TaxTMI 
TaxTMI 
2023 (2) TMI 515
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....earned Principal Commissioner of Income-tax - 3, Ahmedabad erred in setting aside the assessment order framed u/s 143(3) of the Act by holding that the A.O. failed to make proper inquiries in respect of issued mentioned in the show cause notice u/s 263 of the Act. 3. The learned Principal Commissioner of Income-tax - 3, Ahmedabad failed to appreciate that the very issues raised by the Commissioner u/s 263 were duly examined by the assessing officer by way of specific inquiries/notices and replies thereto, while finalizing assessment proceedings u/s. 3. The ld.counsel for the assessee began by pointing out that the ld.PCIT issued show cause notice to the assessee assuming jurisdiction to revise the assessment order passed by the AO finding it to be erroneous so as to cause prejudice to the Revenue on account of AO not having duly verified the following: i) The assesses claim of "foreign exchange loss on notional entries" of Rs.68,11,120/-in the computation of its income returned for taxation, despite no expense of foreign exchange loss being debited in its Books of accounts. That it was a artificial loss not allowable otherwise. ii) The issue of purchas....
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....of net foreign exchange loss of Rs.68,11,121/- it had been pointed out that this issue had been examined by the AO during the assessment proceedings in depth and entries passed by way of journal entries were duly explained. Ld. Counsel for the assessee contended that there was no error in the order of AO and also there was no prejudice caused to the Revenue also. Our attention was drawn to the reply filed to the ld.PCIT vide letter of the assessee dated 9.3.2021, copy of which placed before us in PB Page No.8 to 11, more particularly para 3.1, Page No.9 as under: "3.1 Foreign exchange rate fluctuation of Rs. 68,11,121/- The Ld. AO vide Annexure to notice dated 28.09.2019 at Question - 7 required bifurcation of deduction of Rs. 3,01,19,909/- and same replied dated 21.10.2019 at Annexure F and Annexure H. Again vide notice in Annexure 2 dated 09.12.2019 at Question-1 and specifically at Question-2, specific inquiries made for foreign exchange fluctuation. The assessee vide letter 11.12.2019 at Para 2, explained completely the foreign exchange fluctuation entries in books of accounts together with complete explanation at Annexure-J of the same reply. ....
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....oceedings. All above purchase details are already presented before your honor online on 21/10/2019. We hereby present copy of transaction record with Lillbacka power co. please consider. i) Bill of Lillbacka power co.( Bill of lending, Bill of exchange and invoice) attached herewith in annexure 1. ii) Ledger of Lillbacka power co. in annexure 2. iii) WIP Fixed assets ledger annexure 3. iv) Complete audit report including Balance sheet, p &l ,bank statements etc. are already placed on record 4) Other Required details for F.Y. 2016-17 are as under : i) Import purchase ledger - annexure 4 ii) Import purchase bills -it is very bulky data, we can submit it in few days if required again. iii) Reconciliation explained in para 2&3 above 5) Looking to covid situation we had not made personal appearance but we believe that we have explained properly. In case of any adverse decision by your honor we would like to present personally for any further information and explanations if required. Your honor is requested to accept the details and oblige. Thanking you, Yours sin....
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....r deducted for proper reporting purpose only. The calculation of each and every items is reconciled at the end of ledger of 9 items as above. (2) Foreign exchange fluctuation incorporates realization as well as notional gain/loss on foreign currency transactions. Looking to the international requirement the gain/loss are calculated as on 30th September and 31st march every year and the same is being reveresed on 1st April and 1st October every year. We hereby attach ledger of following accounts, (i) Foreign exchange fluctuation SSW (USA) - Rs. 95,35,344/-. (ii) Foreign exchange fluctuation SSW tech. inc.- Rs. 31,49,611/-(iii) Foreign exchange fluctuation on sales SSW (UK)- Rs.33,714. We have already submitted Foreign exchange fluctuation A/c under annexure- H of our previous submission. We hereby forward detailed analysis of the said Foreign exchange fluctuation A/c (as per annexure-J) in which each and every entries are explained fully and notional entry portion is highlighted. The net notional entry loss is Rs.68,11,121/- as calculated in the said sheet." 9. He thereafter drew our attention to the copy of ledger account of foreign exchange fluctuation filed t....
