TaxTMI 
TaxTMI 
2020 (1) TMI 288
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....t permissible. 1.2 The learned CIT has erred in law and on facts in holding that the order passed by the AO is not correct without appreciating that the AO has passed the order after enquiring and verifying the facts and documents on record, duly supported by various precedents including the judgments of the Hon'ble Supreme Court and CBDT circular which were available at the time of the assessment. 1.3 The learned CIT has erred in law and on facts in ignoring the reasons given by the appellant on the proceedings u/s. 263 being invalid and bad in law and not providing detailed justification in order to prove satisfaction of the conditions specified u/s. 263 of the Act. 2. Disallowance of expenditure related to issue of Non-Convertible Debentures (NCD) of Rs. 139,61.52760/-. 2.1 The learned CIT has erred in law and on facts in directing the AO to treat the expenditure incurred on issue of NCDs as perfection 350 of the Act in as much as the said expenditure is incurred for obtaining the loan for the purpose of business and is allowable u/s 37(1) of the Act. 2,2 The learned CIT has erred in law and on facts in directing the AO to allow only 1/5th of the expenditure r....
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.... learned CIT has erred in law and on facts in placing reliance upon the CBDT Instruction no. 3/2010 without appreciating the fact that the said instruction is distinguishable on facts. Further the learned CIT ought to have appreciated that the Issue of allowability of foreign exchange loss debited in books of account as per the requirement of Accounting Standard to be followed as per Companies Act, 1956 is settled in favour of the appellant by the Hon'ble Supreme Court in the case of CIT v. Woodward Governor India P. Ltd. (312 1TR 254), 3.5 The learned CIT ought to have appreciated that while computing book profits u/s. 115JB of the Act, the AO cannot go beyond the Profit and loss account prepared in accordance with Part II and Part III of the Companies Act and audited by the statutory auditors; unless it is specifically provided in Explanation 1 to section 115JB of the Act and thus, the adjustment of foreign exchange loss for the purpose of books profits u/s. 115JB of the Act is not permissible. 4. Disallowance of Provision for leave encashment of Rs. 29,60,93,000. u/s. 43B of the Act 4.1 The Learned CIT has erred in law and on facts in directing the AO to withdraw th....
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....provisions of section 115JB of the I.T.Act, 1961. The assessment was completed u/s 143(3) r.w.s. 144C(13) of the I.T.Act, 1961 on 24/12/2014 determining the loss at Rs. 79,54,09,943/- under normal provisions and book profits at Rs. 3031,84,10,912/- u/s 115JB of the Act, after making various additions. Subsequently, the Ld.CIT(LTU) issued notice u/s 263 dated 15/11/2016 and called upon the assessee to explain as to why, the assessment order passed by the Ld. AO u/s 143(3) r.w.s. 144C(13) of the I.T.Act, 1961of the Act, shall not be revised for the following issues:-- * Deduction claimed of Rs. 139,61,52,760/- by the Assessee in respect of expenditure incurred in respect of issue of non-convertible debentures (NCD) * Addition of foreign exchange loss of Rs. 1,06,12,81,083/- treating the same as contingent in nature or to be treated as diminution in the value of investment attributable to foreign exchange while computing book profit under section 115JB of the Act * Disallowance of Rs. 29,60,93,000/- under section 43B in respect of provision for leave encashment * Disallowance of Rs. 23,8.77,293/- in respect of expenditure incurred for raising debt through Foreign Currency ....
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....d duly supported by the various precedents, including the judgments of various courts and CBDT circular, which were available at the time of assessment. The Ld. AR, further referring to paper book filed in support of his arguments submitted that all issues questioned by Ld.CIT(LTU) in 263 proceedings are discussed by the Ld.AO, during the assessment proceedings, which is evident from the fact that the Ld.AO has called for specific enquiries pertaining to deduction of expenses claimed in relation to expenses incurred for issue of NCD, vide notice dated 24/09/2013 for which, the assessee has filed a detailed reply and break up of expenses was provided as annexed to the said submission. The assesee also had drawn attention to the AO in the notes to computation of income by making specific disclosure for claim of expenditure by way of note 27 to the computation of income. The Ld. AO after fully satisfied with explanation furnished by the assessee has allowed the deduction for the same by adopting one of the possible views. The Ld. AR, further submitted that as regards, other issues like disallowances of foreign exchange loss, while computing book profit u/s 115JB of the Act, deduction ....
