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TMI Blog2013 (2) TMI 387X X X X Extracts X X X X X X X X Extracts X X X X ..... avour of other international financial institutions has also not been disputed by the CIT. Thus the assessee adequately discharged the onus cast upon it in terms of section 68. In view of these facts, CIT was not justified in putting obligation on the assessee to prove the identity, capacity and creditworthiness of the actual subscribers, which fact was beyond its reach at the relevant time. There is no reference whatsoever to the non-examination by the AO of the compliance or otherwise of the RBI guidelines in respect of FCCB issues, therefore, held that the CIT was not justified in holding the assessment order to be erroneous and prejudicial to the interests of the Revenue on this issue. Applicability of sections 60 to 63 - Out of the proceeds of the said FCCB funds granting of interest free funds would be deemed to be transfer of an asset and AO failed to club such interest income with the assessee’s total income - Held that:- The question as to whether income earned by the borrower from the interest free loan advanced by the lender be clubbed in the hands of the lender, is definitely debatable and not conclusive. The scope of proceedings u/s 263 is restricted to revising an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t go in the opposite directions. It cannot be accepted that the deduction claimed by the assessee towards loss due to foreign exchange fluctuation in foreign currency transactions in derivatives should be considered as contingent and hence ignored but the gain due to such foreign exchange fluctuations in foreign currency transactions on derivatives should be assessed to tax. Both the loss / gain assume the same character of either contingent or non-contingent. Thus when there is a net gain of Rs.21.89 crores, which the assessee included in its total income, failure to appreciate the reason for charging the gross gain of forex 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. CIT was not justified in holding the assessment order to be erroneous and prejudicial to the interests of the Revenue on this issue. - ITA No.2915/Mum/2012 - - - Dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue. The assessment order was set aside to that extent. The assessee has come up in appeal against the reasoning and conclusions drawn by the ld. CIT for revising the assessment order. 4. We have heard rival submissions and perused the relevant material on record. Before proceeding further, it is relevant to record that the ld. Senior Authorised representative was fair enough to accept and rightly so, that there is no discussion/reference to these aspects in the assessment order. He, however, maintained that the AO conducted proper enquiry in respect thereof and got satisfied with the assessee s explanation. In order to appreciate as to whether or not the action of the ld. CIT in respect of above these items warranted revision of the assessment order passed by the AO u/s.143(3), it is apt to scrutinize the merits and correctness of the conclusions drawn by the ld. CIT thereon. 5. Foreign Currency Convertible Bonds 5.1. The factual matrix as regards this item is that the assessee raised funds through three issues of FCCBs during the previous year relevant to the assessment year under consideration. FCCB means a bond expressed in foreign currency, the principal and interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion and concession referred to in Clause-5. As per Clause 1.2, the Issuer assessee undertook to prepare and deliver to the Lead Manager an Offering Circular not later than four business days prior to the closing date. The assessee issued Offering document dt. 05.05.2006 to DB HK, clarifying that the Bonds would be represented by single Global Certificate (GC). Upon issuance, the Bonds were represented by a Global Certificate deposited with a Common Depositary. The terms and conditions of the Bonds given as per Schedule-1 to the Agreement provide that the Bonds were to be issued in the registered form in the denomination of USD 1000 each. As per Clause 3.2, no individual certificates in respect of interest (share) in any Bonds were to be issued in exchange for the Global certificate except in the circumstances provided in Clause 3.3. According to clause 3.3, individual certificates were to be issued only in the prescribed circumstances, such as, the Common depositary or any successor to the common depositary notifying to the company in writing that it is at any time unwilling or unable to continue to act as a depositary and a successor depositary is not appointed by the Company wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partly itself subscribing to the FCCB. 5.5. Section 68 of the Act clearly provides that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. A bare perusal of this provision divulges that there is an obligation on the assessee to prove the identity, capacity and credit worthiness of the person from whom the money is actually received. At the cost of repetition, we summarize the entire proceedings in respect of FCCB of USD 500 million which was undertaken to be subscribed to by DB HK. A GC for the