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TMI Blog2018 (11) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... oneous. Considering the fact that the twin condition as enunciated by Hon’ble Apex Court in case of Malabar industrial companies Ltd [2000 (2) TMI 10 - SUPREME COURT] are not fulfilled, therefore, the order passed by assessing officer cannot be subject matter of revision. Therefore, the revision order passed by learned PCIT is not sustainable - Decided in favour of assessee. - ITA No. 701/Mum/2018 And ITA No. 702/Mum/2018 - - - Dated:- 16-11-2018 - SHRI G.S. PANNU, VICE-PRESIDENT AND SHRI PAWAN SINGH JUDICIAL MEMBER For The Appellant : Shri D.B. Shah with Shri Arun Shah (AR) For The Respondent : Shri S. Padmaja (DR) ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. These two appeals by assessee under Section 253 of Income-tax Act are directed against the two separate order of ld. Principal Commissioner of Income Tax-4 (PCIT), Mumbai dated 05.12.2017 passed under section 263 of Income tax Act (Act) for Assessment Years 2011-12 2012-13. In both the appeal, the assessee has raised identical grounds of appeal except variation of figures of business loss, hence, both the appeals were clubbed, heard together and are dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evised by ld. PCIT vide its order dated 05.12.2017. The ld. PCIT issued notice under section 263 dated 17.10.2017 to the assessee as to why assessment order passed under section 143(3) r.w.s 144C dated 29.1.2016 should not be revised. In the show cause notice the ld PCIT raised the issue that in the return of income the assessee claimed business loss on currency swap of ₹ 84.09 Crore debited to Profit Loss Account, which was allowed by Assessing Officer. The Assessing Officer while allowing the loss not followed the decision of Hon ble Supreme Court in case of M/s Sutlej Cotton Mills vs. CIT [1979] 116 ITR 1 and therefore the order passed by Assessing Officer is erroneous and prejudicial to the interest of Revenue as per clause (d) of Explanation 2 to section 263(1) of the Act. 4. The assessee filed its reply vide reply dated 21.11.2017. In the reply, the assessee contended that the decision of M/s Sutlej Cotton Mills (supra) is not applicable to the fact of the assessee s case. The assessee further contended that the Hon ble Supreme Court in said case stated that the principle of law that where any profit or loss arises to assessee on account of depreciation in foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit Loss Account and allowing it to render orders erroneous and prejudicial to the interest of revenue. The ld. PCIT directed the Assessing Officer to examine the allowable claim of business loss in its order dated 05.12.2017. Before revising the assessment order the ld. PCIT concluded that the assessee claimed business loss on currency swap of ₹ 84.09 Crore, debited to Profit Loss Account was allowed by Assessing Officer. The Assessing Officer while allowing the loss not followed the decision of Hon ble Supreme Court in case of M/s Sutlej Cotton Mills vs. CIT [1979] 116 ITR 1. Thus, the order passed by Assessing Officer is erroneous and prejudicial to the interest of Revenue as per clause (d) of Explanation 2 to section 263(1) of the Act. Aggrieved by the order of ld. PCIT, the assessee has filed the present appeal before us. 6. We have heard the submissions of the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The ld. AR of the assessee submits that during the financial year 2007-08 vide agreement dated 04.06.2007. The copy of loan agreement is placed on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of Tribunal in Cooper Corporation (P.) Ltd. vs. DCIT [(2016) 69 taxmann.com 244 (Pune Trib.), decision of Hon ble Supreme Court in Oil Natural Gas Corporation. Ltd. [2010] 189 Taxman 292 (SC), in CIT vs. Woodward Governor India (P.) Ltd. [2009] 179 Taxman 326 (SC), decision of Tribunal in Vardhman Industries Ltd. vs. DCIT [2017] 82 taxmann.com 118 (Chandigarh Trib.), Reliance Industries Ltd. vs. CIT (LTU) [2013] 40 taxmann.com 431 (Mum. Trib.). On merit, the ld. AR of the assessee relied upon the decision of Hon ble Supreme Court in M/s Indus Best Hospitality Realtors Pvt. Ltd. vs. PCIT in ITA No. 3125/Mum/2017 dated 19.01.2018. 8. On the other hand, the ld. CIT-DR for the Revenue supported the order of ld. PCIT. The ld. DR further submits that there is no reference in the assessment order whether the issue was examined by the Assessing Officer during the assessment or not. The ld. DR further submits that the present case is squarely covered by Explanation 2 to section 263(1) of the Act. The Assessing Officer allowed the relief without enquiring the claim and making enquiries and verification of claim. Further, the order passed by Assessing Officer is not in accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ITO is unsustainable in law. 10. Hon ble Jurisdictional High Court in case of CIT Vs Gabriel India Ltd 203 ITR 108 (Bom), held that the power of suo moto revision under subsection (1) of section 263 of the Act is in the nature of supervisory direction and can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the CIT to exercise the power of revision under this sub section viz (1) the order should be erroneous and ( 2) by virtue of the order being erroneous prejudice must have been caused to the interest of the revenue. And order cannot be termed as erroneous unless it is not in accordance with law. If ITO. Act in accordance with law. Make certain assessment; the same cannot be branded as erroneous by the CIT simply because according to him, the order should have been written more celebratory. This section does not visualise a case of substitution of the judgement of the CIT for that of the ITO, who passed the order, unless the decision is held to be erroneous. