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2018 (6) TMI 170
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....The forward contract in question, was entered into by the assessee with Indusind Bank for hedging future foreign currency fluctuation. The assessing officer accepted this claiming business loss, in the order passed u/s 143(3) of the Act. The Ld. CIT initiated a proceedings u/s 263 of the Act by issuing a show cause notice to the assessee proposing to hold the "Forward Contract Loss" incurred in connects with Indusind Bank, as a speculation loss and not normal business loss, by relying on amongst others the CBDT Instruction No. 3 of 2010 dated 23.03.2010. In reply the assessee contended that, this issue was examined by the assessing officer during the course of assessment proceedings u/s 143(3). It was further submitted that the assessee is in the business of running ships and providing services to the foreign ships and hence has to conduct its business regularly in foreign exchange also and hence the loss on hedging is a business loss and is out of the purview of Instruction No. 3 of 2010 dated 23.03.2010. The ld. Pr. CIT rejected the contentions of the assessee in his detailed order. At para 13 held as follows: "13. It may be further noticed, that in order to clarity on t....
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....earing. 4. The ld. Counsel for the assessee Mr. Anikesh Banerjee submitted that the assessing officer has enquired into this issue of "Loss on Forward Contract" during the course of assessment proceedings u/s 143(3) of the Act. He filed a paper book running into 85 pages and drew attention to the copy of the order sheet which is placed at pages 23 to 26 of the paper book specifically to the hearing on 15.12.2014 and 06.01.2015. He referred to the explanation filed by the assessee vide letter dated 06.01.2015 [para (xiii)] which was placed at page 29-30 of the paper book. He submitted the copies of entire set of papers relating to forward contracts, foreign exchange entered into with Indusind Bank were filed before the Assessing officer, which includes, statement of account of Indusind Bank, loss from forward contract which was paid to the Bank, the copy of the sanctioned letter of forward cover limit etc. He submitted that the ld. Assessing officer has taken a possible view on this issue and hence the revision u/s 263 of the Act is bad in law. He relied on a number of judgments for the proposition that, the order passed by the Assessing officer should not only be erroneous but a....
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.... , it would be considered a "Speculative Transaction". He relied on the case law cited by the ld. Pr. CIT in his order and submitted that an order of the ld. Pr. CIT passed u/s 263 has to be upheld. He submitted that the issue was only remanded to the assessing officer for fresh adjudication by the ld. Pr. CIT and hence the assessee should not have any grievance and can make his submission before the AO. 8. In reply the ld. Counsel for the assessee submitted that this is not an open remand and that the judgment of the Hon'ble Supreme Court in the case of CIT vs. Shantilal Pvt. Ltd. reported in 14 Taxmann 1(SC) which was relied by the ld. Pr. CIT, was in favour of the assessee. 9. Rival contentions heard. On careful consideration of the facts and circumstances of the case and perusal of the papers on record and the orders of the authorities below as well as case law cited, we hold as follows. 10. The assessing officer has, during the original assessment proceedings, on 15.12.2014, requested the assessee to file details, among others of "Loss on Forward Contract". The assessee filed the necessary documents along with reply on 06.01.2015. The reply of the assessee on this iss....
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....ssee was not a dealer in foreign exchange. The assessee was an exporter of cotton. In order to hedge against losses, the assessee had booked foreign exchange in the forward market with the Bank. However, the export contracts entered into by the assessee for export of cotton in some cases failed. In the circumstances, the assessee was entitled to claim deduction in respect of Rs. 13.50 lakhs as a business loss. This matter is squarely covered by the judgment of the Calcutta High Court with which we agree, in the case of CIT vs. Sooraj Mull Nagarmull (1981) 129 ITR 169." b) The Hon'ble Gujrat High Court in the case of CIT vs. Friends and Friends Shipping Pvt. Ltd. reported in (2013) 35 Taxmann533 (Guj.)which was also relied upon before the AO, the court had followed the judgment of the Hon'ble Bombay High Court as well as the Hon'ble Calcutta High Court and held at para 7 as follows: "7. Before the Calcutta High Court, the assessee was a firm engaged in the business of import and export of jute. In course of business, the assessee would enter into forward contract in foreign exchange in order to cover the loss which may arise due to difference in foreign exchange valuatio....
