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TMI Blog2017 (11) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... er. Therefore, the preliminary point which is sought to be raised by the assessee based on the judgment of Hon’ble Supreme Court in the case of Amitabh Bachchan (supra) is very much applicable in the given facts of the present case. Notably, section 263(1) of the Act obligates the Commissioner to give the assessee an opportunity of being heard before passing of his order. The relevant discussion in the order of the Commissioner reveals that he has not disputed the factual matrix brought out by the assessee but has sought to deny the deduction only because, in his opinion, there was no scientific basis for fixing the percentage of provision. The objection of the Commissioner, in our view, is quite untenable in as much as the basis for making the provision was explained by the assessee to be the aging analysis of the spares lying in the inventory. Why and how the Commissioner does not find it to be a scientific basis is not elaborated. - Decided in favour of assessee. - ITA No. 3563/Mum/2016 - - - Dated:- 10-11-2017 - Shri G S Pannu, Accountant Member And Shri Ram Lal Negi, Judicial Member Appellant By : Shri Soumen Adak Respondent By : Shri R P Meena ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alia, furnished written submissions dated 14.03.2016, copy of which has been placed in the paper-book at pages 65 to 69. The appellant company resisted the action of the Commissioner both on the point of assumption of jurisdiction as well as on the merits of the issue. In paras 2 to 3.3 of his order, the Commissioner has briefly noted the submissions put-forth by the assessee. However, the Commissioner was not satisfied with the submissions put-forth and held that the requisite conditions prescribed for invoking section 263 of the Act were fulfilled in the present case and he justified the invoking of section 263 of the Act. 4. In so far as the merits of the issue was concerned, the Commissioner directed the Assessing Officer to withdraw the allowance of such provision and his relevant discussion is contained in para 5 of his order, which we would reproduce and refer to it in detail later in this order. 5. In conclusion, the Commissioner held the assessment order, dated 24.02.2014, to be prejudicial to the interests of the Revenue to the above extent and directed the Assessing Officer to modify the assessment order. 6. Against such a decision assessee is in appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries, the company has made a provision of ₹ 52.80 crore for slow moving inventories. This provision was created for the first time having effect on profit for relevant assessment year. Further, the provision is meant for temporary diminution in the value of spares meant for plant and machinery and related to capital in nature. The same was allowed by the Assessing Officer in the order under reference. The incorrect allowance of this provision led to under assessment of income of ₹ 52.80 crore, involving tax effect of ₹ 17.95 crore. As a result, the order passed by the A.O., seems to be erroneous in so far as it is prejudicial to the interest of revenue. In terms of the aforesaid, what the Commissioner has sought to make out is that the Provision for slow moving inventories of spares is Capital in nature and, therefore, it has been incorrectly allowed by the Assessing Officer in the assessment order dated 28.02.2014 (supra). Thus, in the show cause notice, the Commissioner had found the assessment order erroneous in so far as it is prejudicial to the interests of the Revenue for the aforesaid reason. 8. Now, we may touch upon the manner in which the Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same is accepted by the AO, resulting in prejudice caused to the Revenue . In so far as discussion in para 5 is concerned, he refers to the judgment of Hon ble Karnataka High Court relied upon by the assessee before him in the case of Dr Aswath N Rao vs. ACIT [326 ITR 188]. The assessee had relied upon the said judgment for the proposition that the cost of spare parts procured for the maintenance of the existing machineries were to be treated as revenue expenditure. The Commissioner notes that part of the spares are capitalized and that assessee was also making the provision for slow moving inventories of spares, which were being debited to the Profit loss account. The Commissioner concludes that there is no scientific basis for fixing the percentage on which the provision has been made and, therefore, he inferred that the provision deserves to be disallowed. It is this finding of the Commissioner, which has formed the basis for the learned representative to argue before us that such a basis for treating the assessment order as erroneous was not put to the assessee and, therefore, no opportunity was allowed to the assessee to explain the circumstances in which the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue on the ground that the provision in question was capital in nature and, thus, the same was incorrectly allowed in the assessment order, dated 28.02.2014. Notably, while passing the impugned order, after considering the submissions of the assessee, the Commissioner find faults with the allowance of Provision because according to him there was no scientific basis for fixing the percentage for making the Provision. Notably, his earlier stand in the show cause notice of the Provision being capital in nature has been impliedly given a go-by. Ostensibly, the Commissioner found fault with the quantification/basis of making the Provision, which impliedly conveys that he accepted the plea of the assessee of the Provision being in the nature of revenue item charged to the Profit loss account. Of course, the Commissioner is free to exercise his revisionary power u/s. 263 of the Act on any ground but what is of essence is that the assessee ought to have been allowed an opportunity to explain the circumstances on the ground formulated by the Commissioner to treat the assessment being erroneous in so far as it was prejudicial to the interests of the Revenue. The change in the stand of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision. The objection of the Commissioner, in our view, is quite untenable in as much as the basis for making the provision was explained by the assessee to be the aging analysis of the spares lying in the inventory. Why and how the Commissioner does not find it to be a scientific basis is not elaborated. In fact, it is a case where the basis put forth by the assessee has been given a complete go-by without any cogent reasoning. Therefore, in our opinion, even the reason advanced by the Commissioner to treat the assessment order as erroneous is devoid of merit and does not deserve to be affirmed. We hold so. 12. Before parting, we may also refer to an argument put-forth by the learned CIT-DR based on the judgment of Hon ble Gauhati High Court in the case of CIT vs. Shri Jawahar Bhattacharjee in ITA No.2 of 2009 and the order of Mumbai Bench of the Tribunal, dated 05.12.2012, in the case Alka Rajesh Agarwal vs. CIT in ITA No.5007/Mum/2009 for assessment year 2005-06. According to the CIT-DR there was no inquiry made by the Assessing Officer in the course of assessment proceedings on the points raised by the Commissioner and, therefore, invoking of section 263 was quite justified. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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