CIT v. Hero Auto Ltd. - Taxpublishers.in

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The Tax Publishers2012 TaxPub(DT) 1714 (Del-HC) : (2012) 343 ITR 0342 INCOME TAX ACT, 1961 --Revision under section 263--Erroneous and prejudicial order Lack of proper enquiry--By the impugned order the Tribunal allowed the appeal of respondent-assessee and quashed the order, under section 263, passed by Commissioner on two aspects : (i) claim for warranty; and (ii) deduction under section 35DDA. On the question of warranty claim, it is noticeable that this issue was raised by assessing officer during the course of original assessment proceedings and the assessee had written a letter dated 21-11-2006 giving complete details of the provision for warranty and had relied upon the decision of Delhi High Court in the case of CIT v. Vinitec Corporation (P) Ltd. (2005) 278 ITR 337 (Del) : 2005 TaxPub(DT) 1589 (Del-HC). The Commissioner in the order had not disputed the aforesaid factual position and had stated as that the assessee's claim that warranty issue is covered by Jurisdictional High Court decision in the case of CIT v. Vinitec Corporation (supra) is not fully correct. The High Court had held that if the provisions are made on scientific basis then only it is an allowable expenditure. Thereafter, he has referred to the second claim of the respondent-assessee and had observed that there was lack of enquiry and this vitiated the assessment order. Reference was made to the decision of this Court in Gee Vee Enterprises v. Addl. CIT & Ors. (1975) 99 ITR 375 (Del) : 1975 TaxPub(DT) 0267 (Del-HC). There was no discussion in the order of the Commissioner as to how and in what manner the enquiry was lacking and what was the fault and default committed by assessing officer. The assessing officer had examined the said aspect in the original assessment proceedings and accepted the stand of assessee. There was no finding of Commissioner that the order passed by assessing officer was erroneous and prejudicial to the interest of the revenue. The question of 'lack of enquiry' and 'inadequate enquiry' has been explained by this Court in CIT v. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del) : 2011 TaxPub(DT) 88 (Del-HC). Held: The question of warranty claim was reopened in the assessment year 1999-2000 after an order under section 263. The order passed under section 263, in the assessment year 1999-2000, was struck down by the Tribunal and this decision had been upheld by this Court in ITA No.536/2007 decided on 21-11-2007. Assessee had clarified that the note was written by the auditor as a precautionary measure for reporting that the amount had been claimed under section 35DDA. The Commissioner in the order did not appreciate and deal with the said aspect. He had wrongly interpreted and observed that the claim itself was made as a precautionary measure. The Tribunal was therefore right in setting aside this part of the order dated 24-3-2009 passed by Commissioner under section 263. The question of warranty claim was reopened in the assessment year 1999-2000 after an order under section 263. The order passed under section 263, in the assessment year 1999-2000, was struck down by the Tribunal and this decision has been upheld by this Court in ITA No.536/2007 decided on 21-11-2007. [Para 4] On the second aspect, it is noticed that the claim for deduction under section 35DDA was made by the assessee for the first time in assessment year 2002-03. 1/5th of the amount payable under the voluntary retirement was allowed as a deduction. In this year, the assessing officer has followed the earlier assessment order. The Commissioner in the order dated 24-3-2009 has observed that in respect of issue of deduction under section 35DDA, the Note 2 in audit report does create doubt as to whether expenditure to ESS was actually incurred or not. The point that still remains is that while in audit report the allowable amount under section 35DDA mentioned in Annexure-III is Rs. 17,79,196, in computation of income the deduction claimed under section 35DDA is of Rs. 1,097,42,824. There is therefore clearly a mismatch which was never looked into by assessing officer similarly issue of ESS was not examined at all by the assessing officer. The lack of inquiry renders the assessment order erroneous and prejudicial to interest of revenue as discussed in point (ii) itself. [Para 5] The assessee had stated before the Commissioner and explained the position that an amount of Rs. 5,37,14,119 was incurred under section 35DDA in the assessment year 2002-03 and 1/5th thereof being Rs. 1,07,42,824 was amortised and claimed and allowed as a deduction. Thereafter, each year 1/5th of the said expenditure, i.e., Rs. 1,07,42,824 had been claimed for the next four assessment years. No part of it was precautionary and the note in the audit report has been erroneously read by the Commissioner. The note in question reads as under that the expenditure is ESS has been given on precautionary measure due to introduction of new section 35DDA. However, this section has not been introduced in clause 15 of Form 3CD.' [Para 6] The assessee had clarified that the note was written by the auditor as a precautionary measure for reporting that the amount had been claimed under section 35DDA. The Commissioner in the order did not appreciate and deal with the said aspect. He has wrongly interpreted and observed that the claim itself was made as a precautionary measure. The Tribunal was therefore right in setting aside this part of the order dated 24-3-2009 passed by Commissioner under section 263. [Para 7] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 1714 (Del-HC) : (2012) 343 ITR 0342