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.... supporting order of the Ld.CIT(LTU) submitted that the arguments of the Ld. AR lack substance in the sense that an erroneous order causing prejudice to the interest of revenue can be passed, even after consideration of the submission made by the assessee. The invocation of authority u/s 263 stands on a very different footing in comparison to invocation of sec. 147 of the Act. The facts to be considered here is not whether, the assessee submitted the details or not, but what needs to be considered is whether, at the end of consideration of all details, the Ld. AO passed the correct order or not, if an erroneous order happen to be passed, whether it caused prejudice to the interest of the revenue or not. The order of the AO is not justified and hence, the revision u/s 263 is considered necessary. 7. We have heard both the parties, perused the material available on record and gone through orders of the authorities below along with various case laws cited by both the parties. The Ld.CIT(LTU) has set aside the assessment order passed by the AO u/s 143(3) r.w.s. 144C(13) of the I.T.Act, 1961, on various grounds in respect of four issues. According to the Ld.CIT(LTU), although the Ld. ....
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....ima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed. 9. The phrase "prejudicial to the interest of the revenue" has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue has a consequence of an order of AO cannot be treated as prejudicial to the interest of the revenue. For example, when an AO adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the AO has taken one view with which the CIT did not agree with, it cannot be treated as an erroneous order prejudicial to the interest of the revenue because the view taken by the AO is unsustainable in law. The order passed by the AO without making necessary enquiries on certain important points connected with the assessment would be erroneous and prejudicial to the interest of the revenue, when the AO expected to make required enquiries on a particular it....
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....ered by the assesee, in respect of revenue liability on account of exchange difference as on the date of the balance sheet is an item of expenditure allowable u/s 37(1) of the Act, in the year of accrual. The assesee has explained the above facts and also support its arguments with the help of the decisions of Hon'ble Supreme Court in the above case. The Ld. AO after considering relevant facts has accepted the claim of the assesee. But, the Ld. CIT(LTU) was of the view that the Ld. AO has not carried out required enquiries to be carried out in accordance with law, without bringing on record how enquiries carried out by the Ld.AO is insufficient or inadequate. 11. Insofar as, deduction for provision for leave encashment, the assesee has claimed deduction for said provision on the basis of decision of Hon'ble Kolkata High Court, in the case of Exide Industries Limited Vs CIT 292 ITR 470 and this fact has been brought to the notice of the Ld.AO. Pursuant to the above, Ld. AO has allowed the deduction for the same, after considering one of the possible views. Subsequently, the Ld.CIT(LTU) adopted another view in 263 proceedings on the basis of Hon'ble Supreme court decision in its fi....
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....to the case laws relied upon by the assessee. The assessee has relied upon the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co Ltd vs CIT (supra). The Hon'ble Supreme Court, in the said case held that if order of the AO is erroneous, but does not prejudice to the interest of the revenue or if it is not erroneous but is prejudicial to the interest of the revenue, recourse cannot be taken u/s 263 of the Income-tax Act, 1961. The relevant portion of the order is extracted below:- "A bare reading of section 263(1) makes it clear that the pre-requisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (\) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the 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). There can be no doubt that the pr....
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....or upon erroneous application of legal principles'. From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law'. If an ITO acting in accordance with la\v makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous, Cases may be visualised where the ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left lo the Commissioner he would have estimated the income at a figure higher than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the i....
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....f the assessee. This decision of the ITO could not be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the ITO to re-examine the matter. That was not permissible. Hence, the provisions of section 263 were not applicable to the instant case and. therefore, the Commissioner was not justified in setting aside the assessment order." 15. The assessee has relied upon the decision of ITAT, Mumbai Tribunal in the case of Colour Publications Pvt.Ltd. Vs. PCIT (2018) 196 TTJ 257 (Mum). We find that the coordinate bench had considered an identical issue in light of provision of section 263 and after considering relevant facts held as under:- "AO, on being satisfied with the explanation furnished by the assesses, has applied the provisions of section 40A (2) to disallow excess performance bonus paid to the director o....