HENKEL ADHESIVES TECHNOLOGIES,MUMBAI vs. THE PR. CIT-6, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL "H" BENCH, MUMBAI SHRI PRAMOD KUMAR, VICE PRESIDENT SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 1382/MUM/2021 (ASSESSMENT YEAR: 2014-15) Henkel Adhesives Technologies India Private Limited 401, 4th Floor, B Wing, L & T Sea Woods, Tower 1, Grant Central, Sea Woods, Grant Central, Sea Woods, Navi Mumbai, Thane- 400706 [PAN: AAACL1954B] …………… Appellant Vs Principal Commissioner of Income Tax – 6, Mumbai Room No. 501, 5th Floor, Aayakar Bhavan, Maharshi Karve Road, Mumbai - 400020 ……………. Respondent Appearances For the Respondent/ Assessee : Shri Kirit Kamdar (AR) For the Appellant/Department Smt. Neelam Shukla (CIT DR) Date of conclusion of hearing : 21.02.2022 Date of pronouncement of order : 23.03.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant/Assessee has challenged the order, dated 31.03.2021, passed by the Ld. Principal Commissioner of Income Tax, Mumbai - 6 [hereinafter referred to as „the PCIT‟] under Section 263 of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟] whereby the Assessment Order, dated 31.10.2018, passed under section 143(3) read with section 144C(13) of the Act was set aside as being erroneous in so far as prejudicial to the interest of revenue with the directions to pass de- novo assessment order.

The present appeal, though filed 67 days after the expiry of period of 60 days prescribed in Section 253(3) of the Act, is being treated as

ITA. No. 1382/Mum/2021 Assessment Year: 2014-15 being filed within limitation as the appeal has been filed within the extended time allowed by the Hon‟ble Supreme Court vide order, dated 23.03.2020 and 27.04.2021 passed in the Suo Motu Writ Petition (Civil) No. 3 of 2020 read with order, dated 23.09.2021, passed in M.A. No. 665 of 2021 in Suo Motu Writ Petition (Civil) No. 3 of 2020.

ITA. No. 1382/Mum/2021 Assessment Year: 2014-15 1. in making a revision under section 263 to set aside the assessment order dated 31 October 2018 passed under section 143(3). 2. in holding that the assessment order dated 31 October 2018 passed under section 143(3) of the Act is erroneous in so far as it is prejudicial to the interests of the revenue. 3. in not appreciating the fact that the issues which formed a part of revision under section 263 were already examined during the course of the assessment proceedings. 4. In observing that the appellant has not filed any submission during the course of the proceedings under section 263, apart from acknowledgment of the return of income and computation for AY 2011 12 to AY 2014- 15 and Form 3CA for AY 2014-15. 5. in ignoring the detailed submissions made by the appellant vide letter dated 26 March 2021 on the validity of revision under section 263 as well as on the merits of each issue. (B). Grounds on Merits: (I) Deduction of reversal of provision for inventory written-back: Rs. 3,35,50,000: 6. in directing the Assessing Officer to pass a de-novo order in respect of the issue relating to deduction in respect of write-back provision for inventory. 7. in holding that the Assessing Officer ought not to have allowed deduction of reversal of provision for inventory without appreciating the facts of the appellant's case. 8. in not appreciating the fact that write-back of provision for inventory credited to the Profit and Loss Account for the year under consideration, was already disallowed in the earlier years in which the said provisions were created.

