2021 (5) TMI 75 - AT - Income Tax

Revision u/s 263 - Whether assessee has duly discharged the onus at the time of regular assessment by providing various details in support of export rate difference loss as well as profit from speculation business? - HELD THAT - The amendment brought by the Finance Act, 2015, by way of insertion of Explanation-2, can come to the aid of the ld. Pr. CIT only when any one or more of the four conditions, is satisfied and a clear finding of fact to that effect is recorded by the Ld. PCIT. It is only after the PCIT records a clear finding of fact bringing the assessee s case within the ambit of any one or more condition specified in the explanation, only then the legal consequence envisaged in the explanation can be deemed or else it cannot be deemed. Only in the case where the PCIT records a clear finding of fact establishing any of the four conditions postulated above is satisfied then the order framed by the AO can be deemed to be erroneous insofar as prejudicial to the interest of the Revenue, and not otherwise. To say it differently, the opinion of Ld. Pr. CIT cannot be read in isolation, and it has to be read co-jointly with the four conditions stipulated under Explanation-2 clauses (a) to (d) . It is only in the event that any one of the situation is satisfied and there is a finding of fact by the Ld. PCIT to that effect in his revision order, then only the deeming provision of Explanation-2 can be pressed into service for rendering an assessment order as erroneous, insofar as prejudicial to the Revenue, which is the jurisdictional fact and law required for the ld. Pr. CIT/CIT to invoke revisional jurisdiction u/s 263. In the assessee s case, the assessee submitted various documents and evidences, as noted by us in para no.15 of this order, to prove the exchange rate taken by him and explained the exchange rate difference stating that as a matter of consistency, the assessee has been using CBIC exchange rate to convert the UD dollar into Indian rupee. All the exchange gain or loss are related to business activities, as the assessee has taken forward contract to guard the losses. There is no any speculation activity in the assessee s business, the accountant has used wrong nomenclature in books of accounts. We note that for working of foreign exchange gain or losses, the Ld. Pr. CIT set out specific reasons for which he had considered the AO s order to be erroneous in so far as prejudicial to the interests of the Revenue. We note that in response, the assessee had submitted before the Ld. Pr. CIT detailed explanations supported by tangible documentary evidence to prove that ld PCIT had proceeded on assumption of some incorrect facts and wrong interpretation of applicable legal provisions. The assessee also explained with cogent material that before completion of assessment, the AO had indeed made enquiries with reference to specific issues raised by the ld PCIT. According to Ld. Counsel, on receipt of the objections from the assessee, the Ld. Pr. CIT ought to have examined the assessment records and conducted his own enquiry and thereafter should have recorded his own finding proving that the explanations furnished by the assessee suffered from any factual or legal infirmity and because of which he found that the view adopted by the AO was unsustainable in law making his order as erroneous within the meaning of Section 263 of the Act. In our opinion, once the ld. PCIT initiates the proceedings u/s 263 of the Act for specific reasons and these reasons are met by the assessee, then it is incumbent upon the ld. PCIT to himself independently deal with the objections and record his own satisfaction to prove that the AO s order is in fact erroneous and prejudicial to the interests of the Revenue for the reasons as mentioned above. The ld. PCIT in such a situation cannot merely set aside the assessment order directing AO to pass the order of assessment afresh, effectively giving the AO a second innings without establishing that the initial order was erroneous as well as prejudicial to the interests of the Revenue. Assessee had to bear the loss as value of US dollar increased over the period since receipts of the remittance and date of export. In most of the cases of the remittance, assessee utilized the forward exchange contract made in the last year where value of the US was fixed which is lower than the value of US on the date of actual remittance. Considering the aforesaid facts it is seen that AO had made full inquiries by raising the queries with respect to the issue under consideration and the same were also replied by the assessee and on receipt of the replies accepted the claim of the assessee. We further find that Hon'ble Apex Court in the case of CIT v. Max India Ltd. 2007 (11) TMI 12 - SUPREME COURT has held that where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of Revenue, unless the view taken by the ITO is unsustainable in law. Before us, Revenue has not brought any material on record to demonstrate that the view taken by the AO was an impermissible view and was contrary to law or was upon erroneous application of legal principles necessitating the exercising of Revisionary powers u/s 263 of the Act. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. In the instant case, the Ld Pr. CIT has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Ld Pr. CIT is not in accordance with the mandate of the provisions of section 263 of the Act. A mere observation that no proper details have been obtained, cannot be sufficient to come to a conclusion that the AO did not make proper and adequate inquiries which he ought to have made in the given facts and circumstances of this case. In the conclusion we are of the view that none of the reasons set out by the ld PCIT for invoking the jurisdiction u/s 263 of the Act are sustainable. We accordingly quash the order u/s 263 of the Act and allow the appeal of the assessee

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Exchange rate difference loss.
3. Speculation business profit.
4. Adequacy of Assessing Officer's inquiry.
5. Applicability of Explanation 2 to Section 263.

Issue-Wise Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The assessee challenged the correctness of the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961. The PCIT's jurisdiction under Section 263 was questioned on the grounds that the original assessment order was neither erroneous nor prejudicial to the interest of the revenue.

2. Exchange Rate Difference Loss:
The PCIT observed that the assessee had shown a loss on account of exchange rate difference amounting to ?7,31,67,312 under "Other Operating Revenue" and a profit from speculative business of ?1,31,80,948 under "Other Non-operating Income." The PCIT noted that the average rate of the US dollar as per RBI data was ?54.40, but the assessee had claimed exchange rates as low as ?44.88, 46.88, 45.41, 46.73, and 47.07, which were significantly lower. This discrepancy led the PCIT to believe that the data provided by the assessee was doubtful and required deeper analysis.

3. Speculation Business Profit:
The PCIT concluded that the net loss of ?5,99,86,364 (i.e., ?7,31,67,312 - ?1,31,80,948) should not be adjusted against the business income as per Section 73(1) of the Act, which states that any loss in speculation business shall not be set off except against profits of another speculation business.

4. Adequacy of Assessing Officer's Inquiry:
The PCIT held that the Assessing Officer (AO) had passed the assessment order without making the necessary inquiries or verification, which rendered the order erroneous and prejudicial to the interest of the revenue. The PCIT noted that there was no evidence in the assessment record that any query regarding speculation loss was raised by the AO during the assessment proceedings.

5. Applicability of Explanation 2 to Section 263:
The PCIT invoked Explanation 2 to Section 263, which deems an order erroneous if it is passed without making inquiries or verification that should have been made. The PCIT argued that this provision applied to the assessee's case as the AO had not conducted the necessary inquiries.

Conclusion:
The Tribunal examined whether the order of the AO was erroneous and prejudicial to the interest of the revenue. It was noted that the assessee had submitted detailed evidence and documents during the assessment proceedings, which were examined by the AO. The Tribunal emphasized that if the AO had made inquiries and applied his mind, the order could not be deemed erroneous simply because the PCIT had a different opinion. The Tribunal also highlighted that Explanation 2 to Section 263, inserted by the Finance Act, 2015, is prospective and does not apply to the assessment year in question. Consequently, the Tribunal quashed the order passed by the PCIT under Section 263, allowing the appeal of the assessee.