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2014 (10) TMI 617 - AT - Income TaxInvocation of provisions of section 263 by CIT Held that - The power of suo motu revision u/s 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist relying upon Malabar Industrial Co Ltd Vs CIT 2000 (2) TMI 10 - SUPREME Court - during the course of assessment proceedings AO had raised query with respect to the exchange fluctuation loss and in response to which the Assessee has submitted its reply - the reply of Assessee was found to be acceptable by the AO because no addition on account of exchange rate fluctuation was made by the AO in the assessment order - for A.Y. 2006-07 and A.Y. 2008-09, AO had had made full inquiries by raising the queries and the same were also replied by the assessee and on receipt of the replies accepted the claim of the assessee in CIT vs. Max India Ltd. 2007 (11) TMI 12 - Supreme Court of India - where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of Revenue, unless the view taken by the ITO is unsustainable in law - during the course of assessment proceedings, the AO examines numerous issues and generally, the issues which are accepted do not find mention in the assessment order and only such points are taken note of on which the assessee s explanations are rejected and additions/disallowances are made - provisions of s. 263 cannot be resorted to relying upon Commissioner Of Income-Tax Versus Gabriel India Limited 1993 (4) TMI 55 - BOMBAY High Court - when a regular assessment is made u/s 143(3) a presumption can be raised that the order has been passed upon on application of mind - Revenue has not brought any material on record to demonstrate that the view taken by the AO was an impermissible view and was contrary to law or was upon erroneous application of legal principles necessitating the exercising of Revisionary powers u/s 263 thus, the order of the CIT(A) is to be set aside Decided in favour of assessee.
Issues Involved:
1. Legitimacy of invoking Section 263 by the CIT for AY 2006-07 and AY 2008-09. 2. Allowability of exchange rate fluctuation loss claimed by the Assessee for AY 2006-07. 3. Treatment of remuneration received from Zydus Healthcare Sikkim as income for AY 2008-09. Detailed Analysis: 1. Legitimacy of Invoking Section 263 by the CIT: The CIT invoked Section 263 for both AY 2006-07 and AY 2008-09, arguing that the Assessing Officer (AO) did not properly examine the issues, making the orders erroneous and prejudicial to the interests of the Revenue. The Assessee contended that the conditions specified under Section 263 were not satisfied, arguing that the orders were neither erroneous nor prejudicial to the Revenue. The Assessee cited the Supreme Court's decision in Malabar Industrial Co. Ltd. vs CIT (2000) 243 ITR 83 (SC), which held that both conditions must be met for Section 263 to be invoked. 2. Allowability of Exchange Rate Fluctuation Loss for AY 2006-07: The CIT observed that the Assessee claimed an exchange rate fluctuation loss of Rs. 5,65,95,469/-, which was treated as a revenue loss. The CIT argued that the AO did not examine whether the loss was capital in nature and thus disallowed it under the provisions of the Act. The Assessee, however, provided detailed responses during the assessment proceedings, citing the Supreme Court's decision in Woodward Governor India Pvt. Ltd. (2009) 312 ITR 254 (SC) to support its claim that the loss was a revenue loss. The Tribunal found that the AO had indeed raised queries and received satisfactory responses from the Assessee, thus making the AO's order neither erroneous nor prejudicial to the Revenue. 3. Treatment of Remuneration from Zydus Healthcare Sikkim for AY 2008-09: The CIT argued that the remuneration of Rs. 4.73 crore received by the Assessee from Zydus Healthcare Sikkim should be treated as "income from other sources" under Section 56 of the Act, rather than as business income under Section 28(v). The Assessee countered that the remuneration was disallowed in the firm's income under Section 40(b) and thus should be excluded from the Assessee's income under Section 28(v). The Tribunal noted that the AO had raised specific queries and received detailed explanations from the Assessee, which were found satisfactory. Consequently, the Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the Revenue. Conclusion: The Tribunal held that the CIT was not justified in invoking Section 263 for both AY 2006-07 and AY 2008-09. The AO had conducted proper inquiries and accepted the Assessee's claims based on satisfactory responses. The orders passed by the AO were not erroneous or prejudicial to the interests of the Revenue. Therefore, the Tribunal set aside the CIT's orders and allowed the appeals of the Assessee for both years. Order: The appeals of the Assessee are allowed. Order pronounced in Open Court on 17-10-2014.
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