Ita/368/2016 Of The Commissioner Of Income Tax v. M/S. Bosch Limited

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 30 DAY OF NOVEMBER, 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD ILT.A. NO.368 OF 2016 BETWEEN: 1.|THE COMMISSIONER OF INCOME-TAX, LTU, JSS TOWERS, BSK III STAGE,| BANGALORE-560 O85. 2.|THE DEPUTY COMMISSIONER OF ~ INCOME-TAX,LTU, JSS TOWERS, BSK III] STAGE,LTU, JSS TOWERS, BSK III] STAGE, BANGALORE-560 O85. APPELLANTS (BY SRI K.V.ARAVIND, ADV.) AND: M/S. BOSCH LIMITED,HOSUR ROAD, AUDOGODI,BANGALORE-560 O30.PAN: AAACM 9849P| RESPONDENT| (BY SRI T.SURYANARAYANA, ADV.) THIS I.T.A. IS FILED UNDER SECTION 260-A OF|I.T.ACT, 1961, ARISING OUT OF ORDER DATED 28/10/2015 PASSED IN ITA NO.5/71/BANG/2014 FORTHE ASSESSMENT YEAR 2008-2009 PRAYING TO 1.FORMULATE THE SUBSTANTIAL QUESTIONS OF LAWSTATED ABOVE; 2. ALLOW THE APPEAL AND SET ASIDETHE ORDERS PASSED BY THE ITAT, BENGALURU IN ITANO.5/71/BANG/2014 DATED 28/10/2015 AND CONFIRMTHE.ORDER.OF|THEAPPELLATE.COMMISSIONER,CONFIRMING THE ORDER PASSED BY THE DEPUTYCOMMISSIONER OF INCOME TAX, LTU, BENGALURU; 3.TO PASS SUCH OTHER SUITABLE ORDERS AS THISHON’BLE COURT DEEMS FIT TO GRANT IN THE FACTSAND CIRCUMSTANCES OF THE CASE IN THE INTERESTOF JUSTICE AND EQUITY. THIS I.T.A. COMING ON FOR FINAL HEARING,|THIS|DAY,ALOKARADHE|J.,DELIVEREDTHEFOLLOWING:JUDGMENT This appeal under Section 260-A of the Income Tax|Act, 1961 (nereinafter referred to as tne Act, for snort)has been preferred by the revenue. The subject matterof the appeal pertains to the Assessment Year 2008-09. |The appeal was admitted by a Bencn of this Court videorder dated 11.10.2017 on the following substantialquestion of law: iWhetherOP)thefactsandIn|thecircumstances of the case, the Tribunal wasjustified in quashing the order of theCommissioner passed under Section 263 ofthe Act even when the CIT has rightly heldcircumstances of the case, the Tribunal wasjustified in quashing the order of theCommissioner passed under Section 263 ofthe Act even when the CIT has rightly held that the order passed by the assessingauthority allowing claim under Section35(2AB) of the Act to an extent ofRs.19,05,88,159/-IS.eCrrorfnedand|prejudicial to interest of Revenue as it Isrightly held by CIT that in the Profit andLoss account of the EOUs, the expenditureon scientific research claimed and allowedas aeduction under Section 35(2)AB wasnot apportioned and debited to P & LAccounts of the two EOU’s and tnereby theeligible deduction under Section 10B of theAct was allowed in excess by the assessingauthority?” 2.|Tne facts giving rise to filing of the appealbriefly stated are that the Assessing Authority allowed.the claim of tne assessee for deduction under Section|35(2AB) of the Act for Assessment Year 2008-09. TheCommissioner of Income Tax (CIT) subsequently tookup the matter in.SUO motorevision in exercise of powers.Under Section 263 of tne Act and held tnat tne order is°erroneous and is prejudicial to the interest of therevenue as the Assessing Authority has wrongly allowedthe deduction under Section 35(2AB) of the Act. It wasfurther held by the CIT that the assessee had two Export Oriented Units (EOQU) and the profits of these EOQUS werentitled to 100% deduction under Section 10B of the Act|as they were EOUs and the benefits of R & D wouldaccrue to all the manufacturing units of the assessee. Itwas also noticed that in the Profit and Loss Account of the EOUs, the expenditure on scientific research claimedand allowed as deduction under Section 35(2AB) of theAct was not apportioned and debited to the P & Laccount of the two EOUs and thereby eligible deductionunder Section 10B of the Act was allowed in excess bythe Assessing Officer. The CIT found that excessdeduction under Section 10B of the Act has beenallowed to the extent of Rs.19,05,88,159/-.. Oriented Units (EOQU) and the profits of these EOQUS werentitled to 100% deduction under Section 10B of the Act|as they were EOUs and the benefits of R & D wouldaccrue to all the manufacturing units of the assessee. Itwas also noticed that in the Profit and Loss Account of the EOUs, the expenditure on scientific research claimedand allowed as deduction under Section 35(2AB) of theAct was not apportioned and debited to the P & Laccount of the two EOUs and thereby eligible deductionunder Section 10B of the Act was allowed in excess bythe Assessing Officer. The CIT found that excessdeduction under Section 10B of the Act has beenallowed to the extent of Rs.19,05,88,159/-.. 3.The assessee thereupon filed an appealbefore the Income Tax Appellate Tribunal (hereinafterreferred to as ‘the Tribunal’, for short). The Tribunal byorder dated 28.10.2015, allowed the appeal preferred bythe assessee. In the aforesaid factual background,revenue is in appeal before this Court. 4Learned counsel for the revenue submittedthat the Tribunal erred in quashing the order of the CITunder Section 263 of the Act even when the CIT hasrightly held that the order passed by the AssessingOfficer allowing the claim under Section 35(2AB) of theAct to the extent of Rs.19,05,88,159/- is erroneous andiS prejudicial to the interest of the revenue. As is rightly.held by the CIT that in the Profit and Loss Account of theEOUs, the expenditure on scientific research claimed andallowed as deduction under Section 35(2AB) of the Actwas not apportioned and debited to the P & L account ofthe two EOUs and thereby eligible deduction underSection 10B of the Act was allowed in excess by theAssessing Officer to the extent of Rs.19,05,88,159/-. 