TMI Blog2022 (10) TMI 758X X X X Extracts X X X X X X X X Extracts X X X X ..... sfied with the explanation offered by the assessee and accordingly, no disallowance / addition was made in the assessment. This categorically goes to prove that thorough enquiry has been made by the ld. AO in respect of aforesaid two issues. Hence, the decision of this Tribunal in assessee s own case for A.Y.2010-11 referred to supra would be squarely applicable to the year under consideration also. Respectfully following the same, the revision order passed u/s.263 of the Act by the ld. PCIT is hereby quashed. Appeal of the assessee is allowed. - ITA No. 3169/Mum/2017 - - - Dated:- 30-9-2022 - SHRI AMIT SHUKLA , JUDICIAL MEMBER And SHRI M. BALAGANESH , ACCOUNTANT MEMBER Assessee by : Shri P. J. Pardiwala Niraj Sheth Revenue by : Shri T Shankar ORDER PER M. BALAGANESH ( A. M ) This appeal in ITA No.3169/Mum/2017 for A.Y.2011-12 preferred by the order against the revision order of the ld. Principal Commissioner of Income Tax-12, Mumbai u/s.263 of the Act dated 30/03/2017 for the A.Y.2011-12. 2. The only issue to be decided in this appeal is as to whether the ld. PCIT was justified in invoking revision jurisdiction u/s.263 of the Act in the facts and cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompleted at income of ₹ 58,57,13,080/ after making an addition on account of provision for depreciation. Ld CIT examined the assessment records and he observed that in the profit and loss account for the year under consideration, the assessee had booked losses under the head other income in schedule 14 as under: a). ₹ 8762.88 lakhs on account of revelation of non-convertible debentures. b). ₹ 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y liability with respect to the MTM loss, if any, is recognized in the profit and loss account, thereby claimed as deduction. It was submitted that in the next financial year, this MTM adjustments are reversed and at the end of the year, these are revalued once again. It was explained that the assessee in earlier years was recognizing 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 K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith regard to losses in respect of future option is concerned, assessee had filed the details wide letter dated 24.01.2014 and it had only furnished the extract of the notes to the financial statements, which was already available with the AO. He further observed that in the present proceedings, the assessee was required to explain why the ratio 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the order of the CIT passed under section 263 of the Act be quashed. 2. The CIT erred in directing the AO to set aside the original assessment order on the issue of marked to market loss on Non-Convertible Debentures 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 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 involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand, Ld DR brought to our notice Pages 86 and 89 of paper book and submitted that the ITAT has clearly observed that the explanation 2 in section 263 was effective from 01.06.2015 and the same is not operative for the assessment year 2008-09. Accordingly, he referred to the explanation 2 (a) of section 263 of the Act and submitted that it is clarificatery in nature and the amendment is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note that there is no presumption that non-following of RBI guidelines in an assessment will result in an order which Deutsche Investments India Private Limited is prejudicial to the interest of revenue. The RBI guidelines and the prudential norms are not designed to pluck revenue leakage from income tax point of view. These are mandate to ensure that the assessee follows proper Banking norms. Hence, learned CIT 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 subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the issues were given in note in the computation of income and case laws were referred, it cannot be said that Assessing Officer has not examined the issues and applied his mind. 19. Considering the above findings of the coordinate bench, in our considered view relying on the decision of Hon ble Delhi High Court in the case of D.G Housing projects (supra) that in cases of wrong opinion or finding on merits, the Ld. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the grounds raised by the assessee are allowed. 21. In the net result, the appeal filed by the assessee stands allowed. 3.2. In the instant case i.e. for the A.Y.2011-12, the ld. AO had indeed made specific enquiry during the course of assessment proceedings with regard to the aforesaid items and assessee vide reply letter dated 05/03/2015 had specifically pointed out the manner in which the said provision has been made and how it is allowable deduction for the assessee and also in view of the reliance placed on Special Bench of the Tribunal decision in the case of DCIT vs. Bank of Behrain and Kuwait reported in 41 SOT 290 and also the decision of the Hon ble Supreme Court in the case of Woodward Governor India Pvt. Ltd., reported in 312 ITR 254. The fact is that the reply letter dated 05/03/2015 has been filed before the ld. AO is acknowledged by the ld. AO himself in his assessment order. Further yet another reply was filed by the assessee vide letter dated 24/03/2015 furnishing the entire series wise details of mark to market losses of Equity Linked Notes (ELN). The ld. AO on examining these two replies was thoroughly satisfied with the explanation offered by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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