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Facts
The assessee appealed against an order of the PCIT invoking revisionary jurisdiction u/s 263 of the Income Tax Act. The PCIT had revised the assessment order on two grounds: (i) the provision for warranty of ₹2,42,60,000 was not allowable, and (ii) an excessive claim of brought forward unabsorbed losses and depreciation.
Held
The Tribunal held that the PCIT's invocation of revisionary jurisdiction u/s 263 was not valid. The provision for warranty was based on technical estimates and accepted in previous years. The figures for brought forward losses and depreciation were supported by assessment orders giving effect to appellate orders, not just the tax audit report.
Key Issues
Whether the PCIT's invocation of revisionary jurisdiction u/s 263 of the Income Tax Act was justified based on the grounds of alleged erroneous and prejudicial assessment order by the AO.
Sections Cited
263, 143(3), 144C
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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
This is an appeal preferred by the assessee against the order of the Pr. Commissioner of Income Tax, Kolkata-2 (hereinafter referred to as the “Ld. PCIT”] dated 31.03.2024 for the AY 2018-19.
The common issue raised in all the grounds is against the invalid exercise of revisionary jurisdiction by PCIT u/s 263 of the Act thereby set aside and revising the order passed u/s 143(3) read with section 144C of the Act on the ground that the same is erroneous and so far as prejudicial to the interest of the Revenue.
The facts in brief are that the assessee filed the return of income for the instant assessment year on 29.11.2018, declaring total income of ₹32,25,51,500/-. The case of the assessee was selected for scrutiny
The ld. AR therefore, finally submitted that the claim of the assessee qua the brought forward of unabsorbed depreciation and losses is in accordance with the above said orders passed by the d AO giving appeal effect to the order of the appellate authorities and therefore, the order passed by the ld. AO allowing the set off of unabsorbed losses and depreciation is correct and the jurisdiction u/s 263 of the Act is not available to the PCIT. The ld. AR stated that before exercising the revisionary jurisdiction u/s 263 of the Act, the twin conditions have been set satisfied concurrently i.e. the order has to be erroneous as well as prejudicial to the interest of the Revenue. In the present case, as has been submitted hereinabove on both the counts, the order passed by the ld. AO is correct and as per the provisions of the Act and therefore, cannot be said to be erroneous and prejudicial to the interest of the Revenue. In this case none of the conditions as envisaged in section 263 of the Act were satisfied and therefore, the jurisdiction u/s 263 of the Act is not available to the ld.
We have heard the rival conventions and perused the materials available on record. We observed that in the impugned case, the assessment was framed by the ld. AO u/s 143(3) read with section 144C(3) read with section 144B of the Act vide order dated 15.11.2001 copy of which is available in the paper book at page no.15 to 18. The ld. PCIT revised the said order on two grounds namely one the assessee debiting and charging an amount of ₹2,42,60,000/- on account of provisions for warranty in the profit and loss account which according to the ld. PCIT is not allowable expenditure and the second excessive claim of brought forward of unabsorbed losses / depreciation to the tune of ₹22,11,90,246/- against the current year
We note that the figures of unabsorbed loss/ depreciation were appearing in the assessment orders passed by the ld. AO which were before giving appeal effect to the appellate orders. We have fully examined these orders as these are available in the paper book and find that even the claim of assessee is in accordance with the orders Assessed unabsorbed Assessed unabsorbed SL depreciation as per the Assessment Yer deprecation by the ld. no. notice under section AO (Rs.) 263 of the Act (Rs.) 1. 2010-11 9,61,42,010 9,61,42,010 2. 2011-12 4,78,76,170 28,27,50,738 3. 2012-13 46,60,37,416 34,59,69,899 4. 2013-14 Nil 13,07,05,208 Total 61,00,55,596 85,55,67,855 09. We note that the figures of brought forward losses/ deprecation picked up by the tax auditor from A.Y. 2010-11 to 2012-13, are on the basis of orders passed u/s 143(3) against which the appeals were already filed and decided as well. Even the AO passed orders giving appeal effect. Therefore, the assessment order was very much in accordance with the law. In our opinion, the order passed by ld. AO is neither erroneous nor prejudicial to the interest of the Revenue. In our considered view , before invoking the jurisdiction u/s 263 of the Act, the PCIT has to satisfy the twin conditions as envisaged in Section 263 of the Act concurrently which in our opinion is not satisfied at all and therefore, the jurisdiction has been resorted to invalidly. The case of the assessee is squarely covered by the decision of Hon'ble Apex court in the case of Malabar Industrial Co. Ltd. (supra), wherein the Hon'ble Court has held as under:-
“5. To consider the first contention, it will be apt to quote section 263(1) which is relevant for our purpose : "Revision of orders prejudicial to revenue.—(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances “an order cannot be termed as erroneous unless it is not in accordance with law. The Hon'ble High Court held that the power of CIT is a quasi-judicial act and as such, the CIT has to form an opinion in a judicious manner because on the basis of the said opinion the whole machinery of re-examination and reconsideration of an order of assessment, which has already been concluded, is again set in motion. It was further held that the said opinion of CIT is an important decision and the same cannot be based on the whims or caprice of the CIT. It was further held that when the AO passed assessment order after verification the said order cannot be termed as erroneous simply because in his order he has not made an elaborate discussion in this regard”
Further where two views are possible and AO has taken one view with which the ld. PCIT does not agree , even then the assessment framed by the AO cannot be treated as erroneous and prejudicial to the interest of the revenue. In the present case the AO has accepted the claim of the assessee qua provisions for warranty on sale of PCBs of Rs. 2,42,60,000/- based on the fact that the same were allowed by the revenue in the preceding and succeeding assessment years and the claim was based upon the technical estimate and past experience. Even the case if the assessee is squarely covered by the Hon’ble Apex Court decision in the case of Rotork Controls India Pvt. Ltd. (supra). Therefore, the view taken by the AO cannot be said to be not in accordance with law or not sustainable in law. Again, the case of the
Considering these facts and circumstances and the ratio laid down by the Hon'ble Courts as discussed above, we are inclined to quash the revisionary proceedings as well as consequent order by the ld. PCIT.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 21.01.2025.