5.|On the other hand, learned counsel for theassessee submitted that the Tribunal has rightly set-aside the order passed by the CIT and has held that theview, which was taken by the Assessing Officer was one.of the possible views and therefore, in the fact situation of the case, the CIT erred in invoking the powers under.Section 263 of the Act. 6.|We have considered the submissions madeby learned counsel for the parties and have perused therecords. J |We have considered the submissions made by learned counsel for the parties and have perused therecords. Before proceeding further, it is apposite to takenote of the relevant extract of Section 263 of the Act,which reads as under: 263. Revision of orders prejudicial to revenulle (1) The Commissioner may call for andexamine the record of any proceeding underthis Act, and if he considers that any orderpassed therein by the Assessing Officer is—erroneous in so far as it is prejudicial to theinterests of the revenue, he, may, after givingthe assessee an opportunity of being heardand after making or causing to be made such inguiry as he deems necessary, pass suchorder thereon as the circumstances of thecase Justify, including an order enhancing ormodifying the assessment, or cancelling the.assessment.and|directing adfresh|assessment. 8.|Thus, from close scrutiny of Section 263 ofthe Act, it is evident that twin conditions are required tobe satisfied for exercise of revisional jurisdiction underSection 263 of the Act. Firstly, the order of theAssessing Officer is erroneous and secondly, that it isprejudicial to the interest of the revenue on account oferror in the order of assessment. 9 |The aforesaid provision was considered bythe|SupremeCourtIn@MALABARINDUSTRIALCOMPANY VS. CIT’, 243 ITR 83and it was held that|the phrase ‘prejudicial to the interests of the revenue’has to be read in conjunction with an erroneous orderpassed by the Assessing Officer and every loss ofrevenue as a consequence of the order of the Assessing 8.|Thus, from close scrutiny of Section 263 ofthe Act, it is evident that twin conditions are required tobe satisfied for exercise of revisional jurisdiction underSection 263 of the Act. Firstly, the order of theAssessing Officer is erroneous and secondly, that it isprejudicial to the interest of the revenue on account oferror in the order of assessment. 9 |The aforesaid provision was considered bythe|SupremeCourtIn@MALABARINDUSTRIALCOMPANY VS. CIT’, 243 ITR 83and it was held that|the phrase ‘prejudicial to the interests of the revenue’has to be read in conjunction with an erroneous orderpassed by the Assessing Officer and every loss ofrevenue as a consequence of the order of the Assessing Officer cannot be treated as prejudicial to the interest ofrevenue. It was further held that where two views arepossible and the Income Tax Officer has taken one viewwith which the Commissioner does not agree, the orderpassed by the Assessing Officer cannot be treated aserroneous order prejudicial to the interest of therevenue. The principles laid down in the aforesaiddecision were reiterated by the Supreme Court in|‘CIT|VS. MAX INDIA LTD.," 295 ITR 282 (SC)and.recently in‘ULTRATECH CEMENT LTD, AND ORS. VS.STATE OF RAJASTHAN AND ORS.’, CIVIL APPEALNO.2773/2020 DECIDED ON 17.07.2020.10. In view of aforesaid enunciation of law, the.facts of the case may be seen. The Tribunal inparagraph No.18 of its order has held that the assessee.has demonstrated that the enquiries contemplated bythe CIT In the show cause notice under Section 2763 ofthe Act were not required at all and this fact has alsobeen accepted by the CIT in the impugned order. The CIT has only remanded the issue to the AssessingOfficer for verification of an insignificant issue whetherof approval of the Naganathapura unit and the Nashikunit continues even during the previous year and which.has been demonstrated by the assessee before the CITwith sufficient documentary evidence. Therefore, theTribunal has concluded that there was no necessity tohave remanded the matter. It has further been held bythe Tribunal that the CIT has accepted that if R & Dactivity carried on at the 100% EOUs were different,then there was no need to apportion the R & D expensesof the two EQOUs. It has been further noted that thecertificate of the Chartered Accountant given in Form.56G for both these units clearly mention the nature ofactivities of these two units for the previous yearrelevant to Assessment Year JOO8-O9 are the sameactivity for which approvals were granted to these 100%EOUs, which has been clearly demonstrated by theassessee before the CIT that the expenditure on R & D had no connection whatsoever with the 10029 EOUS at Naganathapura and Nashik. Therefore, there was for no need for the CIT to set aside the order of the Assessing Officer for suitable enquiries and deciding the issue afresh. The Tribunal has therefore, rightly quashed theimpugned order under Section 263 of the Act and has allowed the appeal of the assessee. 11. In view of preceding analysis, the substantial question of law framed in this appeal is answeredagainst the revenue and in favour of the assessee. 12. In the result, we find no merit in the appeal. The same fails and is hereby dismissed. Sd/- JUDGE Sd/-| JUDGE