VOLKSWAGEN INDIA PRIVATE LIMITED,,PUNE vs. PR. COMMISSIONER OF INCOME-TAX-4,, PUNE
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Income Tax Appellate Tribunal, PUNE BENCH “C”, PUNE
Before: SHRI R.S. SYAL & SHRI S.S.VISWANETHTRA RAVI
PER R.S.SYAL, VP : These two appeals by the assessee are directed against the common order dated 19-11-2018 passed by the Principal Commissioner of Income-tax (PCIT) u/s.263 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment years 2012-13 & 2013-14. Since a common issue is raised in these appeals, we are, therefore, proceeding to dispose them off by this consolidated order.
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Briefly stated, the facts for the A.Y. 2012-13 are that the
assessee filed its return declaring Nil income. The assessment
was completed by making addition on account of certain transfer
pricing adjustment. The ld. PCIT issued a show cause notice
dated 29-05-2018 observing that the assessment proceedings for
the A.Y. 2014-15 transpired that the assessee had received
Government grants in the year under consideration also, which
were taxable, but taken as capital receipt in the computation of
total income. On the basis of a reference made by the AO,
through proper channel, the ld. PCIT issued the above show
cause notice and thereafter passed the order u/s.263 setting aside
the assessment order and directing the AO to frame the
assessment afresh after conducting enquiries and verification.
Aggrieved thereby, the assessee has come up in appeal before
the Tribunal.
We have heard the rival submissions and gone through the
relevant material on record. The ld. PCIT issued show cause
notice dated 29-05-2018, which is reproduced as under:
“Sub : Show cause notice u/s.263 – A.Yrs. 2012-13 and 2013-14 – reg. Please refer to the above.
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During the course of assessment proceedings of A.Yr.2014- 15, it was observed that you had credited an amount of Rs.405.68 crores and Rs.38.36 crores respectively as ‘Government Grant – Capital’ and ‘Government Grant – Revenue’ under the head ‘Other Income’ being an amortization of deferred income. In your statement of computation of income for the year, this amount has been deducted claiming to be capital in nature.
You had contended that the amount of amortization of deferred income, though credited to P&L account as revenue income is actually a capital receipt not chargeable to tax. In this regard, you were asked to justify your claim along with documentary evidences.
You had contended that subsidy was received by you for setting up of an industry itself and not for day-to-day operation in view of SC decision in the case of PJ Chemicals.
Your contention was found to be not acceptable and accordingly assessment for the A.Y. 2014-15 was completed making addition of Rs.362,84,60,000/- on account of subsidy received. It was further observed that the incentives given to the company in the form of subsidy were production related incentives. It was not a one-time subsidy but a recurring subsidy over the years. Therefore, the scheme was not to make any payment directly or indirectly for setting up of the industries as claimed by you. Reliance was placed on the decision of the SC in the case of Sahney Steel & Press Works Limited Vs. CIT wherein the apex court held that where the assessee received certain incentives including concessions etc. year after year only after setting up of the new industry and commencement of production, then they are to be treated as revenue receipts.
During the course of assessment proceedings it was revealed that the assessee company has received similar grants/subsidies in the earlier years also. The assessee has furnished year wise statement of claim sanctioned and claim disbursed.
The AO has reported that during the course of assessment proceedings this issue was not properly dealt with and the assessment order is erroneous in so far as it is prejudicial to the interest of revenue.
In view of the facts noted above, the order passed by the Assessing Officer for A.Yrs. 2012-13 and 2013-14 in the case of
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M/s. Volkswagen India Pvt. Ltd. is erroneous and prejudicial to the interest of the revenue. The same is hence proposed to be revised invoking the provisions of section 263 of the Income Tax Act. 06. The case is posted for hearing on 11-06-2018 at 11.00 a.m.”
It can be seen that the ld. PCIT referred to the assessment
proceedings and the assessment order for the A.Y. 2014-15, in
paras 2, 3 and first two sub-paras of para 4 of his show cause
notice, divulging that the grants received by the assessee in such
year were wrongly taken as capital receipt and the further fact
that similar grants were received in earlier years as well,
including the year under consideration. In sub-para 3 of para 4
of his show cause notice, the ld. Pr. CIT referred to the AO’s
report and then recorded that: “The AO has recorded that during
the course of assessment proceedings this issue was not properly
dealt with and the assessment order is erroneous in so far as it is
prejudicial to the interest of the Revenue”. In last para of the
show cause notice, he records that: “In view of the facts noted
above, the order passed by the Assessing Officer for A.Yrs.
