2022 (11) TMI 1128 - AT - Income Tax

Revision us 263 by CIT - claim of depreciation which includes foreign exchange loss on long term foreign currency loan capitalized in respect of additions made towards plant and machinery - HELD THAT - We note that AO has called for all the details by issuing notice u/s. 142 (1) (reproduced above) to which assessee had made detailed submissions explaining its case. Even before the CIT, assessee has submitted in detail, explaining about the difference in treatment of the foreign exchange fluctuation loss of long term foreign currency loss in the books of accounts and in the computation of income under the Act, as narrated above. We have perused the treatment of forex loss as per the books of account which has been added to the cost of fixed assets and also the treatment of the forex loss as per the provisions of section 43A of the Act, based on actual repayment of loan which has been added to the cost of fixed assets. From the above factual matrix of the issue raised by the PCIT, we find that he has not applied his mind to arrive at a consideration which is erroneous in so far as prejudicial to the interest of the revenue, for passing the impugned order u/s 263 - We observe that in the course of proceedings u/s 263 before the PCIT, assessee had furnished the relevant details and explained the issues raised through the show cause notice by the PCIT, supporting its contentions by corroborative documentary evidences. It is well settled law that for invoking the provisions of section 263 both the conditions that the order must be erroneous and prejudicial to the interest of revenue needs to be satisfied. This ratio stands laid down by various Hon'ble Courts. When the AO adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the AO is unsustainable in law. We find that the issue in the present case is purely on facts which are verifiable from the records of the assessee. Examination and verification of the audited financial statements i.e. Balance Sheet and Profit Loss account of the assessee, perusal of provisions of section 43A of the Act and order of coordinate bench of ITAT Kolkata in assessee s own case reveals the correct state of its affairs in respect of the issue raised in the impugned revisionary proceedings for which both, ld. PCIT and the CIT, DR could not bring any material on record to controvert the verifiable factual position. Accordingly, on the issues raised by the PCIT in the revisionary proceedings, no action u/s 263 is justifiable which in our considered view cannot be sustained under the facts and circumstances of the present case and judicial precedents dealt herein above. We, therefore, quash the impugned order u/s 263 of the Act and allow the grounds raised by the assessee.

Summary

Issues Involved:
1. Assumption of jurisdiction by the Ld. Pr. CIT for invoking revisionary proceedings u/s. 263 of the Income-tax Act, 1961.
2. Claim of depreciation including foreign exchange fluctuation loss.
3. Arms length price determination of guarantee fee received by the assessee.

Detailed Analysis:

1. Assumption of Jurisdiction by Ld. Pr. CIT for Invoking Revisionary Proceedings u/s. 263 of the Act:
The primary issue in the appeal is whether the Ld. Pr. CIT rightly assumed jurisdiction to invoke revisionary proceedings under section 263 of the Income-tax Act, 1961. The assessee contested the jurisdiction, arguing that the assessment order was neither erroneous nor prejudicial to the interest of revenue. The Ld. Pr. CIT had issued a show cause notice raising concerns about the claim of depreciation and the arms length price determination of guarantee fee received by the assessee.

2. Claim of Depreciation Including Foreign Exchange Fluctuation Loss:
The first issue raised by the Ld. Pr. CIT pertained to the claim of depreciation which included foreign exchange fluctuation loss on long-term foreign currency loans capitalized to fixed assets. The Ld. Pr. CIT alleged that there was an excess claim of depreciation amounting to Rs. 17,65,737/- due to the inclusion of foreign exchange fluctuation loss. The assessee argued that the foreign exchange fluctuation loss was treated differently in the books of account and in the computation of income under the Act, in compliance with Accounting Standard-11 (AS-11) and section 43A of the Act respectively. The Ld. AO had examined and verified these details during the assessment proceedings, and thus, the claim of depreciation was rightfully allowed.

3. Arms Length Price Determination of Guarantee Fee Received by the Assessee:
The second issue raised by the Ld. Pr. CIT concerned the arms length price determination of the guarantee fee received by the assessee from its Associated Enterprises (AE). The Ld. Pr. CIT noted a discrepancy in the guarantee fee amount credited in the Profit & Loss account and the amount determined by the Transfer Pricing Officer (TPO). However, the assessee pointed out that this issue had already been adjudicated by the Coordinate Bench of ITAT, Kolkata in its favor for the same assessment year, and thus, the Ld. Pr. CIT had no jurisdiction to raise this issue in the revisionary proceedings.

Tribunal's Findings:

On Jurisdiction:
The Tribunal observed that for invoking the provisions of section 263, both conditions that the order must be erroneous and prejudicial to the interest of revenue need to be satisfied. The Tribunal referred to the judicial precedent set by the Hon'ble Supreme Court in the case of Malabar Industries Ltd. vs. CIT, which held that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law.

On Depreciation Claim:
The Tribunal found that the Ld. AO had made detailed inquiries and examined the issue of foreign exchange fluctuation loss during the assessment proceedings. The assessee had provided all necessary details and explanations, which were verified by the Ld. AO. Thus, the assessment order could not be considered erroneous or prejudicial to the interest of revenue on this ground.

On Guarantee Fee:
The Tribunal noted that the issue of arms length price determination of the guarantee fee had already been adjudicated by the Coordinate Bench of ITAT, Kolkata in favor of the assessee for the same assessment year. Therefore, the Ld. Pr. CIT's assumption of jurisdiction on this issue was not warranted.

Conclusion:
The Tribunal quashed the impugned order u/s 263 of the Act, concluding that the revisionary proceedings initiated by the Ld. Pr. CIT were not justified. The appeal of the assessee was allowed, and the assessment order was upheld as neither erroneous nor prejudicial to the interest of revenue. The order was pronounced in the open court on 10th November, 2022.