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TMI Blog2023 (2) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... ed off the notional gain or loss so booked in the account which accordingly was claimed in the return of income. But we find that this explanation was not clearly given by the assessee to the AO nor to the Ld.Pr.CIT, and even before us. The ld.counsel for the assessee did not explain likewise and did not come out in clear terms even before us. No infirmity in the order of the ld.Pr.CIT holding that vis- -vis the issue of claim of notional foreign exchange fluctuation loss the claim apparently relating to notional loss which otherwise is not allowable under the Act and the issue being not examined by the AO, therefore there was an error in the order of the AO causing prejudice to the Revenue by allowing such claim to the assessee. The order of the ld.Pr.CIT is accordingly upheld on this count. Discrepancy in the claim of imported purchases as per the books and as per the CBEC data - There has to be a finding of error in the order of the AO for the PCIT to exercise his revisionary powers ,as also the error causing prejudice to the Revenue. On the impugned issue of mismatch in purchase as per CBEC data and that booked by the assessee, the Ld.PCIT finding the assesses explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law. 2. The learned Principal Commissioner of Income-tax - 3, Ahmedabad erred in setting aside the assessment order framed u/s 143(3) of the Act by holding that the A.O. failed to make proper inquiries in respect of issued mentioned in the show cause notice u/s 263 of the Act. 3. The learned Principal Commissioner of Income-tax - 3, Ahmedabad failed to appreciate that the very issues raised by the Commissioner u/s 263 were duly examined by the assessing officer by way of specific inquiries/notices and replies thereto, while finalizing assessment proceedings u/s. 3. The ld.counsel for the assessee began by pointing out that the ld.PCIT issued show cause notice to the assessee assuming jurisdiction to revise the assessment order passed by the AO finding it to be erroneous so as to cause prejudice to the Revenue on account of AO not having duly verified the following: i) The assesses claim of foreign exchange loss on notional entries of Rs.68,11,120/-in the computation of its income returned for taxation, despite no expense of foreign exchange loss being debited in its Books of accounts. That it was a artificial loss not allowable otherwise. ii) The issue of pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge loss of Rs.68,11,121/- it had been pointed out that this issue had been examined by the AO during the assessment proceedings in depth and entries passed by way of journal entries were duly explained. Ld. Counsel for the assessee contended that there was no error in the order of AO and also there was no prejudice caused to the Revenue also. Our attention was drawn to the reply filed to the ld.PCIT vide letter of the assessee dated 9.3.2021, copy of which placed before us in PB Page No.8 to 11, more particularly para 3.1, Page No.9 as under: 3.1 Foreign exchange rate fluctuation of Rs. 68,11,121/- The Ld. AO vide Annexure to notice dated 28.09.2019 at Question - 7 required bifurcation of deduction of Rs. 3,01,19,909/- and same replied dated 21.10.2019 at Annexure F and Annexure H. Again vide notice in Annexure 2 dated 09.12.2019 at Question-1 and specifically at Question-2, specific inquiries made for foreign exchange fluctuation. The assessee vide letter 11.12.2019 at Para 2, explained completely the foreign exchange fluctuation entries in books of accounts together with complete explanation at Annexure-J of the same reply. Thus issue of Rs.68,11,121/- was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd reconciliation is made. Complete details were already placed on record during the course of assessment proceedings. All above purchase details are already presented before your honor online on 21/10/2019. We hereby present copy of transaction record with Lillbacka power co. please consider. i) Bill of Lillbacka power co.( Bill of lending, Bill of exchange and invoice) attached herewith in annexure 1. ii) Ledger of Lillbacka power co. in annexure 2. iii) WIP Fixed assets ledger annexure 3. iv) Complete audit report including Balance sheet, p l ,bank statements etc. are already placed on record 4) Other Required details for F.Y. 2016-17 are as under : i) Import purchase ledger - annexure 4 ii) Import purchase bills -it is very bulky data, we can submit it in few days if required again. iii) Reconciliation explained in para 2 3 above 5) Looking to covid situation we had not made personal appearance but we believe that we have explained properly. In case of any adverse decision by your honor we would like to present personally for any further information and explanations if required. Your honor is requested to accept the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Vat on sale of scrape 57,835 6 Vat receivable on purchase (inclusive method 12,08,726 7. Excise receivable on purchase (inclusive method) 30,18,235 8. Excise duty on closing stock of scrape(inclusive method) 397 9. Vat on closing stock of scrape(inclusive method) 159 1.3 As explained all 9 items are added first and thereafter deducted for proper reporting purpose only. The calculation of each and every items is reconciled at the end of ledger of 