2023 (6) TMI 1500 - AT - Income Tax

Revision under Section 263 quashed where ITS export data lacked bill-wise breakup and no prima facie assessment error

ITAT (Rajkot) held that the CIT's revision under section 263 was unjustified and quashed it. The ITS export data lacked bill-wise breakup, making ... Revision u/s 263 - as per CIT(A) there is difference in the export data as per ITS data and that reflected by the assessee in its books of accounts, and the AO having not examined the issue - HELD THAT:- We hold that the entire exercise of the CIT in holding the assessment order as erroneous proceeded on a premise which did not exist and was totally unjustified. In the absence of break up, bill wise, of the exports of the assessee reflected in the ITS data, any explanation or reconciliation of the difference in the said exports from that reflected in the Books of the assessee was virtually impossible. The ITS data, giving no breakup of export sales, therefore, we hold, had not been rightly considered by the AO during assessment proceedings for seeking any explanation from the assessee for difference from the export sales reflected in the books of the assessee. This being the only information with the Ld.PCIT, we hold, that there was no error in the order of the AO for not seeking any explanation on account of the information in ITS data. Even as per the CIT, the issue was restored back to the AO for verification of this aspect of export sales, for which purposes revisionary powers u/s 263 of the Act cannot be exercised. There has to be a finding of error in the order of the AO causing prejudice to the Revenue for exercising revisionary jurisdiction u/s 263 of the Act. A direction for verification of an issue, means there is no prima facie finding of error. Thus the exercise of revisionary powers u/s 263 of the Act in the present case we hold, is not in accordance with law for this reason also. Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Commissioner's exercise of revisionary jurisdiction under section 263 of the Income Tax Act is sustainable where the Assessing Officer did not examine an alleged difference between export turnover as per ITS/CBEC data and the assessee's books, when the ITS data furnished lacked shipping-bill/invoice-wise break-up. 2. Whether summary ITS/CBEC export data without bill-wise or invoice-wise particulars can by itself constitute material establishing that the assessment order is erroneous and prejudicial to the revenue, thereby justifying revision under section 263. 3. Whether issuance of directions to the AO to verify discrepancies (i.e., restoration for verification) amounts to a prima facie finding of error causing prejudice to the revenue sufficient to sustain invocation of section 263. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of revision under section 263 where ITS data lacked bill-wise break-up Legal framework: Section 263 permits revision where the order of the Assessing Officer is prejudicial to the interests of the revenue because it is erroneous. Invocation requires a finding that an error existed in the assessment order and that such error caused prejudice to revenue. Precedent Treatment: The Tribunal treated as settled the principle that no addition can be sustained merely on the basis of summary ITS data without underlying document-wise particulars; and that assessment cannot be faulted where such data is incapable of permitting reconciliation or meaningful comparison. Interpretation and reasoning: The ITS/CBEC data produced in the revision proceedings was a consolidated summation showing total export value and a count of items but did not disclose shipping bill- or invoice-wise values from which the aggregate was compiled. The assessee demonstrated that (a) ITS data entries were internally inconsistent (discrepancy in number of entries), (b) ICEGATE portal extracts did not provide reliable bill-wise values, and (c) customs valuation and system purging/representation practices can produce systemic differences unrelated to unrecorded sales. Given these deficiencies, neither the AO nor the assessee could have been expected to reconcile the figures or to produce any meaningful explanation during assessment. The Tribunal concluded that in absence of bill-wise particulars, the ITS data could not be used to allege an error in the assessment order. Ratio vs. Obiter: Ratio - where external summary data lacks the granularity necessary for reconciliation, it cannot form the basis for holding the AO's assessment erroneous or prejudicial for purposes of section 263. Obiter - illustrative points on reasons for ITS inconsistencies (customs purging, valuation timing) used to support the conclusion. Conclusion: The Tribunal held that the Commissioner's reliance on summary ITS data without bill-wise break-up did not establish that the AO's order was erroneous and prejudicial to the revenue; therefore section 263 could not be validly invoked on that basis. Issue 2 - Sufficiency of ITS/CBEC summary data to found a claim of prejudice to revenue Legal framework: Prejudice to revenue under section 263 must be demonstrated by showing that the AO's order was erroneous and that such error caused actual prejudice; material relied upon must permit application and verification in assessment proceedings. Precedent Treatment: The Tribunal relied on the settled position that additions or adverse findings cannot be founded solely on unsourced sum-totals from departmental data systems when the taxpayer and AO lack the shipment/invoice-level particulars necessary to reconcile accounts. Interpretation and reasoning: The ITS summary was a single-entry aggregate; the assessee could not compare or reconcile that aggregate with its audited books absent SB/bill-wise data. Where the impugned document is vague, incomplete and inconsistent with available portal data, it cannot be treated as a reliable basis to raise doubts on the audited books. Consequently, no prejudice resulting from an omission to make an addition in the assessment can be imputed merely because a departmental summary purportedly shows a different aggregate. Ratio vs. Obiter: Ratio - summary export data without traceable compendium to source documents is insufficient to demonstrate prejudice; AO's non-action in such circumstances does not amount to error prejudicial to the revenue. Obiter - commentary on the impossibility of reconciliation and the administrative reasons for ITS inconsistencies. Conclusion: The Tribunal concluded that ITS/CBEC summary data, in absence of invoice/shipping-bill particulars enabling reconciliation, could not establish prejudice to revenue and so could not sustain revision under section 263. Issue 3 - Effect of directing verification by AO on the exercise of revisionary powers under section 263 Legal framework: Section 263 empowers the Commissioner to revise the AO's order only upon a finding that the order is erroneous and prejudicial. A mere direction to verify or to examine an issue does not equate to a prima facie finding that the AO's order was erroneous causing prejudice. Precedent Treatment: The Tribunal treated restoration or remand for verification as indicative that the Commissioner did not arrive at a concluded finding of error; such actions cannot support the invocation of revisionary jurisdiction which requires a clear finding of error and prejudice. Interpretation and reasoning: The Commissioner's order, notwithstanding assertions of clarity in CBEC data, ultimately directed the AO to examine the CBEC/ITS information and reconcile it with books. That direction constituted a call for verification rather than a determination that the AO's assessment was erroneous and prejudicial. Since section 263 requires that the revisional authority establish an error causing prejudice to revenue, an order issuing only verification directions lacks the essential finding required to validly exercise revisionary jurisdiction. Ratio vs. Obiter: Ratio - merely remitting or directing verification by the AO does not satisfy the statutory requirement for invoking section 263; there must be a concluded finding of error prejudicial to revenue. Obiter - observations on the difference between authority to direct verification and authority to revise. Conclusion: The Tribunal held that issuing directions for the AO to verify the matter could not justify exercise of revisionary powers under section 263; absence of a prima facie finding of error rendered the revision unsustainable. Overall Conclusion The Tribunal concluded that (i) the ITS/CBEC summary data without shipping-bill/invoice-wise break-up was vague, inconsistent and incapable of supporting a finding that the AO's assessment was erroneous and prejudicial to the revenue; (ii) the Commissioner's direction to verify the export figures by the AO amounted to remand/verification rather than a statutory finding of error; and (iii) consequently the exercise of revisionary jurisdiction under section 263 was not in accordance with law and the revisional order was set aside.