TaxTMI 
TaxTMI 
2017 (11) TMI 675
X X X X Extracts X X X X
X X X X Extracts X X X X
.... under the normal provisions of the Act and the book profit u/s. 115JB of the Act was determined at Rs. 19,13,21,89,572/-. Subsequently, the Commissioner invoked his revisionary jurisdiction and issued a notice u/s. 263 of the Act, dated 26.02.2016, proposing that the assessment order, dated 28.02.2014 (supra), was erroneous in so far as it was prejudicial to the interests of the Revenue, in as much as incorrect allowance of Provision for slow moving inventories of spares amounting to Rs. 52.80 cores had led to under assessment of income. In this context, the relevant discussion by the Commissioner shows that his examination of record showed that the assessee had debited in the Profit & loss Account a sum of Rs. 52.80 crores as a 'Provision for slow moving inventory' and read with note 18 of the Notes forming part of the Accounts, it reflected that such a provision was made for slow moving inventories based on the age of the inventory and it was consequent to a change in policy of recognizing provisions for slow moving inventories of spares. The Commissioner further noticed that this provision was created for the first time and was meant for temporary diminution in the value of spa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Amitabh Bachchan (supra) "11. It may be that in a given case and in most cases it is so done a notice proposing the revisional exercise is given to the assessee indicating therein broadly or even specifically the grounds on which the exercise is felt necessary. But there is nothing in the section (section 263) to raise the said notice to the status of a mandatory show-cause notice affecting the initiation of the exercise in the absence thereof or to require the Commissioner of Income-tax to confine himself to the terms of the notice and foreclosing consideration of any other issue or question of fact. This is not the purport of section 263. Of course, there can be no dispute that while the Commissioner of Income-tax is free to exercise his jurisdiction on consideration of all relevant facts, a full opportunity to controvert the same and to explain the circumstances surrounding such facts, as may be considered relevant by the assessee, must be afforded to him by the Commissioner of Income-tax prior to the finalisation of the decision." 7. In order to appreciate the point sought to be raised by the assessee, we may refer to the relevant contents of the show cause notice dated 26....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "4. I have carefully considered the issue and perused the records. The allegation of the AR that revisiting the inventory for its categorization amounts to taking alternative view, is ill founded. Unlike reopening of assessment u/s 148 beyond 4 years, there is no requirement u/s 263 that the item should not have been in place before the AO in original assessment proceedings. There is no doubt that the provision is wrongly made for inventory and the same is accepted by the AO, resulting in prejudice caused to the Revenue. The conditions for Section 263 are fulfilled and the same is rightly invoked. 5. Coming to the merits of the case, it is seen that the assesses places reliance on Dr. Aswath N. Rao's case to say that spare parts purchase for existing machineries has to be treated as revenue expenditure as these spare parts are purchased for maintenance of existing equipments. But at the same time, part of spare parts are capitalized and in the name slow moving inventory, provision of 30%, 50% or 80% is made. The assessee does not have any scientific basis for fixing the percentage of which provision is made. Such provisioning is not supported by Accounting Standard, and hen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t in the case of Amitabh Bachchan (supra) is very much applicable in the given facts of the present case. Notably, section 263(1) of the Act obligates the Commissioner to give the assessee an opportunity of being heard before passing of his order. No doubt the Commissioner is not disentitled to consider a point which is not stated in the notice so issued. However, the obligation to given an opportunity to the assessee of being heard on the point on the basis of which he finds it expedient to treat the assessment order erroneous in so far as it is prejudicial to the interests of the Revenue, is definitely cast on the Commissioner, as opined by the Hon'ble Supreme Court in the case of Amitabh Bachchan (supra). Considering the aforesaid, in our view, in the present case the basis on which the Commissioner has found the assessment order as erroneous in so far as it is prejudicial to the interests of the Revenue, namely, absence of any scientific basis for fixing the percentage to make the provision for slow moving inventories of spares, does not appear to have been put to the assessee, as is emerging from the material before us. Thus, on this point itself, we find the impugned order of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ict supervision of quality was required and, therefore, for regular up gradation of machineries used in the process of production, the assessee effected purchase of spares, which were of two kinds. Firstly the stores and spares which are meant for regular up-keep of plant and machinery and not relatable to any specific plant and machinery, for instance, nuts bolts, cables, washer, screws, filters, tubes, electrodes, spring etc. Such stores and spares, whenever issued were treated as revenue in nature and charged to Profit & loss account. With regard to the inventories of such type of spares, it made a provision of 30%, 50% and 80% depending upon the item of inventory, which is lying unused for more than one, two and three years respectively. It is this Provision, which is the subject matter of dispute. The second kind of spares were those which were specific to particular plant & machinery and their use was expected to be irregular and assessee had capitalized the purchase of such spares. In so far as the latter type of spares is concerned, there is no dispute and the only controversy is with regard to the stores and spares, which are not capitalized but are treated as part of the ....