2012-13 and 2013-14 …. is erroneous and prejudicial to the
interest of the revenue”. Thus, it is apparent from the entire
show cause notice that the initiation of revision is premised only
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on the report submitted by the AO requesting for the revision of
the assessment order. During an earlier hearing, the ld. DR was
directed to produce the said report of the AO forming part of the
show cause notice. The ld. DR produced the file in original
containing the AO’s letter dated 22-03-2018 requesting for the
revision of the assessment order and such request having been
routed through the range JCIT with his own letter dated
27-03-2018. Pursuant to such letter of the AO, the ld. PCIT
issued the above show cause notice on 29-05-2018. It is
apparent that the entire foundation of the revision is based on the
AO requesting the ld. PCIT to revise the assessment order.
At this juncture, it is relevant to note the mandate of section
263(1) of the Act providing that: “The Commissioner may call
for and examine the record of any proceeding under this Act and
considers if he considers that any order passed therein by the AO
is erroneous in so far as it is prejudicial to the interests of the
revenue, he may after giving the assessee an opportunity of
bearing heard…pass such order thereon as the circumstances of
the case justify….”. This section which gives jurisdiction to the
CIT to revise an order. It categorically provides that the
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Commissioner may call for and examine the record of any
proceedings under this Act and thereafter if he considers that
any order passed therein by the AO is erroneous, he may initiate
the revision proceedings. Both the conditions, namely, the CIT
calling for and examining the record and then considering the
assessment order passed by the AO to be erroneous and
prejudicial to the interest of the Revenue are to be cumulatively
satisfied by the CIT alone. The use of the word `and’ between
the two expressions amply demonstrates that the calling for and
examining the record by the CIT should precede and his such
examination should culminate in getting satisfied that the order
passed by the AO is erroneous and prejudicial to the interest of
the Revenue. If one of these conditions gets negated, that is,
either he does not call for and examine the record or such
examination does not lead him to satisfying the assessment order
erroneous etc., the jurisdiction u/s.263 is not activated.
Extantly, we are confronted with a situation in which the AO
wrote a letter, through the range JCIT, to the ld. PCIT that the
assessment order passed for the year under consideration did not
properly deal with the issue of taxability of subsidy from the
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Government. It was on the sole strength of this letter of the AO
dt.22-03-2018, moving through the range JCIT with a covering
letter dt.27-03-2018, that the ld. PCIT made up his mind and
issued show cause notice on 29-05-2018 seeking to revise the
assessment order. But for the AO’s report, there is not even a
slightest utterance or remotest clue to the effect that the ld. PCIT
called for and examined any record of the proceeding for the
year and then on the basis of such an examination considered the
assessment order erroneous and prejudicial to the interest of the
revenue. Au contraire, he specifically mentioned in the show
cause notice that the AO reported about the issue of grant not
having been properly dealt with during the course of assessment
proceedings rendering the assessment order amenable to
revision. It goes without saying that if some lacunae is left in
the assessment order, which comes to the notice of the AO, he
has ample power to take corrective measures either by way of
rectification u/s.154 or revision u/s.147. Insofar as the revision
u/s.263 is concerned, it is the sole prerogative of the Pr. CIT,
who needs to take suo motu action on calling for and examining
the record of any proceedings under this Act and on the basis of
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such examination considering the assessment order erroneous
and prejudicial to the interest of the Revenue. It is evident from
the show cause notice that the ld. PCIT initiated revisionary
proceedings just on the basis of the AO’s report without carrying
out any independent examination of the record followed by
independently satisfying himself that the assessment order
required revision.
The ld. AR relied on certain orders of the Tribunal,
including the order dt. 02-11-2021 passed by the Pune Tribunal
in Alfa Laval Lund and AB Vs. CIT (ITA No.1287/Pun/2017),
holding the initiation of revision proceedings, based only on the
proposal sent by the AO for making the revision, lacked
jurisdiction. Per contra, the ld. DR relied on certain decisions
in support of his case. The first such case is the judgment of the
Hon’ble Calcutta High Court in Smt. Sumitra Devi Khirwal Vs.
CIT (1972) 84 ITR 26 (Cal.) in which the revision was upheld.
In that case, the Commissioner did not himself call for any
record but certain records were placed before him and he acted
thereon. The assessee’s contention before the Hon’ble High
Court that the revision in such circumstances was not valid,
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came to be jettisoned by the Hon’ble High Court. What is
significant to note in that case is that: `certain records were
placed before him (CIT) and he acted thereon’ for revising the
assessment order. As opposed to that, we are dealing with a
situation in which the AO sent a proposal to the ld. Pr. CIT for
revision and acting on the same, the latter issued show cause
notice for revising the assessment order. Even in that case, the
Hon’ble High Court emphatically observed that: “All that the
section requires is that before issuing a notice u/s.33B he must
call for all relevant papers and documents, examine them and
then issue the notice if he is satisfied that the interests of the
revenue have suffered” (emphasis supplied by us). It is clear
from the ratio of the judgment that the personal satisfaction of
the CIT is paramount for revision. This satisfaction may be
based on any relevant papers and documents, including the
viewpoint of the AO. But, if the satisfaction of the CIT is
missing and the notice u/s.263 is based simply on the proposal
sent by the AO, then it cannot be said that the twin conditions of
examining the record of any proceedings under this Act and
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thereafter satisfying that the assessment order was erroneous and
prejudicial to the interest of the Revenue, are satisfied.
