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2022 (10) TMI 758 - AT - Income TaxRevision u/s 263 - disallowing provision for depreciation and addition on account of broken period interest - HELD THAT - In the instant case i.e. for the A.Y.2011-12, the ld. AO had indeed made specific enquiry during the course of assessment proceedings with regard to the aforesaid items and assessee vide reply letter dated 05/03/2015 had specifically pointed out the manner in which the said provision has been made and how it is allowable deduction for the assessee and also in view of case of DCIT vs. Bank of Behrain and Kuwait 2010 (8) TMI 578 - ITAT, MUMBAI and also the decision of Woodward Governor India Pvt. Ltd. 2009 (4) TMI 4 - SUPREME COURT The fact is that the reply letter dated 05/03/2015 has been filed before the ld. AO is acknowledged by the ld. AO himself in his assessment order. Further yet another reply was filed by the assessee vide letter dated 24/03/2015 furnishing the entire series wise details of mark to market losses of Equity Linked Notes (ELN). The ld. AO on examining these two replies was thoroughly satisfied with the explanation offered by the assessee and accordingly, no disallowance / addition was made in the assessment. This categorically goes to prove that thorough enquiry has been made by the ld. AO in respect of aforesaid two issues. Hence, the decision of this Tribunal in assessee s own case for A.Y.2010-11 referred to supra would be squarely applicable to the year under consideration also. Respectfully following the same, the revision order passed u/s.263 of the Act by the ld. PCIT is hereby quashed. Appeal of the assessee is allowed.
Issues Involved:
1. Justification of invoking revision jurisdiction under Section 263 of the Income Tax Act. 2. Deductibility of expenses related to "Revaluation (MTM) of non-convertible debentures" and "Revaluation of Futures and Options net of premium received." Issue-wise Detailed Analysis: 1. Justification of Invoking Revision Jurisdiction under Section 263 of the Income Tax Act: The primary issue in this appeal was whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking the revision jurisdiction under Section 263 of the Income Tax Act for the assessment year 2011-12. The assessee argued that the Assessing Officer (AO) had conducted a thorough enquiry during the assessment proceedings, specifically addressing the issues raised by the PCIT. The Tribunal noted that the AO had indeed made specific enquiries regarding the revaluation of non-convertible debentures and futures and options, as evidenced by the assessee's detailed replies dated 05/03/2015 and 24/03/2015. The AO had examined these replies and was satisfied with the explanations provided, leading to no disallowance or addition in the assessment order. The Tribunal emphasized that thorough enquiry and examination by the AO were evident, and thus, the revision order under Section 263 was not justified. The Tribunal referenced its own decision in the assessee's case for the assessment year 2010-11, where a similar revision order under Section 263 was quashed on the grounds that the AO had adopted one of the possible views, which does not grant the PCIT jurisdiction to invoke revisionary powers under Section 263. The Tribunal reiterated that an order cannot be deemed erroneous merely because the AO did not discuss an issue more elaborately if the AO had applied his mind and conducted necessary enquiries. 2. Deductibility of Expenses Related to "Revaluation (MTM) of Non-Convertible Debentures" and "Revaluation of Futures and Options Net of Premium Received": The PCIT had invoked Section 263 on the grounds that the AO allowed deductions for expenses related to the revaluation of non-convertible debentures and futures and options without making appropriate enquiries. The PCIT referred to CBDT instructions stating that contingent liabilities and notional losses, such as Marked To Market (MTM) losses, cannot be allowed as deductions. The assessee countered that the AO had raised specific queries during the assessment proceedings and that detailed explanations were provided, including reliance on accounting standards and judicial precedents. The assessee argued that the AO's decision to allow the deductions was based on a thorough examination and application of mind. The Tribunal found that the AO had indeed made specific enquiries and was satisfied with the explanations provided by the assessee. The Tribunal noted that the AO had considered the relevant accounting standards and judicial decisions, including the Special Bench decision in the case of DCIT vs. Bank of Bahrain and Kuwait and the Supreme Court decision in Woodward Governor India Pvt. Ltd. The Tribunal concluded that the AO's decision to allow the deductions was based on a proper examination of the facts and applicable laws. The Tribunal reiterated that the PCIT cannot invoke Section 263 merely because he disagrees with the AO's decision if the AO had conducted a proper enquiry and applied his mind. The Tribunal quashed the revision order under Section 263, holding that the AO's assessment order was neither erroneous nor prejudicial to the interest of the revenue. Conclusion: The Tribunal allowed the appeal of the assessee, quashing the revision order passed under Section 263 of the Income Tax Act by the PCIT. The Tribunal held that the AO had conducted a thorough enquiry and applied his mind to the issues raised, and thus, the revision jurisdiction under Section 263 was not justified. The expenses related to the revaluation of non-convertible debentures and futures and options were allowed as deductions based on a proper examination of the facts and applicable laws.
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