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TMI Blog2021 (5) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... of Ld. Pr. CIT cannot be read in isolation, and it has to be read co-jointly with the four conditions stipulated under Explanation-2 clauses (a) to (d) . It is only in the event that any one of the situation is satisfied and there is a finding of fact by the Ld. PCIT to that effect in his revision order, then only the deeming provision of Explanation-2 can be pressed into service for rendering an assessment order as erroneous, insofar as prejudicial to the Revenue, which is the jurisdictional fact and law required for the ld. Pr. CIT/CIT to invoke revisional jurisdiction u/s 263. In the assessee`s case, the assessee submitted various documents and evidences, as noted by us in para no.15 of this order, to prove the exchange rate taken by him and explained the exchange rate difference stating that as a matter of consistency, the assessee has been using CBIC exchange rate to convert the UD dollar into Indian rupee. All the exchange gain or loss are related to business activities, as the assessee has taken forward contract to guard the losses. There is no any speculation activity in the assessee`s business, the accountant has used wrong nomenclature in books of accounts. We not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... replies accepted the claim of the assessee. We further find that Hon'ble Apex Court in the case of CIT v. Max India Ltd. [ 2007 (11) TMI 12 - SUPREME COURT] has held that where two views are possible and the ITO 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 the ITO is unsustainable in law. Before us, Revenue has not brought any material on record to demonstrate that the view taken by the AO was an impermissible view and was contrary to law or was upon erroneous application of legal principles necessitating the exercising of Revisionary powers u/s 263 of the Act. 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 more elaborately. In the instant case, the Ld Pr. CIT has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Ld Pr. CIT is not in accordance with the mandate of the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the objections raised before him in a submission dated 19.02.2018 along with the enclosures mentioned therein, and therefore, he ought not to have given direction to the Assessing Officer to reframe the assessment on merits, and therefore, the present order passed by him is erroneous and liable to be quashed. 5.The learned Pr. CIT has also erred in not passing speaking order in reference to submission dated 19.02.2018 along with paper book page 1 to 190, and therefore, erred in passing cryptic order and even on merits, there is no justification to give direction to the Assessing Officer based on this submission, and therefore, the order passed may please be cancelled. The appellant craves leave to add/delete/alter and/or amend any of grounds as aforesaid as and when necessary. 2. Although in this appeal, the assessee has raised multiple grounds of appeal, as reproduced by us above, however, at the time of hearing the solitary grievance of the assessee has been confined to the issue that since the order passed by the Assessing officer under section 143(3) of the Act, dated 31.03.2016, is neither erroneous nor prejudicial to the interest of revenue, therefore, ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,86,364 ( ₹ 7,31,67,312 - ₹ 1,31,80,948) which should not be adjusted against business income of assessee u/s 73(1) of the Act. 5. After considering the above facts, the ld PCIT has issued a show cause notice to the assessee on 07.02.2018. In response to the said show cause notice, the assessee submitted written submissions before the ld PCIT, which are reproduced as under:- 2. During the course of assessment proceedings, the assessee has submitted all the required details as asked for vide letter dated 22.01.2016 filed in inward, wherein the complete details of speculation profit is enclosed as per Page No.2 to 20. Regarding advance from customers, the detailed name and address has already been placed on record. Further, the details of debtors related to currency i.e. 1TI Financial Services Ltd. and Kunverji Finstock Pvt. Ltd. are also placed on record. 3. On going through computation of income, it is found that the assessee has income from business and profession of ₹ 42,98,882/- and the speculation business income after depreciation is worked out at ₹ 98,18,896/- making total of ₹ 1,41,17,778/-. Copy of Profit and Loss Account has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifference of ₹ 7,31,67,312/- is also placed on record as per Page No.02 to 28 along with evidences as per Page No. 29 to 78 and reason for loss is as per Annexure-A and Page No.0l. The details of export proceeds realized has already been enclosed earlier. However, the details are again placed on record in reference to export sales of ₹ 139,36,83,214/- and grey cloth export sales of ₹ 1,09,97,566/- making total of ₹ 140,48,80,780/-. Therefore, there is no reason to suspect that the assessee has not incurred loss of ₹ 7.31 crore. [A] AS REGARDS TRANSACTION WITH ITI FINANCIAL SERVICES LTD AND KUNVARJEE FINSTOCK PVT. LTD. FOR NET PROFIT OF ₹ 1,31,80,948/-LOSS: [i] That we have carried out transaction in reference to trading in future currency i.e. USD/INR. During the year we have paid the amount of ₹ 21,46,000/- and have received ₹ 1,00,000/- and