ITA. No. 1382/Mum/2021 Assessment Year: 2014-15

ITA. No. 1382/Mum/2021 Assessment Year: 2014-15 Assessment Order on incorrect premise. The PCIT arrived at a conclusion that the reversal of provisions of inventory for INR 3,35,50,000/- made during the relevant previous year ought to have been brought to tax without appreciating that the same pertains to provisions for inventory created in earlier years which have been disallowed in the computation of income of the respective years, and thus, offered to tax in the earlier years. In case reversal of the provision for inventory for INR 3,35,50,000/- is treated as income, the same would lead to double taxation in the hands of Appellant. He further submitted that the PCIT has concluded that Regional Payment Charges of INR 5,71,72,025/- should have been disallowed under Section 40(a) of the Act without appreciating that disallowance for the same has already been made by the Appellant in his return of income. He relied upon the submission/documents forming part of the paper-book to contend that the submission/documents were placed before the PCIT, however, in the Revision Order the PCIT has recorded that no submission have been filed. Therefore, the Appellant was constrained to move application under Section 154 of the Act for rectification of the Revision Order which has also been rejected by PCIT vide order, dated 15.07.2021. In response, the Ld. Departmental Representative relied upon the Revision Order and submitted the PCIT was correct in exercising powers under Section 263 of the Act as the Assessing Officer had not examined the issue pertaining to write-back of Provision of Inventory and disallowance of the Regional Payment Charges during the assessment proceedings.

ITA. No. 1382/Mum/2021 Assessment Year: 2014-15 before PCIT has also been acknowledged by the PCIT in order, dated 15.07.2021, whereby the application filed by the Appellant under Section 154 for rectification of the Revision Order was rejected.

6.1. Perusal of the submission along with annexures filed before PCIT shows that the Assessment Order is neither erroneous nor prejudicial to the interest of revenue. The Acknowledgement of Return/Revised Return along with computation of income for the Assessment Year 2011-12, 2012-13 and 2013-14 show the disallowance of provisions for inventory of INR 1,57,45,000/- (AY 2011-12), 1,79,64,000/- (AY 2012-13) and INR 77,87,305/- (AY 2013-14) was made by the Appellant in the computation of taxable income on the respective years. Though the Provisions of Inventory were created in Assessment Years 2011-12, 2012-13 and 2013-14, deduction for the same was not claimed while computing taxable income of the respective previous years. Write-back of the Provision of Inventory during the relevant previous year does not give rise to taxable income in the hands of the Appellant as no deduction was claimed in the earlier years for Provision of Inventory. We are of the considered view that INR 3,35,00,000/-, being write-back of Provisions of Inventory credited to Profit and Loss Account, was correctly excluded in the computation of income by the Appellant, and therefore, the Assessment Order cannot be considered as erroneous on this count.

6.2. Similarly, perusal of the relevant extract of return of income in ITR -6 for the relevant Assessment Year 2014-15 shows that disallowance of Regional Payment Charges of INR 5,71,72,025/- has been made by the Appellant in Schedule BP - Part A at Serial No. 16 and deduction in respect of the same has not been claimed. Accordingly, the Assessing Officer was not required to add back Regional Payment Charges of INR 5,71,72,025/-. The PCIT had clearly moved on incorrect premise that the Appellant had claimed deduction of the same. The conclusion drawn by the PCIT is contrary to the

ITA. No. 1382/Mum/2021 Assessment Year: 2014-15 assessment record. Accordingly, the Assessment Order cannot be considered to be erroneous on this count as well.

6.3. As regards invocation of provisions of Explanation 2 to Section 263(1) of the Act, the opinion formed by the PCIT must have some factual and/or legal basis. In the present case, we are of the view, that the opinion formed by the PCIT is based upon incorrect appreciation of underline facts and is contrary to the material on record. The provisions of Explanation 2 to Section 263(1) of the Act have been invoked by the PCIT without inquiring into the basic facts and seemingly in undue haste.

Accordingly, Ground No. (A)1& 2, Ground No. (B)(I)6 and Ground No. B(II)10 are decided in favour of the Appellant and against the Revenue. Rest of the grounds raised are disposed off as being infructuous. In result, the appeal of the Assessee is allowed. Order pronounced on 23.03.2022.

S/d S/d (Pramod Kumar) (Rahul Chaudhary) Vice President Judicial Member

म ुंबई Mumbai; दिन ुंक Dated : 23/03/2022