AI Drafter 
TaxTMI 
TaxTMI 
2016 (3) TMI 57
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....or scrutiny assessment and notice under section 143(2) of the Act was issued and served upon the assessee. After hearing the assessee, the ld.AO had passed the assessment order under section 143(3) on 20.12.2010. He determined the total loss at Rs. 2,75,90,823/- as against the loss of Rs. 3,04,67,089/- shown by the assessee in the computation of income. He determined the tax payable by the assessee under section 115JB of the Income Tax Act at Rs. 74,82,453/-. 4. On scrutiny of the record, the ld.Commissioenr harboured a belief that the assessment order is erroneous and prejudicial to the interest of the Revenue, which required revision under section 263 of the Income Tax Act. Accordingly, she has recorded reasons for taking action under section 263 of the Income Tax Act. Copy of the show cause notice issued under section 263 dated 12.3.2013 is available on page no.1 of the paper book. The reasons assigned by the ld.Commissioner under this show cause notice are as under: 1. The assessee has not accounted for the Income of Rs. 544.24 lacs being industrial promotion assistance receivable from West Bengal Incentive Scheme 2000. 2. The assessee has claimed currency ....
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....ble in A.Y. 2008-09 and written off as bad debt in that assessment year was also not verified by the AO while passing the order. Lack of enquiry renders the order of assessment erroneous and prejudicial to the interests of revenue. Lack of enquiry could include not only a situation where no enquiry was made but also a situation where proper enquiry was not made considering the facts of the case. In this regard, the following decisions are relevant: (i) CIT vs. Seshasayee Paper & Boards Ltd., 242 ITR 490 (Mad.) (ii) CIT vs. South India Shipping Corporation Ltd. 233 ITR 546 (Mad.) (iii) CTT vs. Emery Stone Mfg. Co. 213 ITR 843 (Raj.) 7. So far as the second issue is concerned, the assessee had argued that it has exposure to fluctuation in foreign exchange rates, hence hedging transactions were carried out either by way of forward contracts or options, depending on the prevailing market conditions, with a view to protecting itself from the losses that may arise on account of adverse fluctuations in the foreign exchange rate. It was also submitted that provisions of Section 43(5) apply to transactions in which a contract for the purchase or sale of c....
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....l basis from West Bengal Incentive Scheme, 2000 under Industrial Promotion Assistance and State Capital Investment subsidy (IPA Incentive). The company had established plant at Haldia and is covered under West Bengal Incentive Scheme, 2000, wherein the company is eligible for following assistance: a) Industrial Promotion Assistance As per the scheme, 75% of sales tax paid in immediately preceding year, is available as an incentive, in subsequent year. Such incentive is to be paid through a cheque to be deposited through a challan as an advance tax. As per the condition of the scheme, the incentive is available up to 100% of Fixed Capital Investment or upto completion of 15 years, whichever is earlier. b) State Capital Investment subsidy As per the scheme, 15% of Sales tax paid in immediately preceding year, is available as an incentive, in subsequent year. Such incentive is to be paid through a cheque to be deposited through a challan as an advance tax. As per the condition of the scheme, the incentive is available up to 15% of Fixed Capital Investment with further cap of Rs. 150 lakhs or upto completion of 10 years, whichever is earlier....
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.... passed by the assessee-company are in consonance with the mercantile system of accounting followed by the assessee. After considering the written submissions, the Assessing Officer adopted a correct view which is the only view possible and he did not make any addition. On this issue the order of the Assessing Officer does not suffer from any error and further it has not resulted into any prejudice to the Department. 6. On the second issue also the factual position was duly explained during the course of the assessment proceedings vide written submissions dated 7th December, 2010, the relevant part of which is reproduced below: "(36) Further, your goodself has sought details of currency Swap (Loss)/Gain. In this regard we submit that the company has incurred currency swap loss of Rs. 2,22,63,965 on account of repayment of Foreign Currency denominated loan taken by swapping US $ liability into Rupees terms. On perusal of schedule-3 of the Audited Annual Report, your goodself would find that the outstanding balance of FCNR loan as on 31st March, 2006 of Rs. 9.15 crores is reduced to Rs. 5.32 crores as on 31st March, 2007. We are submitting herewith the complete deta....
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.... that the both the inferences drawn by the learned CIT are factually and legally incorrect. The provisions of section 43(5) are reproduced below with emphasis supplied: "(5) "speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips: Provided that for the purposes of this clause- (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in ....
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.... that but for such expressed inclusion, the word "commodity" would not have covered even stocks and shares. Obviously, currencies cannot be covered by the word "commodity". It is respectfully submitted that section 43(5) cannot be applied to currencies. 11. Without prejudice to the above contentions, it is submitted that by virtue of the Proviso to section 43(5), hedging transaction cannot be regarded as speculative transactions. It is notable that the aforesaid proviso does not contain anything to provide for an exception on account of hedging contracts in respect of currencies whereas it specially covers raw-material, merchandise, stock and shares. This further confirms that the Legislature was clear in its mind that since the word "commodity" itself cannot take in any currency as such, there can be no question for providing an inception in that regard in the proviso." 7. The ld.counsel for the assessee while impugning the order of the CIT(A) has raised two fold submissions. In the first fold of his submissions, he submitted that the first reason assigned by the ld.Commissioner for holding the assessment order as erroneous and prejudicial to the interest of the Revenu....
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....red in the case of Adani Enterprises Ltd. for the Asstt.Year 2007-08 as well as Astt.Year 2008-09. On the strength of the Hon'ble Gujarat High Court in the case of CIT Vs. Friends and Friends Shipping P. Ltd., 35 taxmann.com 553 (Guj), the Tribunal has upheld the action of the AO of allowing this loss as business loss. He placed on record. Hon'ble Gujarat High Court decision in the case of CIT Vs. Friends and Friends Shipping P. Ltd. (supra). Thus, according to the ld.counsel for the assessee, both these issues were found prima facie allowable in law and the AO has taken a possible view in the law. 10. The ld.CIT-DR on the other hand relied upon the order of the ld.Commissioner and contended that perusal of the assessment order does not show any application of mind at the end of the AO on both these issues. Therefore, the ld.Commissioner has rightly taken cognizance under section 263 of the Income Tax Act. 11. We have considered rival contentions and gone through the record carefully. Section 263 has a direct bearing on the controversy, therefore, it is pertinent to take note of this section. It reads as under:- "263(1) The Commissioner may call for and exami....
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....eme 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 excluded." 12. On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Co....
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.... the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO. (vii) The AO exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion. (viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard. 13. Apart from the above principles, we deem it appropriate to make reference to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Sun Beam Auto reported in 227 CTR 113 referred by ld. Counsel for the assessee, and Gee Vee Ent....
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....cer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Incometax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Incometax Officer is very diffident from that of a civil court. The statement made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only on adjudicator but also an investigator. He cannot remain passive in the face of the return which is apparently in order but called for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry... It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would made such an inquiry prudent that the word 'erroneous' in section 263 includes the failure to make such an enqu....