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..... 2. It was undoubtedly true that the claim of the impugned sum arose in 1952. The liability to pay this sum was, however, disputed and it was finally settlement in the year of account, therefore, though the claim related to the breach alleged to have occurred in 1952 , the settlement of liability was done by agreement between parties in the year of account. It was well-settled that where the claim for damages was the liability to pay damages under dispute, unless the dispute was adjudicated or settled between the parties, the claim could not be said to have arisen. Hence, this loss was referable to the instant assessment year, even though the assessee maintained its books on mercantile system. 3. Therefore, the Tribunal was right in holding (i) that the impugned sum was not a speculation loss but was incidental to the carrying on of the assessee's business and as such allowable on revenue account, and (ii) that the liability for the impugned sum accrued and became ascertained only in 1956 when the claim was settled and consequently allowable in the assessment year 1956- 57." 12. On consideration of this explanation and the case law cited by the assessee, the a....
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....le and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. RampyarideviSaraogi v. CIT (1968) 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal V. CIT (1973) 88 ITR 323 (SC)". 25. In Max India Ltd. (3 Supra), reiterated the view in Malabar Industrial Co.Ltd. (2 Supra) and observed that every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicia....
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....ax Officer is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suomotu revisional powers unless supported by adequate reasons for doing so; that if a query is raised during the course of the scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision. 27. In Sunbeam Auto Ltd.( 5 Supra), the Delhi High Court held that the Assessing Officer in the assessment order is not required to give a detailed reason in respect of each and every item of deduction, etc.; that whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Sec.263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such ....
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.... circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted; that to do so is to divide one argument into two and multiply the litigation. It held that cases may be visualized where the Income Tax Officer while making an assessment examines the accounts, makes inquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the account or by making some estimate himself; that the Commissioner, on perusal of the record, may be of the opinion that the estimate made by the Officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income Tax Officer; but that would not vest the Commissioner with power to reexamine the accounts and determine the income himself at a higher figure; there must be material available on the record called for by the Commissioner to satisfy him prima facie that the order is both erroneous and prejudicial to the interests of the Revenue. Otherwise, it would amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision....
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....very loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue: or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. c) To invoke suomotu revisional powers to reopen a concluded assessment under Sec.263, the Commissioner must give reasons; that a bare reiteration by him that the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, will not suffice; that the reasons must be such as to show that the and must irresistibly lead to the conclusion that the order of the Income Tax Officer was not only erroneous but was prejudicial to the interests of the Revenue. Thus, while the Income Tax Officer is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every d....
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.... without inquiry or investigation are treated as erroneous and prejudicial to the interest of the Revenue, but orders which are passed after inquiry/investigation on the question/issue are not per se or normally treated as erroneous and prejudicial to the interest of the Revenue because the revisionary authority feels and opines that further inquiry/investigation was required or deeper or further scrutiny should be undertaken. iii) INCOME TAX OFFICER vs. DG HOUSING PROJECTS LTD343 ITR 329 (Delhi) Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. S. 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. The expression "prejudicial to the interest of the Revenue" is of wide import and is not confined to merely loss of tax. The term "erroneous" means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order u....
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.... or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. This distinction must be kept in mind by the CIT while exercising jurisdiction under s. 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneo....
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....t have been formulated. 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 the Assessing Officer by his order dated 28th March, 2008 did not adversely affect any right of the assessee nor was any civil right of the assessee prejudiced. He was as such under no obligation in law to give reasons. The fact, that all requisite papers were summoned and thereafter the matter was heard from time to time coupled with the fact that the view taken by him is not shown by the revenue to be erroneous and was also considered both by the Tribunal as also by us to be a possible view, strengthens the presumption under Clause (e) of Section 114 of the Evidence Act. A prima facie evidence, on the basis of the aforesaid presumption, is thus converted into a conclusive proof of the fact that the order was passed by the assessing officer after due application of mind. Meerut Roller Flour Mills Pvt. Ltd. vs. C.I.....
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....nto hedging contracts of foreign exchange, the loss in question is normal business loss and cannot be held a "Speculation Loss" as covered by Section 43(5) of the Act. The Vishakhapatnam Bench of the ITAT in the case of DCIT, Circle-1(2), vs. B Enterprise Pvt. Ltd. reported in (2017) 80 Taxman 362 (Vishakhapatnam Trib.) at para 16 and 17 held as follows: "16. The next issue that came up for our consideration for the assessment year 2009-10 is towards disallowance on loss of forward contracts. The AO disallowed loss on forward contracts on the ground that loss incurred by the assessee is in the nature of speculative transaction, which cannot be allowed as deduction against business income. According to the AO, as per the provisions of section 43(5) of the Act, only eligible transactions which are not in the nature of speculative transaction as defined u/s 43(5) of the Act, only qualify for deduction. The AO referred to the CBDT circular and observed that any eligible transaction in respect of trading in derivatives referred to in clause (ac) to section (2) of the Securities Contracts (Regulation Act, 1965), that has been carried out in a recognized stock exchange shall not ....