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TMI Blog2020 (1) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... oodward Governor vs. CIT [ 2009 (4) TMI 4 - SUPREME COURT] , where it was held that loss suffered by the assessee, in respect of revenue liability on account of exchange difference as on the date of the balance sheet is an item of expenditure allowable u/s 37(1) of the Act, in the year of accrual. The assessee has explained the above facts and also support its arguments with the help of the decisions of Hon ble Supreme Court in the above case. AO after considering relevant facts has accepted the claim of the assessee. But, the Ld. CIT(LTU) was of the view that the Ld. AO has not carried out required enquiries to be carried out in accordance with law, without bringing on record how enquiries carried out by the Ld.AO is insufficient or inadequate. Deduction for provision for leave encashment - assessee has claimed deduction for said provision on the basis of decision of Hon ble Kolkata High Court, in the case of Exide Industries Limited Vs CIT [ 2007 (6) TMI 175 - CALCUTTA HIGH COURT] and this fact has been brought to the notice of the Ld.AO. Pursuant to the above, Ld. AO has allowed the deduction for the same, after considering one of the possible views. Subsequently, the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also, the assumption of jurisdiction by the Ld.CIT(LTU) is incorrect. Assessment order passed by the Ld. AO is neither erroneous, nor prejudicial to the interest of the revenue. Therefore, we set aside order passed by the Ld. CIT(LTU) u/s 263 of the I.T.Act, 1961 and restored assessment order passed by the Ld. AO u/s 143(3) r.w.s. 144C(13) - Decided in favour of assessee. - ITA No.3925/Mum/2017 (Assessment Year: 2010-11) - - - Dated:- 13-12-2019 - SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER Revenue by Shri.R. Manjunatha Swamy, CIT, DR Assessee by Shri. Rajan Vora And Shri. Nikhil Tiwari, AR s ORDER PER G.MANJUNATHA: This appeal filed by the assessee is directed against, the order of the Ld. Commissioner of Income Tax (LTU), Mumbai u/s. 263 of the I.T.Act, 1961 and it pertains to the Assessment Years (AY) 2010- 11. 2. The assessee has raised the following grounds of appeal:- 1. Proceedings u/s 263 is invalid and bad in law 1.1 The learned CIT has erred in law and on facts in holding that order p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id expenditure is in the nature of raising loan to finance the extension of the business inasmuch as the said expenditure is incurred for raising loan on account of refinancing the loan taken in earlier years. 2.5 Without prejudice to the above, the learned CIT has erred in law and on facts in not directing the AO to grant deduction of the balance expenditure in subsequent four assessment years. 3. Addition of foreign exchange hiss of ₹ 10612,81,083/- (net amount of ₹ 69.9 crores debited to Profit and Loss Account) on account of deposits and loans given in foreign currency while computing book profits u/s. 115JB of the Art 3.1 The learned CIT has erred in law and on facts in directing the AO to i) treat the foreign exchange loss on account of year end translation of deposits and loans given in foreign currency to that of the reporting currency as in the nature of provision set aside for diminution in value of any assets or in the nature of amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities, while calculating book profits u/s. 115JB of the Act and ii) equating it to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in return of income. 43 The Learned CIT has erred in law and on facts in treating the assessment order passed u/s. 143(3) r.w.s. 144C of the Act for the captioned assessment year as erroneous without appreciating the fact that in appellant's own case for AY 2012-13, the Hon'ble Dispute Resolution Panel has allowed the claim of Provision for leave encashment. 5. Disallowance of expenditure of ₹ 23,82,77 ,293/- related to discharge of debt securities [Foreign Currency Convertible Notes (FCCN)] by way of conversion under the normal provisions of the Act by treating the same as capital in nature. 5.1 The learned CIT has erred in law and on facts in directing the AO to treat the expenditure incurred towards discharge of loan Liability as towards raising of capital. 5.2 The learned CIT has erred in law and on facts in treating the transaction of discharge of debt taken in earlier years through the issuance of FCCN akin to the transaction of raising of share capital inasmuch as raising a debt does not partake the character of raising share capital. 5.3 The learned CIT ought to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten submissions, in respect of all issues raised by the Ld.CIT(LTU) vide letter dated 14/12/2016 and submitted that the assessment order passed by the Ld. AO u/s 143(3) r.w.s. 144C(13) of the I.T.Act, 1961is neither erroneous, nor prejudicial to the interest of the revenue. The Ld.CIT(LTU), however did not convinced with the explanation furnished by the assessee and accordingly, set aside the assessment order passed by the Ld.AO u/s 143(3) r.w.s. 144C(13) of the I.T.Act,1961, on the following issues by holding as under:- Issue 1. Deduction claimed of ₹ 139,61,52,760/- by the Assessee in respect of expenditure incurred in respect of issue of non-convertible debentures (NCD) cannot be allowed as the same is capital in nature and is covered by the provisions of section 35D and only 1/5th expenditure is to be allowed Issue 2:- Foreign exchange loss of ₹ 1,06,12,81,083 was added to Book Profit under section 115JB treating the same as contingent in nature or to be treated as diminution in the value of investment attributable to foreign exchange * Issue 3: Deduction for provision of leave encashment of ₹ 29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had issued specific notice regarding all those issues for which, the assessee has filed elaborate submissions along with certain judicial precedents. The Ld. AO after satisfied with the explanation furnished by the assessee has accepted the claim without there being any addition or disallowances. Therefore, merely for the reason that discussions were not find place in assessment order passed by the Ld.AO, it cannot be said that the Ld. AO has not examined the issue and also applied his mind before completion of assessment. In this regard, he relied upon plethora of judicial precedents, including the decision of Hon ble Supreme Court, in the case of CIT vs Malabar