Faceless assessment verification duties for actuarial and forex adjustments; lack of enquiry led to assessment being set aside and remitted.

Faceless assessment procedures require the Assessment Unit to request a Verification Unit when factual verification, third party enquiries or record examination are needed; that Verification Unit must upload a report forming part of the assessment record and available for AO reliance. The AO's acceptance of large, technical claims-actuarial remeasurement of post employment liabilities and adjustment of realized foreign exchange gains to capital assets-without any recorded verification amounts to lack of enquiry. Consequently the revisional authority was justified in setting aside the assessment and directing fresh verification and a fresh order after giving the assessee opportunity to be heard.

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Issues: (i) Whether the Principal Commissioner was justified in invoking revisionary jurisdiction under section 263 of the Income-tax Act, 1961 on the ground that the assessment order was erroneous and prejudicial to the interests of the Revenue for allowing deduction of Rs.15,59,55,015/- towards remeasurement of post-employment benefit obligations; (ii) Whether the Principal Commissioner was justified in invoking revisionary jurisdiction under section 263 of the Income-tax Act, 1961 for allowing reduction of realized foreign-exchange gain of Rs.32,77,83,741/- on payment to capital creditors by adjusting it to the block of assets under Section 43A of the Income-tax Act, 1961.

Issue (i): Whether the assessment order was rendered erroneous and prejudicial to the interest of the Revenue by allowing deduction of Rs.15,59,55,015/- relating to remeasurement of post-employment benefit obligations without requisite enquiries or verification.

Analysis: The faceless assessment framework under Section 144B contemplates use of Assessment, Verification and Review Units for enquiries; assessment records were examined for any documentary or verification activity regarding actuarial valuations, payments vis-a -vis Section 43B, and related working papers. The assessment order contained no reference to any Verification Unit report, questionnaire, or recorded enquiries specific to the remeasurement claim. Explanation 2 to Section 263 treats an order passed without enquiries or verification which ought to have been made as erroneous and prejudicial. The claim involved technical actuarial computations and payments subject to Section 43B conditions, matters that require specific verification each assessment year.

Conclusion: Held against the assessee. The Principal Commissioner was justified in treating the assessment order as erroneous and prejudicial under Section 263 on the ground of lack of requisite enquiries regarding the remeasurement deduction.

Issue (ii): Whether allowing reduction of realized foreign-exchange gain of Rs.32,77,83,741/- by adjusting it to the block of assets under Section 43A without necessary verification rendered the assessment order erroneous and prejudicial to the interest of the Revenue.

Analysis: The realized foreign-exchange gain claimed to be capital in nature required scrutiny of the asset acquisition records, Form 3CD reconciliations, and the manner of carrying forward/adjusting unrealized losses. The assessment order did not record any specific enquiries, Verification Unit report, or consideration of the workings furnished under Section 43A. Given the substantial and year-specific nature of the claims, Explanation 2 to Section 263 applies where no enquiries have been made which ought to have been made, permitting revision to ensure proper verification and fresh assessment.

Conclusion: Held against the assessee. The Principal Commissioner was justified in invoking Section 263 to set aside the assessment for fresh consideration of the foreign-exchange gain treatment.

Final Conclusion: Both revisionary directions under Section 263 were upheld and the appeal against the Principal Commissioner's order was dismissed, directing the Assessing Officer to carry out thorough verification and pass a fresh assessment in accordance with law.

Ratio Decidendi: Where an assessment order in a faceless regime contains no record of requisite enquiries or Verification Unit reports on material and technically complex claims, Explanation 2 to Section 263 of the Income-tax Act, 1961 operates to treat the order as erroneous and prejudicial, permitting revision under Section 263 to enable fresh assessment after proper verification.

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