TaxTMI 
TaxTMI 
2026 (2) TMI 556
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.... of TDS. The AO completed the assessment by proposing a variation of Rs. 2,56,45,949 and passed an order u/s 143(3) r.w.s 144B of the Act dt. 29.12.2022. 5. The notice under section 263 of the Act, for the assessment year 2021-22, has been issued by ld. PCIT, Bengaluru-2, vide DIN and Notice No. ITBA/REV/F/2024-25/104737420731 dated 26.02.2025. The notice proposes to revise the assessment order passed under section 143(3) read with section 144B of the Act on 29.12.2022 on the ground that the said order is erroneous and prejudicial to the interests of the Revenue. 6. It has been observed by the ld. Principal Commissioner that while completing the assessment, the AO failed to make proper enquiries and verification on certain crucial issues which have an impact on the determination of taxable income. The first issue relates to a claim of expenditure of Rs.15,59,55,015/- made by the assessee towards "Reimbursement of post-employment benefit obligations." According to the ld. Commissioner, the nexus between the said expenditure and the business of the assessee was not examined during the assessment proceedings. It has also been noted that the AO did not verify whether such a provi....
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....easurement losses, would have been charged to the profit and loss account. The change in classification is merely a presentation requirement and does not alter the nature or allowability of the expenditure for income tax purposes. 9.3 It was further clarified that since this loss on remeasurement of post-employment obligations has not been considered while computing the taxable profit for the year, the assessee has separately deducted the said amount while computing its total income in the return. 9.4 The assessee placed reliance on the actuarial report to substantiate the figures of remeasurement losses. As per the report, there was an actuarial loss of Rs.22,84,64,799/- on account of the provident fund and an actuarial gain of Rs.7,25,09,784/- on account of the gratuity fund. The net actuarial loss thus worked out to Rs.15,59,55,015/-, which was claimed as a deduction. Copies of actuarial computations for provident fund and gratuity fund were enclosed as Annexures 4 and 5 respectively. 9.5 The assessee then referred to Sections 36(1)(iv), 36(1)(v), and 43B of the Act. It was submitted that contributions made to recognized provident and approved gratuity funds are allowab....
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....e adjusted to the "block of assets" and not offered as income under the head "business income." 9.11 The assessee relied upon the language of section 43A of the Act, which provides that when an assessee acquires an asset from a country outside India for the purposes of business or profession, and there is an increase or reduction in liability due to fluctuation in the exchange rate, the corresponding change must be added to or deducted from the actual cost of the asset. The assessee reproduced the relevant extract of Section 43A of the Act before the PCIT to substantiate this legal position. It was emphasized that the section applies irrespective of the accounting method adopted by the assessee and requires adjustment to the asset block at the time of making payment. 9.12 The assessee explained that, although accounting standards (IND AS) require foreign exchange gains or losses to be routed through the profit and loss account for financial reporting purposes, the Income Tax Act governs the tax treatment independently. Therefore, under Section 43A of the Act, the gain realized on repayment of capital creditors cannot be taxed as business income but must be adjusted against th....
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....est of the revenue for reason no inquiry being made by the AO during the assessee on these two issues. The relevant finding of the Ld. PCIT is extracted as under: 7. The assessee has submitted that the re-measurement of postemployment benefit obligations was included in the financial statements based on the actuarial reports for the gratuity fund and provident fund computations. The assessee has further submitted that the payments to the provident fund and gratuity fund which were not paid within the due date of filing the return of income had been disallowed in the computation of income. It is observed that these details had not been verified by the AO during the assessment proceedings nor had he made any enquiries with respect to the same. Allowing the assessee's claim of remeasurement of post-employment benefit obligations without proper enquiry or verification of the assessee's claims makes the order erroneous and prejudicial to the interest of the revenue. 8. Further, in respect of foreign exchange gains realized on payment towards capital creditors for the purchase of fixed assets, the assessee has submitted that as per the provisions of section 43A, the foreign exchang....