9 items as above. (2) Foreign exchange fluctuation incorporates realization as well as notional gain/loss on foreign currency transactions. Looking to the international requirement the gain/loss are calculated as on 30th September and 31st march every year and the same is being reveresed on 1st April and 1st October every year. We hereby attach ledger of following accounts, (i) Foreign exchange fluctuation SSW (USA) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had actually done by claiming this notional loss. In this regard, he drew our attention to 5.3 of the order of the Pr.CIT as under: 5. Submissions filed by the assessee along with material brought on record have been duly considered but the same is not found acceptable. On each issue raised in the Show Cause Notices dated 12.03.2021 05.01.2022, the assessee has been specifically asked to submit clarification along with supporting documents but the assessee failed to submit any cogent reply in this regard. Issue-wise findings are as under- (a) Claim of deduction towards Foreign Exchange Fluctuation Loss (notional):- In the Statement of Income furnished with Return, the assessee has claimed deduction of Ra.68,11,121/- towards Foreign Exchange Fluctuation Loss. The appellant has vehemently contended that during assessment proceedings, the then AO vide notice dtd. 28.09.2019 (Vide Q.No.7) asked for submission of break up/bifurcation of any other amount allowable as deduction of Rs.3,01,19,909/- and same was replied vide letter dtd. 21.10.2019 at Annexure-F Annexure-H. assessee further contended that vide notice dtd. 09.12.2019(Q.No.l) and specifically vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed query and called for the justification but the assessee failed to provide cogent explanation for claiming deduction towards notional foreign exchange fluctuation loss. On one side the assessee has admitted that it is a notional loss but on other hand it has claimed it as deduction while computing the taxable total income. Neither assessee has provided any explanation for claiming deduction for a 'notional loss' not AO has disallowed this item while assessing the total income. Onus is obviously on the assessee to provide cogent justification. There is no provision in Income Tax Act to allow deduction claimed in respect of notional loss . Assessee has advance a puerile argument that because of minus sign (- 68,11,121), this confusion has arisen in the minds of authorities which is found very absurd and laughable. In view of above discussion, it is manifestly clear that the then Assessing Officer erred in disallowing the claim of deduction of Rs.(-)68,11,121/- representing notional loss towards foreign exchange fluctuation and thereby total income was under assessed to this extent. 11. With regard to the import purchase the ld.DR relied on the order of the ld.Pr.CT at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifference in Import/Export, both issue need examination by the Assessing Officer in fresh assessment proceedings because omission to examination has led to escapement of income to this extent. 12. We have heard the rival contentions, gone through the order of the Ld.PCIT and carefully gone through the documents which have been referred to before us. As is evident from the facts narrated before us, the ld.Pr.CIT has found the assessment order to be erroneous on two counts. At the cost of repetition, they are as under: i) That despite the assessee not debiting any expenses in its books under the head foreign exchange fluctuation loss yet a claim of Rs.68,11,120/- had been made by the assessee in the computation of its income returned for taxation by way of journal entry passed; ii) That on the issue of purchase shown in the income-tax return being less than the invoice value of import shown in the export/import data in the CBEC data compiled by the Central Excise Custom Department, the AO had sought no clarification on certain errors and omissions which the assessee had pointed out in the CBEC data and had failed to make inquiries with regard to the same. 13. With r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooked in the account which amounted to Rs.68,11,121/- which accordingly was claimed in the return of income. But we find that this explanation was not clearly given by the assessee to the AO nor to the Ld.Pr.CIT, and even before us. The ld.counsel for the assessee did not explain likewise and did not come out in clear terms even before us. Therefore, we do not find any infirmity in the order of the ld.Pr.CIT holding that vis- -vis the issue of claim of notional foreign exchange fluctuation loss amounting to Rs.68,11,120/-, the claim apparently relating to notional loss which otherwise is not allowable under the Act and the issue being not examined by the AO, therefore there was an error in the order of the AO causing prejudice to the Revenue by allowing such claim to the assessee. The order of the ld.Pr.CIT is accordingly upheld on this count. 15. On the other hand, the issue of discrepancy in the claim of imported purchases as per the books and as per the CBEC data, , we find that though no proper explanation was made by the assessee to the AO. But before the ld.Pr.CIT he did give a reconciliation pointing out that the difference arose on account of item of capital purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X
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