9911796707
Advanced Search 
TMI Blog2021 (5) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... difference mentioned by him in para 5 of the order has already been taken care by the Assessing Officer in earlier proceedings u/s 143(3), and therefore, it is amount to change of opinion, and therefore, this order is liable to be quashed on this ground. 3.The learned Pr. CIT has also erred in not appreciating the fact that the assessee has duly discharged the onus at the time of regular assessment by providing various details in support of export rate difference loss of Rs. 7,31,67,312 as well as profit from speculation business of Rs. 1,31,80,948/-, and therefore, the issue has already been accepted by application of mind, and therefore, there is no question of order termed as 'erroneous', and therefore, prejudicial to the interest of revenue. 4.Even on merits, the Pr. CIT ought not to have held erroneous order as per the objections raised before him in a submission dated 19.02.2018 along with the enclosures mentioned therein, and therefore, he ought not to have given direction to the Assessing Officer to reframe the assessment on merits, and therefore, the present order passed by him is erroneous and liable to be quashed. 5.The learned Pr. CIT has also erred in no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year 2012-13 that there was near steady increase in value of US dollar against Indian rupee during that period. (Exchange rate was Rs. 50.56 as on 03.04.2012 and Rs. 54.38 as on 28.03.2013). Barring few brief periods, value of US dollar against Indian rupee has always increased. As export proceeds are always realized after booking of export sales, there is no possibility that the assessee had lost nearly 5.21 percent of its export earning as foreign exchange loss on export. This clearly indicated that the assessee had shown profit on forward currency dealing as earning from profit as speculative business whereas loss on such business has been dovetailed on account of exchange rate difference on export treated as business loss. Thus, there was net speculation loss of Rs. 5,99,86,364 ( Rs. 7,31,67,312 - Rs. 1,31,80,948) which should not be adjusted against business income of assessee u/s 73(1) of the Act. 5. After considering the above facts, the ld PCIT has issued a show cause notice to the assessee on 07.02.2018. In response to the said show cause notice, the assessee submitted written submissions before the ld PCIT, which are reproduced as under:- "2. During the course of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce loss of Rs. 7,31,67,312/- as reduced from export incentives and details of these were also placed on record during the course of earlier assessment proceedings and thereafter, after application of mind, order u/s 143(3) has been passed. 5. In para 2 of your notice dated 07.02.2018, you have said that there was fluctuation of exchange rate on 03.04.2012 and 28.03.2013. However, in this connection, we say that during F.Y.2012-13, there was admittedly high fluctuation in dollar rate compared to Indian rupee. However, there is no evidence that the assessee has artificially taken price or has manipulated the losses in reference to foreign exchange fluctuation rate difference. The proof of rate difference of Rs. 7,31,67,312/- is also placed on record as per Page No.02 to 28 along with evidences as per Page No. 29 to 78 and reason for loss is as per Annexure-A and Page No.0l. The details of export proceeds realized has already been enclosed earlier. However, the details are again placed on record in reference to export sales of Rs. 139,36,83,214/- and grey cloth export sales of Rs. 1,09,97,566/- making total of Rs. 140,48,80,780/-. Therefore, there is no reason to suspect that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the year ended on 31/03/2013 enclosed herewith at Pg. No. 110. There is revenue from operations of Rs. 1,67,71,03,771/- which is as per Note No. 17 thereto. The copy of Note No.17 is as per Pg. No. 109 wherein there is loss on account of exchange rate difference worth of Rs. 7,31,67,312/- in F.Y. 2012-13 as against in F.Y. 2011-12 there was profit of similar nature of Rs. 4,11,55,915/- which has been taxed as business income/ operating revenue as export incentives. The order for A.Y. 2012-13 was also passed dated 30/03/2015 by DEPUTY CIT CIRCLE 2(1)(2) SURAT namely JYOTI SHAH vide DC No. 96/21/2014-45. Even in F.Y. 2010- 11 there was similar profit of Export exchange rate difference of Rs. 20,91,435/-. [ii] The copy of Bank advice as well as shipping bills in support of foreign exchange rate difference were also filed before Assessing officer. However its very voluminous in a box files and therefore sample copy of the same is enclosed herewith with tabularized chart at Pg. No. 01 to 78 