TaxTMI 
TaxTMI 
2018 (11) TMI 866
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....ng grounds of appeal: 1) On the fact and circumstances of the case as well as in Law, the Learned Principal CIT has erred in passing Revision Order u/s.263 of the Income Tax Act, 1961 for the assessment order u/s. 143(3) r.w.s 144((1) of the Act passed by the Learned Assessing Officer after making adequate enquiries and application of mind without considering the facts and circumstances of the case. 2) On the fact and circumstances of the case as well as in Law, the Learned Principal CIT has erred in considering the order passed u/s. 143(3) r.w.s 144C(1) of the Income Tax Act, 1961 by the Learned Assessing officer as erroneous and prejudicial to the interest of the revenue, without appreciating the facts and circumstances of the case. 3) On the fact and circumstances of the case as well as in Law, the Learned Principal CIT has erred in setting aside Assessment order passed by the Learned Assessing Officer and directing him to make fresh assessment, without appreciating the facts and circumstances of the case. 4) On the fact and circumstances of the case as well as in Law, the Learned Principal CIT has erred in giving direction to the Learned Asse....
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....d to be a capital asset, the loss should be capital in nature. In the present case the assessee obtained certain loan from European Central Bank (ECB) in Japan Currency /Yen (JPY) vide agreement dated 04.06.2007. The assessee under advice from Lehman Bros, Bank of India and other lenders to convert this loan into U.S. Dollar (USD). The reason given was that JPY was very fluctuating currency vis-à-vis US Dollar. Thus, the assessee entered into currency swap derivative on 18.07.2007 by which half of the amount i.e. 20 million equivalent of JPY loan was converted into USD. The business loss claimed by assessee during the year on account of this currency swap transaction. The assessee further contended that the transaction of borrowing money in foreign currency (JPY) for acquiring capital asset and transaction of conversion of such currency into another currency, by entering into currency swap derivative not to reduce its cost of borrowing is entirely and distinct and independent transaction and has no bearing on the transaction of acquisition of asset out of said loan amount borrowed. The main purpose of assessee was to reduce its effective cost of borrowing due to currency flu....
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....h was used for acquiring fixed asset for assessee's plant at Sarigam (Silvassa). The assets were put to use during the year. The assessee claimed depreciation on those assets which was allowed. The assessee under legal advice by Bankers entered into currency swap agreement on 18.07.2007 to hedge the "foreign exchange fluctuation risk". The copy of the Bank of India's swap letter dated 18.07.2007 is also placed on record at page No. 96 to 99 of PB. The Foreign Exchange Fluctuation Loss was debited to Profit & Loss Account in line with AS-11 as per provisions Companies Act. The figures of currency swap loss were specifically mentioned in annual accounts in note no.25(c). Further, details were furnished during the course of assessment proceeding. The Assessing Officer after examining the details completed the assessment under section 143(3). The assessing officer has passed assessment order which is legally sustainable order. The assessment order can be revised if it is erroneous or prejudicial to the interest of revenue. The order passed by assessing officer is not erroneous. Though the Assessing Officer has examined the issue. However, there is no reference in the assessment order. ....
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.... We have considered the rival submission of the parties and have gone through the orders of authorities below. The Hon'ble Supreme Court in Malabar Industrial Co Ltd (supra) has laid down the following principal; " A bare reading of section 263 of the Act 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the CIT suo moto under it, is that the order of ITO is erroneous, so far as it is prejudicial to the interest of revenue. The CIT has to be satisfied twin conditions, namely (1), the order of AO sought to be revised is erroneous and (2) it is prejudicial to the interest of revenue. If one of them is absent- if the order of 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 section 263 (1 ) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the AO, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of fact or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applyin....
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....timate himself. The CIT on perusal of records, may be of opinion that the estimate made by the officer concerned was on the lower side and left to the CIT, he would have estimated the income at a higher figure than one determine by the ITO. That would not vest the CIT with power to re-examine the accounts and determine the income himself at the higher figure. 11. Further Hon'ble Delhi High Court in case of ITO Vs DG Housing Projects Ltd [343ITR 329 (Delhi)] held that the order is erroneous if the twin condition must be satisfied for exercise of jurisdiction under section 263 of Income-tax Act. The matter cannot be remitted back for fresh decision to the assessing officer to conduct further inquires without a finding that order is erroneous. The Commissioner must after recording reasons hold that order is erroneous. The Commissioner cannot direct reconsideration only when the order is erroneous. An order of remit cannot be passed by the commissioner to ask the assessing officer to decide whether the order was erroneous, which is not permissible. 12. In DIT Vs Jyoti Foundation (357ITR 388 Delhi) the Hon'ble Delhi High Court while distinguishing the order passed after proper inq....
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....art of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital; such profit or loss would be of capital nature. Now, in the instant case, no finding was given by the Tribunal as to whether the sums were held by the assessee in West Pakistan on capital account or revenue account and whether they were part of fixed capital or of circulating capital embarked and adventured in the business in West Pakistan. If the amounts in question were employed in the business in West Pakistan and formed part of the circulating capital of that business, the loss resulting to the assessee on remission of those two amounts in India, on account of alteration in the rate of exchange, would be a trading loss, but if, instead, those amounts were held on capital account and were part of fixed capital, the loss would plainly be a capital loss. The question whether the loss suffered by the assessee was a trading loss or a capital loss could not, therefore, be answered unless it was first determined whether the amounts in question were held by the assessee on capital account or on revenue account or, to put it differently, as....
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....ous assets will have to be reduced or added to the costs of the assets. Thus, viewed from this perspective also, such increased liability cannot be bracketed with cost of acquisition of capital assets save and except in terms of overriding provisions of S. 43A of the Act. 10.6 We also simultaneously note here that the Hon'ble Supreme Court in the case of CIT v. Tata Iron and Steel Co. Ltd. [1998] 231 ITR 285/98 Taxman 459 held that cost of an asset and cost of raising money for purchase of asset are two different and independent transactions. Thus, events subsequent to acquisition of assets cannot change price paid for it. Therefore, fluctuations in foreign exchange rate while repaying instalments of foreign loan raised to acquire asset cannot alter actual cost of assets. The relevant operative para is reproduced hereunder. "Coming to the question raised, we find it difficult to follow how the manner of repayment of loan can affect the cost of the assets acquired by the assessee. What is the actual cost must depend on the amount paid by the assessee to acquire the asset. The amount may have been borrowed by the assessee, but even if the assessee did not repay ....
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.... revenue account only upto the date on which capital asset is put to use. Once the capital asset is put to use, the interest expenditure on money borrowed for acquisition of capital asset is also treated as revenue expenditure. As also noted, S. 43A specifically and categorically calls for adjustments in cost of assets for loss or gain arising out of foreign currency fluctuations in respect of funds borrowed in foreign currency for acquisition of foreign assets. However, the same rationale of a deeming provision of S. 43A cannot be applied to loss or gain arising from foreign currency loss utilized for purchase of indigenous assets. Needless to say, impugned currency fluctuation loss has emanated from foreign currency loans. Besides AS-11, the claim of exchange fluctuation loss as revenue account is also founded on the argument that the aforesaid action was taken to save interest costs and consequently to augment the profitability or reduce revenue losses of the assessee. The impugned fluctuation loss therefore has a direct nexus to the saving in interest costs without bringing any new capital asset into existence. Thus, the business exigencies are implicit as well explicit in the ....