THE COMMISSIONER OF INCOME TAX vs. M/S. BOSCH LIMITED

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ITA/368/2016HC KarnatakaKAHC01054198201630 November 2020Bench: ALOK ARADHE,H.T. NARENDRA PRASAD10 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the Tribunal was justified in quashing the CIT's order under Section 263. The court reiterated that for Section 263 to apply, the Assessing Officer's order must be both erroneous and prejudicial, and if two views are possible, the CIT cannot interfere if the Assessing Officer took one of them.

What were the facts?

The Assessing Officer allowed a deduction under Section 35(2AB) of the Income Tax Act. The Commissioner of Income Tax (CIT) revised this order under Section 263, deeming it erroneous and prejudicial to revenue, as it led to excess deduction under Section 10B due to unapportioned scientific research expenditure in EOUs.

What were the issues?

Whether the CIT was justified in invoking Section 263 powers when the Assessing Officer's order was based on a possible view, and whether the Tribunal correctly quashed the revisionary order.

Which sections of the Income-tax Act were involved?

Section 35(2AB),Section 10B,Section 263

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 30TH DAY OF NOVEMBER, 2020

PRESENT

THE HON’BLE MR. JUSTICE ALOK ARADHE

AND

THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD

I.T.A. NO.368 OF 2016

BETWEEN:

1.

THE COMMISSIONER OF INCOME-TAX, LTU, JSS TOWERS, BSK III STAGE,

BANGALORE-560 085.

2.

THE DEPUTY COMMISSIONER OF

INCOME-TAX, LTU, JSS TOWERS, BSK III STAGE,

BANGALORE-560 085. …APPELLANTS (BY SRI K.V.ARAVIND, ADV.)

AND:

M/S. BOSCH LIMITED, HOSUR ROAD, AUDOGODI, BANGALORE-560 030. PAN: AAACM 9849P …RESPONDENT (BY SRI T.SURYANARAYANA, ADV.) - - - THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961, ARISING OUT OF ORDER DATED

28/10/2015 PASSED IN ITA NO.571/BANG/2014 FOR THE ASSESSMENT YEAR 2008-2009 PRAYING TO 1. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE; 2. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN ITA NO.571/BANG/2014 DATED 28/10/2015 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, LTU, BENGALURU; 3. TO PASS SUCH OTHER SUITABLE ORDERS AS THIS HON’BLE COURT DEEMS FIT TO GRANT IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE INTEREST OF JUSTICE AND EQUITY.

THIS I.T.A. COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT

This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment Year 2008-09. The appeal was admitted by a Bench of this Court vide order dated 11.10.2017 on the following substantial question of law: ‘1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in quashing the order of the Commissioner passed under Section 263 of the Act even when the CIT has rightly held

that the order passed by the assessing authority allowing claim under Section 35(2AB) of the Act to an extent of Rs.19,05,88,159/- is erroneous and prejudicial to interest of Revenue as it is rightly held by CIT that in the Profit and Loss account of the EOUs, the expenditure on scientific research claimed and allowed as deduction under Section 35(2)AB was not apportioned and debited to P & L Accounts of the two EOU’s and thereby the eligible deduction under Section 10B of the Act was allowed in excess by the assessing authority?’

2.

The facts giving rise to filing of the appeal briefly stated are that the Assessing Authority allowed the claim of the assessee for deduction under Section 35(2AB) of the Act for Assessment Year 2008-09. The Commissioner of Income Tax (CIT) subsequently took up the matter in suo moto revision in exercise of powers under Section 263 of the Act and held that the order is erroneous and is prejudicial to the interest of the revenue as the Assessing Authority has wrongly allowed the deduction under Section 35(2AB) of the Act. It was further held by the CIT that the assessee had two Export

Oriented Units (EOU) and the profits of these EOUs were entitled to 100% deduction under Section 10B of the Act as they were EOUs and the benefits of R & D would accrue to all the manufacturing units of the assessee. It was also noticed that in the Profit and Loss Account of the EOUs, the expenditure on scientific research claimed and allowed as deduction under Section 35(2AB) of the Act was not apportioned and debited to the P & L account of the two EOUs and thereby eligible deduction under Section 10B of the Act was allowed in excess by the Assessing Officer. The CIT found that excess deduction under Section 10B of the Act has been allowed to the extent of Rs.19,05,88,159/-.