Industiral Limited (2000) 243 ITR 83. The case laws relied upon by the assessee is reproduced as under:- * Malabar Industrial Co.Ltd. vs. CiT (2000) ( 243 ITR 83 SC) * Gabriel India Ltd. (1993) ( 203 ITR 108) * Colour Publications (P.) Ltd. [2018] 97 taxmann.com 116 (Mumbai- Trib.) * Cisco Capital Systems (India) Private Limited (ITA No. 849/Bang/2015 dated 7 Septeber, 2018) (Bangalore ITAT) * CIT vs. R.K.Metal Works ( 1978) (112 ITR 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds in respect of four issues. According to the Ld.CIT(LTU), although the Ld. AO has called for information from the assessee regarding the issues questioned in 263 proceedings, but he had failed to appreciate the submissions of the assessee, in light of the provision of Act, which deals with those issues, before coming to the conclusion that whether, the claim made by the assessee is in accordance with law or not. The Ld.CIT(LTU), further was of the opinion that invocation of jurisdiction u/s 263 stands on a very different footing in comparison to invocation of section 147, because in 263 proceedings, the facts to be considered is whether, the assessee submitted the details or not, but what needs to be considered is whether, at the end of the consideration of all details, the Ld. AO passed the correct order or not. The Ld.CIT(LTU) ,further was of the opinion that although, the Ld. AO has made a preliminary enquiry of certain issues, but he has failed to apply his mind to the facts in right perspective, in light of various provisions of the Act, including circular issued by the Board, before arriving at the conclusion that the claim of the assesee is in accordance with provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejudicial to the interest of the revenue, when the AO expected to make required enquiries on a particular item of income and he does not make an enquiry as expected, that would be a ground for the CIT to interfere with the order passed by the AO. Since such an order passed by the AO is erroneous and prejudicial to the interest of the revenue. Where the AO had made enquiries in regard to the nature of expenditure incurred by the assessee, who had given detailed explanation in that regard by a letter in writing and all these are part of record of his case and the claim was allowed by the AO on being satisfied with the explanation of the assessee, such decision of the AO cannot be held to be erroneous, simply because in his opinion, the AO did not make an elaborate discussion in this regard. 10. In this legal background, if you examine facts of the present case, we find that the issues questioned by the Ld.CIT(LTU), in respect of disallowances made towards expenditure related to issue of NCD, disallowances of foreign exchange loss, while computing book profit u/s 115JB of the I.T.Act, deduction for provision for leave encashment and disallowances of expenditure related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le views. Subsequently, the Ld.CIT(LTU) adopted another view in 263 proceedings on the basis of Hon ble Supreme court decision in its first interim order, dated 08/09/2008, in case of Exide Industries Limited. However, it is pertinent to note that the stay given by the Hon ble Supreme Court was interim stay till further order and thereafter, the Hon ble Supreme court has passed a subsequent interim order, dated 08/09/2008, wherein it has laid down condition for claiming deduction for provision for leave encashment and thereby stay initial granted by Hon ble Supreme Court, vide first interim order get vacated. The Hon ble Supreme Court, further held that the assesee can claim deduction by paying tax as if, section 43B(f) is on statue book. But, at the same time, it would not be entitled to make a claim in its return of income. The assesee on the basis of said findings of the courts has made a claim and same has been accepted by the Ld. AO. Therefore, we are of the considered view that the ld.CIT(LTU) was incorrect in coming to the conclusion that the Ld. AO has erroneously allowed deduction for provision for leave encashment. 12. Insofar as, disallowances of expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1). There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an ITA 4023/Mum/2017 erroneous order of the ITO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made by the officer concerned was on the lower side and left lo the Commissioner he would have estimated the income at a figure higher than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure, it is because the ITO has exercised the quasi-judicial power vested in him in accordance with law' and arrived at a conclusion and such a conclusion cannot be termed la be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the revenue. But that by itself will not be enough to vest the Commissioner with the power of 'suo motu revision because the or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser fax than what was just has been imposed Therefore, in order to exercise power under section 263(1) there must be material before the Commissioner to consider that the order passed by the ITO was erroneous insofar as if is prejudicial to the interests of the revenue and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered an identical issue in light of provision of section 263 and after considering relevant facts held as under:- AO, on being satisfied with the explanation furnished by the assesses, has applied the provisions of section 40A (2) to disallow excess performance bonus paid to the director of the company which is evident from the assessment order passed by the AO where at para 6 of the of order, the AO has evident discussed the issue of payment of performance bonus to the director. Once the AO has called for necessary enquiries and applied his mind to a particular provision and chose to allow the claim of the assesses, then there is no reason for the PCIT to assume Jurisdiction u/s 263 of the Act on the ground that the AO has not conducted required enquiries and also not applied in mind. In the opinion of the PCIT, the enquiries conducted by the AO may be inadequate, but that by itself would not be a ground for the PCIT to revise assessment order passed by the AO unless the PCIT specifically points out that the AO has grossly overlooked the issue during assessment proceedings. In this case, oa perusal of details filed by the assessee, tribunal found that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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