shri Sajjan Mills Limited v. CIT 156 ITR 585(SC). The CIT noticed from the schedule 16 read with note 33 to schedule 13, that the expenditure of Rs. 17.72 crores claimed by the assessee company was nothing but "provis....
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.... by the Hon'ble Bombay High Court in the case of CIT v. Gopal Purohit, 336 ITR 237 (Bom-HC) and Hon'ble Supreme 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) 142 Taxman 79 (Mag)(Kol)(Trib) in support and contended that even on estimate basis if provision for warranty was made by the assessee company following mercantile system of accounting, the expenditure was allowable expenditure and the assessment order cannot be treated as erroneous and prayed that the proceedings u/s 263 of the Act should be dropped. 5. The CIT, however, held that the A.O. was required to examine that provisions made for warranty etc. was based on estimates which were realistic and based on the past experience of the assessee company. The CIT held that the A.O. was required to examine the actual outgoing during the year and that excess provisions if any made in the earlier year was duly written back as income in the following years, but he A.O. did not examine the basis for provisions made for sales tax and excise duty liability and on what acc....
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.... in pursuance to the order dated 06.02.2013 passed by the CIT u/s 263 of the Act, whereby disallowance for provisions for warranty, excise duty , sales tax and liquidity damages were made by the AO. The ld. Counsel for the assessee company 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 AO vide orders dated 24.02.2014 passed u/s 143(3) of the Act read with Section 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 that the assessee company has now conceded with respect to the disallowance 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 challenging and contesting the additions on accou....
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.... made by the assessee company in the books of accounts and as claimed as deduction from the income 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 aside the orders dated 28.12.2010 passed u/s 143(3) of the Act by the AO. 9. We have considered the rival contentions and carefully gone through the orders of the authorities below. We have also deliberated upon the judicial pronouncements referred by the lower authorities 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 original 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 observed that the A.O. has not made any enquiry with respect to the claim of deduction of the assessee company with respect to provisions for warranty charges, excise duty, sales tax and liquidity damages amounting to Rs. 17.72 crores claime....
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.... or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board 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 included] 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 been the subject matter of any appeal [filed on or before or after the 1st day of June, 1988], the powers of the [Principal Commissioner or] Commissioner under this sub-section shall extend [and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.] [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 erroneous in so far as it is prejudicial to the intere....
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....ed 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 Hon'ble 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 explanation to a statutory provision (Reference Page 214-215,Principles of Statutory Interpretation by Justice G.P.Singh ,13th Ed.):- (a) To explain the meaning and intendment of the Act itself , (b) Where there is any obscurity or vagueness in the main enactment to clarify the same so as to make it consistent with the 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 order to suppress the mischief and advance the object of the Act if it can help or assist the Court in inte....
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....t if the Principal Commissioner or Commissioner considers that any order passed by the assessing officer is erroneous in so far as it is prejudicial 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 necessary, pass an order modifying the assessment made by the assessing officer or cancelling the assessment and directing fresh assessment. It is proposed to amend sub-section (1) of the aforesaid section to insert an Explanation so as 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 which, should have been made; (b) the order is passed allowing any relief without inquiring 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 any decision which is prejudicial to t....
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....unless it is construed as retrospective . In CIT v. Podar Cement Pvt. Limited (1997) 92 Taxman 541(SC) , the Hon'ble Supreme Court held that amendment introduced by the Finance Act,1987 in so far the related to Section 27(iii) ,(iiia) and (iiib) which redefined the expression 'owner of house property', in respect of which there was a sharp divergence of opinion amongst the High Courts, was clarificatory and declaratory in nature and consequently retrospective. Similarly , in Brij Mohan Das Laxman Das v. CIT (1997) 90 Taxman 41(SC), explanation 2 added to section 40 of the Act was held to be declaratory in nature and , therefore , retrospective.(Reference Page 569-570,Principles of Statutory Interpretation by Justice G.P.Singh ,13th 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 assessment, with respect to claim of deduction of Rs. 17.72 crores with respect to the provisions for warranty, excise duy,sales tax and liquidated damages. Regarding the contentions of the assessee company that the CIT should have set a....
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.... 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 setting aside the assessment order dated 28.12.10 passed u/s 143(3) of the Act as erroneous 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 company is dismissed. ITA No. 2836/Mum/2014 for A.Y. 2007-08. 11. This appeal filed by the assessee company is arising 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 grounds 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 disallowing the claim for deduction for expenditure/loss in respect of liquidated damages of Rs. 9,08,90,000 by carrying out direction....
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....IT vide his order dt. 06.02.2013 passed u/s. 263 of the Act. b. Your appellant submits that during the year the company 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 consideration were quantified and accounted by following 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. c. Your appellant pleads that appellant's claim for deduction 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 hearing 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 hearing was given. c. Your appellant pleads that the interest levied be del....
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.... be quashed." 13. We have observed that the A.O. has passed an order dated 24.02.2014 u/s 143(3) of the Act read with Section 263 of the Act, in pursuance to the directions vide order dated 06-02-2013 of the CIT u/s 263 of the Act . We have observed that the assessee company has preferred an first appeal directly before the Tribunal against the order dated 24.02.2014 passed u/s 143(3) read with Section 263 of the Act. A bare perusal of section 253(1) of the Act will reveal that following appeals can be filed before the Tribunal:- "Appeals to the Appellate Tribunal. 253. (1) Any assessee aggrieved by any of the following 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 (Appeals)] under [***] [section 154], [***] section 250, [section 271, section 271A or section 272A]; or [(b) an order passed 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, after the 30th....
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....passed by a Joint Commissioner under clause (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 pursuance of directions of the Dispute Resolution Panel [***] [or an order referred to in sub-section (12) of section 144BA]]] or section 144, to the income 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 recomputation under section 147 [[except an order passed in pursuance of directions o....
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....uisitioned undersection 132A on or after the 1st day of January, 1997; (l) an order imposing a penalty under sub-section (2) of section 158BFA; (m) an order imposing a penalty under section 271B or section 271BB; (n) an order made by a Deputy Commissioner imposing a penalty under section 271C62[, 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 penalty 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 or class of persons, as the Board may, having regard to the nature of the cases, the complexities involved and other relevant considerations, direct." On perusal of Section 246A of the Act, we have observed that appeal against the orders passed u/s 143(3) read with Section 263 of the Act shall lie with the CIT(A) u/s 246A(1)(a) of the Act being an order passed by learned assessing officer u/s 143(3) of the Act. ....