“records” for Revision u/s 263 include records related to preceding assessment years also

For Revision u/s 263, records include records relating to assessment proceedings of preceding assessment years

ABCAUS Case Law Citation:
ABCAUS 3271 (2020) (02) ITAT

Important case law relied upon by the parties:
Rotork Controls India Private Limited v. CIT reported in (2009) 314 ITR 62(SC)
CIT v. Gabriel India Ltd., reported in [1993] 71 Taxman 585 (Bombay)
CIT vs. Vikas Polymers reported in (2010) 194 Taxman 57(Del. HC)
Meerut Roller Flour Mills Private Limited v. CIT reported in (2019) 110 taxmann.com 170(All. HC)
Narayan Tatu Rane v. ITO reported in (2016) 70 taxmann.com 227(Mum-trib)
Kachwala Gems v. JCIT reported in (2007) 288 ITR 10(SC)
CIT vs.  Sunbeam Auto Limited reported in (2010) 189 Taxman 436(Del HC)
CIT v. Jain Construction Company reported in (2012) 83 CCH 0234(Raj.HC
Malabar Industrial Company Limited v. CIT
Toyoto Motor Corporation v. CIT reported in (2008)173 taxman 458(SC)
CIT v. Jawahar Bhattacharjee reported in (2012) 24 taxmann.com 215(Gau. HC

In the instant case, the appeal was filed by assessee against Revisionary Order passed by Principal Commissioner of Income Tax (PCIT) u/s 263 of the Income-tax Act, 1961 (the Act) wherein the PCIT held assessment order passed by the Assessing Officer (AO) u/s143(3) read with Section 92CA(4) and Section 144C(3)  of  the  Act  to  be  erroneous  so  far  as  prejudicial  to  the interest of Revenue.

The return of the assessee was assessed by Revenue in scrutiny assessment framed by AO u/s.143(3) read with Section 92CA(4) / 144C(3) of the Act. The PCIT after examining records was of the view that provision for warranty claimed as deduction by  assessee in its Profit and Loss Account was sought to be justified by assessee on the basis of subsequent year figures, while the same is to be allowed  based on past figures of claims against provisions made and hence said claim of provision towards warranty was wrongly allowed by the AO.

Before the Tribunal the assessee submitted that assessment order was passed by the AO after making enquiries about provision for warranty made by the assessee in its books of accounts and the said assessment order could not be called as erroneous in so far as prejudicial to  the interest of Revenue warranting interference by PCIT u/s 263 of the Act. 

It was the contention of the assessee that the AO made enquiries and verifications  while framing assessment and had taken a view that the provisions for warranty was correctly made by assessee, and hence no additions were made by AO while  passing assessment order u/s.143(3) read with Section 92CA(4) read with Section 144C(3) of the Act.

The Tribunal observed that during the course of assessment proceedings, the AO had specifically asked assessee to explain and justify as to allowability provisions  for expenses made in P&L Account as deduction, while computing income  chargeable to tax,  including provision for warranties made in audited financial statements.

It was observed that the AO had issued notices u/s 142(1) asking assessee to explain and justify as to allowability  of  the  claim  of  provision  for  expenses  made  in  the  audited financial  statements  and  claimed  as  deduction  while  computing  income chargeable to tax in return  of income filed with Revenue. The assessee had duly replied, inter-alia, by giving details of provisions made for warranties along with computational aspect of making provision for warranties, and said reply of the assessee was accepted by the AO while framing scrutiny assessment.

The Tribunal noted that PCIT had held assessment order passed by the AO to be erroneous in so far as prejudicial to the interest of Revenue by holding that there is a big gap between the provision made for warranties and its utilization thereof, and  secondly that the assessee had itself reversed the excess provision made towards warranties as the utilization was not made to the full extent of provisions and further holding that the AO had not made proper enquiries and verification before allowing claim for provisions for warranty.

The Tribunal observed that the assessee was making claim for provisions for warranties in preceding years also and though the gross turnover of the assessee increased, the provision for warranties had scaled down. The AO framed scrutiny assessment  for  the two preceding assessment years also wherein the AO accepted claim for provision for warranty made by the assessee.

The Tribunal further observed that the Revenue  could not show that assessment orders of passed by the AO for preceding years interfered by Revenue either u/s 147 , 263 or any other provisions of the Act.

The Tribunal stated that it could not be said that the AO was not aware of the claim for provisions for warranties made by the assessee over sevral preceding years, rather the said claims were allowed by the AO as deduction while computing taxable income of the assessee. Those assessment orders were also accepted by the Revenue.

Further the Tribunal noted that the assessee had duly given a note in its financial audited statements as to the basis on which provision for warranties were made by it in its books of accounts. The assessee was following a method for computing provision for warranties based on the claims received upto year end as well management estimate of further liability  to be incurred during the warranty period.

The Tribunal stated that it is well settled that an estimates would always entail some guess work but the said estimate has to be an honest and fair guess work.

The Tribunal opined that merely because, the provision for warranties made during the year under consideration was in excess of claims received during the year under consideration,  could not be a reason for disallowing said claim unless it is shown that provision for warranties made during the year was unconscionably high which was made with an intent to artificially reduce tax-liability with an intent to defraud revenue.

The Tribunal opined that the AO  had formed an conscious opinion while allowing  deduction towards claim of provision for warranties while framing scrutiny assessment for impugned ay and it could not be said that the AO formed an opinion which could be termed as perverse to the extent that the assessment order passed  by the AO could be termed as erroneous in so far as prejudicial to the interest of the  Revenue warranting interference u/s 263 of the Act.

The Tribunal stated that powers u/s 263 are extra-ordinary revisionary powers  vested with PCIT who is required to pass an revisionary order after examining the  ‘record’  as stipulated in sub-section 1 to Section 263 of the Act read with Explanation 1 clause (b), which explanation provide that the ‘record’ shall include and shall be deemed always to have included all records relating to any proceedings under the Act available at the time of examination by CIT.

“records” for Revision u/s 263 include those related to preceding assessment years also

The Tribunal opined that the word ‘record’ is defined under Explanation 1(b) to Section 263 in a most exhaustive manner and shall also include records available for scrutiny assessment proceedings conducted by AO not only for relevant ay but also even for preceding assessment years.

The Tribunal stated that as serious prejudice is likely to be caused to the tax-payer by invocation of extra-ordinary revisionary powers vested with PCIT/CIT by invoking provisions of Section 263 of the Act , such powers are to be used not in an technical, routine or casual manner but only after examining of the ‘record’ which, inert-alia, also includes assessment records of preceding  years apart from that of current ay.

The Tribunal stated that it is now well settled by catena of judgments that in tax proceedings, principles of res-judicata is not applicable but principles of consistency has to be maintained to instill certainty in tax matters in the minds of tax-payer so that they can plan their affairs, unless perversity is shown in the action of tax-payer  in claiming  deduction while computing income chargeable to tax or it is shown that an attempt is made by tax-payer to defraud revenue or an unconscionably high claim of deduction is made by  the tax-payer which breaches all cannon of equity, justice and  law.

The Tribunal stated that it is settled proposition now that claim for deduction towards  provisions for made on the basis of past experience based on statistical data by adopting  scientific method to fulfill contractual obligation arising out of concluded contracts of sale/services is an ascertained liability.

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