there was closing balance as on 31/03/2013 to our account is ₹ 7,01,841/- therefore at the end of F.Y. there was loss to our account ₹ 13,44,158/-, there is valid contract Note/vouchers to each transaction entered into through ITI Financials Services Ltd. All these transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Y. 2010- 11 there was similar profit of Export exchange rate difference of ₹ 20,91,435/-. [ii] The copy of Bank advice as well as shipping bills in support of foreign exchange rate difference were also filed before Assessing officer. However its very voluminous in a box files and therefore sample copy of the same is enclosed herewith with tabularized chart at Pg. No. 01 to 78 Pg. No. 01 is in reference to tabularized chart on sample invoice. This sample chart place on record to prove that there was devaluation in Rupee at the time of export in compare to payment received. [iii]The Pg. No. 2 upto 28 is the copy of ledger account of exchange rate difference wherein there is profit of ₹ 1,73,29,674/- as against loss of ₹ 9,04,96,986/- and net loss of ₹ 7,31,67,312/- in every shipping bills there is verification made by custom preventive officer, as can be verifiable from Pg. 35, 40, 46, 51. The copy of Bank advice is at Pg. No. 35 to 78 on sample basis. However, we are ready to produce all these supporting evidence in reference to each and every transaction as appeared in a ledger enclosed at Pg. No. 02 to 28. The copy of invoice wise detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court and Gujarat High Court taken constant view that the foreign exchange fluctuation profit is a income derived from export business and therefore the claim u/s 80HHC has to be allowed. 6. The ld PCIT has gone through the above written submissions of the assessee and observed that on Page 8 of written submission which pertained to Annexure-A, which is related to bills issued and payment received during F.Y.2011-12. The ld PCIT noticed that said detail does not help the assessee, as details of Financial Year 2011-12 were furnished, which are not relevant for Financial Year 2012-13 under consideration. 7. The assessee has submitted before ld PCIT, date-wise, party-wise list of foreign exchange difference. The ld PCIT has gone through the list and matched the same with Exchange rate of Indian rupee Vs. dollar in Financial Year 2012-13 , as available on the website of Reserve Bank of India (www.rbi.org.in). The ld PCIT noticed that as per RBI data average rate of US dollar was ₹ 54.40 and year end rate was ₹ 54.38, as against these figures, the assessee has claimed exchange rate difference at as low as ₹ 44.88, 46.88, 45.41, 46.73 and 47.07. These rates qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, shall not be set off except against profits and gains, if any, of another speculation business. 8. The ld PCIT also noted that in assessee`s case, clause (a) and (b) of the Explanation 2 of Section 263 of the Income Tax Act, 1961 is clearly applicable since nowhere in the assessment record, there is evidence that no query/question regarding speculation loss has been asked by the Assessing Officer from the assessee company during the entire course of assessment proceedings. In view of above facts and observations, the ld PCIT held that Assessing Officer has passed the assessment order without making inquiries or verification, which ought to have been made in this case, therefore assessment order for Assessment Year 2013-14 passed under section 143(3) of the Income Tax Act, 1961, on 31.3.2016 by the Assessing Officer is erroneous in so far it is prejudicial to the interest of revenue, therefore, ld PCIT set-aside the assessment order under section 143(3) of the Income tax Act dated 31.3.2016 for A.Y. 2013-14, with the direction to the assessing officer, to frame the assessment de novo. 9. Aggrieved by the order of ld PCIT under section 263 of the Act, the assessee is in ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ittance received on utilization of forward exchange contract. The foreign exchange loss was computed at the time of remittance or date of export whichever is later by deducting actual remittance from the export value. As a matter of consistency the assessee has accounted the export value in his books of accounts as per the custom exchange rate not as per RBI rate as it is normal practice in case of all exporters. This is because the custom department notifies the exchange rate monthly while RBI rates fluctuate daily. It is always practical to record sales value as per custom rate. Even if the rates as per RBI data are taken which are higher that rate as per customs authority, it is revenue neutral as on one hand sales would increase and on other hand exchange loss would increase. The remittance was accounted in book of accounts as per the bank advice based on RBI rate prevailing at the time of remittance or fix rate as per forward exchange contract that was utilized. The remittance is reflected in the bank statement filed before Assessing Officer. The assessee`s accountant used wrong nomenclature as speculation profit or loss , in fact, the assessee company has not done any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (a) (b) of the Explanation 2 of Section 263 of the 1961 is clearly applicable since nowhere in the assessment record, there is evidence that no query /question regarding speculation loss has been asked by the A.O. from the assessee company during the entire course of assessment proceedings. 