INCOME TAX ACT, 1961

--Revision under section 263--Erroneous and prejudicial order Lack of proper enquiry--By the impugned order the Tribunal allowed the appeal of respondent-assessee and quashed the order, under section 263, passed by Commissioner on two aspects : (i) claim for warranty; and (ii) deduction under section 35DDA. On the question of warranty claim, it is noticeable that this issue was raised by assessing officer during the course of original assessment proceedings and the assessee had written a letter dated 21-11-2006 giving complete details of the provision for warranty and had relied upon the decision of Delhi High Court in the case of CIT v. Vinitec Corporation (P) Ltd. (2005) 278 ITR 337 (Del) : 2005 TaxPub(DT) 1589 (Del-HC). The Commissioner in the order had not disputed the aforesaid factual position and had stated as that the assessee's claim that warranty issue is covered by Jurisdictional High Court decision in the case of CIT v. Vinitec Corporation (supra) is not fully correct. The High Court had held that if the provisions are made on scientific basis then only it is an allowable expenditure. Thereafter, he has referred to the second claim of the respondent-assessee and had observed that there was lack of enquiry and this vitiated the assessment order. Reference was made to the decision of this Court in Gee Vee Enterprises v. Addl. CIT & Ors. (1975) 99 ITR 375 (Del) : 1975 TaxPub(DT) 0267 (Del-HC). There was no discussion in the order of the Commissioner as to how and in what manner the enquiry was lacking and what was the fault and default committed by assessing officer. The assessing officer had examined the said aspect in the original assessment proceedings and accepted the stand of assessee. There was no finding of Commissioner that the order passed by assessing officer was erroneous and prejudicial to the interest of the revenue. The question of 'lack of enquiry' and 'inadequate enquiry' has been explained by this Court in CIT v. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del) : 2011 TaxPub(DT) 88 (Del-HC). Held: The question of warranty claim was reopened in the assessment year 1999-2000 after an order under section 263. The order passed under section 263, in the assessment year 1999-2000, was struck down by the Tribunal and this decision had been upheld by this Court in ITA No.536/2007 decided on 21-11-2007. Assessee had clarified that the note was written by the auditor as a precautionary measure for reporting that the amount had been claimed under section 35DDA. The Commissioner in the order did not appreciate and deal with the said aspect. He had wrongly interpreted and observed that the claim itself was made as a precautionary measure. The Tribunal was therefore right in setting aside this part of the order dated 24-3-2009 passed by Commissioner under section 263.

The question of warranty claim was reopened in the assessment year 1999-2000 after an order under section 263. The order passed under section 263, in the assessment year 1999-2000, was struck down by the Tribunal and this decision has been upheld by this Court in ITA No.536/2007 decided on 21-11-2007. [Para 4] On the second aspect, it is noticed that the claim for deduction under section 35DDA was made by the assessee for the first time in assessment year 2002-03. 1/5th of the amount payable under the voluntary retirement was allowed as a deduction. In this year, the assessing officer has followed the earlier assessment order. The Commissioner in the order dated 24-3-2009 has observed that in respect of issue of deduction under section 35DDA, the Note 2 in audit report does create doubt as to whether expenditure to ESS was actually incurred or not. The point that still remains is that while in audit report the allowable amount under section 35DDA mentioned in Annexure-III is Rs. 17,79,196, in computation of income the deduction claimed under section 35DDA is of Rs. 1,097,42,824. There is therefore clearly a mismatch which was never looked into by assessing officer similarly issue of ESS was not examined at all by the assessing officer. The lack of inquiry renders the assessment order erroneous and prejudicial to interest of revenue as discussed in point (ii) itself. [Para 5] The assessee had stated before the Commissioner and explained the position that an amount of Rs. 5,37,14,119 was incurred under section 35DDA in the assessment year 2002-03 and 1/5th thereof being Rs. 1,07,42,824 was amortised and claimed and allowed as a deduction. Thereafter, each year 1/5th of the said expenditure, i.e., Rs. 1,07,42,824 had been claimed for the next four assessment years. No part of it was precautionary and the note in the audit report has been erroneously read by the Commissioner. The note in question reads as under that the expenditure is ESS has been given on precautionary measure due to introduction of new section 35DDA. However, this section has not been introduced in clause 15 of Form 3CD.' [Para 6] The assessee had clarified that the note was written by the auditor as a precautionary measure for reporting that the amount had been claimed under section 35DDA. The Commissioner in the order did not appreciate and deal with the said aspect. He has wrongly interpreted and observed that the claim itself was made as a precautionary measure. The Tribunal was therefore right in setting aside this part of the order dated 24-3-2009 passed by Commissioner under section 263. [Para 7]