ITAT Delhi Upholds Revision Order Against Amazon Retail Over Lack of Inquiry Into Expenses, Related Party Payments

The Income Tax Appellate Tribunal (ITAT) at Delhi has dismissed an appeal filed by Amazon Retail India Private Limited challenging a revision order under Section 263 of the Income Tax Act, holding that the assessing officer failed to conduct necessary enquiries in a case selected for complete scrutiny before accepting the return declaring a loss of Rs. 639.73 crore.

A coram comprising Judicial Member Satbeer Singh Godara and Accountant Member Amitabh Shukla held that the assessment order suffered from a complete lack of enquiry on issues for which the case was selected for scrutiny.

“Accordingly, we are of the considered view that in the present case the ld. AO did not conduct any enquiry whatsoever to fulfil the mandate given tohim while selecting the case of the assessee for complete scrutiny. The ld. AO did not examine or do any verification as to why was assessee incurring losses inspite of doubling its turnover the immediately preceding assessment year.” the tribunal observed.

The company had filed its return declaring a loss of Rs. 639.73 crore. The case was selected for complete scrutiny, including on account of a low PBDIT ratio. The assessment was completed under Section 143(3) by accepting the returned loss without making any additions.

The Principal Commissioner of Income Tax (PCIT) subsequently exercised revisionary powers under Section 263, holding that the assessment order was erroneous and prejudicial to the interests of the revenue due to lack of proper enquiry. It flagged the absence of examination into the company's financials, including a significant increase in expenses and transactions.

The revision order also raised concerns regarding payments made to related parties within the meaning of Section 40A(2) and directed the assessing officer to examine their reasonableness. It further called for verification of compliance with tax deduction at source provisions in respect of certain expenses.

The revision order did not itself make any additions or raise a tax demand but set aside the assessment and directed the assessing officer to carry out a fresh examination on these issues.

Before the tribunal, Amazon argued that the assessment had been completed after issuance of notices and consideration of replies, and that the revision amounted to a roving and fishing enquiry.

Rejecting the contention, the tribunal relied on the Delhi High Court's ruling in Gee Vee Enterprises v. Addl. CIT to reiterate that an assessing officer cannot remain passive where the facts of the case warrant proper verification.

“Accordingly, we are of the considered view that no case of any interference to the exercise of revisionary authority of PCIT-1, New Delhi, u/s 263 is made out at this stage," the tribunal held, dismissing the appeal.