7. In view of the above fads and observations, it is clear that the AO has passed the assessment order without making inquiries or verification, which ought to been made in this case. Before the Hon'ble Bench, the Ld. AR of the assessee was not able to demonstrate from records that the Ld. AO has made inquiries regarding the impugned loss. 6. Conclusion: The provisions of Section 263 of the Act lays down that if the Pr.CIT or CIT considers that an order passed by the Authority under the Act is erroneous and prejudicial to the interest of the Revenue, he can exercise jurisdiction under Section 263 of the Act. Within the terms of Explanation 2, the order shall be deemed to be erroneous if in opinion of Pr.CIT or CIT the order falls under clauses (a) to (d). So, all that is required is for the Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial Year 2012-13 under consideration. We note that bank advices for remittance of export proceeds, relate to financial year 2012-13, which is placed at paper book page nos.91to 96. Sample copy of invoices, bills issued, foreign bill transaction advice from bank, exchange control copy from Indian Customs Department in support of exchange rate fluctuation alongwith form SDF under Foreign Exchange Management Act submitted by the assessee before the assessing officer are placed in assessee`s paper book page nos.40 to 162, these all documents relate financial year 2012-13. Therefore, observation of ld PCIT that these bills and other documents relate to financial year 2011-12, is factually not correct. We noted that all bills and other documents relate to financial year 2012-13, relevant to assessment year 2013-14 under consideration, which were submitted by the assessee before the assessing officer. Therefore, assessment order under section 143(3) of the Income tax Act dated 31.3.2016 framed by the assessing officer should not be erroneous on this count. 15. The issue relating to Exchange rate of Indian rupee Vs. dollar in Financial Year 2012-13 , that is, ld PCIT noticed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion business profit and loss for assessment year 2013-14 (vide paper book page 79) (11) Ledger Account of Kanvarji Finstock for the assessment year 2013-14 (vide paper book page 80 to 89). (12)Ledger account of ITI Financial Services for the assessment year 2013- 14(vide paper book page 90) (13)Account Confirmation from ITA Financial Services for assessment year 2013-14 (vide paper book page 91 to 92). (14) Statement from Kunvarji Finstock Pvt. Ltd for assessment year 2013-14 (vide paper book page 93 to108) 16. Learned Counsel submits before the Bench that assessee had furnished these plethora documents and evidences, as noted above, during the assessment stage before the assessing officer. The assessing officer had examined these documents and evidences and took a possible view on the issue relating to Exchange rate of Indian rupee Vs. dollar. Therefore, the issue relating to foreign exchange rate, foreign exchange loss and foreign exchange gain has been examined by the assessing officer during the assessment stage. The ld Counsel also submits that all foreign exchange gain or loss are related to business activities, just because the assessee has used, by mistake, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. 14. The reading of the above provisions makes it very clear that the power of suo motu revision u/s 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision u/s 263, namely (i) the order is erroneous (ii) by virtue of being erroneous prejudice has been caused to the interests of the Revenue. 15. Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. (supra) has held that CIT has to be satisfied of twin conditions, namely, (i) the order of the AO 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 ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to s. 263(1). It was further held that the provision cannot be invoked to correct each and every type of mistake or error committed by the AO; when an ITO a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. In the present case for AY 2006-07, it is seen that during the course of assessment proceedings AO had raised query with respect to the exchange fluctuation loss and in response to which the Assessee has submitted its reply. For ready reference, the reply submitted by the Assessee vide its letter dated 14th October 2009 (which is placed at page 7 of the paper book) reads as under: 15. We are enclosing herewith, details of Deficit on account of fluctuations in foreign exchange rates on loans of ₹ 565.95 Lacs, marked as Annexure No. 9. Since the said deficit/ loss is pertained to the loan/borrowings of the company it has been charged to the Profit and Loss account as per the Accounting Standard 11 prescribed by the Institute of Chartered Accountants of India, consistently followed by the Assessee Company from year to year. Copy of the Annexure 9 referred to in the above reply and which 9 of the paper book is as under: Details of Exchange rate fluctuation gain/loss on loans: Name of the Party ERF Loss Rs. ERF Gain Rs Loan Taken: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decisions of the Apex Court on which the Assessee had relied upon was also pointed out by the Assessee. After considering the submission of the Assessee, it appears that the reply of Assessee was found to be acceptable by the AO because no addition on account of exchange rate fluctuation was made by the AO in the assessment order. 