2022 (9) TMI 231 - AT - Income Tax

Revision u/s 263 by CIT - unexplained cash credit u/s 68 - HELD THAT - The assessee during the assessment proceeding has given all the details and further clarified that the refund from the Government of EPCG claim was received in subsequent years. AO has specifically asked the assessee during assessment proceeding to explain with supporting documents regarding EPCG claim of receivable in assessee s assets and its treatment given by assessee in its income expenditure/Profit Loss account. It is on record that the assessee has given the details related to this claim as the said claim is in respect of government incentive and assessee already offered said income for taxation. It is pertinent to note that the analogy given by PCIT while directing the Assessing Officer, the PCIT has failed to appreciate that the treatment given by the Assessing Officer to EPCG claim in the present assessment year depends on the refund which is actually received in subsequent year. Thus, this clearly amounts to change of opinion which is not permissible under the provisions of Section 263. PCIT cannot say that the Assessing Officer has not verified this claim and thus this amounts to prejudice to the interest of Revenue. The appeal of the assessee allowed.

Summary

Issues:
- Jurisdiction of the Assessing Officer under Section 263 of the Income Tax Act, 1961
- Validity of the assessment order passed by the Assessing Officer
- Treatment of EPCG claim by the Assessing Officer
- Proper verification of facts related to EPCG claim during assessment proceedings
- Prejudice to the interest of Revenue due to the assessment order

Analysis:

Jurisdiction of the Assessing Officer under Section 263:
The appeal was filed against the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961. The appellant contended that the jurisdiction assumed by the PCIT was illegal as the assessment order itself was not valid due to the statutory notice under Section 143(2) being issued by an authority lacking jurisdiction over the assessee. The appellant argued that the PCIT erred in considering the original assessment order as erroneous and prejudicial to the revenue's interest. However, the appellant failed to provide substantial evidence to support the claim of lack of jurisdiction, and the PCIT's decision was upheld.

Validity of the Assessment Order:
The PCIT observed discrepancies in the treatment of the EPCG claim by the Assessing Officer during the assessment proceedings. The PCIT noted that the receivable amount related to the EPCG claim was not properly reflected in the Profit & Loss account by the assessee. Consequently, the PCIT held that the Assessing Officer failed to analyze the facts correctly and directed a fresh assessment order to be passed after ascertaining the accurate details. The appellant argued that the original assessment order was not prejudicial to the revenue's interest, citing the eligibility for a refund of Excise Duty for machinery purchase. However, the PCIT's decision was maintained as the Assessing Officer's treatment of the EPCG claim was deemed inadequate.

Treatment of EPCG Claim:
The crux of the dispute revolved around the treatment of the EPCG claim by the Assessing Officer. The appellant contended that the EPCG claim was eligible for a refund of Excise Duty, which was not recorded in the books for the relevant assessment year. The appellant maintained that the treatment of the claim did not result in any loss to the revenue. However, the PCIT found discrepancies in how the EPCG claim was handled, leading to the conclusion that the original assessment order needed revision for proper assessment of income related to the claim.

Proper Verification of Facts Related to EPCG Claim:
During the assessment proceedings, the Assessing Officer had requested supporting documents from the assessee to determine the nature of the EPCG claim and its impact on income. The assessee provided explanations and clarified that the EPCG refund was received in subsequent years. The PCIT found fault with the Assessing Officer's handling of the claim, as the treatment depended on the refund received in a later year. The PCIT's decision to set aside the assessment order for a fresh evaluation of the EPCG claim was upheld based on the lack of proper verification by the Assessing Officer.

Prejudice to the Interest of Revenue:
The PCIT's order under Section 263 was challenged on the grounds that it was based on a change of opinion by the PCIT rather than a genuine error in the original assessment order. The appellant argued that the Assessing Officer had adequately verified the EPCG claim and that there was no prejudice to the revenue. However, the Tribunal found that the PCIT's decision was justified as the treatment of the EPCG claim required a more thorough assessment to ensure accurate reporting of income. Consequently, the appeal was allowed, upholding the PCIT's order for a fresh assessment.