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2019 (2) TMI 696 - AT - Income TaxRevision u/s 263 - Unrealized Mark to Market losses - Held that:- For invoking the provisions of section 263 of the Act, the twin tests of the order being both ‘erroneous’ and ‘prejudicial to the interests of Revenue’ have to be satisfied. If we examine the issues raised by the CIT in the impugned order u/s 263 of the Act and the reasoning given therein, in our view, it is fairly clear that the above two tests are not satisfied in these cases. As regards the issues related to ‘Forex Loss due to Mark to Market Losses’ and ‘Prior Period Expenditure’ are concerned, the grievance of the CIT is that these are not disallowed while computing ‘Book Profits’ u/s 115JB of the Act. Since there is no provision u/s 115JB for addition of “Forex Losses” OR “Prior Period Expenditure”, such disallowances/additions are not tenable under the law and the CIT cannot issue directions to make additions/disallowances which are not allowed under the law. In our considered view, as the twin conditions of an erroneous order and prejudicial to the interest of Revenue are not satisfied on both disallowances in respect of “Forex Losses” and “Prior Period Expenditure”, therefore the impugned order of the CIT was wrong. ‘Non-deduction of tax at source on payments for purchase of software’, the fact that this issue has been taken up before the AAR and the application has been admitted is borne out by the details on record. As per the provisions of section 245RR of the Act, no Income Tax authority or Appellate Tribunal can proceed to decide any issue in respect of which an application has been made before the AAR u/s 245Q (1) of the Act. This applies to and includes, inter alia, both AO and the CIT. This being the case, in our considered view, the CIT’s action in directing the AO to decide the issue in a particular manner is not in accordance with law. As regards the issue of verification of “provision for doubtful debts and advances” and the quantum of bad debts written off, evidently, the details thereof are on record and reflected in the financial statements and computation of income. CIT has not made out a case to demonstrate that the AO has not conducted any enquiry and as the details were available on the face of the return of income, the conclusion can be that the AO has examined the issue and accepted the details filed by the assessee. It is settled legal principle that the assessee can write off its debts in any year of its choice, provided that the said amounts were offered to tax earlier and if such amounts or part thereof are recovered at a subsequent date, it shall be offered to tax in that year. We also observe that the AO in order u/s 143(3) r.w.s. 263 of the Act dated 19.12.2016, giving effect to the directions issued by the CIT in the impugned order for computing the book profits u/s 115JB of the Act, has examined the issue again and allowed the deductions claimed by the assessee. In that view of the matter, the twin conditions precedent; of the order being erroneous and prejudicial to interests of Revenue have not been satisfied. The issues on which the CIT has invoked the revisionary jurisdiction u/s 263 of the Act is untenable in the eyes of law as in our view no case has been made out that the order of assessment passed u/s 143(3) of the Act dated 26.03.2014 for Assessment Year 2010-11 is erroneous and prejudicial to the interest of Revenue on any of the issues raised by the CIT in the impugned order. In this view of the matter, we hold that the action of the CIT in invoking the provisions of section 263 of the Act to be untenable and therefore cancel the impugned order of the CIT passed u/s 263 of the Act on 30.03.2016 for Assessment Year 2010-11.- Decided in favour of assessee.
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