19. With respect to the issue of allowing of remuneration of ₹ 4.73 crore in AY 2008- 09, it is seen that during the course of assessment proceedings AO vide notice issued u/s 142(1) dated 19.9.2011 and 24.10.2011 had raised the query and sought the explanation from the Assessee to which the Assessee vide reply dated 13.10.2011 and 19.12.2011 has furnished the replies. For ready reference, the query of the AO vide notice dated 19.9.2011 (which is placed at page 1 of the paper book) reads as under: 3. ₹ 4,73,19,405 have been claimed as exempt in the statement of Total Income under the head remuneration from partnership firm since disallowed u/s 40(b) in firm's income . Please give details and evidence of the same with working and a note as to how the same is exempt in the hands of the Company In response to which Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 40(b) provides for disallowance of certain amounts in excess of certain limits, which the AO will disallow and the intention is not to allow the assessee to disallow the entire amount to misuse the proviso for deriving undue and unintended benefit. Therefore, the amount, more so the full amount disallowed by you in Zydus Healthcare, Sikkim to claim exemption here in the Company being ₹ 4,73,19,405 is proposed to be disallowed and added back to income. Please file your objections if any.' In response to the query, Assessee vide its submission dated 19.12.2011 (copy placed at page 19 to 24 of the paper book) submitted as under: '1. In the Statement of Total Income for A.Y. 2008-09, the assessee company has excluded the amount of ₹ 4,73,19,405/-representing remuneration received by the company from the partnership firm of M/s. Zydus Healthcare Sikkim, in view of the provisions of Sec. 28(v) of the Income-tax Act. 2. It is a matter of record that the said remuneration of ₹ 4.73 crores was disallowed u/s. 40(b) while computing the Total Income of the aforesaid partnership firm. As per Sec. 40(b), the following amount shall not be dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the share of income from the firm. However, remuneration and interest allowed to partners will be charged to income-tax in their respective hands. The only distinction between professional and non-professional firms will be in respect of slabs for allowing deduction to firms in respect of remuneration. 48.2 The share of the partner in the income of the firm will not be included in computing his total income [section 10(2A)]. However, interest, salary, bonus, commission or any other remuneration allowed by the firm to a partner will be liable to be taxed as business income in the partner's hand, [section 2(24)(ve) and section 28(v)]. An Explanation has been added to the newly inserted clause (2A1 of section 10 to make it clear that the remuneration or interest which is disallowed in the hands of the firm will not suffer taxation in the hands of the partner. In case any remuneration paid to a partner is disallowed in the hands of the firm or the amount is varied in subsequent proceedings, the partner's assessment can be rectified [section 155(1A)]. 48.3 The gross total income of the firm is to be determined in the normal way under different heads as in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any case as per Sec. 10(2A). The entire business income of the firm, out of which the share of profit is allocated to the partner, is also in any case entitled to the benefit of deduction u/s. 80-IE. Therefore, it is grossly incorrect to observe that the disallowed amount (of remuneration) in the hands of the firm has gone to increase the eligible benefit u/s. 10C (erroneously referred in place of Sec.80-IE). Whether or not remuneration paid by the firm to the partner is disallowed, the same has no bearing or impact on the eligibility and extent of the claim of the firm under Sec.80-IE. 9. You have observed in the notice to the effect that, Sec.40(b) is protection for the revenue from excess claim of remuneration in the hands-of the firm and the proviso placed under Sec.28(v) is a safety for the assessee against double taxation of the amount which the Assessing Officer disallows as per Sec.40(b). We wish to submit that the words which the Assessing Officer disallows as inserted in your observation are in no manner justified. The intention of the proviso to Sec.28(v) is meant to avoid double taxation of any disallowance under Sec.40(b), whether made by the assessee suo-mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed by the same words has not been allowed to be deducted under Sec.40(b). Our logical reasoning and explanation in regard to the underlying legislative intention and due clarification in the matter under the CBDT Circular, as elaborately discussed herein before, should be considered by your goodself on merits. 12. We have to earnestly request your goodself to kindly appreciate the merits of our submissions herein above and we are confident that you will be pleased to drop your proposal to disallow and add-back ₹ 4,73,19,405/-. In case you are still inclined to take a different view in the matter, we shall be obliged if you will kindly point out any flaws in our logical reasoning and justification submitted herein above, so that we can specifically meet with the same point by point.' 