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TMI Blog2018 (6) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... of his normal business activity, enters into hedging contracts of foreign exchange, the loss in question is normal business loss and cannot be held a “Speculation Loss” as covered by Section 43(5) - The loss in question is allowable as a normal business loss during the year and this loss is not “Speculation Loss”. In view of the above discussion we allow this appeal of the assessee - I.T.A No. 1014/Kol/2017 - - - Dated:- 1-6-2018 - Hon ble Shri J.Sudhakar Reddy, AM And Hon ble Smt. Madhumita Roy, JM For the Department : Shri Anikesh Banerjee, Advocate Mrs. Saswati Mitra (Dutta), Advocate For the Appellant : Shri G. Hangshing, CIT ORDER Per J.Sudhakar Reddy, AM 1. This appeal filed by the assessee directed against the Ld. Principal of Commissioner of Income Tax-3, Kolkata for the assessment year 2012-13, wherein he has revised the order passed u/s 143(3) by the Assessing officer on 24.02.2015 by exercising his jurisdiction u/s 263 of the Income Tax Act, 1961(the Act) on 8th March, 2017. 2. The assessee is a company and is engaged in the business of shipping. It also provides services to foreign ships. Due to its nature of business, the assessee is require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the AO and directed the AO to pass a fresh order, after considering the observations made by the Pr. CIT in his order and thereafter giving an opportunity of being heard to the assessee. Aggrieved the assessee is before us on the following grounds: 1. For that the Ld. Pr. CIT-3, Kolkata erred in initiating proceedings u/s 263 when the assessment was completed after due enquiry and in accordance with law. 2. For that the Ld. Pr. CIT-3, Kol erred in setting aside the assessment when the order passed by the AO was neither erroneous nor prejudicial to the interest of revenue and both the conditions to invoke sec. 263 were not present. 3. For that the Ld. Pr. CIT-3, Kolkata with considering the submission of assessee duly filed on 01.03.2017 had passed the order which is arbitrary bad in law. 4. For that without considering the fact the expenses was disallowed u/s 43(5) of the Act by the Ld. Pr. CIT. 5. For that the ld. Pr. CIT erred in invoking provisions of sec. 263 for payment to the bank related forward contract considering the volume nature of the business and even otherwise the same was duly certified by the Auditor to have been incurred for busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pr. CIT has come to a conclusion in his order u/s 263 of the Act that the loss in question is speculative loss and has directed the assessing officer to keep this observation in mind and pass a fresh assessment order, after giving opportunity to the assessee. He submitted that such a set aside of assessment leaves no choice to the subordinate assessing officer and that it binds him to determine the loss in question as speculative loss . The assessee submits that this is not an open remand and hence the order should be cancelled as this binding observation of the ld. Pr. CIT are against the facts of the case. 7. The ld. DR Mr. G. Hangshing on the other hand vehemently controverted the submissions of the assessee and submitted that the assessing officer in his order u/s 143(3) has not examined the loss in question from the angle as to whether it is a normal business loss or Speculative Loss . He submitted that the assessing officer has also not considered the binding instruction of Board referred by the ld. Pr. CIT. He relied on the order of the Ld. Pr. CIT and submitted that non-application of mind by the assessing officer to the issue, in the manner it has to be looked into, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as such. The transaction in foreign exchange were incidental to the assessee s regular course of business and the loss was not a speculative transaction. The matter has been emphasized by the Bombay High Court in the case of Badridas CIT vs. Badridas Gauridu (P) Ltd. 92003) 261 ITR and the Gujrat High Court in CIT vs. Friends and Friends Shipping (P) Ltd. and the Calcutta High Court in the case of Soorajmull Nagarmull. 11.a) In the case of CIT vs. Badridas Gauridu Pvt. Ltd. reported in 134 Taxmann 376 (Bomb) which is relied upon by the assessee before the ld. AO, the Hon ble Bombay High Court followed the judgment of the Jurisdictional High Court and at para 3 held as follows: 3. The assessee was not a dealer in foreign exchange. The assessee was a cotton exporter. The assessee was an export house. Therefore, foreign exchange contracts were booked only as incidental to the assessee s regular course of business. The Tribunal has recorded a categorical finding to this effect in its order. The Assessing Officer has not considered these facts. Under section 43(5) of the Income Tax Act, speculative transaction has been defined to mean a transaction in which a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulation as to cover under sub-section (5) of Section 43 of the Act. c) Similarly the jurisdictional High Court in the case of CIT vs. Soorajmull Nagarmull reported in (1981) 5 Taxman 289 (Kol) which was also relied upon in the reply extracted above, the court has held as follows: Held 1. A contract for foreign exchange can undoubtedly be treated as a contract for commodity. In the instant case, the assessee was carrying on business of export and import of jute goods. There was no finding that entering into foreign exchange contracts was the assessee s line of business. In order to carry out its business transactions, the assessee had to enter into foreign exchange contracts and the assessee was not a dealer in foreign exchange as such. Foreign exchange contracts were only incidental to the assessee s regular course of business of export and import of goods. If any loss occurred in these foreign exchange contracts then such a loss referable to an related to the business carried on by the assessee. Further a claim based on breach of contract did not come within the meaning of contract settled as used in Explanation 2 to section 24(1). The expression contract settl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Principal Commissioner of Income Tax and culled the principles laid down in the judgments as below : 24. In Malabar Industrial Co.Ltd. ( 2 Supra), the Supreme Court held that a bare reading of Sec.263 makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suomotu under it, is the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue recourse cannot be had to Sec.263 (1) of the Act. It also held at pg- 88 as follows: The phrase prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For examp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court held that the power of suomotu revision exercisable by the Commissioner under the provisions of Sec.263 is supervisory in nature; that an erroneous judgment means one which is not in accordance with law; that 