|CORAM:||Ramit Kochar (AM), Shailendra Yadav (JM)|
|CATCH WORDS:||clarificatory amendment, interpretation of statutes, Retrospective amendment, Revision|
|COUNSEL:||Pradeep N. Kapasi|
|DATE:||February 1, 2016 (Date of pronouncement)|
|DATE:||February 17, 2016 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Explanation 2 to s. 263 (which supersedes the law that there is a difference between "lack of inquiry" and "inadequate inquiry") is "declaratory & clarificatory" in nature and is inserted to provide clarity on the issue as to which orders passed by the AO shall constitute erroneous and prejudicial to the interests of Revenue|
(i) The amendment to section 263 of the Act by insertion of Explanation 2 to Section 263 of the Act is declaratory & clarificatory in nature and is inserted to provide clarity on the issue as to which orders passed by the AO shall constitute erroneous and prejudicial to the interest of Revenue, it is, inter-alia, provided that if the order is passed without making inquiries or verifications by AO which, should have been made or the order is passed allowing any relief without inquiring into the claim; the order shall be deemed to be erroneous and prejudicial to the interest of Revenue. The Hon’ble Supreme Court in the case of Malabar Industrial Company Limited v. CIT (2000) 109 Taxman 66 (SC) held that if the AO has accepted the entry in the statement of account filed by the taxpayer without making enquiry, the said order of the AO shall be deemed to be erroneous in so far as it is prejudicial to the interest of the Revenue. In our considered opinion, the facts of the case of the assessee company are similar to the facts in the case of Malabar Industrial Co. Limited(supra) whereby no enquiry/verification is made by the AO whatsoever with respect to claim of deduction of Rs. 17.72 crores with respect to the provisions for warranty, excise duty , sales tax and liquidated damages. Moreover, now Explanation 2 to Section 263 of the Act is inserted in the statute which is declaratory and claraficatory in nature to declare the law and provide clarity on the issue whereby if the A.O. failed to make any enquiry or necessary verification which should have been made, the order becomes erroneous in so far as it is prejudicial to the interest of revenue.
(ii) A proviso added from 01-04-1988 to Section 43B of the Act from 01-04-1984 came up for consideration in Allied Motors Private Limited v. CIT (1997) 91 taxman 205(SC) before Hon’ble Supreme Court and it was given retrospective effect from the inception of the section on the reasoning that the proviso was added to remedy unintended consequences and supply an obvious omission so that the section may be given a reasonable interpretation and that in fact the amendment to insert the proviso would not serve its object unless it is construed as retrospective. In CIT v. Podar Cement Pvt. Limited (1997) 92 Taxman 541 (SC), the Hon’ble Supreme Court held that amendment introduced by the Finance Act,1987 in so far the related to Section 27(iii), (iiia) and (iiib) which redefined the expression ‘owner of house property’, in respect of which there was a sharp divergence of opinion amongst the High Courts, was clarificatory and declaratory in nature and consequently retrospective. Similarly, in Brij Mohan Das Laxman Das v. CIT (1997) 90 Taxman 41(SC), explanation 2 added to section 40 of the Act was held to be declaratory in nature and, therefore, retrospective.(Reference Page 569-570,Principles of Statutory Interpretation by Justice G.P.Singh, 13th Ed.).
(iii) In our considered view, the CIT has rightly invoked the provisions of section 263 of the Act as the A.O. failed to make proper enquiry, examination and verifications as warranted for the proper completion of the assessment, with respect to claim of deduction of Rs.17.72 crores with respect to the provisions for warranty, excise duty, sales tax and liquidated damages.