TMI Blog2014 (2) TMI 1207X X X X Extracts X X X X X X X X Extracts X X X X ..... for the A.Y. 2007-08 has also considered the CBDT instruction no. 3/2010 which has been heavily relied upon by the Commissioner as well as the ld. DR. We further note that the AO has examined this issue and disallowed the net loss after adjusting the gain on account of foreign currency derivatives for hedging and therefore it is manifest from the record that the issue has been examined by the Assessing Officer and taken a possible view. The Tribunal on the identical facts has decided this issue by holding that the view of the Commissioner cannot be countenanced with. Accordingly, we do not find any reason to take a different view from that of already taken by the Tribunal for the A.Y. 2007-08 - Decided in favour of assessee - I .T.A. No. 671/Mum/2013 - - - Dated:- 12-2-2014 - SHRI SANJAY ARORA, AM AND SRI VIJAY PAL RAO, JM Assessee by : Shri A.V.Sonde, Shri Yogesh Thor, Shri Jitendra Sanghavi Respondent by : Shri Surender Jit Singh O R D E R PER VIJAY PAL RAO, JM: This appeal by the assessee is directed against the revision order dated 22/11/2012 of the Commissioner of Income-tax -10, Mumbai passed u/s 263 of the Income-tax Act for the Assessment Yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are recognized in the Profit Loss Account. The Commissioner was of the view the said mark-to-market losses as on the reporting day i.e. 31/03/2008 are only notional losses and thereby contingent in nature, hence, cannot be allowed to be set off against taxable income. Accordingly, the Commissioner issued a show-cause notice u/s 263 of the Income-tax Act to the assessee as to why the assessment should not be cancelled/set-aside being erroneous and prejudicial to the interest of revenue. The assessee has filed its reply to the show-cause notice and raised various contentions including the jurisdiction of the CIT to invoke the provisions of section 263 when the Assessing Officer has already examined the issues and taken a possible view. The Commissioner did not accept the contention of the assessee and set aside the assessment order dated 31/12/2010 being erroneous and prejudicial to the interest of revenue and directed the AO to frame the assessment denovo after reexamining the aforesaid issue. 3. Before us, Shri A.V. Sonde, ld. Counsel for the assessee has submitted that an identical issue has been considered and decided by the Tribunal in assessee s own case for A.Y.2007-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal in the order dated 05/02/2013 under item no. 2 and 3 as under. (2). Out of the proceeds of the said FCCB funds, an amount of ₹ 5142 crore was given to M/s. Reliance Info Investments Ltd., (RIIL), which was invested by this company on which interest income of ₹ 157.95 crores was earned. Such granting of interest free funds would be deemed to be transfer of an asset and in view of the provisions of section 60 to 63 of the Act, the the AO failed to club such interest income with the assessee s total income. (3) The assessee acquired derivative instruments for hedging and recognized losses on the settlement day or the reporting day, whichever is earlier. The said Mark to market losses (MTM) as on the reporting day were notional losses and hence contingent in nature not allowable for set off against the total income. The AO was wrong in allowing such set off. 5. Thus, there is no quarrel on this point that the issue on which the provision of sections 263 are invoked by the Commissioner for the year under consideration are common and identical to the issues for the A.Y.2007-08. As regards, the issue of FCCB funds diverted to the M/s Reliance Info Inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to sections 60 to 63 in a composite manner without particularly pointing out as to under which specific provision the case falls. As such, we will also examine the case accordingly. Section 60 contemplates clubbing of income in the hands of the transferor when the asset is retained with self but the income is transferred. This section categorically provides that all income arising to any person by virtue of a transfer. whether revocable or not, shall be chargeable to income tax as the income of the transferor where there is no transfer of the asset from which the income arises. It is quite manifest also that when the asset is retained by the transferor himself but only income is transferred, such income is liable to be included in the total income of the transferor. Section 61 deals with the clubbing of income from a revocable transfer of asset. This section provides that all income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income tax as the income of the transferor and shall be included in his total income. Revocable transfer has been defined in section 63. Clause (a) of section 63 provides that a transfer shall be deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is definitely debatable and not conclusive. Suffice to say, we are dealing with proceedings u/s 263. The scope of such proceedings is restricted to revising an order which is erroneous and prejudicial to the interests of the Revenue. An order cannot be said to be erroneous when the AO followed one of the legally sustainable view out of the two views available on the point. The CIT can not call an assessment order to be erroneous simply because he is inclined to follow the other legally sustainable view in preference to the one followed by the AO. The Hon ble Summit Court in Malabar Industrial Co. Ltd. v. CIT [(2000) 243 ITR 83 (SC)] has held that : `Where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. The same view has been reiterated by several Hon ble High Courts including the Hon ble Delhi High Court in CIT Vs. Ansal Properties Ind. (P) Ltd. (2009) 315 ITR 225 (Del). In this case it has been noticed that : `That at the time when the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble income. In reaching this conclusion, the ld. CIT took assistance from CBDT Instruction No.3 /2010, which provides that no benefit of adjustment of income or gain should be given against such losses. He noticed that it was not clear, in the absence of details of gains amounting to ₹ 21.89 crores, that how much component was of loss set off against the income. As this issue was not examined by the AO, the ld. CIT held the assessment order to be erroneous and also prejudicial to the interests of the revenue. 8.2. We have heard the rival submissions and perused the relevant material on record. Mark-to-market or fair value accounting refers to accounting for the fair value of an asset or liability based on the current market value on the last business day of the year, and any gain or loss is taken into account for that year. We find that the AO examined Financial charges debited to profit and loss account to the tune of ₹ 264,91,96,232, the details of which are available at page 82 of PB. It has several sub-components. Presently we are concerned with sub-component H with title: Foreign Currency Exchange Fluctuation loss/(gain)/(Net) . Under this sub-head, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing should be taken into consideration: whether the assessee has been consistent and definite in making entries in the account book in respect of losses and gains; whether the method adopted by the assessee for making entries in the books of account in respect of losses and gains is as per nationally accepted Accounting Standards. From the judgment of the Hon ble Summit Court it can be clearly deduced that unrealized loss due to foreign exchange fluctuation in foreign currency transactions on revenue items as on the last date of the accounting year is deductible. A further important factor which needs consideration is that the same treatment needs to be given to losses as well as gains accruing to the assessee on account of fluctuations in foreign currency rate as at the end of the year. 8.4. Reverting to the facts of the instant case, it is seen that the assessee showed net `Unrealised Forex Gain on Derivatives amounting to ₹ 21.89 crore. In other words, it is a case of overall gain on derivatives due to change in the market rate as at the end of the year and not that of the loss. Thus it becomes manifest that on this count, the assessee offered for taxation th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ex derivatives to tax but ignoring the loss on account of such forex derivatives. As the ultimate net figure on account of forex derivatives in the given facts and circumstances of the case is that of gain which was offered for taxation, it is manifest that the assessment order in accepting said figure of gain as chargeable to tax, cannot be described as prejudicial to the interests of the revenue. We are, therefore, unable to countenance the view canvassed in the impugned order on this issue . 8. It is clear that the Tribunal while decided the issue for the A.Y. 2007-08 has also considered the CBDT instruction no. 3/2010 which has been heavily relied upon by the Commissioner as well as the ld. DR. We further note that the AO has examined this issue and disallowed the net loss after adjusting the gain on account of foreign currency derivatives for hedging and therefore it is manifest from the record that the issue has been examined by the Assessing Officer and taken a possible view. The Tribunal on the identical facts has decided this issue by holding that the view of the Commissioner cannot be countenanced with. Accordingly, we do not find any reason to take a different view f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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