Pg. No. 01 is in reference to tabularized chart on sample invoice. This sample chart place on record to prove that there was devaluation in Rupee at the time of export in compare to payment rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not an erroneous as held in 109 ITR 229 Calcutta Russel Properties. (iv)In our case identical claim has been accepted in reference to foreign exchange rate difference an export and that decisions has become final for Assessment Year 2011-12 and Assessment year 2012-13 and therefore the order for Assessment year 2013-14 cannot be termed as erroneous as held in Escorts Ltd.198 Taxmann 324 (Delhi). (v) The Amount of Rs. 5.99 crores has got direct nexus with the export turnover/ export realisation/ export sales. In reference to section 80HHC claim, our Supreme Court and Gujarat High Court taken constant view that the foreign exchange fluctuation profit is a income derived from export business and therefore the claim u/s 80HHC has to be allowed." 6. The ld PCIT has gone through the above written submissions of the assessee and observed that on Page 8 of written submission which pertained to Annexure-A, which is related to bills issued and payment received during F.Y.2011-12. The ld PCIT noticed that said detail does not help the assessee, as details of Financial Year 2011-12 were furnished, which are not relevant for Financial Year 2012-13 under consideration. 7. The assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , of another speculation business. 8. The ld PCIT also noted that in assessee`s case, clause (a) and (b) of the Explanation 2 of Section 263 of the Income Tax Act, 1961 is clearly applicable since nowhere in the assessment record, there is evidence that no query/question regarding speculation loss has been asked by the Assessing Officer from the assessee company during the entire course of assessment proceedings. In view of above facts and observations, the ld PCIT held that Assessing Officer has passed the assessment order without making inquiries or verification, which ought to have been made in this case, therefore assessment order for Assessment Year 2013-14 passed under section 143(3) of the Income Tax Act, 1961, on 31.3.2016 by the Assessing Officer is erroneous in so far it is prejudicial to the interest of revenue, therefore, ld PCIT set-aside the assessment order under section 143(3) of the Income tax Act dated 31.3.2016 for A.Y. 2013-14, with the direction to the assessing officer, to frame the assessment de novo. 9. Aggrieved by the order of ld PCIT under section 263 of the Act, the assessee is in appeal before us. 10. Shri Rasesh Shah, Learned Counsel for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss was computed at the time of remittance or date of export whichever is later by deducting actual remittance from the export value. As a matter of consistency the assessee has accounted the export value in his books of accounts as per the custom exchange rate not as per RBI rate as it is normal practice in case of all exporters. This is because the custom department notifies the exchange rate monthly while RBI rates fluctuate daily. It is always practical to record sales value as per custom rate. Even if the rates as per RBI data are taken which are higher that rate as per customs authority, it is revenue neutral as on one hand sales would increase and on other hand exchange loss would increase. The remittance was accounted in book of accounts as per the bank advice based on RBI rate prevailing at the time of remittance or fix rate as per forward exchange contract that was utilized. The remittance is reflected in the bank statement filed before Assessing Officer. The assessee`s accountant used wrong nomenclature as "speculation profit or loss", in fact, the assessee company has not done any speculation activity, all exchange gain or loss are related to assessee`s business only. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is evidence that no query /question regarding speculation loss has been asked by the A.O. from the assessee company during the entire course of assessment proceedings. 7. In view of the above fads and observations, it is clear that the AO has passed the assessment order without making inquiries or verification, which ought to been made in this case." Before the Hon'ble Bench, the Ld. AR of the assessee was not able to demonstrate from records that the Ld. AO has made inquiries regarding the impugned loss. ............................................................................................. ............................................................................................. 