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TMI Blog2016 (3) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Hon'ble Gujarat High Court in the case of Amit Corporation (2012 (6) TMI 593 - GUJARAT HIGH COURT ) lack of inquiry would give jurisdiction to the Commissioner to take action under section 263. But the alleged inadequacy of inquiry would not empower the ld. Commissioner to take action under section 263 of the Act. In view of above discussion, we allow the appeal of the assessee and quash the order passed under section 263 of the Act by the ld.Commissioner - Decided in favour of assessee - ITA No. 1475/Ahd/2013 - - - Dated:- 8-12-2015 - Pramod Kumar, AM And Rajpal Yadav, JM For the Appellants : Shri S N Soparkar Shri P M Mehta For the Respondent : Smt Vibha Bhalla, CIT-DR ORDER Per Rajpal Yadav, Judicial Member The present appeal is directed at the instance of the assessee against the order of the ld.Commissioner of Income-Tax, Ahmedabad-1, Ahmedabad dated 25.3.2013 passed under section 263 of the Income Tax Act, 1961 for the Asstt.Year 2007-08. 2. Though the assessee has taken four grounds of appeal, but its grievances revolve around a single issue, whereby, it has pleaded that the ld.CIT has erred in taking cognizance under section 263 of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment was finalized under Section 143(3) of the I.T. Act, 1961 on 20th December, 2010 determining total loss at ₹ 2,75,90,823/- 4. Subsequently, on examination of assessment records, it was noticed that the assessee had not accounted for income of ₹ 544.24 lakhs, being Industrial Promotion Assistance receivable under the West Bengal Incentive Scheme, 2000. Further, the assessee had claimed ₹ 222.64 lakhs as currency swap loss and treated the same as business loss although it was in the nature of speculation loss. 5. Regarding the first issue, it was submitted that the assessee had accounted for the Industrial Promotion Assistance receivable from the Government of West Bengal on accrual basis in the current year. Subsequently, in the assessment year 2008-09, company's right to recover this incentive got impaired and hence incentive for that year was written off as bad debt in A.Y. 2008- 09. However, in respect of the assistance receivable for A.Y. 2007-08 the same was accounted for as income of A.Y. 2008-09. At the same time the income of A.Y. 2007-08 was reduced to that extent by filing revised return. 6. I have considered the argument of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction in derivatives, has not been examined by the Assessing Officer. The assessee has claimed substantial loss and same has been allowed without proper verification. On this account also, the impugned order of the AO is unsustainable in the eyes of law. 9. In view of the above and hi the light of various judicial decisions as discussed above, it is held that the assessment order u/s 143(3) dated 21-02-2011 was erroneous and prejudicial to the interests of revenue. Hence, the said assessment order for A.Y.2007-08 dated 21-02-2011 is cancelled and the A.O. is directed to make a fresh assessment of the total income of the assessee for the said assessment year. 10. Ordered accordingly. 6. Before us, alongwith grounds of appeal, the assessee has filed statement of facts running into 27 pages. On page nos.4 to 10 of the statement of facts, the assessee has explained its position with regard to both these issues, which has not been considered in detail by the ld.Commissioner. In order to appreciate the controversy in right perspective and with a view to avoid repetition, we deem it appropriate to take note of the submission made by the assessee in the statement of facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistently followed the aforementioned accounting treatment which can be verified on perusal of IT Computation statement of A.Y.2006-07, 2007-08 and 2008- 09. Therefore it is submitted that the real income has not been realized and received by the assessee and therefore the assessee is not liable to treat the same as income. 2.2 However, on account of procedural lapse by the company, now the company is not eligible for this incentive income for the A.Y.2008-09 and hence, the IPA incentive income is reversed in the A.Y.2008-09. To nullify the said effect, the company has deducted IPA incentive originally considered as income in the A.Y. 2007-08 and disallowed the same in the A.Y.2008-09. It is therefore submitted that Incentive available against the sales tax has to be amortized on a systematic basis. As the incentive has a direct nexus with the sales tax paid, the systematic base that can be adopted, under concept of matching revenue with expenditure of particular year, is to amortize it fully against the charge of Sales Tax i.e. it should be credited to the Profit Loss account of the year in which sales tax is debited. 