TMI Blog2021 (2) TMI 1025X X X X Extracts X X X X X X X X Extracts X X X X ..... larification which was properly submitted by the assessee in writing. Ld. CIT observes that the note submitted by the assessee is nothing but notes forming part of accounts. AO has merely accepted those explanation without applying his mind completed the assessment. It is fact on record that the issue under consideration is not a new issue came up afresh in this assessment year, we notice that similar issue was came up in the earlier assessment year and the coordinate bench has decided the issue on merit as well. In our considered view the learned CIT is not appreciated the fact that AO has applied one of the possible view in this case. DR submitted that the case of the assessee falls under explanation 2 in section 263 of the Act and further relied in the case of Crompton Greaves Ltd [ 2016 (2) TMI 169 - ITAT MUMBAI] - The issue under consideration is, whether the AO has passed the order without enquiries or verification which he should have made. In this case, the assessee has filed the financial statement alongwith the notes and also findings of ITAT in the earlier Assessment Year. AO seeks clarification on those issues. The assessee responds to the query and files cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 interest of the revenue and why section 263 proceedings cannot be invoked. 4. In response, assessee filed its submission vide letter dated 16.03.2016 and 18.03.2016. It was submitted that notice under section 142(1) dated 29.11.2013 enclosing a questionnaire was issued by the assessing officer and submissions were filed during assessment proceedings. The AO had examined the issue relating to the explanations submitted during assessment proceedings. It was submitted that AO had raised a specific query in respect of the company s claim for deduction of provision for depreciation on investment, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 dated 27.01.2014, and he observed that it is only extract of the notes to the accounts in the financial statements for the year under consideration. From the records and order sheet of the assessment records, he observed that no further query was raised by the AO on this issue and considering the quantum of loss in the case of assessee, he might have sought a note on the nature of loss but it is evident that AO has failed to examine the admissibility of such loss. With the above observation he observed that in no way can a perfunctory query and an equally terse response can be const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions 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 Starkly demonstrates that in framing the order, AO had proceeded in a mechanical manner without any application of mind. He observed that considering the facts and circumstances of the case warranted the AO to comprehend the nature of the transactions and consider the admissibility of the losses arising there from in accordance with the provisions of law and the instructions of the CBDT. He observed that the present case of the assessee clearly falls with clause (a) of explanation to section 263 of the Act. Based on the above discussion, Ld CIT set aside the assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 CIT in the 263 order and submitted that the Ld CIT observed that AO has not carried out any verification relating to the losses claimed by the assessee. In this regard he brought to our notice page 129 of the paper book as per which, assessee has filed note on the provisions for depreciation on investments and note on depreciation on investment, discount on issuance/valuation of debentures and losses on futures/options (page 1 of paper book). Further he brought to our notice page 4 and 5 of the paper book as per which assessee has explained t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decision of ITO vs D.G Housing Projects (343 ITR 329) to submit that Ld CIT has not dealt on merits of the issue to quantify the prejudice caused to the revenue instead of remitting it back to AO for fresh consideration. 18. Considered the rival submissions and material placed on record. We notice that Ld. CIT has invoked provisions of section 263 in this assessment year on the basis that AO has asked for certain clarification from the assessee and those information/clarification was already available on record or part of financial st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the Act. Therefore, in the present facts, we are prima-facie of the view that, the Assessing Officer has by necessary implication allowed the claim. Moreover, the basic document for completing the assessment under Section 143(3) of the Act is the computation of income. Therefore, to the extent the claims made for deduction in the computation of come, were disallowed by the Assessing Officer, discussion on the same is found in the assessment order. It is an accepted position that the assessment orders would necessari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 along with relevant notes to accounts. AO after verification of the return of income and notes to account, he sought certain clarification which was properly submitted by the assessee in writing. Ld. CIT observes that the note submitted by the assessee is nothing but notes forming part of accounts. AO has merely accepted those explanation without applying his mind completed the assessment. It is fact on record that the issue under consideration is not a new issue came up afresh in this assessment year, we n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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