6. Conclusion: The provisions of Section 263 of the Act lays down that if the Pr.CIT or CIT considers that an order passed by the Authority under the Act is erroneous and prejudicial to the interest of the Revenue, he can exercise jurisdiction under Section 263 of the Act. Within the terms of Explanation 2, the order shall be deemed to be erroneous "if in opinion of Pr.CIT or CIT the order falls under clauses (a) to (d). So, all that is required is for the Pr.CIT or C1T to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer's order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer's order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. "prejudicial to the interest of the revenue'' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices for remittance of export proceeds, relate to financial year 2012-13, which is placed at paper book page nos.91to 96. Sample copy of invoices, bills issued, foreign bill transaction advice from bank, exchange control copy from Indian Customs Department in support of exchange rate fluctuation alongwith form SDF under Foreign Exchange Management Act submitted by the assessee before the assessing officer are placed in assessee`s paper book page nos.40 to 162, these all documents relate financial year 2012-13. Therefore, observation of ld PCIT that these bills and other documents relate to financial year 2011-12, is factually not correct. We noted that all bills and other documents relate to financial year 2012-13, relevant to assessment year 2013-14 under consideration, which were submitted by the assessee before the assessing officer. Therefore, assessment order under section 143(3) of the Income tax Act dated 31.3.2016 framed by the assessing officer should not be erroneous on this count. 15. The issue relating to "Exchange rate of Indian rupee Vs. dollar in Financial Year 2012-13", that is, ld PCIT noticed that as per RBI data average rate of US dollar was Rs. 54.40 and year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessment year 2013-14 (vide paper book page 80 to 89). (12)Ledger account of ITI Financial Services for the assessment year 2013- 14(vide paper book page 90) (13)Account Confirmation from ITA Financial Services for assessment year 2013-14 (vide paper book page 91 to 92). (14) Statement from Kunvarji Finstock Pvt. Ltd for assessment year 2013-14 (vide paper book page 93 to108) 16. Learned Counsel submits before the Bench that assessee had furnished these plethora documents and evidences, as noted above, during the assessment stage before the assessing officer. The assessing officer had examined these documents and evidences and took a possible view on the issue relating to "Exchange rate of Indian rupee Vs. dollar. Therefore, the issue relating to foreign exchange rate, foreign exchange loss and foreign exchange gain has been examined by the assessing officer during the assessment stage. The ld Counsel also submits that all foreign exchange gain or loss are related to business activities, just because the assessee has used, by mistake, the nomenclature 'speculation profit/loss' in books of account does not mean that business related profit/loss becomes speculation. Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading of the above provisions makes it very clear that the power of suo motu revision u/s 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision u/s 263, namely (i) the order is erroneous (ii) by virtue of being erroneous prejudice has been caused to the interests of the Revenue. 15. Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. (supra) has held that CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to s. 263(1). It was further held that the provision cannot be invoked to correct each and every type of mistake or error committed by the AO; 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 wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss and in response to which the Assessee has submitted its reply. For ready reference, the reply submitted by the Assessee vide its letter dated 14th October 2009 (which is placed at page 7 of the paper book) reads as under: "15. We are enclosing herewith, details of Deficit on account of fluctuations in foreign exchange rates on loans of Rs. 565.95 Lacs, marked as Annexure No. 9. Since the said deficit/ loss is pertained to the loan/borrowings of the company it has been charged to the Profit and Loss account as per the Accounting Standard 11 prescribed by the Institute of Chartered Accountants of India, consistently followed by the Assessee Company from year to year." Copy of the Annexure 9 referred to in the above reply and which 9 of the paper book is as under: "Details of Exchange rate fluctuation gain/loss on loans: Name of the Party ERF Loss Rs. ERF Gain Rs Loan Taken: BNP Paribas -ECB Loan 3,284,061 27,022,840 EXIM Bank -Foreign Loan 1,189,071 2,187,520 BOB-ECB & FCNR Loan 26,701,748 SBI-FCNR Loan 17,170,000 ICICI-ECB 13,100,000 Loan Given: Zydus International