INCOME TAX ACT, 1961

Section 263

Revision under section 263 - Erroneous and prejudicial order - CIT proceeded on assumption without conducting necessary verification -

Assessee, based at Mauritius, disposed of unlisted shares of A2 Media Pvt. Ltd. and arrived at long term capital loss of INR 21,98,65,449 and it also disposed of unlisted shares of Youngmonk Technologies Ltd. and arrived at a long-term capital gains of INR 4,00,56,781 and short-term capital loss of INR 17,94,89,735. CIT alleged that AO had not verified veracity of such claim by calling for record on the basis of valuation of shares and verification thereof. In case of a non-resident, the computation of capital gains needs to be carried out as per proviso to under section 48. However, no such exercise was carried out by AO in the assessment proceedings. AO had not carried out any inquiry to ascertain whether there existed any commercial substance in Mauritius and whether any tax avoidance arrangement was made where in the form of a conduit company with an objective to obtain tax benefits under the India-Mauritius DTAA. AO should have verified the details of key personnel who manage the investments decisions of the fund. No details were called for in this regard. Thus, Pr. CIT treated the order passed by AO as erroneous and prejudicial to the interest of revenue. Held: CIT proceeded on the premise that assessee was a newly incorporated company which had been incorporated solely for tax evasion purposes, without realizing that assessee was in this line of business since 2010, holding a valid tax residency certificate with a global business licence issued by the assessee Financial Services Commission in Mauritius. CIT also proceeded on the assumption that assessee was not entitled for any treaty benefit for taxation of capital gain in India. He clearly ignored the fact the assessee had neither claimed nor carried forward such capital loss in its return of income filed in India. Further, CIT called for valuation report in revisionary proceedings. However, when valuation reports were filed by assessee, CIT chose to set aside the entire matter back to AO without appreciating that it was incumbent upon CIT to himself examine the valuation reports. Accordingly, assessment order could not be treated as erroneous and prejudicial.

Followed:Jyoti Foundation (2013) 357 ITR 388 (Del) : 2013 TaxPub(DT) 2463 (Del-HC) , Delhi Airport metro Express (P) Ltd. (2017) 398 ITR 8 (Del) : 2017 TaxPub(DT) 4058 (Del-HC), CIT v. Nirav Modi, (2016) 71 Taxmann.com 272 (Bom-HC) : 2016 TaxPub(DT) 3506 (Bom-HC), CIT v. Nirma Chemical Works Ltd. (2009) 309 ITR 67 (Guj-HC) : 2009 TaxPub(DT) 308 (Guj-HC) and CIT v. Sunbeam Auto (2011) 332 ITR 167 (Del-HC) : 2011 TaxPub(DT) 88 (Del-HC).

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