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....ing that the impugned order passed by the PCIT is bad in law, without jurisdiction, and contrary to the settled principles governing the exercise of powers under section 263 of the Act. He contended that the basic preconditions for invoking such jurisdiction - namely, that the assessment order must be both erroneous and prejudicial to the interest of the Revenue - have not been satisfied in this case. 12.2 The Ld. AR explained that both issues raised by the PCIT - (a) the remeasurement of post-employment benefit obligations, and (b) the reduction of realized foreign exchange gain related to capital creditors, are routine, recurring matters that have been consistently accepted by the department in earlier years after due verification. 12.3 The Ld. AR further argued that the Ld. PCIT failed to appreciate that the assessment proceedings under sections 143(2) and 142(1) of the Act involved comprehensive scrutiny of all financial and tax audit records. The AO had before him the actuarial reports, financial statements, Form 3CD details, and supporting schedules forming part of the statutory audit. These documents clearly disclosed the computation of post-employment benefit obligati....
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....om remeasurement of gratuity and provident fund obligations, duly recorded under "Other Comprehensive Income" in accordance with IND AS. These actuarial computations were supported by reports from qualified actuaries, and the corresponding details were furnished in the tax audit report. The AO had accepted the claim after verifying that payments disallowed under section 43B of the Act (not made before the due date of filing the return) were separately added back in the computation of income. Therefore, there was neither error nor prejudice to the revenue. 13. On the second issue of reduction of realized foreign exchange gain of Rs.32,77,83,741, the ld. AR submitted that the gain had arisen on repayment of capital creditors for purchase of fixed assets and, therefore, falls squarely within the scope of section 43A of the Act. Under this section, any foreign exchange gain or loss relating to acquisition of capital assets must be adjusted to the block of assets and not treated as revenue income. The assessee followed this statutory mandate and adjusted the amount in its depreciation schedule. The AO had accepted this computation after examining Form 3CD and supporting schedules. Th....
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....ithout proper verification and without examining the issues on hand as pointed out by the ld. PCIT in the order passed under section 263 of the Act. The Ld. DR therefore contended that the Ld. PCIT rightly exercised revisionary powers under section 263 of the Act and that the order passed by the PCIT deserves to be upheld. 15. We have carefully considered the rival submissions of both the parties and perused the materials available on record. The controversy before us is confined to whether the Ld. Principal Commissioner was justified in invoking revisionary jurisdiction under section 263 of the Act on the ground that the assessment order dated 29.12.2022 passed under section 143(3) read with section 144B of the Act was rendered without making enquiries and verification on two material issues, namely, the allowability of deduction of Rs.15,59,55,015/- towards re- measurement of post-employment benefit obligations and the treatment of realized foreign-exchange gain of Rs.32,77,83,741/- on payment to capital creditors. 15.1 Before examining the merits of the rival contentions, it is necessary to briefly advert to the statutory architecture of faceless assessment. Under section ....
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....f substantial and technically complex claims without any prima facie verification clearly falls in the category of "lack of enquiry" and not "inadequate enquiry." Accordingly, the ratio of Torrent Pharmaceuticals Ltd. does not advance the case of the assessee. 15.4 We also note that the assessee tried to draw an inference from a line appearing in the assessment order in a different context, namely, "Verification report uploaded through VRU - Non-deduction of TDS." This line only shows that, for a TDS-related issue, the Assessment Unit had asked a Verification Unit to carry out factual verification and submit a report. By itself, this remark does not show whether the case was taken up for limited scrutiny or complete scrutiny, because the use of a Verification Unit under section 144B of the Act depends on the nature of verification required and not on the type of scrutiny. At the same time, the fact that such a mechanism was used for another issue shows that the Assessing Officer had the power, within the faceless system, to seek specialized verification whenever necessary. The absence of any similar exercise for the two disputed issues, despite their large amounts and technical ....