Pvt. Ltd., Ireland &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book) reads as under: "3. Rs. 4,73,19,405 have been claimed as exempt in the statement of Total Income under the head "remuneration from partnership firm since disallowed u/s 40(b) in firm's income". Please give details and evidence of the same with working and a note as to how the same is exempt in the hands of the Company" In response to which Assessee vide reply dated 13.10.2011 submitted (which is placed at page 9 of the paper book) reads as under: "3. Reply to point no 3 of your letter dated 19.9.2011: The assessee company has claimed the amount of remuneration from partnership firm as not chargable to tax since the same has been added to the total income as disallowance u/s 40(b) in the firm's case as envisaged under the proviso to s. 28(v) of the Act. In this regard, we are enclosing herewith copies of the addendum to the partnership deed and the memorandum of understanding between the partners firxing the remuneration marked as Annexure No 8 and 9 respectively." Thereafter vide notice dated 24.10.2011 (copy placed at page 17 of the paper-book) further query was raised by the AO which reads as under: '2. With regard to Rs. 4,73,19,405 claimed as exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Zydus Healthcare Sikkim, in view of the provisions of Sec. 28(v) of the Income-tax Act. 2. It is a matter of record that the said remuneration of Rs. 4.73 crores was disallowed u/s. 40(b) while computing the Total Income of the aforesaid partnership firm. As per Sec. 40(b), "the following amount shall not be deducted in computing the income chargeable under the head profits and gains of business and profession: - in the case of any firm assessable as such, any payment of salary, bonus, commission or remuneration, by whatever name called to any partner who is not a working partner." 3. Since as per Explanation 4 to Sec. 40(b), "working partner" means only an individual who is actively engaged in conducting the affairs of the business or profession of the firm, remuneration paid to the assessee company is not allowed to be deducted under the provisions of Sec.40(b). In view of the above, while computing the total income of the partnership firm, remuneration of Rs. 4.73 crores paid by the firm to the company was duly disallowed under Sec. 40(b). 4. Section 28(v) provides that "any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid to a partner is disallowed in the hands of the firm or the amount is varied in subsequent proceedings, the partner's assessment can be rectified [section 155(1A)]. 48.3 The gross total income of the firm is to be determined in the normal way under different heads as in the case of any taxable entity. The gross total income so computed is reduced by salary, bonus, commission, or any remuneration payable or paid to a partner [section 40(b)]. Remuneration due to or received by a partner is not to be assessed as income under the head "Salaries" (Explanation 2 to section 15). Any salary, interest, bonus, commission or remuneration due to or received by a partner in view of clause (v) to section 28 shall be chargeable to income-tax under the head "Profits and gains of business or profession". 48.4 The payment of remuneration only to a working partner is allowable [defined in Explanation 4 to section 40(b)]. Only individuals are capable of being working partners. 6. As logically explained in the aforesaid CBDT Circular, the purpose of the Proviso to Section 28(v) (erroneously referred to as Explanation to Sec. 10(2A) under the Circular), is "to make it clear that the rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the words "which the Assessing Officer disallows" as inserted in your observation are in no manner justified. The intention of the proviso to Sec.28(v) is meant to avoid double taxation of any disallowance under Sec.40(b), whether made by the assessee suo-motu or by the Assessing Officer. The legislative intention in this context is clearly reflected in the CBDT Circular No. 636 extracted hereinabove. 10. We also wish to point out that your observation to the effect that, "the intention of the proviso is not to facilitate the assessee to suo-motu disallow full amount to get undue benefit of excess deduction and deprive the revenue of due tax," is wholly misplaced, unjustified and uncalled for on the facts of our case. As pointed out hereinabove, neither the partnership firm of Zydus Healthcare, Sikkim, nor the partner Cadila Healthcare Ltd. has derived any undue benefit as alleged in the notice. In fact, it needs to be noted that the assessee company viz. Cadila Healthcare Ltd., who is required to pay income-tax under the provisions of MAT u/s. Sec.115JB, has duly discharged its tax obligation by paying MAT on the aforesaid