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of learned AR of the assessee and would examine the facts of the present case. We have noted that the learned PCIT issued show cause notice under section 263 dated 17th of October 2017. In the show cause notice the learned PCIT raised the issue that assessee company claimed business loss of ₹ 84.09 crore incurred on account of currency swap and the same was allowed to the assessee in the assessment order, in allowing the loss the assessing officer has not followed the decision of Hon ble Supreme Court in Sutlej Cotton Mills Ltd versus CIT (supra). The learned PCIT after considering the reply furnished by the assessee concluded that in the reply the assessee has admitted that loan was availed for acquiring capital asset and prime face the decision of Supreme Court is applicable on the facts of the assessee s case. The learned PCIT has not examined the fact of the case, rather directed the assessing officer to examine the allowability of the claim of business loss on currency swap. 14. The Hon ble Supreme Court in case of Sutlej Cotton Mills Ltd versus CIT (supra) held that it is well settled that where profit or loss arises to an assessee on account of appreciation or dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us Woodward Governor India private Ltd (312 ITR 326 SC), it was held that where the provision of section 43A are not attracted, forex loss suffered on account of foreign exchange difference is allowable as deduction under section 37(1) of the Act. 17. The coordinate bench of Pune Tribunal in Cooper Corporation Private Ltd Vs DCIT (supra) held that where assessee s act of conversion of Indian currency loan availed for acquisition of assets etc, into foreign currency loan was dictated by revenue consideration towards saving interest cost et cetera, foreign exchange fluctuation loss being on revenue account was allowable expenditure under section 37 of the Act. The relevant part of the decision is extracted below: 10.5 Before we delineate on the allowability of loss based on generally accepted accountancy principles, it may be pertinent to examine whether the increased liability due to fluctuation loss can be added to the carrying costs of corresponding capital assets with reference to S. 43(1) of the Act. Section 43(1) defines the expression 'actual cost'. As per S. 43(1), actual cost means actual cost of the assets to the assessee, reduced by that portion of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, is the price of the asset. That price cannot change by any event subsequent to the acquisition of the asset. In our judgment, the manner or mode of repayment of the loan has nothing to do with the cost of an asset acquired by the assessee for the purpose of his business. We hold that the questions were rightly answered by the High Court. The appeals are dismissed. There will be no order as to costs. Thus, it is evident the variation in the loan amount has no bearing on the cost of the asset as the loan is a distinct and independent transaction as in comparison with acquisition of assets out of said loan amount borrowed. Actual cost of the corresponding fixed asset acquired earlier by utilizing the aforesaid loan will not undergo any change owing to such fluctuation. 10.7 The issue is also tested in the light of provision of S. 36(1)(iii) governing deduction of interest costs on borrowals. As stated earlier, manner of utilization of loan amount has nothing to do with allowability of any expenditure in connection with loan repayment. Both are independent and distinct transactions in nature. Similar analogy can be drawn from S. 36(1)(iii) of the Act which also rei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra), such loss cannot alter the cost of asset and is rather allowable as revenue expenditure. Thus, the ratio of the judgment of Hon ble Sutlej Cotton Mills Ltd (supra) is not applicable in the instant case and the assessment order cannot be erroneous in law.Therefore, clause (d) of Explanation 2 of section 263 is not fulfilled. Considering the all above referred case law, we find that the loss claimed by assessee on account of fluctuation loss is revenue loss and the assessee is entitled for its deduction. Therefore, the order passed by assessing officer is not erroneous. Considering the fact that the twin condition as enunciated by Hon ble Apex Court in case of Malabar industrial companies Ltd (supra) are not fulfilled, therefore, the order passed by assessing officer cannot be subject matter of revision. Therefore, the revision order passed by learned PCIT is not sustainable in the eyes of law, which we hold that such. In the result the grounds of appeal raised by assessee are allowed. 20. In the result, appeal of the assessee is allowed. ITA No. 702/Mum/2018 for AY 2012-13 by assessee. 21. The assessee has raised identical grounds of appeal except the variation of fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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