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2022 (10) TMI 1031 - AT - Income TaxRevision u/s 263 - Validity of order passed by the AO as per the direction of the Settlement Commission u/s.254D(4) - Claim of deduction in respect of loss by way of liquidated damages on account of delay in execution of contracts, Claim of deduction towards provision for warranty, Adjustment u/s.145A of the Act in respect of MODVAT - HELD THAT - We find that pursuant to the directions of the Hon ble Settlement Commission, the ld. AO had indeed examined the 35 issues listed in the said order while framing the assessment giving effect to Settlement Commission s order. In fact in the said order, AO after due examination had accepted to the stand of the assessee for certain items and wherever he is not in agreement with the contentions of the assessee, the ld. AO had resorted to make suitable disallowances / additions. Hence, this goes to prove that the ld. AO had indeed made thorough examination and enquiries with regard to 35 items listed in the Settlement Commission s order. The order passed by the ld. AO u/s.143(3) r.w.s. 245D(4) of the Act dated 25/02/2008 could not be construed as an order passed by a subordinate authority in view of the fact that the Settlement Commission order has been passed by the Officers in the rank of the Chief Commissioner. Hence, we have no hesitation to hold that revision jurisdiction invoked u/s.263 by the ld. CIT seeking to make adjustment in respect of (a) claim of deduction in respect of loss by way of liquidated damages on account of delay in execution of contracts (b) adjustment u/s.145A of the Act in respect of MODVAT as void ab initio as the same was already the subject matter of consideration by the ld. AO while passing an order giving effect to Settlement Commission proceedings. Hence, due enquiries had been carried out by the ld. AO on these two items. In respect of aforesaid two items, revision jurisdiction invoked by the ld. CIT u/s.263 of the Act is unsustainable in the eyes of law. The various arguments made by the ld. AR on the merits and other legal submissions in respect of the aforesaid two issues, need not be gone into and they are left open as adjudication of the same would only be academic in nature. Impact of Section 145A of the Act of MODVAT - AO in the instant case had passed an order giving effect to the directions of the Settlement Commission. The Settlement Commission had indeed directed the ld. AO to examine 35 items that are listed in pages 27 28 of the Settlement Commission order for various years. Hence, the ld. AO does not have jurisdiction to travel beyond those 35 items listed in the Settlement Commission Order. The examination of those 35 items alone would be in direct consonance and compliance with the directions of the Hon ble Settlement Commission. This is what has been done by the ld. AO in the instant case. How the ld. CIT could expect the ld. AO in the aforesaid scenario to look beyond 35 items. Hence, the order of the ld. AO cannot be treated as erroneous in respect of the issues that were not forming part of 35 items listed in the order of the Settlement Commission. To this extent, the revision order passed by the ld. CIT u/s. 263 of the Act is quashed. Hence, the observations made by the ld. CIT in his order u/s.263 of the Act in respect of (a) impact of taxable income as a consequence of change in the method of recognition of the Revenue and (b) quantitative details in respect of raw materials and finished goods are dismissed and quashed. Claim of deduction towards provision for warranty - Revision jurisdiction u/s.263 of the Act cannot be invoked by the ld. CIT for directing to make fishing and roving enquiries by the ld. AO. Moreover, the ld. CIT had not stated as to how the claim for provision of warranty made by the assessee is incorrect or erroneous, as admittedly reply was given before the ld. CIT by the assessee in response to show-cause notice. Hence, it is incumbent on the part of the ld. CIT to atleast make preliminary enquiry on the submissions made by the assessee before concluding that the order passed by the ld. AO is erroneous in respect of this issue. Hence, we hold that the revision jurisdiction u/s.263 of the Act invoked by the ld. CIT fails in respect of this issue also. Thus revision order passed by the ld. CIT u/s.263 of the Act is hereby quashed. - Decided in favour of assessee.
Issues Involved:
1. Justification of invoking revisionary jurisdiction under Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (CIT). 2. Validity of the assessment order passed by the Assessing Officer (AO) in compliance with the directions of the Income Tax Settlement Commission (ITSC). 3. Specific items under dispute: a) Deduction for loss by way of liquidated damages. b) Deduction for provision towards warranty. c) Adjustment under Section 145A of the Act in respect of MODVAT. Detailed Analysis: 1. Justification of Invoking Revisionary Jurisdiction under Section 263: The core issue was whether the CIT was justified in invoking revisionary jurisdiction under Section 263 of the Income Tax Act. The Tribunal held that the CIT's primary assumption of jurisdiction under Section 263 was patently illegal and bad in law. The AO had passed the order in accordance with the directions of the ITSC, which mandated the AO to examine 35 specific items. The AO had indeed examined these items, and this was not disputed. Therefore, the order passed by the AO could not be termed as erroneous or prejudicial to the interest of the Revenue. 2. Validity of the Assessment Order Passed by the AO: The Tribunal found that the AO had thoroughly examined the 35 items listed by the ITSC while framing the assessment order. The AO had accepted the assessee's stand on most issues and made disallowances on some. Since the AO's order was in compliance with the ITSC's directions, it lost its independent status and could not be revised under Section 263 by the CIT. The Tribunal emphasized that an order passed by the AO, influenced by the directions of a higher authority like the ITSC, could not be subject to revision by the CIT. 3. Specific Items Under Dispute: a) Deduction for Loss by Way of Liquidated Damages: The Tribunal noted that the issue of liquidated damages was included in the list of 35 items for the years 2001-02 to 2004-05. The AO had examined this issue as per the ITSC's directions. Therefore, invoking Section 263 for this item was void ab initio, as the AO had already conducted due enquiries. b) Deduction for Provision Towards Warranty: The Tribunal held that the AO could not travel beyond the 35 items listed by the ITSC. The provision for warranty was not included in the list of 35 items. The CIT's grievance was that the AO did not verify if the provision for warranty was reversed in subsequent years. However, the Tribunal found that the CIT had not demonstrated how the provision for warranty was erroneous. The CIT's direction to the AO to make further enquiries was deemed as fishing and roving, which is not permissible under Section 263. Thus, the revision jurisdiction invoked by the CIT for this issue was also unsustainable. c) Adjustment under Section 145A of the Act in Respect of MODVAT: The Tribunal observed that the ITSC had directed the AO to look into the MODVAT issue only for the assessment year 2004-05. Therefore, for the assessment year 2001-02, the AO could not have looked into this aspect. The AO's order, passed as per the ITSC's directions, could not be deemed erroneous or prejudicial to the Revenue. The Tribunal quashed the CIT's revision jurisdiction under Section 263 for this item as well. Conclusion: The Tribunal quashed the revision order passed by the CIT under Section 263 of the Act, holding that the AO's order was not erroneous or prejudicial to the interest of the Revenue. The appeal of the assessee for the assessment year 2001-02 was allowed. The same decision applied mutatis mutandis to the assessment years 2002-03 and 2003-04, except for variances in figures. All appeals of the assessee were allowed. Order Pronounced: The order was pronounced on 29/09/2022 by way of proper mentioning in the notice board.
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