Tribunal quashes order under Income-tax Act, citing Malabar Industries Ltd. precedent

The Tribunal quashed the order under section 263 of the Income-tax Act, holding that the revisionary proceedings initiated by the Principal Commissioner of Income Tax were unjustified. The appeal of the assessee was allowed, and the assessment order was upheld as neither erroneous nor prejudicial to the interest of revenue. The Tribunal referenced the case law precedent set by the Supreme Court in Malabar Industries Ltd. vs. CIT, emphasizing that not every loss of revenue due to an Assessing Officer's order is necessarily prejudicial to revenue.

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Issues Involved:
1. Assumption of jurisdiction by the Ld. Pr. CIT for invoking revisionary proceedings u/s. 263 of the Income-tax Act, 1961.
2. Claim of depreciation including foreign exchange fluctuation loss.
3. Arms length price determination of guarantee fee received by the assessee.

Detailed Analysis:

1. Assumption of Jurisdiction by Ld. Pr. CIT for Invoking Revisionary Proceedings u/s. 263 of the Act:
The primary issue in the appeal is whether the Ld. Pr. CIT rightly assumed jurisdiction to invoke revisionary proceedings under section 263 of the Income-tax Act, 1961. The assessee contested the jurisdiction, arguing that the assessment order was neither erroneous nor prejudicial to the interest of revenue. The Ld. Pr. CIT had issued a show cause notice raising concerns about the claim of depreciation and the arms length price determination of guarantee fee received by the assessee.

2. Claim of Depreciation Including Foreign Exchange Fluctuation Loss:
The first issue raised by the Ld. Pr. CIT pertained to the claim of depreciation which included foreign exchange fluctuation loss on long-term foreign currency loans capitalized to fixed assets. The Ld. Pr. CIT alleged that there was an excess claim of depreciation amounting to Rs. 17,65,737/- due to the inclusion of foreign exchange fluctuation loss. The assessee argued that the foreign exchange fluctuation loss was treated differently in the books of account and in the computation of income under the Act, in compliance with Accounting Standard-11 (AS-11) and section 43A of the Act respectively. The Ld. AO had examined and verified these details during the assessment proceedings, and thus, the claim of depreciation was rightfully allowed.

3. Arms Length Price Determination of Guarantee Fee Received by the Assessee:
The second issue raised by the Ld. Pr. CIT concerned the arms length price determination of the guarantee fee received by the assessee from its Associated Enterprises (AE). The Ld. Pr. CIT noted a discrepancy in the guarantee fee amount credited in the Profit & Loss account and the amount determined by the Transfer Pricing Officer (TPO). However, the assessee pointed out that this issue had already been adjudicated by the Coordinate Bench of ITAT, Kolkata in its favor for the same assessment year, and thus, the Ld. Pr. CIT had no jurisdiction to raise this issue in the revisionary proceedings.

Tribunal's Findings:

On Jurisdiction:
The Tribunal observed that for invoking the provisions of section 263, both conditions that the order must be erroneous and prejudicial to the interest of revenue need to be satisfied. The Tribunal referred to the judicial precedent set by the Hon'ble Supreme Court in the case of Malabar Industries Ltd. vs. CIT, which held that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law.

On Depreciation Claim:
The Tribunal found that the Ld. AO had made detailed inquiries and examined the issue of foreign exchange fluctuation loss during the assessment proceedings. The assessee had provided all necessary details and explanations, which were verified by the Ld. AO. Thus, the assessment order could not be considered erroneous or prejudicial to the interest of revenue on this ground.

On Guarantee Fee:
The Tribunal noted that the issue of arms length price determination of the guarantee fee had already been adjudicated by the Coordinate Bench of ITAT, Kolkata in favor of the assessee for the same assessment year. Therefore, the Ld. Pr. CIT's assumption of jurisdiction on this issue was not warranted.

Conclusion:
The Tribunal quashed the impugned order u/s 263 of the Act, concluding that the revisionary proceedings initiated by the Ld. Pr. CIT were not justified. The appeal of the assessee was allowed, and the assessment order was upheld as neither erroneous nor prejudicial to the interest of revenue. The order was pronounced in the open court on 10th November, 2022.

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