amount of remuneration of Rs. 4.73 crores. The comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect to the issue under consideration and the same were also replied by the assessee and on receipt of the replies accepted the claim of the assessee. We further find that Hon'ble Apex Court in the case of CIT v. Max India Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188 (SC) has held that where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of Revenue, unless the view taken by the ITO is unsustainable in law. It is a generally noticed that during the course of assessment proceedings, the AO examines numerous issues and generally, the issues which are accepted do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions/disallowances are made. In such a situation, we are of the view that provisions of s. 263 cannot be resorted to and for which we draw support by the decision of Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra). We also draw support from the decision of Hon'ble Delhi High Court in the case of CIT v. Honda Siel Power Products Ltd. [2011] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the query and assessee has replied with documentary evidences therefore it is not a case where inquiry was not made by the assessing officer. Besides, clause (a) and (b) of the Explanation 2 of Section 263 of the Income Tax Act, 1961 has been inserted by the Finance Act 2015, with effect from 01.06.2015 which is prospective in nature and therefore does not apply to the assessee under consideration, as the assessment year involved in the assessee`s case is assessment year 2013-14. 20. We note that in assessee`s case, we find that Ld. Pr. CIT invoked jurisdiction u/s 263 of the Act principally on the broad allegation that there was failure to conduct enquiries which the facts of the case required the AO to make. According to Ld. Pr. CIT assessment order suffered from lack of enquiry and application of mind to the facts as also by incorrect application of applicable legal provisions to the facts of the case. As a result, in the opinion of Ld. Pr. CIT, AO's order was erroneous and therefore liable for revision u/s 263 of the Act. In the circumstances therefore before adjudicating this issue arising from the impugned order, we have to first examine the scope of revisional jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew with which the Ld. CIT does not agree, it cannot be treated as an order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law. In the circumstances it was necessary for the Ld. Pr. CIT to show in the impugned order that the AO's order was erroneous because the view followed by him in respect of each of the reason, mentioned above, was unsustainable in law and therefore the order was liable for revision u/s 263 of the Act. 21. We note that ld PCIT has exercised his jurisdiction under section 263 of the Act because the assessing officer did not make proper inquiry in respect of the following issues: (i). Assessee submitted details of bills issued and payment received for Financial Year 2011-12, instead of Financial Year 2012-13 under consideration. (ii).Assessing officer did not make proper inquiry for "Exchange rate of Indian rupee Vs. dollar in Financial Year 2012-13". (iii). In assessee`s case, clause (a) and (b) of the Explanation 2 of Section 263 of the Income Tax Act, 1961 is applicable. We note that Ld. Pr. CIT observed that in respect of issues set out in (i) and (ii) above, proper enquiry was not conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that basis. When the Assessing Officer was satisfied that the return, filed by the assessee, was in accordance with law, he was under no obligation to justify as to why was he satisfied. On the top of that the Assessing Officer by his order dated 28th March, 2008 did not adversely affect any right of the assessee nor was any civil right of the assessee prejudiced. He was as such under no obligation in law to give reasons. 89. The fact, that all requisite papers were summoned and thereafter the matter was heard from time to time coupled with the fact that the view taken by him is not shown by the revenue to be erroneous and was also considered both by the Tribunal as also by us to be a possible view, strengthens the presumption under Clause (e) of Section 114 of the Evidence Act. A prima facie evidence, on the basis of the aforesaid presumption, is thus converted into a conclusive proof of the fact the order was passed by the assessing officer after due application of mind. 90. The judgments cited by Mr. Nizamuddin do not really support his contention. The judgment in the case of Meerut Roller Flour Mills (P.) Ltd. (supra) does not apply because the High court in that case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de applicable to the proceedings before an Assessing Officer. 