whole issue was issued in favour of the nominee of DB HK, who could have either subscribed to all the Bonds itself or solicited customers. It was the sole discretion/obligation of the DB HK to find such customers, if it wanted. Admittedly, DB HK subscribed to/collected the sum in respect of USD 500 million and after deduction of their commission, remitted the balance USD 497,500 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord that the assessee issued shares on conversion to certain parties, such as, JP Morgan Securities Ltd., The Hong Kong and Shanghai Banking Corporation Limited and DB HK itself in next year on various dates from 18.10.2007 to 31.1.2008. Only on the issuance of shares, these international financial institutions could be said to have come into direct contact with the assessee company. At the stage of issuance of Bonds in the previous year relevant to the assessment year under consideration, such customers of DB HK were not entitled to directly approach the assessee company in respect of any matter concerning the issuance of Bonds. When such is the situation, we fail to appreciate as to how the assessee could record the names of actual subscribers other than DB HK in its books of account and further prove their identity, capacity and credit worthiness. On a specific query from the bench, the learned Departmental Representative could not bring to our notice any statutory requirement or guideline issued by the RBI or any other Government authority fastening obligation on the assessee to maintain a record of the actual subscribers at that stage and recording their names instead of DB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istinct from the subscribers to the issue. He noticed that : The names and addresses and creditworthiness etc. of the actual subscribers to the FCCB issues have not been furnished / established by the assessee either during the course of assessment proceedings or even now, during the course of proceedings u/s 263 . Thereafter, he recorded that various judicial decisions relied upon by the assessee were of no help as the assessee did not furnish details about the names and addresses, PANs etc. and creditworthiness of the persons from whom the FCCB funds were introduced in the books of account of the assessee, which is a primary condition for the applicability of the said decisions to the assessee s case. He further noticed that: In the absence of above, compliance to the procedure and rules of various regularity authorities in respect of FCCB cited by the assessee cannot be substituted for establishing the identity and creditworthiness etc. of subscribers to the FCCB. . A cursory look at the above findings recorded by the ld.CIT on this issue reveals that he was not satisfied with the assessment order because in his opinion, the necessary ingredients for the applicability of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT u/s 263, which obviously is impermissible. The conclusion drawn by the ld. CIT as to whether the assessment order was erroneous and prejudicial to the interests of the revenue can be examined and decided only on the touchstone of the reasons given by him alone. No arguing or adjudicating authority can put forth or consider any reason other than that adopted by the CIT for testing the sustainability or otherwise of the order u/s 263. 6.5. Coming back to the facts of the instant case we find that the ld. CIT has held the assessment order to be erroneous and prejudicial to the interests of the Revenue on this issue only because the identity, capacity and creditworthiness etc. of 'actual subscribers , other than DB HK were not furnished / established by the assessee. In earlier paras we have expressed our disagreement with the view taken by the ld. CIT on this issue. As such, it is not open to the learned Departmental Representative to support the impugned order with new reasons. We, therefore, refuse to examine this aspect of the matter. It is, therefore, held that the ld. CIT was not justified in holding the assessment order to be erroneous and prejudicial to the interests ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to be revocable if (i) it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor, or (ii) it, in any way, gives the transferor a right to reassume power directly or indirectly over the whole or any part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 issued the notice under section 263 and passed the order dated March 23, 2004, the question of surcharge on undisclosed income was a debatable one. When an issue was debatable, the provisions of section 263 could not be invoked. From the above discussion it is axiomatic that no revision can be done on a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt H with title: Foreign Currency Exchange Fluctuation loss/(gain)/(Net) . Under this sub-head, there are six transactions - four representing gain on account of foreign currency exchange fluctuation, inter alia, a sum of Rs.21.89 crores towards 'Urealised Forex Gain Derivatives and two items of losses. There is an overall excess of gain of foreign currency exchange fluctuation over the loss under this sub-component to the extent of Rs.69.42 crores, which has been reduced from the total Financial charges debited to the Profit and loss account. There is no dispute on any other item even under sub-component H, except Unrealized forex gain of derivatives amounting to Rs. 21.89 crores. The ld. CIT relied on CBDT Instruction No.3/2010 to bolster his point of view that the loss on account of derivatives cannot be claimed as deduction. We have perused this Instruction. The crux of the Instruction is that the loss on account of forex derivatives cannot be allowed against taxable income. 