BENCH ‘A’ CHENNAI
Before Dr. O. K. Narayanan, Vice President and
Shri George Mathan, Judicial Member
I.T.A. No. 702/Mds/2010
Assessment Year : 2004-05
M/s. Danfoss Industries Pvt. Ltd., The Assistant Commissioner of
296, Old Mahabalipuram Road, v. Income-tax,
Sholingnallur, Chennai-600 119. Company Circle-I(4), Chennai.
Appellant by : Shri T. Banusekar
Respondent by : Shri Shaji P. Jacob
O R D E R
PER GEORGE MATHAN, JUDICIAL MEMBER :
This is an appeal filed by the assessee against the order of the learned
Commissioner of Income-tax, Chennai-I in C. No. 218(63)/CIT-I/263/09-10 dated
16.3.2010 for the assessment year 2004-05.
2. Shri T. Banusekar, FCA represented on behalf of the assessee and Shri
Shaji P. Jacob, learned Sr. DR represented on behalf of the Revenue.
3. It was submitted by the learned authorised representative that the
assessment in the case of the assessee had been completed u/s. 143(3) read
with section 147 of the Income Tax Act, 1961 on 27-9-2007. Subsequently, the
learned CIT invoked his power under section 263 of the Act and had issued a
show cause notice dated 25-2-2010 wherein he had held that the order passed
by the Assessing Officer was erroneous and prejudicial to the interests of the
Revenue in regard to the software expenses and the licence fee for using the
software as also the warranty expenses. It was the submission that in the
course of the assessment proceeding notice u/s. 142(1) had been issued on the
assessee on 5-2-2007 by the Assessing Officer, wherein the Assessing Officer
had examined the issue of the warranty expenses. He drew our attention to
pages 32 and 33 of the paper book containing the notice under section 142(1).
He further drew our attention to the reply to the 142(1) notice at page 31
wherein the assessee had explained the issue of warranty expenses claimed. He
further drew our attention to the assessment order passed u/s. 143(3) read with
sectin 147, wherein at page 3 the Assessing Officer has mentioned regarding the
issue of the clarification given by the assessee regarding the justification for not
adding back the provision for warranty. He further drew our attention to the
reply given in the course of assessment proceedings to submit that the actual
provision for warranty was only ` 30,29,000/- whereas the actual expenses in
regard to the warranty was ` 37,89,000/-. It was the submission that the
Assessing Officer had examined the issue and had also considered the replies
given by the assessee and the view having not been shown by the learned CIT
as erroneous, the provisions of sec. 263 could not be invoked on the issue.
4. In regard to the software expenses it was submitted that this issue was
also considered by the Assessing Officer in the notice issued u/s. 142(1). It was
the further submission that the assessee had also replied to the same and also
produced the details vide letter dated 2-3-2007, the copy of which is found at
pages 8 to 29 of the paper book. It was the submission that as this issue has
also been considered by the Assessing Officer in the course of assessment
proceedings, the same was not liable to be considered in the proceedings u/s.
263 insofar as the learned CIT had not pointed out what was the error. It was
thus the submission that the order passed under section 263 on 16-3-2010
directing the Assessing Officer to examine the issues was in fact a direction to re-
examine the issue which was not permissible. It was the submission that the
order passed u/s. 263 was liable to be cancelled.
5. In reply, the learned DR vehemently supported the order of the learned
CIT at page 3 of the order, wherein the learned CIT has given a specific finding
that there is no discussion made by the Assessing Officer either in the order
sheet noting or in the assessment order. It was the submission that the learned
CIT has specifically given a finding that the Assessing Officer had not examined
the question of allowability of software expenses claimed by the assessee and
there being a specific finding by the learned CIT that the Assessing Officer has
not examined the same, the order passed by the learned CIT u/s. 263 was liable
to be upheld. It was the submission that the assessee had also not filed any
affidavit claiming that the details had been filed even though he has enclosed the
letter dated 2.3.2007 in the paper book.
6. We have considered the rival submissions. A perusal of the assessment
order passed by the Assessing Officer u/s. 143(3) read with section 147 at page
2 clearly shows that the issue of warranty has been considered by him. This is
also supported by the notice issued u/s. 142(1) and the reply given by the
assessee at page 321 of the paper book. In the circumstances as it is noticed
that the issue has been considered by the Assessing Officer in the course of
assessment proceedings and an opinion has been reached by him, unless this
opinion as reached by the Assessing Officer is found to be erroneous or against
legal principles laid down, the power under the provisions of section 263 cannot
be invoked by the learned CIT for disturbing the finding of the Assessing Officer
on the issue. In the circumstances, the direction of the learned CIT in regard to
the claim of expenses towards warranty is found to be erroneous and
consequently the order of the learned CIT in regard to the warranty expenses
7. Even on merits it is noticed that the actual warranty expenses claimed is `
37,89,000/- as against the provision of ` 30,29,000/- and as the actual
expenditure is more then the provision, obviously, the expenses are allowable
expenses. Consequently, even on this ground the direction of the learned CIT
on the issue of warranty expenses stands cancelled.
8. In regard to the issue of the software expenses it is noticed that the
learned CIT has given a specific finding that either in the order sheet noting or in
the assessment order there is no discussion made by the Assessing Officer.
True, in the 142(1) notice at clause (6) the issue has been raised by the
Assessing Officer and the assessee has filed a reply dated 2.3.2007 as per the
paper book filed. However, when the learned CIT has given a specific finding of
fact and this finding of fact has not been disturbed by filing of the necessary
affidavit as also on account of the fact that the records are not before us, we re
unable to find any error in the direction given by the learned CIT in regard to the
issue of software expenses. In the circumstances, the direction of the learned
CIT in regard to the software expenses is upheld. In the circumstances, the
appeal of the assessee is partly allowed and the order of the learned CIT passed
u/s. 263 stands consequently modified.
9. The order was pronounced in the court on 23/12/10.
(Dr. O. K. Narayanan) (George Mathan)
Vice President Judicial Member
Dated the 23 December, 2010.
Copy to: Assessee/AO/CIT (A)/CIT/D.R./Guard file