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TMI Blog2021 (2) TMI 1025X X X X Extracts X X X X X X X X Extracts X X X X ..... schedule 14 as under: a). Rs. 8762.88 lakhs on account of revelation of non-convertible debentures. b). Rs. 630.71 lakhs on account of revaluation of futures and options net of premium received. 3. He observed that prima facie, it appeared that the AO had passed the order without making appropriate inquiries in respect of the above-mentioned items and further that the order passed was contrary to the instructions issued by the CBDT in this regard. As per the CBDT instruction No. 17 of 2008 dated 26.11.2008, a contingent liability cannot constitute a deductible expenditure for the purpose of Income Tax Act. Further, he observed that as per Instruction No. 3 of 2010 dated 23.03.2010, Marked To Market (MTM) losses are notional, contingent in nature and cannot be allowed to be set off against taxable income. He observed that it appeared the losses by the assessee were notional in nature as evidenced by the fact that the cash flow statement revealed that there were no receipts/payments in respect of these items. Accordingly, a notice dated 02.03.2016 was issued to the assessee to explain as to why the assessment order may not be considered as erroneous and prejudicial to the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ognizing only MTM losses. It was submitted that in the year under consideration, both gains and losses are to be recognized as per the accounting principles. 7. With regard to CBDT instruction is No. 3 of 2010, it was submitted that the same was in respect of loss on forex derivatives transactions and the applicability of section 43 (5) of the act, the reliance was placed on the decision of various Supreme Court's decisions to argue that in a Mercantile system of accounting liability is allowable once it has been incurred even though the actual disbursement may be at a later date. 8. With regard to loss on revelation of futures & options, it was submitted that these were held as stock in trade and therefore its valuation was done on MTM basis. The reliance was placed on the decision of special bench of Mumbai ITAT in the case of Bank of Bahrain and Kuwait (2010) (41 SO T2 90). 9. After considering the submissions of the assessee, Ld CIT observed that with regard to the enquiry made by AO on the issues mentioned in show cause notice, he observed that no such enquiry was made in the questioner dated 29th Nov. 2013. He observed that the assessee had submitted a note vide letter dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o of the decision of Delhi High Court in the case of DLF commercial developers Ltd (261 CTR 127) holding that losses arising out of transactions in futures and options are in the nature of speculation losses in terms of section 73 of the Act, should not be applied. In response, assessee submitted that it is a nonbanking financial company and provisions of section 73 is not applicable and with regards to CBDT instructions, it was submitted that Department instructions and circulars not binding on the assessee and on quasi-judicial authorities. 12. After considering the submissions of the assessee, Ld CIT observed that notwithstanding the allowability or otherwise of the losses booked on account of revaluation of nonconvertible debentures and of futures & options, it is an undisputed fact that the AO while completing the assessment has allowed losses to the extent of the losses claimed by the assessee without ascertaining the nature of transactions yielding such losses. He observed that merely raising a quarry and in response that too, accepting an explanation which was merely a reproduction of statement in the notes to financial statements, which was already available with the AO S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nducting necessary inquiries in the matter. The appellants pray that the marked to market loss on Non-Convertible Debentures should be allowed to be set off against the taxable income 3. The CIT erred in directing the AO to set aside the original assessment order on the issue of marked to market loss on Futures and Options holding that the loss appeared to be notional in nature and cannot be allowed to be set off against taxable income and pass afresh order after conducting necessary inquiries in the matter The appellants pray that the marked to market loss on Futures and Options should be allowed to be set off against the taxable income. 4. Without prejudice to the above, CIT erred in not appreciating that both the issues i.e. marked to market on Equity Linked Notes and Futures and Options involve timing difference and therefore are allowable in one year or the other. The appellants crave leave to add to, amend, alter, vary, omit or substitute the aforesaid grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised. 14. At the time of hearing, Ld AR. brought to our notice findings of Ld CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable retrospectively. For this proposition he relied on the decision of coordinate bench in the case of Crompton Greaves Ltd (ITA No. 1994/Mum/2013 & 2836/Mum/2014). He submitted that Ld. CIT direction is proper and in accordance with Explanation-2 inserted in section 263 of the Act. When the assessing officer does not verify the issue at the time of assessment proceedings, it clearly falls under explanation 2 (a). Further he submitted that LdCIT has lucidly brought out that enquiry should have been made are not made. He also submitted that Ld CIT has only remitted the issue back to the assessing officer for fresh consideration. As such there is no prejudice caused to the assessee. 17. In rejoinder, Ld. AR submitted that ITAT has clearly given finding that explanation-2 does not apply as the same is applicable effective from 01.06.2015. Therefore the above explanation-2 not apply to the current assessment year also. Further, he pleaded that the issue having been dealt as per the computation of income and relevant notes declared alongwith the financial statement and relevant case laws, it cannot be said that the AO has not applied his mind. He further relied on the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's inference that non examination of adherence to RBI guidelines by the Assessing Officer has resulted in a order which is erroneous in so far as it is prejudice to the interest of revenue is liable to be set aside. Moreover as we have already noted the Explanation (2) in section 263 has been added from 1.6.2015 and the same is not operative in the period under consideration. 14. We further note that on the issue of broken period interest and mark to market loss, learned Counsel of the assessee has submitted that the necessary details were given in the computation of income and on the touchstone of Hon'ble Bombay High Court decision in the case of State Bank of India (supra) it cannot be said that the Assessing Officer has not applied his mind on this issue. He submits that the assessee has duly submitted case laws in favour of the assessee on these cases, which the Assessing Officer has duly accepted. In this regard we note that Hon'ble Bombay High Court in the case of State Bank of India (supra) has expounded as under :- "Moreover, the Assessment order in regular assessment proceedings in terms disallowed some of the claims made for deduction under Section 143(3) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required necessary before the order under section 263 is passed. In such cases, the order of the AO will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. Ld. CIT cannot remit the matter to the assessing officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but Lack of enquiry, again the Ld. CIT must give and record the finding that the order/enquiry made is erroneous. In the above decision, it was also observed by the Hon'ble Court that the income tax officer in this case had made enquiries in regard to the nature of expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. Evidently, the claim was allowed by AO on being satisfied with the explanation of the assessee. Such decision of the AO cannot be held to be erroneous simply because in his order he did not make an allowable discussion in that regard. In the given case of the assessee, we notice that assessee has filed the financial statement alon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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