ITAT Mumbai Upholds Revision Order Against Bajaj Auto For Prejudicial Assessment Order Against Revenue

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) on 23 January dismissed an appeal filed by Bajaj Auto Limited and upheld a revisionary order issued by the Principal Commissioner of Income-tax (PCIT) under Section 263 of the Income Tax Act.

A Bench comprising Judicial Member Narender Kumar Choudhry and Accountant Member Om Prakash Kant agreed with the PCTI that the original assessment, completed on 27 May 2022, was erroneous and prejudicial to the interests of the Revenue, as the Assessing Officer (AO) failed to conduct adequate enquiries on key aspects.

Bajaj Auto, had claimed deductions for (i) year-end provisions, (ii) discounts and incentives paid to dealers, (iii) expenditure on dies, moulds, jigs and fixtures, and (iv) deduction of education cess, which the AO allowed. Upon review, the PCIT found that the AO had not verified the factual and contractual basis for the claims.

The Tribunal upheld the PCIT's revision order. It noted: 

"Explanation 2 to section 263 specifically deems an assessment order to be erroneous and prejudicial where the Assessing Officer has not made enquiries which ought to have been made in the facts and circumstances of the case."

On year-end provisions totaling Rs. 174.12 crore, the Tribunal noted that these were ad hoc and unascertained liabilities. Only 30% had been disallowed by the company under Section 40(a)(ia), while the remaining 70% was rightly disallowed under Section 37(1).

Regarding discounts and incentives of Rs. 154.40 crore paid to spare parts dealers, the PCIT observed that these payments were, in substance, commissions liable for TDS under Section 194H. The Tribunal upheld the revision, noting that the AO had not examined the contractual arrangements or actual conduct of the parties to determine the true nature of the payments.

On expenditure for dies, moulds, jigs and fixtures, valued at nearly Rs. 95 crore, the Tribunal agreed with the PCIT that the AO had failed to determine whether the items were capital assets providing enduring benefits or mere replacements. The PCIT's direction to treat the expenditure as capital where appropriate was sustained.

For the deduction of education cess, the company had withdrawn the claim via Form 69 following retrospective legal amendments. The Tribunal held that no live grievance survived, as the PCIT had only directed verification.

The ITAT highlighted that the AO is duty-bound to conduct year-specific and fact-specific enquiries, particularly for substantial claims, and cannot rely solely on past assessments or accept claims at face value. It reinforced that an assessment order is deemed erroneous under Section 263 when the AO fails to make inquiries that "ought to have been made."

Accordingly, the Tribunal dismissed Bajaj Auto's appeal, upholding the PCIT's revisionary order.