2010 (9) TMI 1175 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction and timeliness of the order u/s 263.
2. Erroneous and prejudicial nature of the AO's order u/s 147.
3. Mechanical manner of the CIT's order.
4. Non-consideration of claims on merits by the CIT.

Summary:

1. Jurisdiction and Timeliness of the Order u/s 263:
The assessee contended that the order made u/s 263 was without jurisdiction and barred by time. The Tribunal noted that the assessment order under scrutiny was passed pursuant to re-assessment proceedings initiated u/s 147. The subject matter for reasons recorded under sec. 148 was the payment made by the assessee company to its parent company without deducting tax at source. The Tribunal held that the CIT's order u/s 263 was beyond jurisdiction as the issues raised in the notice had no connection to the reasons recorded for initiating re-assessment proceedings u/s 147.

2. Erroneous and Prejudicial Nature of the AO's Order u/s 147:
The CIT found the AO's order u/s 143(3)/147 to be erroneous and prejudicial to the interests of the revenue on three counts: provision for warranty/guarantee, provision for contractual obligations, and prior period expenses. The Tribunal observed that these issues were not part of the reasons recorded for initiating re-assessment proceedings u/s 147 and thus could not form part of the re-assessment.

3. Mechanical Manner of the CIT's Order:
The assessee argued that the CIT passed the order in a mechanical manner without considering the arguments on merits. The Tribunal noted that the CIT directed the AO to verify the claims afresh without proper consideration of the assessee's submissions.

4. Non-Consideration of Claims on Merits by the CIT:
The Tribunal examined the merits of the issues raised by the CIT:
- Provision for Warranty/Guarantee and Contractual Obligations: The Tribunal referred to its earlier decisions and the Supreme Court's ruling in Rotork Controls India P. Ltd. vs. CIT, holding that such provisions are deductible business expenditures.
- Provision No Longer Required: The Tribunal found that the amount of Rs. 1,85,36,298/- was already added back by the assessee in the return of income.
- Prior Period Expenses: The Tribunal upheld the assessee's practice of booking expenses on receipt of bills, consistent with earlier years.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, holding that the CIT's order u/s 263 was beyond jurisdiction and the issues raised were already settled in favor of the assessee. The decision was pronounced in the Open Court on 17th September, 2010.