2022 (6) TMI 1407 - AT - Income Tax

Revision u/s 263 - No enquiry v/s inadequate enquiry - suspicious Share transactions - HELD THAT - In present case AO had not only made sufficient enquiries, but after satisfying himself, assessment was framed u/s 143(3). After receiving information relating to share transfer proper enquiries were made which is also evident from the office note exhibited elsewhere. It is a settled position of law that powers u/s 263 of the Act can be exercised by the Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and prejudicial to the interest of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the AO has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. Thus the order framed u/s 263 of the Act deserves to be set aside and that of the AO deserves to be restored. Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the CIT under Section 263 of the Income-tax Act, 1961.
2. Validity of the assessment order under Section 143(3) of the Income-tax Act, 1961.
3. Examination of the transaction involving the transfer of shares and its tax implications.
4. Adequacy of the inquiry conducted by the Assessing Officer (AO) and Transfer Pricing Officer (TPO).

Issue-wise Detailed Analysis:

1. Jurisdiction of the CIT under Section 263 of the Income-tax Act, 1961:
The primary grievance of the assessee was that the order passed by the CIT (International Taxation), New Delhi under Section 263 of the Act was without jurisdiction, bad in law, and void ab initio. The tribunal referred to the prerequisites for the exercise of jurisdiction under Section 263, as laid down by the Hon'ble Supreme Court in Malabar Industrial Co. Ltd., 243 ITR 83, which requires the order to be both erroneous and prejudicial to the interests of the Revenue. The tribunal concluded that the CIT did not meet these conditions, as the AO had conducted a thorough inquiry and the assessment order was not erroneous.

2. Validity of the assessment order under Section 143(3) of the Income-tax Act, 1961:
The assessment order dated 12.12.2018, framed under Section 143(3) of the Act, accepted the returned income as NIL. The AO had issued multiple notices under Section 142(1) and conducted a detailed inquiry into the transactions, including the transfer of shares. The tribunal found that the AO had made sufficient inquiries and was satisfied with the explanations provided by the assessee. The tribunal noted that the AO's office note explicitly mentioned that the issue of large international transactions was thoroughly examined and found in order.

3. Examination of the transaction involving the transfer of shares and its tax implications:
The assessee had transferred 1,486,025 equity shares of Genpact India to its wholly-owned Indian subsidiary, Empower Research Knowledge Services Private Limited, for a total consideration of USD 1,397,263,241. The assessee claimed that the transfer did not result in taxable capital gains due to the specific exemption provided under Section 47(iv) of the Act and Article 13 of the India-Singapore DTAA. The AO and TPO thoroughly examined the transaction, including the valuation report and other documentary evidence, and concluded that the transaction was exempt from capital gains tax.

4. Adequacy of the inquiry conducted by the Assessing Officer (AO) and Transfer Pricing Officer (TPO):
The tribunal emphasized that the AO and TPO had conducted a detailed inquiry into the international transactions and the transfer of shares. The TPO's order dated 20.08.2018, framed under Section 92CA(3) of the Act, found no adverse inference regarding the Arm's Length Price (ALP) of the international transactions. The tribunal cited several judicial decisions, including those of the Hon'ble Supreme Court and High Courts, to support the view that where the AO has conducted an adequate inquiry, the CIT cannot invoke Section 263 merely because he has a different opinion.

Conclusion:
The tribunal concluded that the CIT's order under Section 263 was not justified, as the AO had conducted a thorough inquiry and the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. The tribunal set aside the CIT's order and restored the AO's assessment order. The appeal of the assessee was allowed.