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2017 (1) TMI 1154 - AT - Income TaxRevision u/s 263 - genuineness of the transactions by not obtaining the Article 2 - deduction of foreign exchange fluctuation loss - non complete investigation into the nature of amount received, the nature of dispute between the assessee and DOW and the nature of rights and claims waived by the assessee against the DOW - Held that - We find that because of not producing Article 2 by the assessee before the assessing officer he failed to make proper enquiries to ascertain the true nature of the amount received. We have also considered the contention of the Ld. counsel of the assessee stating that the assessing officer had taken one possible view after conducting necessary inquiries as with the case of Malabar Industrial Company Ltd. 2000 (2) TMI 10 - SUPREME Court . In this connection, we have perused the assessment order made by the assessing officer and the other related materials as per record. We find that the assessing officer had neither elaborated any kind of inquiry conducted in the assessment order nor given any kinds of findings as per which any possible view had been taken by the assessing officer. We find that all the above stated facts prove that the assessing officer has not verified the genuineness of the transactions by not obtaining the Article 2 which was the material condition for receipt of US 1.5 million. Whether the order passed by CIT u/s. 263 was bad in law as the show cause notice given by him was on a point other than the one for which he hold the order passed by assessing officer as erroneous or prejudicial to the revenue? - Held that - As gone through the assessment order made u/s143(3) of the act by the assessing officer and noticed that at para 3 of the assessment order the assessing officer stated that reduction in the profit of the assessee company had been occurred mainly because of claim of foreign exchange loss. We find that claim of foreign exchange loss indeed was the main issue in the assessment order and the Ld.CIT had issued the show cause related to the issue of foreign exchange loss, therefore, the contention of the assessee mentioned in the additional ground is not found to be correct. - Revision u/s 263 sustained - Decided against assessee
Issues involved:
1. Validity of the order passed by the CIT under section 263 of the Income Tax Act. 2. Allowability of the claim of loss on foreign exchange fluctuation on reinstatement of advances. 3. Nature of the advance received and its treatment as a liability. 4. Taxability of the amount written back by the appellant in a subsequent assessment year. 5. Impact of missing Article 2 of the agreement on the case. Issue 1: Validity of the order passed by the CIT under section 263 of the Income Tax Act: The assessee contended that the order passed by the CIT under section 263 was bad in law as the assessing officer's order was not erroneous or prejudicial to the interest of revenue. The CIT held that the assessing officer's order was erroneous and prejudicial due to the disallowed foreign exchange fluctuation loss claim. The CIT directed a complete investigation into the nature of the amount received and the dispute with DOW, setting aside the assessing officer's order. Issue 2: Allowability of the claim of loss on foreign exchange fluctuation on reinstatement of advances: The CIT disallowed the claim of loss on foreign exchange fluctuation, stating that the advance amount was forfeited and not actually paid, thus requiring disallowance under section 37(1) of the Income Tax Act. The assessee argued that the assessing officer had allowed the claim based on the Supreme Court's ruling in Woodward Governor India Pvt. Ltd., but the CIT did not accept this explanation. Issue 3: Nature of the advance received and its treatment as a liability: The CIT found that the advance received was not a liability, as it was primarily consideration for waiving claims against DOW and was not to be returned or adjusted. The CIT highlighted that the assessing officer failed to make proper inquiries into the true nature of the amount received, as the material conditions of the agreement were not produced. Issue 4: Taxability of the amount written back by the appellant in a subsequent assessment year: The appellant argued that if the advance was not on revenue account, it should be considered on capital account, and the amount written back should not be taxed in the subsequent assessment year. However, the CIT upheld the direction to examine the nature of the amount received and the rights waived against DOW, dismissing the appellant's appeal. Issue 5: Impact of missing Article 2 of the agreement on the case: The CIT noted that Article 2 of the agreement, a material condition for the receipt of the advance, was not produced before the assessing officer or the CIT. This omission hindered proper verification of the transactions and led to the assessing officer's failure to conduct necessary inquiries, influencing the decision on the nature of the advance received. In conclusion, the ITAT upheld the CIT's order, dismissing the appellant's appeal and emphasizing the importance of proper investigation and consideration of all relevant factors in assessing tax liabilities.
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