97. Mr. Nizamuddin contended the judgments cited by Mr. Poddar indicate that the Assessing Officer is not required to write an elaborate judgment. He contended that the assessing officer may not have any such obligation but it cannot be said, according to him, that the Assessing Officer is under no obligation to record anything in his assessment order. It is not in the first place a fact that he has not recorded anything. From the assessment order, the following facts and circumstances appear:-- "Return was filed on 29/11/06 showing total income of Rs. 3,80,66,940/-. In response to notices u/s. 143(2) and 142(1) of the I. T. Act, 1961, Sri P. R. Kothari, A/r appeared from time to time and explained the return. Necessary details and particulars were filed. The business of the assessee is manufacturing and trading of cosmetics and dental care products as in earlier years. In view of above total income is computed is under:" 98. Unless the aforesaid recital is factually incorrect or the computation is legally wrong, it is not possible to hold that the assessment order was passed without application of mind. On the top ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f suomotu revision can be exercised by the Commissioner only if, on examina-tion of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is 'erroneous insofar as it is prejudicial to the interests of the revenue'. It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous insofar as it is prejudicial to the interests of the revenue must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated bey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard . . ." (pp. 113-117) 13. When we examine the matter in the light of the aforesaid principle, we find that the Assessing Officer had called for explanation on this very items, from the assessee and the assessee had furnished his explanation vide letter dated 26-9-2002. This fact is even taken note of by the Commissioner himself in Para 3 of his order dated 3-11-2004. This order also reproduces the reply of the respondent in Para 3 of the order in the following manner : "The tools and dies have a very short life and can produce up to maximum 1 lakh permissible shorts and have to be replaced thereafter to retain the accuracy. Most of the parts manufactured are for the automobile industries which have to work on complete accuracy at high speed for a longer period. Since it is an ongoing procedure, a company had produced 10,75,000 sets whose selling rates is inclusive of the reimbursement of the dies cost. The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. [Explanation 1.]-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed [on or before or after the 1st day of June, 1988] by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner] or the Income-tax Officer on the basis of the directions issued by the [Joint] Commissioner under section 144A; (ii) an order made by the [Joint] Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er this section is stayed by an order or injunction of any court shall be excluded." 25. From bare reading of Section 263 of the Act and the Explanation thereto introduced through the Finance Act, 2015, w.e.f. 01.06.2015, we note that Explanation -2, is a deeming provision. The well settled position of law is that while construing a deeming provision, it has to be strictly interpreted and that the legal fiction should not be stretched beyond the purpose for which it is enacted and should not extend that legitimate field (Raymond Vs. State of Chattisgarh AIR 20-07 SC 2854). It should be kept in mind that deeming provision should be in respect of facts, from which legal consequences will follow. However, the legal consequence cannot be deemed [DCM Vs. State of Rajasthan (1996) 2 SCC 449. AIR 1996 SC 2930 (3 judges of Hon'ble Supreme Court) and same view reiterated in State of Karnataka Vs. State of Tamil Nadu (2017) 3 SCC 362. So when we look at Explanation-2, we note that deeming fiction of law that the order of the Assessing Officer is deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue only if in the opinion of the ld. CIT, which necessarily has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It cannot be an arbitrary opinion bereft of facts or law. The aforesaid clause only provides for situation where inquiries or verifications should be made by reasonable and prudent officer in the context of the case. Such clause cannot be read to authorize or give unfettered powers to the Commissioner to revise each and every assessment order. The applicability of the clause is thus essentially contextual. It has to be the opinion of a prudent person properly instructed in law. The Hon'ble Supreme Court in Maneka Gandhi Vs. Union of India reported in 1978 AIR (SC) 