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....ional):- In the Statement of Income furnished with Return, the assessee has claimed deduction of Ra.68,11,121/- towards Foreign Exchange Fluctuation Loss. The appellant has vehemently contended that during assessment proceedings, the then AO vide notice dtd. 28.09.2019 (Vide Q.No.7) asked for submission of break up/bifurcation of "any other amount allowable as deduction" of Rs.3,01,19,909/- and same was replied vide letter dtd. 21.10.2019 at Annexure-F & Annexure-H. assessee further contended that vide notice dtd. 09.12.2019(Q.No.l) and specifically vide Q.No.2, specific query was made regarding foreign exchange fluctuation. In response, assessee vide letter dtd. 11.12.2019 at Para-2 explained foreign exchange fluctuation entries in books of accounts together with explanation as Annexure-J of the same reply. So, as per assessee there was no error in the assessment order, Assessee has also provided summary of calculation of Foreign Exchange Loss/Gain as shown in Annexure-J as under- Foreign Exchange gain on notional entries Rs. 3,29,29,838/- Foreign Exchange loss on notional entries Rs. (-)3 ,97,40,959/- Net Forex loss on notional entries Rs.(-) 6....
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....uction claimed in respect of "notional loss". Assessee has advance a puerile argument that because of minus sign (- 68,11,121), this confusion has arisen in the minds of authorities which is found very absurd and laughable. In view of above discussion, it is manifestly clear that the then Assessing Officer erred in disallowing the claim of deduction of Rs.(-)68,11,121/- representing notional loss towards foreign exchange fluctuation and thereby total income was under assessed to this extent." 11. With regard to the import purchase the ld.DR relied on the order of the ld.Pr.CT at para 5(b) as under: "(b) With regard to difference in respect of purchase figures shown in ITR visa-vis import dara shown by CBEC (Central Excise Department), the assessee admitted during assessment proceedings that there were certain errors and omissions but failed to reconcile the same. The Assessing Officer also failed to examine the reasons for the discrepancies in the purchases figures. The assessee has contended that errors in CBEC data are not within assessee's control but claimed that entries in its books of accounts are correct. Although, during assessment proceedings, the then AO c....
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.... ii) That on the issue of purchase shown in the income-tax return being less than the invoice value of import shown in the export/import data in the CBEC data compiled by the Central Excise & Custom Department, the AO had sought no clarification on certain errors and omissions which the assessee had pointed out in the CBEC data and had failed to make inquiries with regard to the same. 13. With regard to the issue of notional foreign exchange loss claimed by the assessee, we have carefully considered the contentions of the ld.counsel for the assessee that the same was duly explained to the AO during the assessment proceedings. We find that except for stating that the claim related to net notional foreign exchange gain or loss , which was claimed by the assessee in the ledger of foreign exchange fluctuation loss, and was substantiated with the copy of ledger account, no other explanation was furnished by the assessee. We agree with the Ld.Pr.CIT that no cogent explanation for claiming this notional loss of foreign exchange fluctuation was given by the assessee. As rightly noted by the Ld/PCIT the assesses explanation of this claim of notional loss of Rs.68,11,120/- was only to the....
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....e. The order of the ld.Pr.CIT is accordingly upheld on this count. 15. On the other hand, the issue of discrepancy in the claim of imported purchases as per the books and as per the CBEC data, , we find that though no proper explanation was made by the assessee to the AO. But before the ld.Pr.CIT he did give a reconciliation pointing out that the difference arose on account of item of capital purchase imported by the assessee which was duly reflected in the books of accounts as capital work-in-progress. This explanation was duly substantiated with all necessary documents including the bills from parties from whom these items had been purchased, copy of ledger accounts, i.e purchase account, WIP account and even bank statements. The ld.Pr.CIT also, we have noted, has found this explanation to be prima facie correct. But despite the same, he has directed the AO to verify the documents filed by the assessee. Revisionary power cannot be exercised for verification purposes. There has to be a finding of error in the order of the AO for the PCIT to exercise his revisionary powers ,as also the error causing prejudice to the Revenue. On the impugned issue of mismatch in purchase as per C....