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TMI Blog2019 (7) TMI 1783X X X X Extracts X X X X X X X X Extracts X X X X ..... 26.03.2018 u/s.263 of the Income Tax Act, 1961 which is not sustainable in the eye of law. Therefore, we cancel the impugned order passed by the ld.Pr.CIT, Surat-1 by accepting the appeal filed by the assessee. - Decided in favour of assessee. - ITA No.301/SRT/2018 - - - Dated:- 19-7-2019 - SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER For the Assessee : Shri Hiren R. Vepari CA For the Department : Shri Prasenjeet Singh CIT-DR ORDER PER H.S. SIDHU, JM: This appeal filed by the Assessee against the impugned order passed by the Learned Principal Commissioner of Income Tax, Surat- 1, dated 26.03.2018 pertaining to assessment year 2013-14. 2. Ground raised by the Assessee reads as under: (1) The Principal Commissioner of Income-tax was not justified in assuming jurisdiction u/s.263 without satisfying conditions. (2) The appellant submits that the Principal Commissioner of Income-tax ought not to have invoked provisions of section 263 on the very same point on which the Assessing Officer had made inquiry and taken position. (3) The appellant further submits that the Principal Commissioner of Incometax did not appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n exchange rates. In the end, he has held that the Assessing Officer has not thoroughly examined the issue in dispute and wrongly allowed the claim of the assessee and exchange rate fluctuation is required to be treated as capital loss and finally, he has held that the wrong claim of loss of ₹ 2,21,32,403/- on revaluation of loan should have been disallowed by the Assessing Officer since no such disallowance has been made the assessment order u/s.143(3) dated 11.03.2016 in the case of assessee for A.Y. 2013- 14 is found erroneous and prejudicial to the interest of the Revenue and directed the Assessing Officer to re-compute and determine the correct total income of the assessee after making disallowances of the wrong claim and passed the impugned order u/s.263 of the Act against which the assessee has filed the present appeal. 5. At the time of hearing, the ld.Counsel for the assessee filed a written submissions along with various case laws as well as a very big paper book containing page 1 to 209 in which he has attached various documentary evidences and the case laws supporting his argument. For the sake of convenience, written submissions filed by the ld.Counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of ₹ 34,47,657. Nature of loss is nothing but restating the value of forward contracts at the yearend i.e. 31-3-2013. When the assessee finds that rupee would potentially depreciate and it could result in paying higher rupees in relation to the USD, the assessee had entered into the forward contract to hedge the position of foreign currency loans. Once the forward contract is entered with the bank, the assessee gets bound by the rate at which it would be purchasing dollars from the bank. The assessee does not have choice any further. Now, rupee could appreciate or depreciate from the contracted rate under the forward contract. If the rupee appreciates then there would be loss to the assessee as it entered into a contract at a rate higher than the rate at which USD could have been bought. Conversely, if the rupee depreciates then there would be gain to the assessee as it entered into a contract at a rate lower than the rate at which USD could have been bought. Such contracts spread over more than one financial year, requiring adjustment to the spot rate at the inception of the contract with the closing rate as it 31- 3-2013. Therefore, when one looks at the Page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of foreign currency of US $ 63,26,200 (refer page 1), had the appellant not hedged the position by entering into forward contracts, the outstanding liability on account of foreign currency loans would have resulted in a total loss of ₹ 2,04,51,339 as at 31st March, 2013 on account of foreign currency fluctuation. Therefore, the loss of ₹ 1,55,13,014 arising as a result of premium amortization is nothing but the premium paid by the appellant to safeguard against the possible loss. It is nothing but sort of cost of insurance to ensure that the appellant does not incur huge loss as a result of rupee depreciation against the US$. Also, as per paragraph 36 of the Accounting Standard on Effects of Changes in Foreign Exchange Rates , the Accounting Standard clearly requires that premium arising at the inception of the forward exchange contract should b amortized over the life of the contract. The relevant text of the stands is reproduced below. 36. An enterprise may enter into a forward exchange contract or another financial instrument that is in substance a forward exchange contract, which is not intended for trading or speculation purposes, to establish the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant to see that even if Explanation 2 becomes applicable to what extent the same would apply to the case of the appellant. The Explanation deems certain orders to be erroneous in so far as they are prejudicial to the interest of the revenue. Table B Clause of Explanation Text of the clause Why it does not apply to the appellant (a) The order is passed without making inquiries or verification which should have been made. It is not a case where the AO had not made inquiry or verification. In the matter, reference is invited to Page 38 to 44 of paper Book Page 31 to 37 of paper Book Page 23 and 29 and 8 of paper book. The above would clearly demonstrate that there was proper inquiry (b) The order is passed allowing any relief without inquiring into the claim. As given in response to clause (a) above, there was proper inquiry and only thereafter AO had allowed the relief/deduction. (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er passed by the ld.Pr.CIT, Surat-1 passed u/s.263 of the Income Tax Act, 1961. He stated that the Assessing Officer has not made any enquiry while accepting the claim of assessee. Therefore, the ld.Pr.CIT, Surat-1 has rightly applied the section 263 of the Act, because the order of the Assessing Officer is prejudicial to the interest of the Revenue. He requested that the appeal filed by the assessee may be dismissed. 7. We have heard both the parties and perused the relevant material available on record, especially the order passed by the ld.Pr.CIT, Surat-1 u/s.263 of the Income Tax Act, 1961 along with the written submissions filed by the ld.Counsel for the assessee as well as the various citations and documentary evidences filed in the shape of paper book. In the case of assessee, the ld.Pr.CIT has assumed the jurisdiction on account of ₹ 2,21,32,403/- being loss on revaluation foreign currency loan claimed by the assessee. 7.1 We have perused the assessment order as well as the order passed u/s.263 of the Income Tax Act, 1961. We also perused the page 42 of the paper book that is a complete profile of how it had claimed loss of amount in dispute. The Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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