20. Considering the aforesaid facts it is seen that for A.Y. 2006-07 and A.Y. 2008-09, AO had had made full inquiries by raising the queries with respect to the issue under consideration and the same were also replied by the assessee and on receipt of the replies accepted the claim of the assessee. We further find that Hon'ble Apex Court in the case of CIT v. Max India Ltd. [2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as desired by the Ld. Pr. CIT and consequent to which the prejudice had been caused to the Revenue. He further claimed that since the Ld. Pr. CIT did not himself record any adverse finding nor had given specific direction for making additions/disallowances but had merely set aside the assessment, requiring the AO to pass the assessment afresh after conducting proper enquiries and after giving opportunity of being heard, no prejudice was caused to the assessee at this stage and therefore there was no merit in the appeal preferred by the assessee. He therefore urged that the order of the Ld. Pr. CIT should not be interfered with. 19. Per contra, ld Counsel submits before us that ld PCIT, vide para no.7 of his order, wherein he held that assessing officer has passed assessment order without making inquiries or verification, which ought to have been made in assessee`s case. The ld Counsel states that during the assessment stage the assessing officer asked the query and assessee has replied with documentary evidences therefore it is not a case where inquiry was not made by the assessing officer. Besides, clause (a) and (b) of the Explanation 2 of Section 263 of the Income Tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. prejudicial to the interest of the revenue'' has to be read in conjunction with an erroneous order passed by the Assessing Officer. The Hon ble Supreme Court, held that for invoking powers conferred by Section 263; the CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above but CIT must also further show that as a result of an erroneous order, some loss is caused to the interest of the revenue. Their Lordship in the said judgment held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. It was further observed that when the Assessing Officer adopts one of the course permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the Ld. CIT does not agree, it cannot be treated as an order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law. In the circumstances it was necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der sheets go to show that appropriate enquiry was made and the assessee was heard from time to time. In deciding the question Court has to bear in mind the presumption in law laid down in Section 114 Clause - e of the Evidence Act:-- that judicial and official acts have been regularly performed; 87. Therefore, the Court has to start with the presumption that the assessment order dated 28th March 2008 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 him in the annexure to notice under Section 142 (1) of the Act could not have been formulated. 88. The Assessing Officer was required to examine the return filed by the assessee in order to ascertain his income and to levy appropriate tax on that basis. When the Assessing Officer was satisfied that the return, filed by the assessee, was in accordance with law, he was under no obligation to justify as to why was he satisfied. On the top of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court was dealing with the duty of the learned Tribunal to disclose reasons in support of its appellate order. 95. The judgment in the case of S.N. Mukherjee (supra) is clearly distinguishable. The point for consideration in that case was whether it was incumbent for the Chief of Army Staff while confirming the findings and the sentence of the General Court Martial, and for the Central Govt. while rejecting the post confirmation petition of the appellant, to record reasons for the orders passed by them. 96. The function of an Assessing Officer is to estimate the income of the assessee and to recover tax on the basis of such estimate as laid down by the Apex Court in the case of S.S Gadgil (supra). Their Lordships opined that the income tax proceedings do not partake the character of a judicial proceeding between the State and the citizen. Therefore, the principles applicable to a proceeding before a judicial or a quasi-judicial authority where there are two contesting parties cannot be made applicable to the proceedings before an Assessing Officer. 97. Mr. Nizamuddin contended the judgments cited by Mr. Poddar indicate that the Assessing Officer is not require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. In Gabriel India Ltd.'s case (supra), law on this aspect was discussed in the following manner : . . . From a reading of sub-section (1) of section, it is clear that the power of suomotu revision can be exercised by the Commissioner only if, on examina-tion of the records of any proceedings under this Act, he considers that any ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Officer. 