M/S. MAG INDIA INDUSTRIAL AUTOMATION SYSTEMS PRIVATE LIMITED,BENGALURU vs. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-4(1)(2), BANGALORE

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ITA 886/BANG/2022Status: DisposedITAT Bangalore31 October 2022AY 2014-155 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that in the interest of justice and equity, the assessee should be given another opportunity for effective representation before the CIT(A). The matter was remitted to the CIT(A) for fresh consideration.

What were the facts?

The assessee's return was initially accepted, but a subsequent revisionary order directed the AO to re-examine the provision for warranty expenses. The AO disallowed the provision, and the CIT(A) dismissed the assessee's appeal ex parte due to non-appearance.

What were the issues?

Whether the CIT(A) erred in dismissing the appeal ex parte without providing an adequate opportunity for hearing, and whether the provision for warranty liability was correctly disallowed.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 263,Section 250

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Income Tax Appellate Tribunal, BANGALORE BENCHES “A”, BANGALORE

Before: Shri George George K, JM & Ms.Padmavathy S, AM

Hearing: 31.10.2022Pronounced: 31.10.2022

O R D E R

Per George George K, JM :

1.

This appeal at the instance of the assessee is directed against CIT(A)’s order dated 07.09.2022. The relevant assessment year is 2014-2015.

2. The grounds raised read as follows:-

“1. The order passed by the Hon'ble Commissioner of Income Tax (Appeals)-11, Bengaluru, passed under section 250 of the Income Tax Act, 1961 ("the Act") in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case.

2.

The appellant denies itself to be assessed at Rs.4,33,66,614.00 as against the returned income of Rs.2,57,85,360.00 under the facts and circumstances of the case.

3.

The learned CIT(A) was not justified in not providing an additional opportunity of hearing, on the facts and M/s.MAG India Industrial Automation Systems Pvt.Ltd. circumstances of the case.

4.

The authorities below are not justified in disallowing the provision towards warranty liability of Rs.1,75,81,254/ - on the facts and circumstances of the case.

5.

The authorities below have failed to appreciate that the provision for warranty has been calculated scientifically and followed consistently year after year, on the facts and circumstances of the case.

6. The authorities below were not justified is disallowing the provision for warranty solely on the premise that the excess provision has been reversed in subsequent years, on the facts and circumstances of the case.

7. The levy of interest under section 234B and 234C is not warranted on the facts and circumstances of the case.

8.

The appellant craves to add, alter, amend, substitute, change and delete any of the grounds of appeal

9. For the above and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed and justice rendered.”

3. The brief facts of the case are as follows: The assessee is a company engaged in the business of marketing of industrial machinery. For the assessment year 2014-2015, the return of income was filed on 26.11.2014 declaring total income of Rs.2,57,85,360. The assessment u/s 143(3) of the I.T.Act was completed on 21.11.2016 accepting the returned income. Subsequently, the Principal Commissioner of Income-tax (PCIT) passed order u/s 263 of the I.T.Act on 06.06.2018, wherein he directed the A.O. to examine afresh the claim of provision for warranty expenses. Pursuant to the PCIT’s order, the A.O. passed order u/s 143(3) r.w.s. 263 of the I.T.Act on 31.10.2018, wherein the provision for warranty expenses amounting to Rs.1,75,81,254

M/s.MAG India Industrial Automation Systems Pvt.Ltd. was disallowed and determined the total income at Rs.4,33,66,614.

4. Aggrieved by the order passed u/s 143(3) r.w.s. 263 of the I.T.Act, the assessee preferred appeal before the first appellate authority. Before the CIT(A), since none appeared nor written submission was filed, the appeal was dismissed ex parte. The CIT(A) held that provision for warranty claim by the assessee is not based on historical data and on scientific basis and dismissed the appeal of the assessee.

5. Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before the Tribunal. The learned AR submitted that five hearing notices were issued by the CIT(A) and out of the five hearing notices, the AR of the assessee appeared before the CIT(A) for first four hearing and has sought for adjournment of the case (It is stated that even on the fourth hearing date fixed on 05.08.2022, the AR had appeared before the CIT(A) and sought for adjournment). It is submitted that only on the last hearing fixed on 01.09.2022, the Accountant of the assessee had missed the hearing notice and the same was not informed to the learned AR. Consequently, the matter could not be effectively represented before the first appellate authority. It was submitted that in the interest of justice and equity the matter may be restored to the CIT(A) for fresh consideration.

6.

The learned Departmental Representative supported the orders of the A.O. and the CIT(A).

M/s.MAG India Industrial Automation Systems Pvt.Ltd.

7.

We have heard rival submissions and perused the material on record. The hearing of the case before the CIT(A) was fixed on 05.05.2022, 22.05.2022, 19.07.2022, 05.08.2022 and 01.09.2022. It was stated in the impugned order of the CIT(A) that the notices of hearing were sent through online system and duly served on the assessee on 29.04.2022, 10.05.2022, 12.07.2022, 25.07.2022 and 11.08.2022, respectively. It is claimed by the learned AR that he himself represented the case on the first four hearing notices and sought for adjournment. It is stated that the last hearing notice issued on 11.08.2022 fixing the case on 01.09.2022 was missed by the Accountant and was not duly informed to the AR. Consequently, there was no effective representation before the first appellate authority.

8. The written submissions were also not filed and it is evident from para 3 of the impugned order of the first appellate authority. We are of the view in the interest of justice and equity one more opportunity should be provided to the assessee for an effective representation of its case before the first appellate authority. Accordingly, the matter is remitted to the CIT(A). The assessee is directed to cooperate with the CIT(A) for an expeditious disposal of the matter and shall not seek unnecessary adjournment in this case. The assessee shall provide the necessary details in support of its case that provision for warranty claimed is based on historical date and on scientific basis and is in tune with the dictum laid down by the Hon’ble Apex Court in the case of Rotork Controls India (P) Ltd. v. CIT reported in (2009) 314 ITR 62

M/s.MAG India Industrial Automation Systems Pvt.Ltd. (SC). The CIT(A) shall afford reasonable opportunity of hearing to the assessee before a decision is taken in the matter. It is ordered accordingly.

9.

In the result, the appeal filed by the assessee is allowed for statistical purpose.

Order pronounced on this 31st day of October, 2022.

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