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2016 (6) TMI 45 - AT - Income TaxRevision u/s 263 - non entitlement to adjust foreign exchange gain while computing the total income - Held that - CIT having reached the conclusion that the assessee is not entitled to adjust foreign exchange gain while computing the total income and did not mention anything in his order that the order of AO suffered any error and it is prejudicial to the interest of revenue, except mentioning the case requires reconsideration. In our opinion, the facts contained in n the case of COMMISSIONER OF INCOME TAX vs. GOYAL PRIVATE FAMILY SPECIFIC TRUST reported in 1987 (10) TMI 43 - ALLAHABAD High Court are similar and applicable to the case on hand and relying on the same we hold that the order of the CIT is bad under law and consequently it is set aside. On the case on hand, the order of the CIT does not show any firm reasons as required under section 263 of the Act to declare the assessment order was erroneous and was prejudicial to the interests of the Revenue, as observed above a direction was given to AO to work out the taxable income as per law. In our view it is against the established principles of law. Therefore, applying the ratio of aforesaid decision, we hold that the order dt 12-08-2014 passed by the CIT-IV is bad under law which is liable to be set aside. - Decided in favour of assessee.
Issues Involved:
1. Legality of proceedings initiated under Section 263 of the Income-tax Act, 1961. 2. Taxability of notional foreign exchange gain as revenue account. Issue-wise Detailed Analysis: 1. Legality of Proceedings Initiated Under Section 263 of the Income-tax Act, 1961: The appellant contended that the Commissioner of Income-tax (CIT) erred in initiating revisionary proceedings under Section 263 of the Income-tax Act, 1961, as the conditions laid down in Section 263 were not satisfied. Specifically, the order passed by the assessing officer (AO) should be both erroneous and prejudicial to the interests of the Revenue. The appellant argued that the material regarding the notional foreign exchange gain transaction was already on record during the assessment under Section 143(3), and the revisionary proceedings were initiated merely due to a change of opinion without any finding that the assessment order was erroneous and prejudicial to the Revenue. The Tribunal noted that the CIT-IV exercised revisionary powers under Section 263, finding that the assessee had foreign exchange gains of ?31,16,05,186/- against an interest-free loan from Asian Telecommunication Investments (Mauritius) Ltd. The CIT-IV opined that the fluctuation in foreign exchange was a revenue gain and should not be adjusted in computing total income under normal provisions. However, the Tribunal found that the CIT-IV did not provide specific reasons or findings to demonstrate how the AO's order was erroneous and prejudicial to the Revenue. The Tribunal cited case laws, including COMMISSIONER OF INCOME TAX vs. GABRIAL INDIA LTD, where the Bombay High Court held that the CIT must provide a clear conclusion that the AO's order was erroneous and prejudicial to the interests of the Revenue before directing further inquiry or assessment. The Tribunal concluded that the CIT-IV's order lacked specific findings of error in the AO's assessment and was based on the need for reconsideration, which is not permissible under Section 263. The Tribunal held that the CIT-IV's order was bad in law and set it aside. 2. Taxability of Notional Foreign Exchange Gain as Revenue Account: The appellant argued that the notional foreign exchange gain on the re-instatement of a loan during the assessment year was on capital account and not liable to tax. The CIT-IV directed the AO to conduct a de novo assessment without accepting the appellant's submission. Given the Tribunal's decision on the first issue, it found no need to adjudicate the second issue separately. The Tribunal's decision to set aside the CIT-IV's order implied that the appellant's ground regarding the taxability of the notional foreign exchange gain did not require further examination. Conclusion: The Tribunal allowed the appeal filed by the assessee, setting aside the order passed by the CIT-IV under Section 263 of the Income-tax Act, 1961, as it was found to be bad in law. The Tribunal emphasized that the CIT-IV failed to provide specific findings to demonstrate that the AO's order was erroneous and prejudicial to the interests of the Revenue, and merely directing reconsideration was not sufficient under Section 263. Consequently, the appeal was allowed, and the CIT-IV's order was set aside.
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