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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI MANISH BORAD
per the provisions of Section 263 of the Act, the order passed by the Ld. AO can be revised only if the said order is erroneous in so far as it is prejudicial to the interests of the revenue. Accordingly, in order to initiate the revision proceedings, two conditions are required to be satisfied simultaneously – (i) the order should be erroneous and also (ii) prejudicial to the interest of Revenue as held in the cases Malabar Industrial Co. Limited vs CIT (243 ITR 83) (SC); CIT vs Associated Food Products (P.) Ltd. (280 ITR 377) (Madhya Pradesh HC); Manish Kumar vs Commissioner of Income-tax (16 taxmann.com 212) (Indore ITAT). We find that the assessee in its submission to the Ld. PCIT, the Appellant had explained that the deduction for utilisation/reversal of warranty provision has been claimed only in respect of the pre-merger provision brought from
Andritz Hydro Private Ltd. ITANo.198 & 199/Ind/2020 Prithla Unit which was disallowed in the return of income of the year of creation of such provision. The assessee co. had also furnished copies of computation of income of Prithla Unit for pre- merger years from which disallowance of warranty provision in the year of creation could be easily verified and the Ld. PCIT has not disputed the above facts as on para 4, the Ld. PCIT has clearly written that “It is noticed that the assessee in the computation of income in the relevant A.Y. 2015-16 has deducted a sum of Rs. 1,09,47,667/- on account of warranty expenses disallowed for earlier years.” Accordingly, where the Ld. PCIT has accepted that the claim of deduction in the current year is in respect of warranty provision disallowed in the earlier years, it cannot be said that allowance of such claim is erroneous in nature. Further, we find that there was no loss to the revenue on account of Ld. AO’s acceptance of the claim of deduction of utilisation/reversal of that warranty provision since the said provision was disallowed and offered to tax in the earlier years. Therefore, the claim of deduction of utilisation/reversal of that warranty provision of Rs. 1,09,47,677/- was neither erroneous nor prejudicial to the interests
Andritz Hydro Private Ltd. ITANo.198 & 199/Ind/2020 of Revenue. We also find that the assessee had made complete disclosures which were duly considered by the Ld. AO with due application of mind while passing the assessment order. The details of warranty provision, in respect of which the assessment order is sought to be revised by the Ld. PCIT, were submitted by the assessee co. by way of submission of Financial Statements and computation of income and the Ld. AO had requested to produce books of accounts which were produced by the assessee in electronic format. The assessee co. had also submitted the trial balance of for the subject year vide submission dated 23 November 2017. In the same submission, the assessee co. had also provided detailed of warranty provision created, utilised and reversed during the subject year. We find that the Ld. AO noted that the books of accounts in e-format are checked on a test check basis. The Ld. AO has specifically scrutinized the miscellaneous expenses and has also made an addition in this regard. Ld. AO had scrutinised details of warranty to his satisfaction and the documents and submissions/details filed were duly verified and considered by the Ld. AO while passing the Assessment order. Thus, we find that the Andritz Hydro Private Ltd. ITANo.198 & 199/Ind/2020 Ld. AO has duly examined the issue and with due application of mind did not invoke any disallowance on account of the claim of deduction of utilisation/reversal of that warranty provision of Rs. 1,09,47,677/-. Therefore, we are of the view that the Ld. PCIT was not justified in noting that the Ld. AO did not examine all the material facts of the case during the assessment proceedings. This view is supported by the ratio laid down in the the following judicial pronouncements: a. Jurisdictional bench of ITAT in the case of Vidisha Tractors vs ACIT (53 TTJ 432) (ITAT Indore). b. Hon'ble Delhi High Court in its judgment in the case of CIT vs Anil Kumar Sharma 335 ITR 83 (Delhi HC) c. Hon'ble Delhi High Court in its judgment in the case of CIT vs Hindustan Marketing & Advertising Co. Ltd. 341 ITR 180 (Delhi HC)
Further, we find that at the time of merger i.e. as on 31 December 2008, the amount of provision standing in the balance sheet of Prithla unit was Rs.5,10,50,999. This amount has arrived as follows:
Amount of Tax Treatment Assessment Year provision in the created return AY 2003-04 and earlier years 1,33,87,575 Disallowed AY 2004-05 1,80,424 Disallowed 39
Andritz Hydro Private Ltd. ITANo.198 & 199/Ind/2020
AY 2005-06 16,48,000 Disallowed AY 2006-07 87,86,000 Disallowed AY 2007-08 90,30,000 Disallowed AY 2008-09 1,16,01,000 Disallowed AY 2009-10 (Pre- Merger) 64,18,000 Disallowed As on 31 December 2008 5,10,50,999 From above, we find that the Prithla Unit had created a provision of Rs. 5,10,50,999/- which was not claimed as a deduction in the year of creation. This has also been accepted by the Ld. PCIT in para 4 pursuant to verification of tax computations of the above years furnished before the Ld. PCIT. Upon the merger, this provision was transferred to the books of the merged company. After the merger, the provision has been utilised/reversed during various years and the same has been claimed as a deduction on utilisation/reversal since no deduction was claimed in the year of creation of provision.
The details of deduction claimed on utilisation/reversal of provision till AY 2015-16 are summarised as under:
Deduction claimed Assessment Year (INR) AY 2009-10 (Post Merger) Nil AY 2010-11 23,94,383 AY 2011-12 24,43,079 AY 2012-13 44,60,063 AY 2013-14 56,51,613 AY 2014-15 Nil AY 2015-16 1,09,47,667
Andritz Hydro Private Ltd. ITANo.198 & 199/Ind/2020
On consideration of above facts in the light of the judicial pronouncements (supra) and considering the fact that the deduction in respect of provision was not claimed by the Prithla Unit in the year of creation of provision, we are of the view that the claim in the year of utilisation/reversal does not tantamount to double deduction as alleged by the Ld. PCIT. Therefore, the reversal of provision is not taxable under section 41 of the Act as no deduction was claimed/allowed in the years of creation of the provision. Therefore, the above treatment was neither erroneous nor prejudicial to the interest of the revenue since the allowance upon utilisation/reversal has been claimed only in the case of the provision that was disallowed in the year of its creation. Thus, the order of the Assessing Officer is held not to be erroneous or prejudicial to interests of revenue on account of allowance of deduction of utilisation/reversal of warranty provision. Therefore, we hold that the Ld. PCIT has erred in invoking powers under section 263 of the Act. Accordingly, we set aside the order of the ld. PCIT holding it invalid and restore the order of the Assessing
Andritz Hydro Private Ltd. ITANo.198 & 199/Ind/2020 Officer. Consequently, grounds raised in the appeal of the assessee for the assessment year 2015-16 stand allowed.
In result, both the appeals filed by the assessee i.e. ITA Nos.
198 & 199/Ind/2020 for the assessment years 2014-15 & 2015-16 are allowed.
Order was pronounced as per Rule 34 of I.T.A.T. Rules 1963 on 29.10.2021.