2019 (9) TMI 230 - AT - Income Tax

Revision u/s 263 - expenditure allowable as deduction u/s. 48 (i) - exgratia payment made to employee directors towards the consideration for service rendered in connection with the sale of shares of Prizm Payment Services Pvt Ltd - HELD THAT - It is settled position of law that there must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. In the present case, the ld. PCIT had not referred to any material which indicates that the exgratia payment made to employee directors towards the consideration for service rendered in connection with the sale of shares of Prizm Payment Services Pvt Ltd held by it is not an allowable expenditure u/s.48(1) of the Act. As apparent that though the assessment order does not patently indicate that the issue in question had been considered by the AO, the material on record could show that the Assessing Officer had applied his mind on the issue. The fact the PCIT has sought to revise the issue which is not subject matter of deduction i.e. loss on account of foreign exchange fluctuation on receivables would suggest that there was no proper application of mind on the part of PCIT. Thus, considered opinion that the material on record would establish application of mind on the part of the Assessing Officer while allowing the claim during the assessment proceedings. Once such application of mind is discernible from the record, the proceedings under section 263 of the Act would fall into the area of the ld. PCIT having a different opinion and it is settled proposition of law that an assessment order cannot be treated as erroneous and prejudicial to the interests of the Revenue simply because in the opinion of the ld. PCIT some other views are possible as held by the Hon ble Supreme Court in the case of CIT vs. Max India Ltd 2007 (11) TMI 12 - SUPREME COURT . PCIT does not satisfy the prerequisite condition of assessment order being erroneous and prejudicial to the interest of the Revenue. Therefore the order of the ld. PCIT cannot be sustained in the eyes of law. Accordingly, we set aside the order passed u/s.263 by the ld. PCIT and allow the appeal filed by the assessee company. - Decided in favour of assessee.

Summary

Issues Involved:

1. Whether the order passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 was erroneous and prejudicial to the interest of revenue within the meaning of Section 263 of the Act.
2. Whether the exgratia payment of ?28,86,59,668 to employee directors in connection with the transfer of shares was allowable as a deduction.
3. Whether the foreign exchange fluctuation expenses amounting to ?6,31,12,289 were claimed and if so, whether they were allowable.
4. Whether the Principal Commissioner of Income Tax (PCIT) was justified in directing the AO to make further enquiries in concluded matters.

Issue-wise Detailed Analysis:

1. Erroneous and Prejudicial Order:
The appellant contended that the AO's order was passed after due examination and enquiry of the issues. It was argued that the twin conditions for invoking Section 263, namely the order being erroneous and prejudicial to the interest of revenue, were not satisfied. The appellant relied on several judicial precedents, including the Supreme Court's judgment in Malabar Industrial Co. Ltd vs. CIT, which clarified that an order cannot be deemed erroneous merely because the AO did not write an elaborate order. The Tribunal agreed, noting that the AO had issued multiple notices and received detailed responses from the appellant, indicating that the assessment was not done in undue haste.

2. Exgratia Payment as Deduction:
The appellant argued that the exgratia payment to employee directors was for services rendered in connection with the transfer of shares and thus allowable under Section 48(i) of the Act. The Tribunal found that the AO had indeed called for and received detailed information regarding this claim, and the AO's acceptance of the claim was based on this information. The Tribunal emphasized that the PCIT did not provide any material evidence to show that the exgratia payment was not allowable, and the mere nomenclature of the expenditure could not decide its allowability.

3. Foreign Exchange Fluctuation Expenses:
The appellant denied having claimed any deduction for foreign exchange fluctuation expenses. The Tribunal noted that the PCIT's direction to the AO to verify this claim was not based on any evidence that such a claim had been made. The Tribunal found that the PCIT's order lacked any finding or material to show that the AO's order was erroneous in this regard.

4. Further Enquiries in Concluded Matters:
The appellant argued that the PCIT's direction for further enquiries amounted to a roving and fishing expedition, which is not permissible under Section 263. The Tribunal agreed, citing several judicial precedents that held the PCIT must conduct necessary enquiries and record a finding that the AO's order is erroneous before directing further enquiries. The Tribunal found that the PCIT had not conducted any such enquiries and had merely remanded the matter to the AO, which was not justified.

Conclusion:
The Tribunal concluded that the PCIT's order did not satisfy the prerequisite conditions of the AO's order being erroneous and prejudicial to the interest of revenue. The Tribunal set aside the PCIT's order passed under Section 263 and allowed the appeal filed by the assessee company. The Tribunal emphasized that the AO had applied his mind to the issues during the assessment proceedings, and the PCIT's differing opinion did not justify the revision of the AO's order.