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 Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. . . . There must be some prima facie material on record to show that 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. ****** We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation on that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Pr. CIT u/s 263 of the Act, by relying on the amendment to Section 263 whereby Explanation 2 to sub-section (1) of section 263 of the Act was inserted with effect from 01.06.2015. The said amendment inserted the words in the opinion of Principal Commissioner or Commissioner . According to ld. CIT, DR, after this amendment was brought into statute, the order passed by the AO can be deemed to be erroneous insofar as prejudicial to the interest of the revenue if in the opinion of the Pr. CIT or CIT, the order has been passed without making enquiries or verification which should have been made. According to us, however, the insertion of the amendment which introduced the words in the opinion of Principal commissioner or Commissioner cannot be read in isolation. It has to be kept in mind that Explanation cannot over-ride the substantive provision of the law which the Explanation only tries to explain/clarify. 24. Before we advert further, let us look at Section 263 of the Act, which is reproduced as under:- 263. (1) The Principal Commissioner or] Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.] [(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 order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, [National Tax Tribunal,] the High Court or the Supreme Court. Explanation.-In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emed. Only in the case where the PCIT records a clear finding of fact establishing any of the four conditions postulated above is satisfied then the order framed by the Assessing Officer can be deemed to be erroneous insofar as prejudicial to the interest of the Revenue, and not otherwise. To say it differently, the opinion of Ld. Pr. CIT cannot be read in isolation, and it has to be read co-jointly with the four conditions stipulated under Explanation-2 clauses (a) to (d) . It is only in the event that any one of the situation is satisfied and there is a finding of fact by the Ld. PCIT to that effect in his revision order, then only the deeming provision of Explanation-2 can be pressed into service for rendering an assessment order as erroneous, insofar as prejudicial to the Revenue, which is the jurisdictional fact and law required for the ld. Pr. CIT/CIT to invoke revisional jurisdiction u/s 263 of the Act. 27. Coming to the expression in Explanation -2 in the opinion of the Ld. CIT , it must be the considered opinion of the CIT which is based on the correct facts and in accordance with the principles of law. It cannot be an arbitrary opinion bereft of facts or law. The af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order is erroneous as well as prejudicial to the interest of the Revenue as discussed above and not otherwise. 28. We note that Coordinate Bench of ITAT Mumbai in the case of Narayan Tatu Rane [2016] 70 taxmann.com 227 (Mumbai - Trib.), held that newly inserted Explanation 2(a) to section 263 does not authorize or give unfettered powers to Commissioner to revise each and every order, if in his opinion, same has been passed without making enquiries or verification which should have been made. The Findings of the Coordinate Bench are reproduced below: 19. The law interpreted by the High Courts makes it clear that the Ld Pr. CIT, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous, the Ld Pr. CIT should have shown that the view taken by the AO is unsustainable in law. In the instant case, the Ld Pr. CIT has failed to do so and has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Ld Pr. CIT is not in accordance with the mandate of the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant. 29. In the assessee`s case, the assessee submitted various documents and evidences, as noted by us in para no.15 of this order, to prove the exchange rate taken by him and explained the exchange rate difference stating that as a matter of consistency, the assessee has been using CBIC exchange rate to convert the UD dollar into Indian rupee. All the exchange gain or loss are related to business activities, as the assessee has taken forward contract to guard the losses. There is no any speculation activity in the assessee`s business, the accountant has used wrong nomenclature in books of accounts. We note that for working of foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent's computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is erroneous . The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. We note that the assessee has been using the rate declared by the custom department of Government of India (CBIC), these rates are monthly published by the Government of India whereas Dollar rate fluctuate daily. As a matter of consistency, the assessee has been using the CBIC rate for the purpose of conversion of US Dollar into Indian Rupee since a long. The Assessee has incurred exchange loss of ₹ 7,31,67,312/- because assessee received advance from customers before date of export in the last year as well as in current year. Assessee had to bear the loss as value of US dollar increased over the period since receipts of the remittance and date of export. In most of the cases of the remittance, assessee utilized the forward exchange contract made in the last year where value of the US$ was fixed which is lower than the value of US$ on the date of actual remittance. Considering the aforesaid facts it is seen that AO had made full inquiries by raising the queries with respect to the issue under consideration and the same were also replied by the assessee and on receipt of the replies accepted the claim of the assessee. We further find that Hon'ble Apex Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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