INCOME TAX ACT, 1961

Section 263 Section 4

Revision under section 263 - Erroneous and prejudicial order - Lack of enquiry by AO - Answer to legal issue already on record

Assessee was a registered company and was constituted as a special purpose vehicle to facilitate the acquisition of land and complete preliminary formalities for setting up a power project at Mundra, based on imported coal at Mundra in District Kutch, Gujarat. As a result of forward contracts for procurement of plant and machinery in foreign currency, the assessee had earned gains due to favourable fluctuation of foreign exchange rate. This gain can be subdivided in to two parts. The first part of the gain was notional on account of fluctuation of rate of foreign currency. The other part was on account of cancellation of the contracts. According to the assessee, such gain was on capital account and would go to reduce the cost of acquiring capital asset. CIT was, prima facie, of the opinion that, the AO had not carried out proper enquiries with respect to the claim of assessee. He, therefore, put the assessee to the notice, why power under section 263 be not exercised. Rejectiing Ao's reply CIT passed impugned order. Tribunal by the impugned judgment allowed assessee's appeal. Held: In the present case, the controversy was whether the AO was justified in not disturbing the assessee's claim that, the gain was on capital account and, therefore, correctly not offered to tax. In a given case, as in the present one, if the answer to the legal issue can be had on the basis of the material already on record, there would be no useful purpose in asking the AO to carry out the same exercise and come to the same conclusion as the Tribunal in the present case had. If the Tribunal had come to the correct conclusions in law and said conclusions based on materials already on record, it would be futile to reinstate the order of the CIT, which in turn, would require the AO to carry out the same exercise and axiomatically come to the same conclusion. If it can be demonstrated that the order was not erroneous, the order of revision would, in any case, require an interference. This being the position, as per settled law, the profits or gains arising out of the fluctuation of the foreign exchange rate, would undoubtedly on the capital account. In view of the above. this Court did not find that Tribunal had committed any error.

Followed:CIT v. Bokaro Steel Ltd. (1999) 236 ITR 315 (SC) : 1999 TaxPub(DT) 1094 (SC). Relied:CIT v. Karnal Cooperative Sugar Mills Ltd., reported in (2000) 243 ITR 2 (SC) : 2000 TaxPub(DT) 625 (SC), Bongaigaon Refinary and Petrochemicals Ltd. v. CIT reported in (2001) 251 ITR 329 (SC) : 2001 TaxPub(DT) 1536 (SC), Sutlej Cotton Mills Ltd. v. CIT (1979) 116 ITR 1 (SC) : 1979 TaxPub(DT) 782 (SC). Distinguished:Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT reported in (1997) 227 ITR 172 (SC) : 1997 TaxPub(DT) 1304 (SC).

REFERRED : Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC) : 2000 TaxPub(DT) 1227 (SC).

FAVOUR : In assessee's favour.

A.Y. : 2009-10

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