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TMI Blog2023 (8) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... ice issued under section 263 of the Act as well as the order passed under section 263 of the Act by the learned PCIT are illegal, bad in-law and without jurisdiction. 2. On the facts and circumstances of the case and in law, the learned PCIT has erred in assuming the jurisdiction under section 263 of the Act, without appreciating the facts that the learned Assessing Officer (AO) has made proper enquiry and verification with respect to claim of Mark to Market (MTM) loss amounting to INR 9.29 crores recognized on derivative contract in nature of cross currency interest rate swap ('CCIRS') during the assessment proceedings and the same were answered to the satisfaction of the learned AO. 3. On the facts and circumstances of the case and in law, the leamed PCIT has erred in initiating the proceedings under section 263 of the Act on the basis of the wrongful assumption that 'no enquiry' was made with respect to the issue of MTM loss amounting to INR 9.29 crores by the learned AO during the assessment proceedings for AY 2015-16 which itself is contrary to the observation of learned PCIT, whereby the learned PCIT has made reference to submission dated December 13, 2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays that appropriate relief be granted based on the said grounds of appeal and the facts and circumstances of the case." 3. In the present appeal, the assessee is aggrieved against the invocation of revisionary proceedings under section 263 of the Act by the learned PCIT. 4. The brief facts of the case as emanating from the record are: The assessee is a company and is engaged in providing cellular telecommunication communication services to its subscribers. For the year under consideration, the assessee e-filed its return of income on 26/11/2015 declaring a loss of Rs. 475,90,34,534. The return of income filed by the assessee was selected for complete scrutiny and notice under section 143(2) of the Act was issued and served on the assessee. Thereafter, notices under section 142(1) of the Act along with a detailed questionnaire were issued and served on the assessee. The Assessing Officer ("AO") vide order dated 26/12/2017 passed under section 143(3) of the Act concluded the scrutiny assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss in the subsequent assessment year was not verified by the AO, as the assessee did not submit any document in this regard during the assessment proceedings for the year under consideration. Thus, the AO has failed to make the necessary enquiry and bring on record all facts necessary for determining the true character and nature of income, which resulted in an order which is erroneous and prejudicial to the interest of the Revenue as per the provisions of Explanation-2(a) to section 263 of the Act. Accordingly, vide impugned order the learned PCIT set aside the assessment order so passed, with a direction to frame the assessment de novo as per the observations made in the order. Being aggrieved, the assessee is in appeal before us. 8. We have considered the submissions of both sides and perused the material available on record. The assessee entered into derivative contracts in the nature of interest rate swaps and cross-country interest rate swaps on forward contracts. In accordance with the accounting policy, the assessee provides for losses in respect of all outstanding derivative contracts in the balance sheet date by marking them to market, and any gains arising on such MT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed for repayment of existing debts (capital expenditure) and strengthening the existing GSM network (i.e. creating benefit of enduring nature and creation of new assets). Thus, as per the learned PCIT, the MTM loss of Rs. 9.29 crore was capital in nature and should not have been allowed as it was directly related to capital expenses. On the contrary, as per the assessee, the claim of MTM loss is in accordance with the guidelines on accounting for derivatives issued by the Institute of Chartered Accountants of India, which prescribes that the company provides for losses in respect of all outstanding derivative contracts in the balance sheet on MTM basis and any gains arising on such MTM are not recognised as income. The assessee also submitted that non-recognition of the MTM gain based on the prescribed accounting treatment is consistent with the decision of the Hon'ble Supreme Court in CIT v/s Woodward Governor India (P) Ltd. [2009] 312 ITR 254 (SC). Accordingly, the assessee claimed MTM loss on a cross-country interest rate swap but did not offer any MTM gains, which was accepted by the AO while passing the assessment order under section 143(3) of the Act. Therefore, from the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, it cannot be said that the assessment was completed after verifying assessee's books of accounts for the subsequent year. It is pertinent to note that the question as to the year in which deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different. However, the assessee is a company, and therefore tax is leviable at a uniform rate. It is trite law that in order to invoke section 263, the assessment order must be erroneous and also prejudicial to revenue, and if one of the limbs is absent, i.e., if the order of the AO is erroneous but is not prejudicial to Revenue or if it is not erroneous but is prejudicial to Revenue, recourse cannot be had to section 263 of the Act. Since the MTM loss of Rs. 9.29 crore was duly reversed in the subsequent year and has been offered to tax, therefore, there is no prejudice to the Revenue. Therefore, the impugned revisionary proceedings invoked under section 263 of the Act cannot be upheld and thus, are set aside. Accordingly, the impugned order passed by the learned PCIT under section 263 of the Act is quashed. 13. The assessee, vide application dated Nil, has also raised the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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