2012 (3) TMI 332 - HC - Income Tax

Revision u/s 263 - Capital or revenue expenditure - There is no finding of CIT that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of the Revenue. The question of lack of enquiry and inadequate enquiry has been explained by this Court in Commissioner of Income Tax v. Sunbeam Auto Ltd., (2009 -TMI - 204642 - Delhi High Court) - the question of warranty claim was reopened in the assessment year 1999-2000 after an order u/s 263 of the Act It is noticed that the claim for deduction under Section 35DDA was made by the assessee for the first time in assessment year 2002-03. 1/5th of the amount payable under the voluntary retirement was allowed as a deduction - Held that assessee had stated before the CIT and explained the position that an amount of Rs. 5,37,14,119/- was incurred under Section 35DDA in the assessment year 2002-03 and 1/5th thereof being Rs. 1,07,42,824/- was amortised and claimed and allowed as a deduction - Decided in favor of the assessee

Summary

Issues Involved:
1. Claim for warranty.
2. Deduction under Section 35DDA.
3. Non-recurring items.

Detailed Analysis:

1. Claim for Warranty:
The Tribunal quashed the CIT's order regarding the warranty claim. The original assessment proceedings included a detailed letter from the assessee dated 21.11.2006, which provided complete details of the provision for warranty and relied on the Delhi High Court decision in Commissioner of Income Tax v. Vinitec Corporation Pvt. Ltd. The CIT acknowledged this but argued that the provision must be made on a scientific basis to be allowable. However, the Tribunal found no evidence of the CIT disputing the factual position or indicating how the enquiry was lacking. The Tribunal cited the principle that "lack of inquiry" and "inadequate inquiry" are distinct, and only the former justifies action under Section 263. The Tribunal referenced Commissioner of Income Tax v. Sunbeam Auto Ltd., emphasizing that an order cannot be termed erroneous simply because the CIT disagrees with the Assessing Officer's conclusion.

2. Deduction under Section 35DDA:
The Tribunal also quashed the CIT's order regarding the deduction under Section 35DDA. The assessee had claimed 1/5th of the voluntary retirement amount as a deduction, following the procedure from the assessment year 2002-03. The CIT observed a mismatch in the audit report but did not appreciate the assessee's explanation that Rs. 5,37,14,119/- was incurred in 2002-03, with 1/5th being amortized annually. The Tribunal found that the CIT misinterpreted the auditor's note, which was a precautionary measure due to the introduction of Section 35DDA. The Tribunal concluded that the CIT's order was based on a misreading and thus set aside this part of the order.

3. Non-recurring Items:
The Tribunal upheld the CIT's order regarding non-recurring items. This aspect was not contested in the appeal, so the focus remained on the first two issues.

Conclusion:
The appeal was dismissed, and the Tribunal's decision to quash the CIT's order on the warranty claim and Section 35DDA deduction was upheld. The Tribunal emphasized the necessity of clear findings and adequate enquiry for an order to be considered erroneous and prejudicial to the interest of the Revenue under Section 263.