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2017 (3) TMI 888 - AT - Income TaxRevision u/s 263 - Held that - There is no force in learned PCIT former reason holding that the Assessing Officer failed to conduct any enquiry before finalizing the above regular assessment. Page 20 of the paper book duly contains Section 142(1) notice dated 07.03.2013 raising a specific query at no.4 at page 24 thereby proposing to add the sum in question of ₹ 48crores. The ultimate fact is that he nowhere made the said addition in above regular assessment. We quote judgment in CIT vs. Gabriel India Ltd. 1993 (4) TMI 55 - BOMBAY High Cour holding that the mere fact that an Assessing Officer does not discuss the relevant issue in assessment order nowhere renders the assessment in question to be a case of no inquiry in case he has examined the said issue in the course of scrutiny. It is further evident that a co-ordinate bench in assessee s case itself reported that 2014 (10) TMI 617 - ITAT AHMEDABAD has already reversed an identical exercise of Section 263 jurisdiction in the immediate preceding assessment year by holding that the Assessing Officer had duly conducted the necessary inquiry before finalizing the said regular assessment. Whether the assessee s remuneration in question could be held to be income from other sources or attempt to cause substantial loss to the Revenue? - Held that - We notice herein as well that the assessee s payer has already disallowed the sum in question of ₹ 48crores (supra). Learned counsel files before us copy of its assessment order in scrutiny accepting the said disallowance. We observe in these peculiar facts that it would not be proper for the Revenue to adopt different course of action in case of a payer and a payee since the assessee is entitled to make corresponding adjustment u/s. 28(v) of the Act. We accordingly find force in assessee s arguments challenging learned PCIT s order passed u/s.263 of the Act. The same is therefore reversed. - Decided in favour of assessee
Issues Involved:
1. Exercise of revision jurisdiction under Section 263 of the Income Tax Act. 2. Whether the remuneration received by the assessee from the partnership firm is exempt under Section 28(v) of the Income Tax Act. 3. Adequacy of inquiry conducted by the Assessing Officer during the assessment proceedings. Issue-wise Detailed Analysis: 1. Exercise of Revision Jurisdiction under Section 263: The Principal Commissioner of Income Tax (PCIT) exercised revision jurisdiction under Section 263, directing the Assessing Officer (AO) to frame a fresh assessment. The PCIT deemed the original assessment erroneous and prejudicial to the interests of the Revenue, primarily due to the AO's failure to conduct necessary inquiries and properly apply the law. The PCIT's order emphasized that the AO had not sufficiently investigated the facts and circumstances surrounding the remuneration of ?48 crores received by the assessee from the partnership firm. The PCIT cited several precedents, including CIT vs. Shree Manjunathesware Packing Products & Camphor Works and CIT vs. Seshasayee Paper & Boards Ltd., to support the wide amplitude of revisionary powers under Section 263. 2. Exemption under Section 28(v): The primary contention was whether the remuneration of ?48 crores received by the assessee from the partnership firm could be treated as exempt under Section 28(v). The assessee argued that this remuneration was for marketing and auxiliary services provided to the partnership firm, and since the firm had disallowed the remuneration under Section 40(b), the same should be exempt under Section 28(v). The PCIT, however, contended that the remuneration was essentially for services rendered and should be treated as 'Other Income' of the assessee. The PCIT also highlighted that the original partnership agreement did not envisage such remuneration, and subsequent agreements seemed to be a device to avoid tax. 3. Adequacy of Inquiry by the Assessing Officer: The PCIT criticized the AO for not conducting a thorough inquiry and simply accepting the assessee's claims without further investigation. The AO's failure to pierce the corporate veil and properly scrutinize the remuneration transaction was seen as a lapse leading to substantial revenue loss. However, the Tribunal noted that the AO had indeed raised specific queries during the assessment proceedings, as evidenced by the Section 142(1) notice, and had examined the issue. The Tribunal referenced the Bombay High Court's judgment in CIT vs. Gabriel India Ltd., which held that an assessment could not be deemed erroneous merely because the AO did not discuss every issue in the assessment order, provided the issue was examined during scrutiny. Tribunal's Conclusion: The Tribunal found that the AO had conducted the necessary inquiries and that the remuneration was disallowed by the partnership firm, thus entitling the assessee to claim the corresponding adjustment under Section 28(v). The Tribunal also noted that a coordinate bench had previously reversed a similar exercise of Section 263 jurisdiction in the assessee's case for the preceding assessment year. Consequently, the Tribunal reversed the PCIT's order passed under Section 263, allowing the assessee's appeal. Outcome: The assessee succeeded in its appeal, and the Tribunal pronounced the judgment in favor of the assessee on March 16, 2017.
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