3.

The assessee thereupon filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’, for short). The Tribunal by order dated 28.10.2015, allowed the appeal preferred by the assessee. In the aforesaid factual background, revenue is in appeal before this Court.

4.

Learned counsel for the revenue submitted that the Tribunal erred in quashing the order of the CIT under Section 263 of the Act even when the CIT has rightly held that the order passed by the Assessing Officer allowing the claim under Section 35(2AB) of the Act to the extent of Rs.19,05,88,159/- is erroneous and is prejudicial to the interest of the revenue. As is rightly held by the CIT that in the Profit and Loss Account of the EOUs, the expenditure on scientific research claimed and allowed as deduction under Section 35(2AB) of the Act was not apportioned and debited to the P & L account of the two EOUs and thereby eligible deduction under Section 10B of the Act was allowed in excess by the Assessing Officer to the extent of Rs.19,05,88,159/-.

5.

On the other hand, learned counsel for the assessee submitted that the Tribunal has rightly set- aside the order passed by the CIT and has held that the view, which was taken by the Assessing Officer was one of the possible views and therefore, in the fact situation

of the case, the CIT erred in invoking the powers under Section 263 of the Act.

6.

We have considered the submissions made by learned counsel for the parties and have perused the records.

7.

We have considered the submissions made by learned counsel for the parties and have perused the records. Before proceeding further, it is apposite to take note of the relevant extract of Section 263 of the Act, which reads as under:

263.

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 in so far 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 of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.

8.

Thus, from close scrutiny of Section 263 of the Act, it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under Section 263 of the Act. Firstly, the order of the Assessing Officer is erroneous and secondly, that it is prejudicial to the interest of the revenue on account of error in the order of assessment.

9.

The aforesaid provision was considered by the Supreme Court in ‘MALABAR INDUSTRIAL COMPANY VS. CIT’, 243 ITR 83 and it was held that the phrase ‘prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer and every loss of revenue as a consequence of the order of the Assessing

Officer cannot be treated as prejudicial to the interest of revenue. It was further held that where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, the order passed by the Assessing Officer cannot be treated as erroneous order prejudicial to the interest of the revenue. The principles laid down in the aforesaid decision were reiterated by the Supreme Court in ‘CIT VS. MAX INDIA LTD.,’ 295 ITR 282 (SC) and recently in ‘ULTRATECH CEMENT LTD. AND ORS. VS. STATE OF RAJASTHAN AND ORS.’, CIVIL APPEAL NO.2773/2020 DECIDED ON 17.07.2020.

10.

In view of aforesaid enunciation of law, the facts of the case may be seen. The Tribunal in paragraph No.18 of its order has held that the assessee has demonstrated that the enquiries contemplated by the CIT in the show cause notice under Section 263 of the Act were not required at all and this fact has also been accepted by the CIT in the impugned order. The

CIT has only remanded the issue to the Assessing Officer for verification of an insignificant issue whether of approval of the Naganathapura unit and the Nashik unit continues even during the previous year and which has been demonstrated by the assessee before the CIT with sufficient documentary evidence. Therefore, the Tribunal has concluded that there was no necessity to have remanded the matter. It has further been held by the Tribunal that the CIT has accepted that if R & D activity carried on at the 100% EOUs were different, then there was no need to apportion the R & D expenses of the two EOUs. It has been further noted that the certificate of the Chartered Accountant given in Form 56G for both these units clearly mention the nature of activities of these two units for the previous year relevant to Assessment Year 2008-09 are the same activity for which approvals were granted to these 100% EOUs, which has been clearly demonstrated by the assessee before the CIT that the expenditure on R & D

had no connection whatsoever with the 100% EOUs at Naganathapura and Nashik. Therefore, there was for no need for the CIT to set aside the order of the Assessing Officer for suitable enquiries and deciding the issue afresh. The Tribunal has therefore, rightly quashed the impugned order under Section 263 of the Act and has allowed the appeal of the assessee.

11.

In view of preceding analysis, the substantial question of law framed in this appeal is answered against the revenue and in favour of the assessee.

12.

In the result, we find no merit in the appeal. The same fails and is hereby dismissed.

Sd/- JUDGE

Sd/- JUDGE

dn/- CT-HR

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