2023 (8) TMI 278 - AT - Income Tax

Revision u/s 263 - As per CIT Marked To Market ( MTM ) loss claimed by the assessee and allowed vide assessment order passed u/s 143(3) is of capital nature and therefore should not be allowed as it directly relates to capital expenses - PCIT further alleged that the assessee itself claims MTM loss but does not offer any MTM gains - HELD THAT - We find that the MTM loss on cross currency interest rate swap claimed in the financial year ending 31/03/2015 was reversed in the financial year ending 31/03/2016. From the computation of income for the assessment year 2016-17, the submission of the assessee is duly corroborated that there is no claim of MTM loss and therefore the assessee has offered to tax the said amount in its return of income for the assessment year 2016-17. PCIT rejected this submission of the assessee merely on the basis that the assessee did not submit these details before the AO during the assessment proceedings and therefore, it cannot be said that the assessment was completed after verifying assessee s books of accounts for the subsequent year. It is pertinent to note that the question as to the year in which deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different. Assessee is a company, and therefore tax is leviable at a uniform rate. It is trite law that in order to invoke section 263, the assessment order must be erroneous and also prejudicial to revenue, and if one of the limbs is absent, i.e., if the order of the AO is erroneous but is not prejudicial to Revenue or if it is not erroneous but is prejudicial to Revenue, recourse cannot be had to section 263 of the Act. Since the MTM loss was duly reversed in the subsequent year and has been offered to tax, therefore, there is no prejudice to the Revenue. Therefore, the impugned revisionary proceedings invoked under section 263 of the Act cannot be upheld and thus, are set aside. Decided in favour of assessee.

Summary

Issues Involved:
1. Legality and jurisdiction of the notice and order under section 263 of the Income Tax Act.
2. Adequacy of the Assessing Officer's (AO) enquiry and verification regarding the Mark to Market (MTM) loss.
3. Nature and allowability of MTM loss claimed by the assessee.
4. Compliance with procedural requirements, including the Document Identification Number (DIN).

Summary:

Issue 1: Legality and Jurisdiction under Section 263
The assessee challenged the legality and jurisdiction of the notice and order issued under section 263 of the Income Tax Act by the learned Principal Commissioner of Income Tax (PCIT). The Tribunal found that the invocation of section 263 was not justified as the Assessing Officer (AO) had duly examined the MTM loss during the assessment proceedings.

Issue 2: Adequacy of AO's Enquiry and Verification
The learned PCIT initiated revisionary proceedings on the basis that the AO did not make adequate enquiries regarding the MTM loss of INR 9.29 crores. However, the Tribunal noted that the AO had specifically raised queries regarding the MTM loss, and the assessee had provided detailed responses. The Tribunal held that the absence of discussion in the assessment order does not imply a lack of enquiry, citing the jurisdictional High Court's decision in CIT v/s Reliance Communication Ltd.

Issue 3: Nature and Allowability of MTM Loss
The learned PCIT contended that the MTM loss was capital in nature and should not have been allowed. The Tribunal, however, found that the assessee's treatment of MTM loss was in accordance with the guidelines issued by the Institute of Chartered Accountants of India and consistent with the Supreme Court's decision in CIT v/s Woodward Governor India (P) Ltd. The Tribunal concluded that the AO had not failed in making necessary enquiries or verifications, and thus, the order was not erroneous or prejudicial to the Revenue.

Issue 4: Compliance with Procedural Requirements
The assessee raised an additional ground that the impugned order was issued without a Document Identification Number (DIN), violating Circular No. 19/2019. The Tribunal did not express findings on this additional ground as the revisionary proceedings were already found to be without jurisdiction and the order under section 263 was set aside.

Conclusion:
The appeal by the assessee was allowed, and the impugned order passed by the learned PCIT under section 263 of the Income Tax Act was quashed. The Tribunal found that the AO had conducted adequate enquiries and the MTM loss was correctly allowed as per the applicable guidelines and judicial precedents.