8.3. In CIT v. Woodward Governor India (P.) Ltd. [(2009) 312 ITR 254 (SC)], the assessee debited to its profit and loss account certain unrealized loss due to foreign exchange fluctuation in foreign c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es manifest that on this count, the assessee offered for taxation the said sum and did not claim deduction for loss. This fact finds prominence in the impugned order as well. Despite that, the ld. CIT has held that the component of forex loss on derivatives was not eligible for deduction. There is no doubt that the CBDT Instruction provides that no deduction can be allowed on account of forex losses. Such Instruction has been obviously issued after the judgment in the case of Woodward Governor (SC) and restricts itself to the disallowability of loss on account of currency derivatives. Going by this Instruction, it becomes patent that such forex loss is no more deductible. We fail to understand the logic of the view that the forex loss be ignored but the forex gain on derivatives be taxed. Any profit and loss from an item cannot go in the opposite directions. This position can be observed from the judgment of the Hon ble Supreme Court in Woodward Governor (supra). The Instruction of CBDT simply states the loss on account of forex derivatives cannot be allowed since it is a contingent loss. It cannot be accepted that the deduction claimed by the assessee towards loss due to foreign e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. He further opined that there was failure on the part of the Assessing Officer in not examining the said claim of the assessee on merits and in accordance with law at the assessment stage. Resultantly, the assessment order was held to be passed mechanically and without application of mind which was set aside. The Tribunal upheld the order passed by the CIT. It can be observed from para 14 of the tribunal order that the assessment order was passed without any enquiry or verification of the issue in question. The assessee s statement given in the return was accepted as such. The Tribunal in such circumstances held that the Assessing Officer should have made further enquiries before accepting the claim made by the assessee in its return. Ongoing through the facts of this case it can be easily noticed that the Assessing Officer accepted the assessee s statement given in the return without any verification. No enquiry worth the name was made. However, when we turn to the facts of the instant case, we find that the Assessing Officer did embark upon proper enquiry and sought necessary details from the assessee in respect of all the issues taken note of by the learned CIT in the impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.O. as such. The CIT initiated proceedings u/s 263 on the ground that in making the assessment, the A.O. did not make any enquiry or investigation as regards the nature, source or extent of income derived from agriculture and poultry farm. The Tribunal allowed the assessee s appeal. When the matter came up before the Hon ble Allahabad High Court, it was observed that the A.O. granted exemption to the income from agriculture and poultry farm without making an enquiry or investigation as regards the nature, source or extent of income and further there was no discussion in the assessment order in this regard. That is how the revision order came to be upheld. It can be seen from the facts of the case before the Hon ble Allahabad High Court that the Assessing Officer in that case allowed exemption without making any enquiry or investigation and naturally, there could have been no point of making any discussion in the assessment order on this issue. When we come back to the facts of the instant case, it can be seen that the Assessing Officer did make proper enquiry and investigation into all relevant issues. The non-finding of discussion on these three issues in the assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act, he considers that any order passed therein by the A.O. is erroneous insofar as it is prejudicial to the interests of the Revenue. Upholding the order passed by the Tribunal, the Hon ble jurisdictional High Court observed that unless both the conditions of (i) the order being erroneous and (ii) it being prejudicial to the interests, are satisfied, the CIT cannot exercise power of revision. It observed that an order cannot be termed as erroneous unless it is not in accordance with law . If the A.O., acting in accordance with law makes 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. The Hon ble High Court further visualized and set out certain situations warranting and not warranting action u/s 263. It was held that any and every erroneous order cannot be subject matter of revision because the second requirement also must be fulfilled. The Hon ble High Court also observed that : There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute, on an incorrect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .(supra). About the judgment in Gabrial India Ltd. (supra), it was noticed in the later decision of Hindustan Lever Ltd. (supra) that the former confined the categories within which the jurisdiction u/s 263 could be exercised to a situation in which the order of the Assessing Officer could be regarded as not being in accordance with law or which has been passed without making an enquiry in undue haste. The Hon ble High Court observed that by the exposition of the law by the Hon ble Supreme Court in the case of Malabar Industrial Co. (supra), the judgment of the division bench in Gabriel India (supra), 'to the extent to which it confined the jurisdiction under section 263 only to these categories stands modified . The judgment of the Hon ble Supreme Court was found to be not warranting a restriction on the jurisdiction u/s 263 only to a situation where the judgment of the Assessing Officer is contrary to law or where the Assessing Officer has not made any enquiry in undue haste . The Hon ble High Court considered the mandate of the Apex Court judgment in Malabar Industrial Co. (supra) by which it has been laid down that an incorrect assumption of facts or an incorrect application o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment in his order, where he even agrees with the assessee s claim. But incorporating such relevant aspects in the assessment order is discretionary and not mandatory. If a view is taken that an assessment order must contain each and every aspect examined by him during the course of assessment proceedings with the reasons as to why he agrees or disagrees with the assessee, then the assessment order would become needlessly large. So long as there is material on record to indicate that the AO did enquire into all the relevant aspects of the assessment, it cannot be considered as a case of lack of enquiry empowering the CIT to exercise jurisdiction u/s 263. If we simply go by non-mentioning of a particular issue in the assessment order as a mark of non-application of mind by the A.O., then probably every assessment order would fall within the domain of an erroneous order . The crux of the matter is that where the Assessing Officer applied his mind, which is evident from the enquiry conducted by him during the course of assessment proceedings, the assessment order cannot be branded as erroneous due to non-application of mind merely because there is no mention of certain issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration of such information, in contradistinction to the glaring or apparent contradiction in the earlier situation mentioned in para (a) above, would have revealed the fallacy or incompleteness of the information, which the AO failed to notice. This will cover a situation akin to that prevailing in the case of Hindustan Lever Ltd. (supra) in which albeit the assessee supplied the details of income of the units eligible for deductions under Chapter VI-A, but the AO failed to note that the assessee had not allocated proper amount of expenses to such eligible units, which he was required to observe from the details filed by the assessee. 15.2.ii. The second broad category comprises of cases where the AO failed to correctly apply the relevant legal provisions to the factual position obtaining before him. It may include both the cases, viz., where a wrong provision is applied or where a correct provision is applied wrongly. It is in such circumstances that the CIT can assume power u/s 263. The case of Nalwa Investments Ltd. (Del.) (supra) falls in this category because the AO failed to correctly apply the provisions of section 72 of the Act. 15.2.iii. However, there is one vital dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case does not fall in the category discussed in para 15.1. above. The mere fact that the Assessing Officer did not make any reference to these three issues in the assessment order cannot make the assessment order erroneous when these issues were properly looked into by the Assessing Officer. Now let us see whether it can be brought within the ambit of para 15.2. above. From the details filed by the assessee it can be inferred that the AO not only enquired into these three issues but also got satisfied with the assessee s reply submitted from time to time in support of its stand. Resorting to the provisions of section 263 in such a situation could have been possible only on the ld. CIT showing that the assessment order was erroneous on such three aspects. From the detailed discussion made above on these issues, it is manifest that the AO took either perfectly correct or a possible view. As such, the extant assessment order can not be held as erroneous and prejudicial to the interests of the Revenue. The natural corollary which, therefore, follows in the present case is that the learned CIT was not justified in invoking his jurisdiction u/s 263 of the Act. We, therefore, set asi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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