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 differently or more elaborately; that the section does not visualize the substitution of the judgment of the Commissioner for that of the Income Tax Officer, who passed the order unless the decision is not in accordance with the law; that to invoke suomotu revisional powers to reopen a concluded assessment under Sec.263, the Commissioner must give reasons; that a bare reiteration by him that the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, will not suffice; that the reasons must be such as to show that the enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessment were called for, and must irresistibly lead to the conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very item from the assessee and the assessee had furnished its explanation. Merely because the Assessing Officer in his order did not make an elaborate discussion in that regard, his order cannot be termed as erroneous. The opinion of the Assessing Officer is one of the possible views and there was no material before the Commissioner to vary that opinion and ask for fresh inquiry. 28. In Gabriel India Ltd. (6 Supra), the Bombay High Court held that a consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. It held that the Commissioner cannot initiate proceedings with a view to start fishing and roving inquiries in matters or orders which are already concluded; that the department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e jurisdiction. The assessee complained before the Supreme Court that no fair or reasonable opportunity was given to her. The Supreme Court held that there was ample material to show that the income tax officer made the assessments in undue hurry; that he had passed a short stereo typed assessment order for each assessment year; that on the face of the record, the orders were pre-judicial to the interest of the Revenue; and no prejudice was caused to the assessee on account of failure of the Commissioner to indicate the results of the enquiry made by him, as she would have a full opportunity for showing to the income tax officer whether he had jurisdiction or not and whether the income tax assessed in the assessment years which were originally passed were correct or not 31. From the above decisions, the following principles as to exercise of jurisdiction by the Commissioner u/s.263 of the Act can be culled out: a) The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If erroneous but is not prejudicial to the Revenue or if it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... casion to the Commissioner to pass orders under Sec.263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income Tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed. g) The power of the Commissioner under Sec.263 (1) is not Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment. Now we examine the following judgements. :- ii) DIRECTOR OF INCOME TAX vs. JYOTI FOUNDATION 357 ITR 388 (Delhi High Court ) It was held that revisionary power u/s 263 is conferred on the Commissioner/Director of Income Tax when an order passed by the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under s. 263 of the Act. In such matters, to remand the matter/issue to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strial Company Ltd. Max India Ltd. If the Assessing Officer has taken a possible view, it cannot be said that the view taken by him is erroneous nor the order of the Assessing Officer in that case can be set aside in revision. It has to be shown unmistakably that the order of the Assessing Officer is unsustainable. Anything short of that would not clothe the CIT with jurisdiction to exercise power under Section 263 of the Act. CIT vs. M. M. Khambhatwala reported in 198 ITR 144; CIT vs. Ralson Industries Ltd. reported in 288 ITR 322 (SC), not applicable; Malabar Industrial Co. Ltd. v. CIT reported in 243 ITR 83, relied on. (Para 72) As regard the third question as to whether the assessment order was passed by the Assessing Officer without application of mind, it was held that the Court has to start with the presumption that the assessment order was regularly passed. There is evidence to show that the assessing officer had required the assessee to answer 17 questions and to file documents in regard thereto. It is difficult to proceed on the basis that the 17 questions raised by him did not require application of mind. Without application of mind the questions raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had disclosed that out of sale consideration, a sum of ₹ 1 lakh was to be received for sale of permit. If that is so, there was no error in the view taken by the AO and no case was made out for invoking jurisdiction under s. 263. 14. Applying the propositions of law laid down in the above discussed case law, to the facts of the case, we have to necessarily hold that the order in question passed by the assessing officer u/s 143(3) on 24.02.2015, on this issue of Loss on Forward Contract is neither erroneous nor prejudicial to the interest of revenue. 15. We now examine the issue whether, on merits, the transaction in question can be called a speculative transaction. Reliance has been placed by the ld. Pr. CIT on Instruction No. 3 of 2010 dated 23.03.2010. Para 2 of this Instruction refers to Marked to Market Losses . This instruction applies to loss on account of speculative transactions as contemplated in section 43(5) of the Act. From the case laws discussed by us in the case of Badridas Gauridu Pvt. Ltd. (supra), Soorajmull Nagarmull (supra) and Friends and Friends Shipping pvt. Ltd.( supra), it is clear that, when the assessee is not dealer in fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year, in respect of such hedging contracts, the assessee incurred loss of an amount of ₹ 3,41,583/-. We further observed that the assessee has achieved an export turnover of over ₹ 100 crores. We further observed that the transaction entered into by the assessee with its bankers is not in the nature of speculative transaction as defined u/s 43(5)(d) of the Act. Therefore, we are of the view that any loss incurred on forward contracts entered with its bankers to hedge the export receivables, in order to safeguard against price fluctuations in realization of trade debtors is in the nature of business loss, but not speculation loss as defined u/s 43(5)(d) of the Act. The Ld. CIT(A) after considering the relevant details has rightly deleted additions made by the AO. We do not find any infirmity in the order of the Ld. CIT(A), hence we inclined to uphold Ld. CIT(A) s order and reject the ground raised by the assessee. Hence the issue in question is covered by a decision of Co-ordinate Bench of the Tribunal. We respectfully following the same as no contrary judgments have been brought to our notice by the ld. CIT DR. 16. Hence even on merits the loss in question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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