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Facts
The appellant, Aptiv Connecton Systems India P. Ltd., filed its return for AY 2017-18, and assessment was completed under Section 143(3) of the Income Tax Act. Subsequently, the PCIT invoked Section 263 to revise the assessment, finding it erroneous and prejudicial to the revenue because the Assessing Officer had not inquired into the allowability of patent fees paid to its subsidiary, Delphi Solutions, Luxembourg, as revenue expenditure. The PCIT set aside the assessment for de novo proceedings.
Held
The Income Tax Appellate Tribunal found that the Assessing Officer had failed to examine the allowability of patent fees as revenue expenditure, thus rendering the assessment order erroneous and prejudicial to the interests of revenue. Citing Explanation 2 to Section 263 and relevant case law, the Tribunal upheld the PCIT's order to set aside the assessment for de novo proceedings.
Key Issues
1. Whether the PCIT was justified in exercising revisionary powers under Section 263 of the Income Tax Act. 2. Whether the Assessing Officer's failure to examine the allowability of patent fees paid to a subsidiary as revenue expenditure renders the assessment order erroneous and prejudicial to the interests of revenue.
Sections Cited
263, 143(3)
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Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM & SHRI SOUNDARARAJAN K., JM
O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the Principal Commissioner of Income Tax (PCIT) dated 31.03.2022 passed u/s. 263 of Income Tax Act, 1961 (hereinafter "the Act") for Assessment Year (AY) 2017-18.
Brief facts of the case are that the appellant is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacturing of automotive connectors and terminals for electrical devices. The return of income for AY Aptiv Connecton Systems India P. Ltd. 2017-18 was filed on 30.11.2017 declaring income of Rs. 28,94,88,340/-. The same was revised on 27.03.2019 declaring the same returned income. Against the said return of income, the assessment was completed by the DCIT, Corporate Circle-1(1), Kochi vide order dated 28.12.2019 passed u/s. 143(3) of the Income Tax Act, 1961 (the Act) at a total income of Rs. 29,53,97,450/-.
Subsequently, on examination of the assessment records, the Principal Commissioner of Income Tax (PCIT), Kochi opined that the assessment order is erroneous and prejudicial to the interests of Revenue for the reason that the AO had failed to enquire into the allowability of patent fees paid to subsidiary company Delphi Solutions, Luxembourg as revenue expenditure. The PCIT accordingly set aside the assessment order to the file of the AO for de novo assessment in accordance with law after affording reasonable opportunity of hearing to the assessee.
Being aggrieved, the appellant is in appeal before us in the present appeal.
When the appeal was called on nobody appeared on behalf of the assessee despite due service of notice of hearing. Therefore, we proceeded to dispose of the appeal after hearing the learned CIT- DR.
The Parliament had conferred the power of revision on the Commissioner of Income Tax u/s 263 of the Act in case the assessment order passed is erroneous and prejudicial to the interests Aptiv Connecton Systems India P. Ltd. of Revenue. In order to invoke the power of revision, the above two conditions are required to be satisfied cumulatively. References in this regard can be made to the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC) and in the case of CIT vs. Max India Ltd., 295 ITR 282 (SC). The error in the assessment order should be one that it is not debatable or plausible view. In a case where the Assessing Officer examined the claim took one of the plausible views, the assessment order cannot be termed as an “erroneous”.
In the light of the above legal position, we proceed to examine the facts of the present case to find out whether the assessment order is erroneous and prejudicial to the interest of Revenue.
In the present case the material on record does not indicate that the AO had examined the issue of allowabiliy of patent fees to subsidiary company, i.e. Delphi Solutions, Luxembourg as revenue expenditure. Therefore, it is a clear case of non examination of the issue which was subject matter of revision and clearly hit by the provisions of Explanation 2 to section 263 of the Act. The Hon'ble Kerala High Court in the case of Cochin International Airport v. ACIT (ITA No. 77 of 2018 dated 07.01.2025) held as under: - “10. It is true that all orders, which are erroneous, are not liable to be subjected to proceedings under Section 263 of the Income Tax Act, 1961. To invoke Section 263, the Principal Commissioner of Income Tax must be satisfied that the erroneous order also causes prejudice to the Revenue. The real purport of Section 263 is to remove the prejudice caused Aptiv Connecton Systems India P. Ltd. to the Revenue by the erroneous order passed by the assessing officer and it empowers the Commissioner to initiate suo motu proceedings, when either the assessing officer takes a wrong decision without considering materials available on record or renders a decision without enquiry. The role of the assessing officer under the Income Tax Act, 1961 is not only that of an 2025:KER:298 OF 2018 adjudicator but also of an investigator and he cannot remain oblivious in the face of a claim without any enquiry. The assessing officer must exercise a dual role of protecting the interest of the Revenue as well as that of the assessee and that is the reason why he is expected to pass orders with utmost diligence. If, on facts, a claim made is assumed to be correct, then the assessing officer must necessarily state reasons as to why he is allowing the claim.
Therefore, in the light of the above discussion it is patently clear that the AO had failed to examine the issue of allowability of patent fees as revenue expenditure. In the circumstances, the PCIT is justified in exercising the power of revision u/s. 263 of the Act. The order passed by the learned PCIT does not suffer from any illegality or travesty. Accordingly, we uphold the action of the learned PCIT.
In the result, the appeal filed by the assessee stands dismissed.
Order pronounced in the open court on 11th March, 2025.