597 has laid down the law that a public authority should discharge his duties in a fair, just and reasonable, manner and the principle of due process of law was recognized by the Hon'ble Supreme Court. Therefore, the opinion of the Ld. CIT has to be in consonance with that of the well settled judicial principles and cannot be arbitrarily made discarding the judicial precedent on the subject. The opinion of the Ld. Pr. CIT has to be reasonable and that of a prudent person instructed in law and which founded on the correct facts borne out from records. The CIT's opinion should be based on objective consideration of materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not in accordance with the mandate of the provisions of sec. 263 of the Act. The Ld Pr. CIT has taken support of the newly inserted Explanation 2(a) to sec. 263 of the Act. Even though there is a doubt as to whether the said explanation, which was inserted by Finance Act 2015 w.e.f. 1.4.2015, would be applicable to the year under consideration, yet we are of the view that the said Explanation cannot be said to have over ridden the law interpreted by Hon'ble Delhi High Court, referred above. If that be the case, then the Ld Pr. CIT can find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. He can also force the AO to conduct the enquiries in the manner preferred by Ld Pr. CIT, thus prejudicing the independent application of mind of the AO. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to sec. 263 of the Act, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. The Hon'ble Supreme Court has held in the case of Parashuram Pottery Work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks of accounts. We note that for working of foreign exchange gain or losses, the Ld. Pr. CIT set out specific reasons for which he had considered the AO's order to be erroneous in so far as prejudicial to the interests of the Revenue. We note that in response, the assessee had submitted before the Ld. Pr. CIT detailed explanations supported by tangible documentary evidence to prove that ld PCIT had proceeded on assumption of some incorrect facts and wrong interpretation of applicable legal provisions. The assessee also explained with cogent material that before completion of assessment, the AO had indeed made enquiries with reference to specific issues raised by the ld PCIT. According to Ld. Counsel, on receipt of the objections from the assessee, the Ld. Pr. CIT ought to have examined the assessment records and conducted his own enquiry and thereafter should have recorded his own finding proving that the explanations furnished by the assessee suffered from any factual or legal infirmity and because of which he found that the view adopted by the AO was unsustainable in law making his order as erroneous within the meaning of Section 263 of the Act. In our opinion, once the ld. PCI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not." 30. Conclusion: We note that in the course of assessment proceedings, the advocate of the assessee attended the hearing from time to time as per the following order sheet entries: Date Particulars 26.06.2015 Shri Ketan Shah Adv. Attended. Details submitted. Kept on record. 30.11.2015 Ketan Shah attended & filed submission. Case discussed. 22.01.2016 Shri Ketan Shah attended. Kept the details submitted. Case was discussed. 23.03.2016 Shri Ketan Shah attended & filed submission. Case was discussed. In response to notices u/s 143(2) and 142(1), assessee's advocate Shri Ketan Shah attended on 26.06.2015 and filed required details which were kept on record. The assessee also submitted a lot of documents and evidences in response to query asked by the assessing officer verbally, in respect of exchange rate difference, which are noted by us in para no. 15 of this orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as an erroneous order prejudicial to the interest of Revenue, unless the view taken by the ITO is unsustainable in law. We also draw support from the decision of Hon'ble Delhi High Court in the case of CIT v. Honda Siel Power Products Ltd. [2011] 333 ITR 547 [2010] 194 Taxman 175 where it has been held that when a regular assessment is made u/s 143(3) a presumption can be raised that the order has been passed upon on application of mind. Before us, Revenue has not brought any material on record to demonstrate that the view taken by the AO was an impermissible view and was contrary to law or was upon erroneous application of legal principles necessitating the exercising of Revisionary powers u/s 263 of the Act. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. In the instant case, the Ld Pr. CIT has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Ld Pr. CIT is not in accordance with th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