5. Before the learned CIT also the aforesaid factu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan and by this transaction the assessee incurred a loss of ₹ 2,22,63,965. It was explained before the learned CIT that the rupee loan was converted into dollar loan with the purpose of mitigating the exposure to fluctuation in foreign exchange rates. Such transaction was entered into for the sole purpose of hedging against losses that may arise on account of adverse fluctuation in the foreign exchange rates. It was forcefully contended that there is no basis whatsoever for the suggestion that such a transaction would fall in the category of a speculative transaction . It was forcefully explained to the learned CIT that, having regard to the correct factual and the legal position, the loss arising from the aforesaid swapping transaction cannot be treated as speculation loss on the ground that the same is not excluded under clause (d) of section 43(5) of the I.T. Act. The learned CIT summarily rejected these submissions and assumed that the Assessing Officer failed to verify this relevant issue and on that account the order passed by him is erroneous. He relied on the three cases already referred to above. 9. It is respectfully submitted that the learned CIT has grossly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade or directions issued under those Acts or by banks or mutual funds on a recognised stock exchange; and (B) which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act; (ii) recognised stock exchange means a recognised stock exchange as referred to in clause (f) of section 238 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified39 by the Central Government for this purpose; (emphasis supplied) 10. It was explained to the learned CIT that the aforesaid section applies only to such transactions in which a contract for purchase or sale of a commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. It was explained that the word commodity , by no stretch of imagination, can cover currency which is only a medium of exchange with which goods and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, the AO was satisfied. Thus, it cannot be alleged that the AO has not carried out proper inquiry. 8. In his second fold of contentions, he explained the issue on merit and how the AO has accepted the issues, though, without recording any finding in the assessment order. With regard to the first issue, he pointed out that the incentive income was recognized by the assessee on accrual basis, but realizing the fact that this income is not going to be materialized, therefore, it was reduced from the return. The assessee has first shown the income in the Asstt.Year 2007-08 and claimed the deduction in the Asstt.Year 2008-09. However, subsequently, the assessee has revised the return for the Asstt.Year 2007-08 and reduced the income earlier shown on accrual basis, meaning thereby, the deduction claimed in the subsequent year is again added back. There was no income to the assessee, and therefore it was not required to be shown. In support of his contention, the ld. Counsel for the assessee drew our attention towards the page nos.15 to 28 of third compilation where the computation of income for the Asstt.Year 2006-07 to 2008-09 have been placed on record. 9. With regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120; (b) record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pronouncements including the decision of Hon'ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263. (i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law (vi) If while maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between lack of inquiry and inadequate inquiry . If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of lack of inquiry , that such a course of action would be open . 14. In the case of Gee Vee Enterprise vs. Commissioner of Income Tax reported in 99 ITR page 375, the Hon'ble court has expounded the approach of ld. Assessing Officer while passing assessment order. The observation of the Hon'ble court on pages 386 of journal read as under:- it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing issues: 36. Pl. provide complete details of currency swap (loss/gain) .. 40. Pl. provide details of grants /subsidy sanctioned/received during the year along with details of its accounting treatment. . 48. With regard to reversal of income from Target Plus Scheme amounting to ₹ 43.41 Million (entry 17(a) - Notes of Accounts), pl. provide complete details along with working and copy of Government Notification No08/2006 dt.12/06/2006. Further, reconcile the same with the amount reduced in computation of total income (Rs.5,44,24,167/-). 17. The assessee has given specific replies to this questionnaire. After going through the record and the reply of the assessee, the ld.AO was satisfied. Now, as far as the first issue is concerned, it is not the case of the Revenue that the assessee had income from incentives which were ultimately not offered. The assessee has explained to the AO that on account of procedural lapses, it could not claim the incentives, and therefore, no income has accrued to him. This stand of the assessee must have been examined by the AO. We could appreciate the stand of the ld.Commssioner, had she pointed out any fundamental ..... X X X X Extracts X X X X X X X X Extracts X X X X
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