The second judgment relied by the ld. DR is CIT Vs. Bhagat
Shyam & Co. (1991) 188 ITR 608 (Allahabad). In that case also,
the assessee contended that the ITO placed certain information
or material before the Commissioner and hence, the revision
u/s.263 was not justified. Repelling such a contention, the
Hon’ble High Court held that: “There is no bar to the ITO
bringing that material to the notice of the Commissioner. What
cannot, however, be denied is that the Commissioner must apply
his mind to the material placed before him and satisfy himself
that it is a case where he ought to exercise his revisional power”.
Again, it is manifest that there is no bar on the AO placing
certain information or material before the CIT justifying the
invocation of power u/s.263, but ultimately, it is the CIT who
must apply his independent mind to such material and satisfy
that the revision is warranted. What should follow from the
examination of material, including that placed by the AO, is the
independent satisfaction of the CIT, after due application of
mind, that the assessment order was erroneous and prejudicial to
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the interest of the Revenue requiring revision. If such
satisfaction of the CIT, which is crucial and sine qua non, is
missing and the notice is based simply on the proposal sent by
the AO for revision, as is the case under consideration, the
revision cannot take-off.
In view of the foregoing discussion, we are satisfied that
the ld. PCIT exercised his jurisdiction to initiate the revision
proceedings in a wrongful manner, which, ergo, cannot be
accorded our imprimatur.
Before parting with this appeal, we would like to record
that this legal issue was raised by the ld. AR by means of an
additional ground, which was strongly opposed by the ld. DR for
admission. The ld. DR pointed out that this issue was not taken
up either before the ld. PCIT or in the original memorandum of
appeal before the Tribunal and hence, the additional ground
should not be admitted.
It is graphically overt from the above discussion that the
assessee created the bedrock for challenging the revision through
the additional ground, on the basis of the show cause notice
issued by the ld. PCIT, which is part of the assessee’s paper
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book. Our decision of quashing the revision on this legal issue is
based on such show cause notice. We are reminded of the
judgment of the Hon’ble Supreme Court in National Thermal
Power Company Ltd. Vs. CIT (1998) 229 ITR 383 (SC), holding
that: “the purpose of the assessment proceedings before the
taxing authorities is to assess correctly the tax liability of an
assessee in accordance with law. If, for example, as a result of a
judicial decision given while the appeal is pending before the
Tribunal, it is found that a non-taxable item is taxed or a
permissible deduction is denied, we do not see any reason why
the assessee should be prevented from raising that question
before the tribunal for the first time, so long as the relevant facts
are on record in respect of that item”. Answering the question
posed before it in affirmative, their Lordships held that on the
facts found by the authorities below a question of law arises
(though not raised before the authorities) which bears on the tax
liability of the assessee and the Tribunal has jurisdiction to
examine the same. Similar facts are prevailing in the case under
consideration. The additional ground raises a pure question of
law, for which no fresh investigation of facts is required. That is
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raison d’etre for our admitting the additional ground and then
espousing it for consideration.
It is, therefore, ultimately held that the ld. Pr. CIT was not
justified in invoking the revision jurisdiction. In view of our
decision on the legal ground, there is no need to examine the
issue on merits.
A.Y. 2013-14 :
Both the sides are in agreement that the facts and
circumstances for the year under consideration are mutatis
mutandis similar to the preceding year. In fact, a common show
cause notice as well as a combined order for both the years came
to be issued/passed. Following the view taken herein above, we
set-aside the impugned order passed by the PCIT u/s.263 of the
Act.
In the result, both the appeals are allowed. Order pronounced in the Open Court on 19th October, 2023.
Sd/- Sd/- (S.S.VISWANETHTRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 19th October, 2023 Satish
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आदेश की �ितिलिप अ�ेिषत/Copy of the Order is forwarded to: अपीलाथ� / The Appellant; 1. ��थ� / The Respondent; 2. 3. The Pr.CIT concerned िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “C” / 4. 5. DR ‘C’, ITAT, Pune गाड� फाईल / Guard file 6. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune
Date 1. Draft dictated on 17-10-2023 Sr.PS 2. Draft placed before author 18-10-2023 Sr.PS 3. Draft proposed & placed before the JM second member 4. Draft discussed/approved by Second JM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *
