TMI Blog2019 (2) TMI 696X X X X Extracts X X X X X X X X Extracts X X X X ..... cial 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee s income under the normal provisions was determined at ₹ 10,51,78,619/- in view of the following additions/disallowances: (i) Disallowance of Hedging Loss - ₹ 2,25,31,520/- (ii) Disallowance of depreciation on servers - ₹ 2,93,063/- (iii) Disallowance u/s 40(a)(ia) (a) Non deduction of Tax at Source on Legal and Professional Fees - ₹ 70,73,657/- (b) Non deduction of Tax at Source on software - ₹ 1,94,642/- 2.2 Book profits u/s 115JB of the Act were declared at ₹ 110,73,45,364/- and accepted as returned by the Assessing Officer ( AO ); without making additions/disallowances therein, as carried out under the normal provisions. 3.1 Subsequently, the PCIT-3, Bangalore, initiated proceedings u/s 263 of the Act as he was of the view that the order of assessment dated 26.03.2014 for Assessment Year 2010-11 is erroneous and prejudicial to the interests of Revenue on the following issues: (a) The assessee s claim of notional Forex loss recognized in respect of outstanding contract pertaining to import/export of goods by applying the year end exchange rate has been allowed while computing the profit u/s 115JB of the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of revenue. 2. The learned Pr. CIT has erred in invoking provisions under section 263 of the Act merely because there is another view possible as against the view adopted by the learned AO. 3. The learned Pr. CIT has erred in invoking provisions under section 263 of the Act without appreciating that Hon'ble Supreme Court/ Hon'ble Bangalore Income Tax Appellate Tribunal [ ITAT ] has already ruled in favour of Assessee on similar issues covered under the order of the learned Pr. CIT. II. Without prejudice to the above A. Addition of Mark to Market loss [ MTM loss ] to book profits 1. The learned Pr. CIT has erred in directing the learned AO to add MTM loss in computation of book profits on the contention that the same is not an ascertained liability. 2. The learned Pr. CIT has erred in not appreciating that the Appellant has followed Accounting Standard 11 [ AS -11 ] [The Effect of Changes in foreign exchange rates] in computing MTM loss and hence the same cannot be said to be in the nature of other than ascertained liability. 3. The learned Pr. CIT has erred in relying on instruction no. 03/2010 dated 23 March 2010 issued by Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporations, USA for outright purchase of software. 2. The learned Pr. CIT has erred in concluding that the said payment falls within the meaning of royalty as per section 9 of the Act and India - USA double taxation avoidance agreement 3. The learned Pr. CIT failed to appreciate that the taxability of the aforesaid transaction is already pending before the Authority of Advance Ruling, the outcome of which is binding on the Revenue Authorities. 4. Notwithstanding the above, the learned CIT has failed to appreciate that depreciation being a statutory allowance cannot be disallowed under section 40(a)(i) of the Act. 5. Before us, the learned AR for the assessee was heard in support of the grounds raised. The learned AR assailed the jurisdiction of the CIT in invoking the provisions of section 263 of the Act and also the additions/disallowances directed to be made by the CIT. It was submitted that revision u/s 263 of the Act is permitted only if the order passed by the AO is erroneous and prejudicial to the interests of Revenue as section 263 of the Act postulates the satisfaction of twin conditions/requirements; namely (i) the order of the AO sought to be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s examined this issue and made disallowance under this head under normal provisions. The learned AR argued that even though there are several judicial pronouncements wherein it has been held that provisions made towards Forex losses due to unrealized Mark to Market losses on outstanding forward contracts is an allowable expenditure, copies of which are submitted in the index of case law book, the limited issue in this appeal is whether such a disallowance can be made u/s 115 JB of the Act. 5.4.2 On being specifically asked at the Bar, the learned AR of the assessee confirmed that the addition on this issue made under normal provisions has been carried in appeal by the assessee and is pending before the Tribunal. 5.4.3. According to the learned AR, section 115 JB of the Act provides for specified items of additions and deductions for the purpose of computing book profits . Section 115 JB of the Act is a complete code by itself and no adjustments, other than those prescribed therein, can be made to the book profits. It is contended that there is no provision u/s 115 JB of the Act for making addition of Forex losses as referred to above and therefore it cannot be added back to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R lack of enquiry and therefore the action of the CIT was erroneous. 5.5.2 On being specifically queried by the Bench, the learned AR submitted that pursuant to the order u/s 263 of the Act, the AO has allowed the same after due verification and submitted that there was neither any error in the order of assessment nor was there any prejudice to the interest of Revenue. 5.6 Prior Period Expenditure 5.6.1 The learned AR of the assessee submitted that the revision u/s 263 of the Act on this issue has been resorted to only because disallowance under this head was not made under MAT provisions, while computing the book profits u/s 115 JB of the Act. It was pointed out that the assessee itself has disallowed the expenditure while computing income under normal provisions and therefore the limited issue for consideration is whether such a disallowance can be done u/s 115JB of the Act. 5.6.2 It was submitted by the learned AR that section 115 JB of the Act provides for specified items of additions and deductions for the purpose of computing book profits u/s 115 JB of the Act and is a complete code by itself. No adjustments other than those which are prescribed in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir Lordships, at para 9 thereof, have held/observed as under: 9. The phrase prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. 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 ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO 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 ITO 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. Rampyari Devei Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). Therefore, for invoking the provisions of section 263 of the Act, the twin tests of the order bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 5.12.1 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. The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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