2021 (10) TMI 1056 - AT - Income Tax

Assessing Officer's Order Quashed Under Section 263

The Tribunal quashed the order of the Ld. Pr. Commissioner of Income Tax under Section 263 of the Income Tax Act, holding that the Assessing Officer ... Revisionary jurisdiction under section 263 of the Income tax Act - Assessment order erroneous and prejudicial to the interests of the revenue - Requirement of inquiry and verification by the Assessing Officer before completion of assessment - Explanation 2 to section 263 - application of four clauses as sine qua non for enlarged revisionary power - Post assessment settlement scheme (Vivad se Vishwas) not a ground to render an assessment order erroneousRevisionary jurisdiction under section 263 of the Income tax Act - Requirement of inquiry and verification by the Assessing Officer before completion of assessment - Erroneous and prejudicial to the interests of the revenue - Validity of the Pr. CIT's exercise of revisionary jurisdiction under section 263 on the ground that the Assessing Officer failed to conduct inquiries and verification (notably regarding large foreign exchange loss and domestic transaction expenses) rendering the assessment order erroneous and prejudicial to revenue. - HELD THAT: - The Tribunal examined the material placed before the Assessing Officer and the replies filed by the assessee during assessment proceedings, including specific working of foreign exchange difference, correspondence explaining other expenses and purchase registers, and Form 3CEB entries. The Tribunal found that queries were raised by the Assessing Officer and the assessee furnished detailed explanations and documents addressing the increase in foreign exchange loss and the nature of domestic payments. The Tribunal noted that the assessee had not claimed a tax deduction for the forex loss (it was added back in computation) and that profits excluding forex loss showed an increase; those particulars were on record and were not specifically negatived by the Pr. CIT. In these circumstances, the Tribunal held that the Pr. CIT failed to point to objective factual evidence showing that the Assessing Officer did not make necessary inquiries or that the order was erroneous so as to be prejudicial to revenue; the assumption of jurisdiction under section 263 on this ground was therefore not justified. [Paras 5, 6, 10, 13, 16]Assumption of revisionary jurisdiction by the Pr. CIT under section 263 on the ground of absence of inquiry/verification (as alleged) is not valid; the impugned order is quashed on this ground.Explanation 2 to section 263 - application of four clauses as sine qua non for enlarged revisionary power - Objective and tenable opinion required under Explanation 2 - Whether the Pr. CIT could validly invoke Explanation 2 to section 263 by showing that the assessment order fell within any of the four clauses that deem an order erroneous and prejudicial. - HELD THAT: - Relying on precedents considered by the Tribunal, the Tribunal observed that Explanation 2 requires an objective, supportable satisfaction that one or more of the four specified situations exist. On the facts, the Assessing Officer had made inquiries and carried out verification; the alleged allowances or payments were not accepted as unexplained or unexamined, and the specific clauses of Explanation 2 (a)-(d) were not attracted. The Tribunal endorsed the approach that invocation of Explanation 2 demands demonstration that one or more of the enumerated situations actually exist on the record, which was not done here. [Paras 15, 16]Explanation 2 to section 263 does not apply on the present facts; the Pr. CIT's recourse to enlarged revisionary power was not legally sustainable.Post assessment settlement scheme (Vivad se Vishwas) not a ground to render an assessment order erroneous - Irrelevance of subsequent voluntary payment under a settlement scheme to validity of earlier assessment - Whether payment (or non payment) under the Vivad se Vishwas scheme after completion of assessment can render the earlier assessment order erroneous and prejudicial for purposes of section 263. - HELD THAT: - The Tribunal found that availing or not availing the Vivad se Vishwas scheme after the assessment cannot be the basis to hold the originally passed assessment order to be erroneous or prejudicial to revenue. The fact that a taxpayer later seeks immunity or pays amounts under a settlement scheme does not retroactively make the assessment order defective so as to attract revisional jurisdiction under section 263. [Paras 12, 16]The Pr. CIT's reliance on Vivad se Vishwas payments (or lack thereof) does not furnish a valid ground for revision under section 263.Final Conclusion: Taking the totality of facts and judicial precedents, the Tribunal held that the Pr. Commissioner of Income Tax had not shown objective, tenable grounds to conclude that the assessment for Assessment Year 2014 15 was erroneous and prejudicial to revenue; the revisionary order under section 263 was quashed and the assessee's appeal was allowed. Issues Involved:1. Assumption of revisionary jurisdiction under Section 263 of the Income Tax Act, 1961.2. Examination of foreign exchange loss and its impact on net profit.3. Verification of domestic transactions and expenses.4. Payments to related parties and their scrutiny.5. Applicability of Vivad se Vishwas Act, 2020, on the assessment order.Detailed Analysis:1. Assumption of Revisionary Jurisdiction under Section 263 of the Income Tax Act, 1961:The primary grievance of the assessee revolves around the Ld. Pr. Commissioner of Income Tax's assumption of revisionary jurisdiction under Section 263 of the Income Tax Act, 1961. The Commissioner held that the assessment order was erroneous and prejudicial to the interest of the revenue due to the Assessing Officer's failure to conduct proper enquiry and verification on various aspects of the matter.2. Examination of Foreign Exchange Loss and its Impact on Net Profit:The Commissioner observed that the case was selected due to 'low net profit or loss shown from large gross receipts.' The Assessing Officer did not question the significant increase in foreign exchange loss, which escalated from Rs. 82,23,143 to Rs. 82,83,74,234. The assessee had provided detailed explanations and documents regarding the foreign exchange loss to the Assessing Officer, which were annexed in the paper book. The Tribunal noted that these details were indeed examined by the Assessing Officer, and the Department's contention that no enquiry was conducted was incorrect.3. Verification of Domestic Transactions and Expenses:The Commissioner noted that the Assessing Officer did not correctly examine the expenses of domestic transactions, which contributed to the reduced net profit. However, the Tribunal found that the assessee had provided comprehensive explanations and documents during the assessment proceedings. The Tribunal emphasized that the Assessing Officer made sufficient enquiries, and the assessee responded with detailed explanations regarding the increase in foreign exchange loss and the decrease in net profit.4. Payments to Related Parties and Their Scrutiny:The Commissioner highlighted payments made to Viraj Enterprises and Gestamp Global Tooling, alleging that the Assessing Officer did not make any enquiries regarding these transactions. The Tribunal found that the assessee had furnished explanations and documents regarding these payments during the assessment proceedings. Specifically, the payment to Gestamp Global Tooling was Rs. 1.027 crores, not Rs. 3.447 crores as alleged. The Tribunal concluded that these payments were scrutinized, and the Assessing Officer's order was not erroneous or prejudicial to the interest of the revenue.5. Applicability of Vivad se Vishwas Act, 2020, on the Assessment Order:The Commissioner noted that the assessee filed Form No. 4 under the Vivad se Vishwas Act, 2020, and held that the scheme provided immunity only for verified issues. The Tribunal found this reasoning incomprehensible, stating that availing the benefit of the scheme post-assessment could not render the assessment order erroneous and prejudicial to the interest of the revenue.Conclusion:The Tribunal held that the Ld. Pr. Commissioner of Income Tax did not provide specific reasons supported by factual evidence to justify the assumption of revisionary jurisdiction under Section 263. The Tribunal emphasized that the Assessing Officer conducted sufficient enquiries, and the assessee provided detailed explanations and documents. Consequently, the Tribunal quashed the impugned order of the Ld. Pr. Commissioner of Income Tax and allowed the appeal of the assessee. The order was pronounced on the 20th day of October, 2021.