2021 (5) TMI 892 - AT - Income Tax

Revision u/s 263 - Assessee argued as no opportunity of hearing to the assessee given - Gain on foreign exchange receivables and related forward contracts, is an additional consideration for slump sale of domestic formulation business, and is, therefore, chargeable to tax, which, according to the learned Principal Commissioner, should be added to the returned income of the assessee - HELD THAT - Principal Commissioner has not given any opportunity of hearing to the assessee on the precise point on which the powers of revision exercised, and, to borrow the words of Hon ble Supreme Court in the case of Amitabh Bachan 2016 (5) TMI 493 - SUPREME COURT there can be no dispute that while the C.I.T. is free to exercise his jurisdiction on consideration of all relevant facts, a full opportunity to controvert the same and to explain the circumstances surrounding such facts, as may be considered relevant by the assessee, must be afforded to him by the C.I.T. prior to the finalization of the decision . To this extent, undoubtedly, the impugned order is vitiated in law, but the question is what are the implications of this failure on the part of the learned Commissioner. While one can understand anxiety of the assessee to bring an end to the dispute at this forum itself, we are of the considered view that the right course of action will be to send the matter back to the file of the Commissioner for giving an opportunity of hearing to the assessee, on the point on which the impugned revision is actually done in the present case, and thus afford an opportunity to the assessee explain the circumstances surrounding this issue, as may be considered relevant by the assessee. Commissioner will also consider whether the rate of foreign exchange conversion, as pointed out by the assessee and as accepted by the Assessing Officer, is indeed in order, and, if so, whether the subject assessment order can indeed be said to erroneous and prejudicial to the interest of the assessee. In other words, before deciding the matter afresh in the remanded proceedings, learned Commissioner must take a categorical call on this factual aspect, now that it has been pointed out, and in case the stand of the assessee is found to be correct, the matter must end there. As the matter is being remitted back to the file of the learned Commissioner, it is made clear that the subject matter of hearing will be confined to the issue in the impugned revision order, that the learned Commissioner does not have the liberty of modifying or expanding the scope of the impugned revision proceedings, as the remand is for the limited purpose of providing an opportunity of hearing to the assessee on the points taken in the impugned revision proceeding - Assessee appeal is allowed for statistical purposes

Issues Involved:
1. Violation of principles of natural justice.
2. Validity of the order passed under section 263 of the Income Tax Act.
3. Revision of the assessment order superseded by a subsequent rectification order.
4. Direction to verify the transaction of discounting of Abbott Receivables.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The appellant argued that the Principal Commissioner of Income Tax (Pr. CIT) violated principles of natural justice by passing the order under section 263 on a different basis than the one specified in the notice without giving a specific opportunity to the appellant. The appellant contended that the hearing was restricted to the issue of taxability of the foreign exchange gain of ?309,51,25,000, and no other points were discussed. The Pr. CIT, however, passed the revision order on the discounting transaction with Axis Bank, which was not part of the initial notice. The tribunal noted that the Pr. CIT did not provide an opportunity to the appellant to contest the facts on which the revision was based, thus violating the principles of natural justice.

2. Validity of the Order Passed Under Section 263:
The appellant challenged the validity of the order passed under section 263, arguing that the assessment order had already merged into the rectification order under section 154. The tribunal observed that the Pr. CIT's order was based on the findings of the Dispute Resolution Panel (DRP) for the subsequent year, without applying his mind to the facts of the present case. The tribunal held that the Pr. CIT should have come to a finite conclusion that the order was erroneous and prejudicial to the interest of the revenue before setting aside the matter to the AO for further inquiries.

3. Revision of the Assessment Order Superseded by a Subsequent Rectification Order:
The appellant argued that the Pr. CIT erred in invoking section 263 to revise the assessment order, which was superseded by a subsequent rectification order. The tribunal noted that the assessment order had already been rectified under section 154, and the Pr. CIT's revision order did not take this into account. The tribunal held that the Pr. CIT's order was not valid as it was based on an erroneous premise.

4. Direction to Verify the Transaction of Discounting of Abbott Receivables:
The appellant contended that the Pr. CIT erred in directing the AO to verify the discounting of Abbott Receivables, arguing that discounting is not considered a transfer and any further consideration is capital in nature and not chargeable to tax. The tribunal noted that the Pr. CIT's direction to verify the discounting transaction was based on the DRP's findings for the subsequent year, without considering the specific facts of the present case. The tribunal held that the Pr. CIT should have provided an opportunity to the appellant to explain the circumstances surrounding the discounting transaction before passing the revision order.

Conclusion:
The tribunal concluded that the Pr. CIT violated principles of natural justice by not providing an opportunity to the appellant to contest the facts on which the revision was based. The tribunal set aside the revision order and remitted the matter back to the Pr. CIT for fresh adjudication after providing a reasonable opportunity of hearing to the appellant. The tribunal directed the Pr. CIT to confine the subject matter of hearing to the issue in the impugned revision order and not to expand the scope of the revision proceedings. The appeal was allowed for statistical purposes.

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